EFX Stock Study (2-17-23)

I recently did a stock study on Equifax Inc. (EFX) with a closing price of $213.00.

M* writes:

     > Along with Experian and TransUnion, Equifax is one of the
     > leading credit bureaus in the United States. Equifax’s credit
     > reports provide credit histories on millions of consumers,
     > and the firm’s services are critical to lenders’ credit
     > decisions. In addition, about a third of the firm’s revenue
     > comes from workforce solutions, which provides income
     > verification and employer human resources services.

This medium-sized company has grown sales and earnings at annualized rates of 9.3% and 7.6% over the last 10 years, respectively. This excludes ’19 for EPS: a downside outlier (-$3.30/share due to $1.13B in expenses from a 2017 cybersecurity incident). Lines are mostly up, straight, and parallel except for EPS dips in ’18 and ’22. PTPM was stable around 23% for ’13-’17 before diving in ’18-’19 and has been recovering since. The last-5-year average (excluding the outlier) is 16.1%, which beats peer and industry averages.

Historical ROE looks similar to PTPM with a last-5-year average of 16.5% (excluding ’19). This is lower than peer and industry averages. Debt-to-Capital has increased from 38.5% (’13) to 59.4% (’22) with a last-5-year average of 55.9%. Interest Coverage is 6.5 and Quick Ratio is 0.54. While these may raise some concern, Value Line rates the company A for financial strength and M* describes the balance sheet as “sound” while awarding an Exemplary rating for capital allocation.

I forecast long-term annualized sales growth of 6% based on the following:

• CNN Business projects 3.9% YOY and 7.6% per year for ’23 and ’22-’24, respectively (based on 19 analysts).
• YF projects YOY 3.9% and 10.1% for ’23 and ’24, respectively (18 analysts).
• Zacks projects YOY 4.2% and 9.2% for ’23 and ’24, respectively (10).
• Value Line projects 6.4% annualized growth from ’21-’27.
• CFRA projects 3.9% YOY and 6.7% per year for ’23 and ’22-’24, respectively (6).
• M* gives a 2-year ACE of 7.7% annualized while also estimating 9% per year for the next five years in its analyst report.

I am projecting toward the low side.

I forecast long-term annualized EPS growth of 8% based on the following:

• CNN Business projects a 4.6% YOY contraction and 9.6% growth per year for ’23 and ’22-’24, respectively (based on 19 analysts) along with 5-year annualized growth of 10.1%.
• MarketWatch projects annualized growth of 9.8% and 10.2% for ’22-’24 and ’22-’25, respectively (22 analysts).
• Nasdaq.com projects annualized growth of 23.6% and 20% for ’23-’25 and ’23-’26, respectively (10, 6, and 3 analysts for ’23, ’25, and ’26).
• Seeking Alpha projects 4-year annualized growth of 9.7%.
• YF projects YOY 5% contraction and 26.3% growth for ’23 and ’24, respectively (16), along with 5-year annualized growth of 12.7%.
• Zacks projects YOY 3.4% contraction and 24.4% growth for ’23 and ’24, respectively (15), along with 5-year annualized growth of 14.4%.
• Value Line projects annualized growth of 7.1% from ’21-’27.
• CFRA projects 3.7% YOY contraction and 12.2% growth per year for ’23 and ’22-’24, respectively (7), along with 16% growth per year from ’21-’24.
• M* projects an annualized long-term growth rate of 12.8%.

I am projecting below the average [of six] long-term estimate[s] (11.1%).

My Forecast High P/E is 35. Excluding NMF in ’19, high P/E has trended up from 25.9 (’13) to 52.2 with a last-5-year average of 51.1.

My Forecast Low P/E is 25. Excluding ’19, low P/E has trended up from 19.6 (’13) to 25.8 (22) with a last-5-year average of 28.2.

My Low Stock Price Forecast is the default $141.30: just below the 52-week low of $146 and 33.7% below the previous close.

The lowest Payout Ratio in the last 10 years (excluding ’19 when the dividend was suspended due to one-time expenses) was 25.9% (’21) and the last-5-year average is 38.4%. I am estimating conservatively at 25%.

These inputs land EFX in the HOLD zone with an U/D ratio of 1.1. The Total Annualized Return (TAR) is 7.1%.

TAR is less than I want for a medium-sized company, which means the more conservative PAR (using Forecast Average, not High, P/E) will certainly be too low. The latter currently sits at 4%.

I like to assess margin of safety by comparing my inputs with Member Sentiment (MS). Out of [only] 22 studies over the past 90 days (my own excluded), projected sales, projected EPS, forecast High P/E, forecast Low P/E, and Payout Ratio average 6.3%, 11%, 34.1, 23.3, and 36.3%, respectively. My P/E range is actually higher than MS although my EPS growth rate is lower. Value Line projects an average annual P/E of 25, which is lower than MS (28.7) and much lower than mine (30).

M* writes:

     > …we are maintaining our fair value estimate of $315. This equates to a
     > 2023 price/adjusted earnings ratio of approximately 43 times and a 2024
     > price/adjusted earnings ratio of approximately 31 times. While these
     > multiples might seem high, we believe they are warranted, given Equifax’s
     > unique position in income and employment verification services.

I don’t agree that the premium is warranted, but I have somehow ended up assigning one anyway. Lowering my P/E range would move EFX even farther from the Buy zone.

I’ve done 82 stock studies to date and never been higher with my forecast P/E range. That this happened at all makes me want to scrap the whole study even though I felt the forecasts were conservative when I chose them.

I will repeat this again next quarter.

ASGN Stock Study (2-16-23)

I recently did a stock study on ASGN Inc. (ASGN) with a closing price of $92.72.

M* writes:

     > ASGN Inc is a provider of information technology (IT) services
     > and professional solutions, including technology, creative,
     > and digital, across the commercial and government sectors.

This medium-sized company has grown sales and earnings at annualized rates of 12.6% and 19.5% over the last 10 years. Lines are mostly up, straight, and parallel except for dips in EPS (’15) and sales (’20). PTPM has increased from 5.7% (’13) to 7.9% (’22) with a last-5-year average of 6.9%. This is slightly higher than peer averages while trailing the industry.

ROE has increased from 8.9% (’13) to 13.8% (’22) with a last-5-year average of 13.2%. Again, this is slightly better than peer averages while trailing the industry. Debt-to-Capital has averaged 43% over the last five years, which is slightly higher than peer averages and much lower than the industry. Interest Coverage is 10 and Quick Ratio is 2.21. Value Line gives APD a B+ for financial strength.

I assume long-term annualized sales growth of 6% based on the following:

• CNN Business projects 2.2% YOY and 4.3% per year for ’23 and ’22-’24, respectively (based on 6 analysts).
• YF projects YOY growth of 3.4% and 5.4% for ’23 and ’24, respectively (7 analysts).
• Zacks projects YOY 2.4% and 5.9% for ’23 and ’24, respectively (3).
• Value Line projects 8.4% annualized from ’21-’26.
• CFRA projects 3.2% YOY and 4.2% per year for ’23 and ’22-’24 (6).
• M* gives a 2-year annualized estimate of 3.4%.

This is admittedly not a conservative forecast. I am projecting sales to pick up after the next couple years.

I assume long-term annualized EPS growth of 8% based on the following:

• CNN Business projects a 3.5% YOY contraction and 5.1% growth per year for ’23 and ’22-’24, respectively (based on 6 analysts), along with 5-year annualized growth of 10.9%.
• Nasdaq.com projects 13.4% YOY growth for ’24 (3 analysts).
• Seeking Alpha projects 5-year annualized growth of 10.3%.
• YF projects YOY 3.7% contraction and 14.4% growth for ’23 and ’24, respectively (7), along with 5-year annualized growth of 10.9%.
• Zacks projects YOY 3.7% contraction and 13.5% growth for ’23 and ’24, respectively (3), along with 5-year annualized growth of 10.9%.
• Value Line projects annualized growth of 10.9% from ’21-’26.
• CFRA projects growth of 23.4% YOY and 17.9% per year for ’23 and ’22-’24, respectively (7).

I am projecting below the entire range of five long-term estimates (mean 10.8%).

My Forecast High P/E is 22. High P/E has ranged from 22.1 (’17) to 37.8 (’15) with a last-5-year average of 26.5. It seems to be trending lower. I am projecting just below the range.

My Forecast Low P/E is 14. Low P/E has ranged from 7.7 (downside outlier in ’20) to 22.7 (’15) with a last-5-year average (excluding ’20) of 16.5. It also seems to be trending lower. Only the outlier is less than my projection.

My Low Stock Price Forecast is the default $72.80. This is 21.5% below the previous closing price and below ’21 and ’22 lows.

These inputs land ASGN in the BUY zone with an U/D ratio of 3.8. The Total Annualized Return is 12.7%.

PAR (using forecast average, not high, P/E) is lower than I would like for a medium-sized company at 8.2%. A good margin of safety (MOS) might be the additional convincing I need to buy this stock.

To evaluate MOS, I compare my inputs with Member Sentiment (MS). Out of 71 studies over the past 90 days (my own and one other with invalid Low Stock Price Forecast excluded), projected sales, projected EPS, Forecast High P/E, and Forecast Low P/E average 8.3%, 9.4%, 23.4, and 15, respectively. I’m slightly lower on all inputs. Value Line projects an average annual P/E of 20, which is slightly higher than MS (19.2) and higher than mine (18). All this amounts to the presence of at least some MOS in this study.

MS Low Stock Price Forecast is $61.07. While 12% lower than mine, my Forecast Low P/E is lower. The stock was ~17% lower six weeks ago and 59 of the MS studies were done in those first seven weeks, which might help explain this finding.

Despite the MOS, I am going to wait for slightly lower prices in hopes of seeing a better PAR.

APD Stock Study (2-18-23)

I recently did a stock study on Air Products and Chemicals Inc. (APD) with a closing price of $281.49.

M* writes:

     > Since its founding in 1940, Air Products has become one of the
     > leading industrial gas suppliers globally, with operations in
     > 50 countries and 19,000 employees. The company is the largest
     > supplier of hydrogen and helium in the world. It has a unique
     > portfolio serving customers in a number of industries, including
     > chemicals, energy, healthcare, metals, and electronics.

This large-sized company has grown sales and earnings at annualized rates of 0.8% and 8.9% over the last 10 years, respectively. Sales had a long period of flat time (from ’14-’21) while EPS was only down in ’14 and ’17-’18. Over the last 10 years, PTPM trended higher from 13.3% to 21.7% with a last-5-year average of 24.3%. This leads peer and industry averages. ROE was 15.3% in ’13 and has averaged 15.4% over the last five years. This is about even with the industry while slightly lagging peer averages.

Debt-to-Capital has come down from 47.1% in ’13 to 38.8% in ’22 with a last-5-year average of 33.3%. This is lower than peer and industry averages. As of the most recent quarter, Interest Coverage is 21 and Quick Ratio 1.68. Value Line gives APD an A++ for financial strength and M* rates its capital allocation as Exemplary.

I assume long-term annualized sales growth of 6% based on the following:

• CNN Business projects 4.7% YOY and 5% per year for ’23 and ’22-’24, respectively (based on 23 analysts).
• YF projects YOY 4.2% and 6.1% for ’23 and ’24, respectively (19 analysts).
• Zacks projects YOY 3.4% and 6.9% for ’23 and ’24, respectively (6).
• Value Line projects 8.3% from ’22-’26.
• CFRA projects 5.1% YOY and 10.2% per year for ’23 and ’22-’24.
• M* gives a 2-year annualized ACE of 6%.

I assume long-term annualized EPS growth of 8% based on the following:

• CNN Business projects 9% YOY and 9.6% per year for ’23 and ’22-’24, respectively (based on 23 analysts), along with a 5-year annualized rate of 10.2%.
• MarketWatch projects 10.4% and 10.9% per year for ’22-’24 and ’22-’25, respectively (28 analysts).
• Nasdaq.com projects 8.7% YOY and 9.6% per year for ’24 and ’23-’25, respectively (8, 8, and 5 analysts for ’23, ’24, and ’25).
• Seeking Alpha projects 4-year annualized growth of 10.9%.
• YF projects YOY 8.7% and 10.2% for ’23 and ’24, respectively (21), along with 5-year annualized growth of 8.8%.
• Zacks projects YOY 9.4% and 8.7% for ’23 and ’24, respectively (8), along with 5-year annualized growth of 11.7%.
• Value Line projects annualized growth of 11.6% from ’22-’26.
• CFRA projects 10.5% YOY and 12% per year for ’23 and ’22-’24, respectively, and 12% per year from ’21-’24.
• M* estimates long-term growth of 14.5%.

I am forecasting below all six long-term estimates (mean 11.3%).

My Forecast High P/E is 22. High P/E has trended up from 22.4 (’13) to 31.4 (’22) with a last-5-year average of 31.9. I’m projecting just below the entire range.

My Forecast Low P/E is 20. Low P/E has trended up from 15 (’13) to 21.5 (’22) with a last-5-year average of 21.9. I’d like to use 18, but the market has been very bullish recently.

My Low Stock Price Forecast is the default value of $202.60. This is 28% below the previous closing price and 6.3% below the ’21-’22 low of $216.20. I think this is reasonable despite being more aggressive with my Forecast Low P/E.

Over the last 10 years, Payout Ratio has ranged from 48.8% (’16) to 71.9% (’17) with a last-5-year average of 62%. I am estimating low at 48%.

These inputs land APD in the HOLD zone with an U/D ratio of 1.0. The Total Annualized Return is 7.5%.

PAR (using forecast average, not high, P/E) is 5.9%: less than I seek for a large company. Like many other stocks, this is a tough time to buy with shares up ~23% in the last four months.

To assess margin of safety (MOS), I compare my inputs with those of Member Sentiment (MS). Out of 116 studies over the past 90 days (my own excluded), projected sales growth, EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio average 7.3%, 10.6%, 28.4, 21.3, and 66.4%, respectively. I am lower on all inputs. Value Line projects an average annual P/E of 23.5: lower than MS (24.9) and higher than mine (21). MS Low Stock Price Forecast is almost identical to mine at $202.4. All this is indicative of a healthy MOS for the study.

I would feel comfortable buying APD under $241/share.

LULU Stock Study (1-25-23)

I recently did a stock study on Lululemon Athletica Inc. (LULU) with a closing price of $311.21.

M* writes:

     > Lululemon Athletica Inc. designs, distributes, and markets
     > athletic apparel, footwear, and accessories for women, men,
     > and girls. Lululemon offers pants, shorts, tops, and jackets
     > for both leisure and athletic activities such as yoga and
     > running. The company also sells fitness accessories, such
     > as bags, yoga mats, and equipment.

This medium-sized company has grown sales and EPS at rates of 17.3% and 16.9% per year since 2012. Lines are mostly up (EPS dipped in ’14, ’17, and ’20), straight, and parallel. PTPM over the last 10 years has fallen from 27.8% in ’12 to 21.3% in ’21 with a last-5-year average of 20.3%. This beats peer (stated as BOOT, BURL, and VSCO) and industry averages.

ROE over the last 10 years has ranged from 16.8% (’17) to 39% (’19) with a 5-year average of 30.6%: slightly better than industry averages and solidly better than peer averages. Debt-to-Capital was zero through 2018. The 5-year average is now 15.1%—much lower than peer and industry averages—while the company maintains zero long-term debt

I assume long-term annualized sales growth of 15% based on the following:

• CNN Business projects 27% YOY and 28% per year for ’23 and ’22-’24, respectively (based on 28 analysts).
• YF projects YOY 28.3% and 13.7% for ’23 and ’24, respectively (29 analysts).
• Zacks projects YOY 28.3% and 13.2% for ’23 and ’24, respectively (13).
• Value Line projects 15.7% growth per year from ’21-’26.
• CFRA projects 29.5% YOY and 20.6% per year for ’23 and ’22-’24, respectively.
• M* gives a 2-year ACE of 18.6%

I assume long-term annualized EPS growth of 15% based on the following:

• CNN Business reports ACE of 27.3% YOY and 20.7% per year for ’23 and ’22-’24, respectively (based on 28 analysts).
• MarketWatch projects annualized ACE of 21.5% and 20.3% from ’22-’24 and ’22-’25, respectively (33 analysts).
• Nasdaq.com projects annualized growth of 16.4% and 13.6% for ’23-’25 and ’23-’26, respectively (15, 11, and 2 analysts for ’23, ’25, and ’26).
• YF projects YOY 27.3% and 15% for ’23 and ’24, respectively, and 21.9% per year for the next five years (29).
• Zacks projects YOY 27.2% and 14.4% for ’23 and ’24, respectively, and 20% per year for the next five years (13).
• Value Line projects annualized growth of 18.2% from ’21-’26.
• CFRA projects 28.4% YOY and 21.5% for ’23 and ’22-’24, respectively, with 3-year annualized EPS growth of 28%.
• M* gives a long-term ACE of 20.2% per year.

My Forecast High P/E is 34. High P/E has ranged from 37 (’15 and ’16) to 88.9 (upside outlier in ’20) over the last 10 years. The last 5-year average excluding ’20 is 50.9 and trending higher.

Forecast Low P/E is 24. Low P/E has ranged from 20.7 (’18) to 36 (’21) over the last 10 years. The last-5-year average is 27.8.

My Low Stock Price Forecast is $218.40. This is sticking with default and 30% below the previous closing price.

All this results in an U/D ratio of 3.1, which makes LULU a Buy. Total Annualized Return is 14.5%.

While 14.5% is a solid total return, I believe PAR (based on Forecast Average, not High, P/E) to be more realistic. I think PAR of 10.9% is acceptable for a medium-sized company especially if it has a decent chance of beating my estimates.

Despite originally using an 18% growth projection as a number on lower end of analyst long-term forecasts (including all the long-term EPS forecasts), I discounted to 15% for the final study. This provides some margin of safety (MOS).

As a more comprehensive MOS check, I looked at Member Sentiment (MS) averages of 189 studies over the past 90 days. Projected sales, projected EPS, Forecast High P/E, and Forecast Low P/E average 16.3%, 16%, 41.8, and 26.6, respectively. I’m lower on all inputs—especially with regard to the P/E range. MS average P/E is 34.7 compared to my 29 (and Value Line’s 32). If I exclude stock studies with projected low price of $50 or lower, which I consider unreasonable, then MS projects a low price of $218.94, which is roughly equal to mine.

I feel confident buying LULU up to $319/share.

CPRT Stock Study (1-24-23)

I recently did a stock study on Copart, Inc. (CPRT) with a closing price of $64.86.

CFRA writes:

     > Founded in 1982 and headquartered in Dallas, CPRT is a global
     > global leader in online vehicle auctions. Copart’s online
     > auction platform links sellers to more than 750,000 members
     > in over 170 countries. The company offers services to process
     > and sell salvage and clean title vehicles to dealers,
     > dismantlers, rebuilders, exporters, and in some cases,
     > individuals. Copart sells vehicles on behalf of insurance
     > companies, banks, finance companies, charities, fleet operators
     > and dealers, and individual owners.

This medium-sized company has grown sales and earnings at annualized rates of 14% and 25.7%, respectively, over the last 10 years. Lines are mostly up, straight, and parallel. Over the last 10 years, PTPM has trended higher from 26.5% to 38.3% with a 5-year average of 36.4%. This far outpaces peer (stated as CRMT, ABG, and LAZY) and industry averages.

ROE has been up and down over the last 10 years with a 5-year average of 29.2%—slightly higher than peer and industry averages. Debt-to-Capital has decreased from 33.8% to 2.5% over the last 10 years with a last-5-year average of 14.2%. This is much lower than peer and industry averages. Current and Quick Ratios are over 4 while Interest Coverage over the last five years is an impressive 48.

I assume long-term annualized sales growth of 4% based on the following:

• CNN Business (FactSet) projects 8.6% YOY and 6.9% per year for ’23 and ’22-’24, respectively, based on eight analysts.
• YF projects 7.8% and 7.3% YOY for ’23 and ’24, respectively (eight analysts).
• Zacks projects YOY 7.1% and 7% for ’23 and ’24, respectively (4).
• Value Line projects 6.5% annualized from ’20-’22 through ’25-’27, but only 2.7% annualized from ’22-’26 (base effects; earnings grew about 20% YOY in ’22).
• M* offers a 2-year ACE of 7% per year.
• CFRA projects 7.9% YOY and 7.2% per year for ’23 and ’22-’24, respectively.

I assume long-term annualized EPS growth of 4% based on the following:

• CNN Business (FactSet) reports ACE 3.6% YOY and 6.7% per year for ’23 and ’22-’24, respectively, based on eight analysts.
• MarketWatch (FactSet) projects 6.7% and 13.1% per year from ’22-’24 and ’22-’25, respectively (10 analysts).
• Nasdaq.com (Zacks) projects 7.6% YOY and 6.1% per year for ’24 and ’23-’25, respectively (5, 5, and 2 analysts for ’23, ’24, and ’25).
• YF projects 3.6% and 10.4% YOY for ’23 and ’24, respectively, and 22.3% per year for the next five years (9).
• Zacks projects 0.5% and 7.6% YOY for ’23 and ’24, respectively (5).
• Value Line projects 2.9% per year from ’22-’26.
• CFRA projects 3.1% YOY and 6.9% per year for ’23 and ’22-’24, respectively, along with a 3-year annualized projection of 11%.

I’m using Forecast High P/E of 30. High P/E over the last 10 years has ranged from 19.4 (’17) – 37.9 (’21). The last five years have trended higher with an average of 35.3.

I’m using Forecast Low P/E of 17. Low P/E over the last 10 years has ranged from 14.6 (’16) – 23.9 (’21). The last five years have averaged 20.2.

I’m using a Low Stock Price Forecast of $46.60. The default low price is $37.90, which is 41% below the previous closing price. I selected the 2021 low price, which is about 28% below the previous closing price.

All this results in an U/D ratio of 0.9, which makes CPRT a Hold. Total Annualized Return is 4.7%.

PAR (based on Forecast Average, rather than High P/E) is -0.3%, which echoes Value Line’s statement that “shares… have unappealing long-term appreciation potential, at the current quotation.”

I did not feel particularly conservative with this study, which might mean even -0.3% per year is too optimistic. To better assess this, I look to Member Sentiment. Based on 187 studies in last 90 days, averages for projected sales growth, EPS growth, High P/E, and Low P/E are 8.8%, 10.5%, 31, and 19.2, respectively. I’m actually lower on all inputs. As one additional reference point, Value Line projects an average annual P/E of 27 compared to my 23.5.

My study therefore does appear to be rather conservative. Unfortunately at this time CPRT is far too overpriced to get the sort of annualized return I would hope to realize from a medium-sized company. I will wait to reassess at the upper end of the Buy zone: $55/share.

MMM Stock Study (1-24-23)

I recently did a stock study on 3M Co. (MMM) with a closing price of $122.62.

CFRA writes:

     > 3M Co. is a global manufacturer operating a diversified business.
     > The firm classifies its business into four reportable segments —
     > Safety & Industrial, Transportation & Electronics, Health Care,
     > and Consumer. Most 3M products involve expertise in product
     > development, manufacturing, and marketing, with many of the
     > company’s products involving some form of coating, sealant,
     > adhesive, film or chemical additive that increases the product’s
     > overall functionality and useability for customers.

This large company was recently presented in the Aug 2022 Manifest Investing Round Table. It was also selected (out of four stocks) via audience poll to be the newest monthly addition to the portfolio. MMM is a DJI component.

I hesitate to call this a “high quality growth stock” because the historical growth has been so low. Personally, I would have panned it. I am doing this study for educational purposes to see if I can uncover any unexpected merit.

Over the last 10 years, 3M has grown sales and EPS at annualized rates of 1.3% and 4.4%, respectively. Lines are somewhat up and parallel (I guess?) with some pullbacks. I would not blame anyone for passing on the stock based on visual inspection alone [a la “barbed wire fence”].

Over the last 10 years, PTPM is relatively consistent with a last-5-year average of 20.9%. This is higher than peer (stated as HON and BBU) and industry averages. ROE has been trending higher over the last 10 years with a 5-year average of 43.2%—also higher than peer and industry averages.

Debt-to-Capital has been trending higher over the last 10 years. The last-5-year average is 59.6%. While somewhat uncomfortable, this is generally lower than peer and industry averages. Quick Ratio is a lackluster 0.87. Interest Coverage is better at 16.

I assume long-term annualized sales growth of 1% based on the following:

• CNN Business projects 3.4% YOY contraction and 3% contraction per year for ’22 and ’21-’23, respectively (based on 17 analysts).
• YF projects YOY contraction of 3.3% and 2.4% for ’22 and ’23, respectively (20 analysts).
• Zacks projects YOY contraction of 3.4% and 3.1% for ’22 and ’23, respectively (5).
• Value Line projects 3.5% growth per year from ’21-’26.
• Morningstar offers a 2-year ACE of 2.1% contraction per year.
• CFRA projects 1% per year contraction and 3% per year growth for ’21-’23 and ’21-’24, respectively.

I almost feel 1% is generous based on these estimates.

I assume long-term annualized EPS growth of 1% based on the following:

• CNN Business projects growth of 1.5% YOY and 0.5% per year for ’22 and ’21-’23, respectively, based on 17 analysts.
• MarketWatch projects annualized growth of 2% and 3.2% from ’21-’23 and ’21-’24, respectively (22 analysts).
• Nasdaq.com projects annualized contraction of 0.2% and 1.4% for ’22-’24 and ’24-’25, respectively [7, 4, and 1 analyst(s) for ’22, ’24, and ’25].
• YF projects YOY growth of 0.6% and 0.4% for ’22 and ’23, respectively, and 0.7% per year contraction for the next five years (20).
• Zacks projects YOY growth of 0.5% and 0.2% for ’22 and ’23, respectively, and 9.5% growth per year for the next five years (7).
• Value Line projects 7.1% growth per year from ’21-’26.
• M* has long-term ACE at 3.2% growth per year.
• CFRA projects 4.7% per year contraction and 0.2% per year growth for ’21-’23 and ’21-’24, respectively, along with 3-year annualized growth of 4%.

Because Q3 shows an [anomalous?] earnings spike to $11.48/share, I am projecting from the last annual data point [$10.12].

I’m using a forecast High P/E of 19. High P/E over the last 10 years has ranged from 15.1 (’12) – 30.8 (’17) with a last-5-year average of 25.7.

I’m using a forecast Low P/E of 12. Low P/E over the last 10 years has ranged from 12.3 (’20) – 21.9 (’17) with a last-5-year average of 17.9.

I’m using a Low Stock Price Forecast of $96. This is roughly 20% below the previous closing price and at least 11% below the default low price, 2020 low stock price, and 2021 low stock price.

All this results in an U/D ratio of 3.3, which makes MMM a Buy. Total Annualized Return is 13%.

Payout Ratio has trended higher over the last 10 years from 37.3% to 58.5% with a 5-year average of 60.6% (excluding 73.8% in 2019, which seems to be an upside outlier). I am estimating conservatively at 40%. This results in a PAR (using forecast average P/E rather than forecast High P/E) of 9%, which is pretty good for a large-size company.

I’m admittedly surprised to see a Buy here because I cut the estimates to minimal values while still maintaining some growth.

Furthermore, MMM is a Buy even with a margin of safety built into this study. Based on 186 Member Sentiment studies in last 90 days, averages for projected sales growth, projected EPS growth, forecast High P/E, and forecast Low P/E are 2.7%, 4.8%, 21.8, and 16.5, respectively. I’m lower on all inputs. As one additional reference point, Value Line projects an average annual P/E of 17 compared to my 15.5.

CBRE Stock Study (1-21-23)

I recently did a stock study on CBRE Group, Inc. (CBRE) with a closing price of $84.29.

Value Line writes:

     > CBRE Group, Inc. is a worldwide commercial real estate firm, offering
     > services to occupiers, owners, lenders, and investors in the office,
     > retail, industrial, and multi-family segments of the market. Provides
     > facilities management, leasing, property sales, mortgage origination,
     > investment management, and valuation services.

This large-sized company has grown both sales and revenue at an annualized rate of 18.8% for the last 10 years. Lines are mostly up, straight, and parallel except a temporary drop in ’20 EPS before rebounding to the trendline in ’21. PTPM has trended flat over the last 10 years with a 5-year average of 6.6%; this is on par with both peer (stated as JLL and BEKE) and industry averages.

ROE has been consistent over the last 10 years and ahead of peer and industry averages. The 5-year average is 19.4% (21.5% without 2020 downside outlier). Debt-to-Capital has fallen over the last 10 years from 71% to 33% and is slightly higher than peer and industry averages. The last-5-year average is 37.8%. Interest Coverage is a formidable 25.

I assume long-term annualized sales growth of 5% based on the following:

• CNN Business projects 10.5% YOY and 6.6% per year for ’22 and ’21-’23, respectively (based on 10 analysts).
• YF projects YOY 10.7% and 3.5% for ’22 and ’23, respectively (8 analysts).
• Zacks projects YOY growth of 10.9% and 4.6% for ’22 and ’23, respectively (3).
• Value Line projects 4.8% annualized growth from ’21-’26.
• Morningstar offers a 2-year ACE of 7% per year.

I assume long-term annualized EPS growth of 5% based on the following:

• CNN Business projects 4.5% YOY growth and 0.8% per year contraction for ’22 and ’21-’23, respectively (based on 10 analysts).
• MarketWatch projects contraction of 1.6% per year and growth of 4.5% per year for ’21-’23 and ’21-’24, respectively (10 analysts).
• Nasdaq.com projects 6% and 10.7% growth per year for ’22-’24 and ’22-’25, respectively [4, 4, and 1 analyst(s) for ’22, ’24, and ’25].
• YF projects 5.1% growth for ’22, 6.1% contraction for ’23, and 11% annualized growth for the next five years (8).
• Zacks projects YOY contraction of 4.1% and 2.9% for ’22 and ’23, respectively (4).
• Value Line projects 2.8% growth per year from ’21-’26 (statistical array) while also projecting 8.5% growth per year from ’19-’21 through ’25-’27 (left margin).
• Morningstar offers a long-term growth estimate of 6.1% per year.

I’m using a forecast High P/E of 16. High P/E has ranged from 16.3 (’18) to 30.5 (’20) over the last 10 years. Excluding the latter as an upside outlier, the last four years have averaged 18.7 and the trend has been down.

I’m using a forecast Low P/E of 10. Low P/E has ranged from 10 (’19) to 21 (’13) over the last 10 years. The trend has been down with a last-5-year average of 12.1.

I’m sticking with default and using a Low Stock Price Forecast of $60. This is ~29% below the previous closing price and near the ’21 low.

All this results in an U/D ratio of 1.7, which makes CBRE a Hold. Total Annualized Return (TAR) is 7%. PAR (using projected average P/E rather than High P/E) is 2.6%, which is lower than I seek in a long-term stock investment.

To add more context behind this study, I look at Member Sentiment (MS). Based on 97 studies over the past 90 days, averages for projected sales growth, projected EPS growth, High P/E, and Low P/E are 7.9%, 8.5%, 20.2, and 12.8, respectively. I’m lower on all inputs. This represents a margin of safety that increases the probability TAR may be achieved.

I still want TAR to be higher, though. I am looking for $76/share (10% discount to today’s price) as an entry point for this stock.

BLDR Stock Study (1-19-23)

I recently did a stock study on Builders FirstSource (BLDR) with a closing price of $71.69.

Value Line writes:

     > Builders FirstSource, Inc. manufactures and sells a wide variety of
     > building materials, including lumber, floor & roofing products, windows
     > & doors, insulation, siding, and cement. Its customers are
     > homebuilders, remodelers, and commercial contractors.

This large-sized company has grown sales at 34.2% per year for the last 10 years. EPS has grown 56.8% per year since 2016 [excluding 2012-2015, which ranged from -$0.44/share to +$0.57/share]. Lines are mostly up and parallel except for ’17 EPS, which dipped to $0.34/share. PTPM has trended gradually higher with a 5-year average of 4.9%, which trails peer (stated as JCI, TT, and CARR) and industry averages.

ROE has averaged 26.8% over the last five years, which is similar to peer and industry averages. Debt-to-Capital averages a higher-than-desired 64.9% over the last five years. This is falling, though, and recently (’21) crossed below peer and industry averages. Interest Coverage is a comfortable 19.

I assume long-term annualized sales growth of 4% based on the following:

• CNN Business projects 13.6% YOY growth and a 14.2% per year contraction for ’22 and ’21-’23, respectively (based on 14 analysts).
• YF projects 13.6% YOY growth and 41.2% YOY contraction for ’22 and ’23, respectively (13 analysts).
• Zacks projects 13.3% YOY growth and 28.7% YOY contraction for ’22 and ’23, respectively (7).
• Value Line projects 6.9% annualized growth from ’21-’26.
• Morningstar offers a 2-year ACE of 14.3% annualized contraction.

I assume long-term annualized EPS growth of 3% based on the following:

• CNN Business reports ACE of 69.5% YOY growth and a 24.7% per year contraction for ’22 and ’21-’23, respectively (based on 14 analysts).
• MarketWatch projects annualized contraction of 18.8% and 7.1% for ’21-’23 and ’21-’24, respectively (14 analysts).
• Nasdaq.com projects 62.4% YOY contraction and 32.8% per year contraction for ’23 and ’22-’24, respectively (7, 8, and 5 analysts for ’22, ’23 and ’24).
• YF projects 72.7% growth for ’22, 67% contraction for ’23, and 18.8% annualized growth for the next five years (13).
• Zacks projects 72.9% YOY growth for ’22 and 62.4% YOY contraction for ’23 (7).
• Value Line projects 7.8% annualized growth from ’21-’26 while also projecting 17.5% annualized growth from ’20-’26.*

Across the homebuilding and building materials industries, everyone seems to expect a slowdown for ’23. BLDR earnings aren’t expected to come anywhere close to recovering through ’24. Anything can happen, but after a soft ’23 and ’24, for the 5-year growth rate to be 7.8% or in the high teens (per the two LT estimates available) would require ’25 and ’26 to be explosive. I can’t just assume that being 3-4 years into the future.

I’m using a forecast High P/E of 8. High P/E has ranged from NMF to 64.9 (’17) over the last 10 years. Excluding the latter as an upside outlier, the last four years have averaged 13.3—the lowest of which was 10.2 in ’21.

I’m using a forecast Low P/E of 3. Low P/E has ranged from NMF to 31.1 (’17) over the last 10 years. The last four years have averaged 4.8 with a low of 3.4 in ’20. The current P/E is 4.4.

I’m sticking with default and using a Low Stock Price Forecast of $49. This is near the 52-week low price and 31.6% below the previous close.

All this results in an U/D ratio of 3.5, which makes BLDR a Buy. Total Annualized Return (TAR) is 16.1%.

PAR, which uses projected average (rather than high) P/E, is 7.8%. This is not bad for a large company, but I would like to see better unless I can feel confident in the company’s chances to exceed projected growth rates.

To assess that, I check for a margin of safety (MOS) by comparing with Member Sentiment (MS). Based on 73 studies over the past 90 days, MS indicates averages for projected sales growth, projected EPS growth, High P/E, and Low P/E are 10.6%, 8.4%, 12.6, and 8, respectively. I’m more than 50% lower on three inputs and about 33% lower on High P/E.

In addition to using conservative inputs given scant long-term analyst estimates and current uncertainty, MS implies a healthy MOS in this study. That increases likelihood of realizing TAR.

MS has a lower Low Stock Price Forecast at $44.26, but it’s hard to draw any direct conclusions from this. $44.26 would lower the upper Buy threshold in my study to $71 and make the stock a Hold. This also effectively lowers forecast Low P/E on which I’m already quite low (3) along with my entire forecast P/E range.

Taking everything into consideration, I feel comfortable with a Buy up to $74/share.

* — In and of itself, this demands a wholly separate discussion.

CTSH Stock Study (1-19-23)

I recently did a stock study on Cognizant Technology Solutions (CTSH) with a closing price of $60.99.

Since 2012, this large-sized company has grown sales and EPS at annualized rates of 10.2% and 7.5%, respectively. Lines are mostly up, straight, and parallel with some rockiness in EPS (down in ’16, ’17, ’19, and ’20). PTPM has trended lower over that timeframe with a 5-year average of 15.7%. This leads peer (stated as LDOS and CDW) and industry averages.

ROE has also trended lower with a last-5-year average of 16%. This trails peer and industry averages. Debt-to-capital averages 10.6% over the last five years, which is far below peer and industry averages. Interest Coverage is a whopping 234.

M* writes:

     > Cognizant is a global IT services provider, offering consulting and
     > outsourcing services to some of the world’s largest enterprises spanning
     > the financial services, media and communications, healthcare, natural
     > resources, and consumer products industries.

I assume long-term annualized sales growth of 4% based on the following:

• CNN Business projects growth of 4.9% YOY and 4.2% per year for ’22 and ’21-’23, respectively (based on 23 analysts).
• YF projects 4.6% and 3.9% YOY growth for ’22 and ’23, respectively (26).
• Zacks projects 4.5% and 3.3% YOY growth for ’22 and ’23, respectively (7).
• CFRA projects growth of 4.5% YOY and 4.8% per year for ’22 and ’21-’23, respectively.
• Value Line projects 5.8% annualized growth from ’21-’26.
• M* offers a 2-year ACE of 4.7% per year.

I assume long-term annualized EPS growth of 6% based on the following:

• CNN Business reports ACE of 7.5% YOY and 6.6% per year growth for ’22 and ’21-’23, respectively (based on 23 analysts).
• MarketWatch projects growth of 7.5% and 7.7% per year for ’21-’23 and ’21-’24, respectively (28).
• Nasdaq.com projects 6.1% YOY growth and 7.3% growth per year for ’23 and ’22-’24, respectively (3, 10, and 6 analysts for ’22, ’23, and ’24).
• YF projects 7.6% growth for ’22, 6.6% growth for ’23, and 5.4% annualized growth for the next five years (25).
• Zacks projects 7.8% growth for ’22, 5.6% growth for ’23, and 11% annualized growth for the next five years (7).
• Value Line projects 7.4% growth per year from ’21-’26.
• CFRA projects 7.5% YOY growth for ’22, 8.6% growth per year for ’21-’23, and 3-year EPS annualized growth of 7%.

I project a future High P/E of 20. High P/E has ranged from 22.2 (’21) to 32.2 (’20) over the last 10 years with a 5-year average of 26.2.

I project a future Low P/E of 12. Low P/E has ranged from 15.1 (’13) to 20.4 (’17) with a 5-year average of 17.2.

I project a future low price of $45. The default price of $54 is only 11% below the previous closing price; the rule of thumb is to go at least 20% below. The 52-week low ($51) is 16% less and the 2020 low ($40) is 34% less. I am choosing a number in the middle of these two (26.2% less).

All this results in an U/D ratio of 3.2, which puts CTSH in the Buy zone. CAR (using forecast High P/E) is 15.1%.

Payout Ratio has a last-5-year average of 24.5% (range 17.8% to 34.2%). I’m using 17% to be conservative.

PAR, which uses projected average P/E, is 10.4%: not terrible for a large company.

Let’s look at Member Sentiment (MS) to assess margin of safety (MOS). Based on 428 studies over the past 90 days, averages for projected sales growth, projected EPS growth, High P/E, and Low P/E are 7.4%, 9.2%, 22.7, and 16, respectively. I’m lower on all inputs. I also further lowered projected Low Price, which in effect is lowering my forecast Low P/E. I’m lower than MS average low price of $50.79. As a final check, Value Line projects an average annual P/E of 17. I’m lower at 16.

As my study appears to have a healthy MOS, I feel comfortable with a Buy up to $63/share.

HEI Stock Study (1-18-23)

I recently did a stock study on HEICO Corp. (HEI) with a closing price of $165.46.

This medium-sized company has grown sales and EPS at annualized rates of 8.8% and 15%, respectively, since 2013. Visual inspection shows lines mostly up, straight, and parallel with a slight pullback in ’20 [and ’21 for EPS]. PTPM has increased from 17.9% to 22.2% over this time while mostly trending higher. The 5-year average is 20.9%, which far outpaces peer (stated by M* as AJRD, HWM, and DRS) and industry averages.

ROE has been flat to slightly lower over the last decade going from 17.6% (2013) to 14.2% (2022). At 16.6%, the 5-year average slightly outpaces the peer average. Debt-to-capital has fallen from 38.4% (2013) to 10.5% (2022) with a 5-year average of 20.2%. This is significantly less than peer and industry averages. Interest Coverage is an impressive 77.

Value Line writes:

     > HEICO Corp. engages in the design, manufacture, and sale of aerospace,
     > defense, and electronics-related products and services. It operates in
     > two segments: The Flight Support Group (50% of 2021 sales) designs and
     > manufactures jet engine and aircraft component replacement parts. The
     > Electronic Technologies Group (50%) manufactures various electronic,
     > microwave, and electro-optical products.

I assume long-term annualized sales growth of 10% based on the following:

• CNN Business projects 18.2% YOY and 12.8% per year for ’22 and ’21-’23, respectively (based on 13 analysts).
• YF projects YOY 17.9% and 7.6% for ’23 and ’24, respectively (13 analysts).
• Zacks projects YOY 15.3% and 8.4% for ’23 and ’24, respectively (4).
• CFRA projects 32.5% YOY (the annual totals actually don’t add up correctly) and 9.8% per year for ’23 and ’22-’24.
• Value Line projects 13.6% annualized from ’21-’26.
• M* offers a 2-year ACE estimate of 16.3% per year.

I assume long-term annualized EPS growth of 11% based on the following:

• CNN Business reports ACE of 18.8% YOY and 16% per year for ’23 and ’22-’24, respectively (based on 13 analysts).
• MarketWatch projects 16.2% and 14% per year for ’22-’24 and ’22-’25, respectively (14 analysts).
• Nasdaq.com projects annualized rates of 11.1% and 10% for ’22-’24 and ’22-’25, respectively (12, 4, and 3 analysts for ’22, ’24, and ’25).
• YF projects YOY 18.8% and 12.5% for ’23 and ’24, and 14.1% annualized for the next five years (13).
• Zacks projects YOY 15.7% and 9.8% for ’23 and ’24, and 12.6% annualized for the next five years (4).
• Value Line projects 15.5% per year from ’21-’26.
• CFRA projects 32.5% YOY for ’23, 22.7% per year from ’22-’24, and a 3-year annualized EPS projection of 18%.

I project a future High P/E of 49. High P/E has ranged from 32.3 (’15) to 67.4 (’21) over the last 10 years with a last-5-year average of 60.5. The trend continues higher, but I don’t expect this to continue forever. Even the lowest value in the last five years (49.5 in ’17) is outside my comfort zone, but I will use it anyway.

I project a future Low P/E of 27. Low P/E has also trended higher from 19.5 (’13) to 49.8 (’22). The 5-year average is 36.1. Excluding ’21-’22, the highest value in the last 10 years is 29.9 (’19) and the last-5-year average then becomes 27.4.

I project a future low price of $107.40. The default value of $68.80 is over 58% below the previous closing price. I am therefore using the 2021 low, which is still over 35% below current.

All this results in an U/D ratio of 0.8, which puts HEI in the Hold zone. CAR (using forecast High P/E) is 5.1% and PAR (using forecast average P/E) is -0.1%. For me, the latter almost screams sell.

This study feels more aggressive than usual for me and still pegs HEI far from the Buy zone.

I use Member Sentiment to assess margin of safety (MOS). Based on 151 studies over the past 90 days, averages for projected sales, EPS, High P/E, and Low P/E are 10%, 12%, 44.6, and 26.5, respectively. I’m a bit lower on the second and third. Member Sentiment gives the average projected low price as 74.02: close to the default price I rejected. In other words, I overrode to a more aggressive value and still landed far from the Buy zone. Overriding is effectively raising the projected Low P/E so my MOS is probably not much to speak of.

In summary, HEI stock price for the time being seems to have fulfilled its appreciation potential despite solid growth estimates. For a purchase, I’d like the stock to revisit $130 before I reevaluate the projected low price to see if I still feel comfortable with [having raised] it.