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FDS Stock Study (8-12-24)

Posted by on October 3, 2024 at 06:38 | Last modified: August 12, 2024 11:50

I recently did a stock study on FactSet Research Systems Inc. (FDS) with a closing price of $403.03. Previous study is here.

M* writes:

     > FactSet provides financial data and portfolio analytics to the
     > Global investment community. The company aggregates data from
     > third-party data suppliers, news sources, exchanges, brokerages,
     > and contributors into its workstations. In addition, it
     > provides essential portfolio analytics that companies use to
     > monitor portfolios and address reporting requirements. Buy-side
     > clients account for 82% of FactSet’s annual subscription value.
     > In 2015, the company acquired Portware, a provider of trade
     > execution software. In 2017, it acquired BISAM, a risk
     > management and performance measurement provider. In 2022,
     > it completed its purchase of CUSIP Global Services.

Over the last 10 years, this medium-size company has grown sales and earnings at annualized rates of 8.8% and 9.4%, respectively. Lines are mostly up, straight, and parallel except for EPS declines in ’17 and ’22. Five- and 10-year EPS R^2 are 0.88 and 0.87, respectively, and Value Line gives an impressive Earnings Predictability score of 100.

Over the past decade, PTPM trails peer and industry averages while ranging from 24.1% in ’22 to 40.9% in ’16 with a last-5-year mean of 27.9%. ROE leads peer averages but trails the industry while ranging from 27.4% in ’23 to 60.3% in ’16 with a last-5-year mean of 39.0%. Debt-to-Capital is less than peer and industry averages despite increasing from from 0% in ’14 to 53.2% in ’23 with a last-5-year mean of 51.4% (CGS acquisition from S&P Global).

Quick Ratio is 1.1 and Interest Coverage is 10.6 per M* who assigns a “Standard” rating for Capital Allocation and a “Narrow” Economic Moat. Value Line gives an A grade for Financial Strength (down from A+ in previous study).

With regard to sales growth:

My 4.0% per year forecast is below the range.

With regard to EPS growth:

My 8.0% per year forecast is below the long-term-estimate range (mean of five: 9.9%). Initial value is ’23 EPS of $12.04/share instead of 2024 Q3 $12.26 (annualized).

My Forecast High P/E is 30. Over the last decade, high P/E trends up from 26.3 (’14) to 39.4 (’23) with a last-5-year mean of 39.2 and a last-5-year-mean average P/E of 32.6. I am near bottom of the range [’14 and ’16 (21.9) are less].

My Forecast Low P/E is 20. Over the last decade, low P/E trends up from 20.5 (’14) to 31.4 (’23) with a last-5-year mean of 26.9. I am forecasting near bottom of the range [16.6 (’16) and 19.4 (’15) are less].

My Low Stock Price Forecast (LSPF) is $300.00. Default ($265.20) based on initial value from above seems unreasonably low at 34.2% (32.3%) less than the previous close (52-week low). My [arbitrary] forecast is 25.6% and 23.4% less, respectively.

Payout Ratio (PR) over the last 10 years ranges from 23.0% in ’16 to 35.4% in ’18 with a last-5-year average of 31.2%. I am forecasting conservatively at 23.0%.

These inputs land FDS in the HOLD zone with a U/D ratio of 1.2. Total Annualized Return (TAR) is 6.4%.

PAR (using Forecast Average–not High–P/E) is 2.8%, which is lower than the current return on T-bills. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 90 studies (my study and 31 other outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 6.9%, 10.0%, 35.3, 25.3, and 31.0%, respectively. I am lower across the board. Value Line’s projected average annual P/E of 32.0 is greater than MS (30.3) and much greater than mine (25.0).

MS high / low EPS are $20.55/ $12.63 versus my $17.69 / $13.26 (per share). My high EPS is less due to a lower growth rate. Value Line’s $22.00 is greater than both.

MS LSPF of $336.60 implies Forecast Low P/E of 26.7: greater than the above-stated 25.3. MS LSPF is 5.3% higher than the default $12.63/share * 25.3 = $319.54 resulting in more aggressive zoning. MS LSPF is also 12.2% greater than mine.

With regard to valuation, PEG is 2.4 and 3.5 per Zacks and my projected P/E, respectively: both overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is fair at 0.93.

MOS is robust because my inputs are near or below respective analyst/historical ranges and MS averages. That is further supported by an MS TAR of 12.8%: 6.4%/year greater than mine.

FactSet caught my eye because of its textbook visual inspection and price near 52-week low. Qualitatively, the Value Line report ends with “we have little reason to recommend these shares at this time.” CFRA does not at all agree.

Per U/D, FDS is a BUY under $351. BI TAR criterion is met ~ $265/share given a forecast high price of ~ $530.

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EW Stock Study (8-8-24)

Posted by on October 2, 2024 at 06:27 | Last modified: August 8, 2024 10:16

I recently did a stock study on Edwards Lifesciences Corp. (EW) with a closing price of $61.07.

M* writes:

     > Spun off from Baxter International in 2000, Edwards Lifesciences
     > designs, manufactures, and markets a range of medical devices
     > and equipment for advanced stages of structural heart disease.
     > It has established itself as a leader across key products,
     > including surgical tissue heart valves, transcatheter valve
     > technologies, surgical clips, and catheters. The firm derives
     > about 55% of its total sales from outside the US.

Over the last 10 years, the medium-size company has grown sales and EPS at annualized rates of 11.3% and 13.1%. Lines are mostly up, straight, and parallel except for EPS dips in ’15, ’20, and ’23. Five- and 10-year EPS R^2 are 0.55 and 0.72, respectively, and Value Line gives an impressive Earnings Predictability score of 100.

Over the last decade, PTPM leads peer and industry averages despite falling from 49.2% (’14) to 26.6% (’23) with a last-5-year mean of 27.9%. ROE leads peer and industry averages despite falling from 39.5% (’14) to 20.8% (’23) with a last-5-year mean of 23.6%. To complete the trifecta, Debt-to-Capital is much lower than peer and industry averages while falling from 21.4% (’14) to 9.5% (’23) with a last-5-year mean of 11.6%.

Quick Ratio is 2.3 and Interest Coverage is NMF (interest income exceeds interest expense) per M* who rates the company “Exemplary” for Capital Allocation and awards a “Narrow” economic moat. Value Line gives a B++ grade for Financial Strength.

With regard to sales growth:

My 3.0% per year forecast is below the range.

With regard to EPS growth:

My 7.0% per year forecast is below the long-term-estimate range (mean of five: 9.3%). Initial value is ’23 EPS of $2.30/share rather than 2024 Q2 $2.43 (annualized).

My Forecast High P/E is 35.0. Over the past decade, high P/E increases from 17.9 (’14) to 41.2 (’23) with a last-5-year mean (excluding 70.8 in ’20) of 50.1 and a last-5-year-mean average P/E (also excluding ’20 low P/E) of 39.5. I am forecasting the lowest value since ’14.

My Forecast Low P/E is 20.0. Over the past decade, low P/E increases from 8.4 (’14) to 26.3 (’23) with a last-5-year mean (excluding 39.6 in ’20) of 28.8. I am forecasting the lowest value since ’14.

My Low Stock Price Forecast (LSPF) of $48.60 is default based on initial value given above. This is 20.4% less than the previous close and 17.5% less than the 52-week high.

These inputs land EW in the BUY zone with a U/D ratio of 4.2. Total Annualized Return (TAR) is 13.1%.

PAR (using Forecast Average—not High—P/E) of 7.8% is less than I seek for a medium-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 136 studies done in the past 90 days (my study and 52 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 9.0%, 9.6%, 40.6, and 29.1, respectively. I am lower across the board. Value Line projects a future average annual P/E of 30.0 that is less than MS (34.9) but greater than mine (27.5).

MS high / low EPS are $3.78 / $2.32 versus my $3.23 / $2.43 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $4.00 is greater than both.

MS LSPF of $64.20 implies a Forecast Low P/E of 27.7 versus the above-stated 29.1. While more conservative than default, only 41 of 136 studies are done since the stock drops 31% on 7/25/24. As a result, default LSPF is currently INVALID. MY LSPF fully accounts for the drop and is 24.3% lower.

MOS is robust because my inputs are near or below respective analyst/historical ranges and MS inputs. Further substantiation is MS TAR 13.6% that is 0.5%/year greater than mine despite only fractionally factoring in the stock price crash.

Pertaining to valuation, PEG is 2.6 and 3.4 per Zacks and my projected P/E, respectively: both regarded as rich. On the other hand, relative Value [(current P/E) / 5-year-mean average P/E] is quite cheap at 0.64.

Per U/D, EW is a BUY under $64. BI TAR criterion is met ~ $57/share given a forecast high price of $113.

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TSLA Stock Study (8-7-24)

Posted by on September 30, 2024 at 07:09 | Last modified: August 7, 2024 11:53

I recently did a stock study on Tesla, Inc. (TSLA) with a closing price of $200.64.

M* writes:

     > Tesla is a vertically integrated battery electric vehicle automaker
     > and developer of autonomous driving software. The company has
     > multiple vehicles in its fleet, which include luxury and midsize
     > sedans, crossover SUVs, a light truck, and a semi-truck. Tesla
     > also plans to begin selling more affordable vehicles, and a sports
     > car. Global deliveries in 2023 were a little over 1.8 million
     > vehicles. The company also sells batteries for stationary storage
     > for residential and commercial properties including utilities
     > and solar panels and solar roofs for energy generation. Tesla also
     > owns a fast-charging network.

Despite only being profitable since 2020, the company is already mega ( > $50B annual revenue) in size. I am excluding previous losing years from the full analysis.

Since ’20, Tesla grows sales and EPS at annualized rates of 45.9% and 167%. Lines are up, narrowing, and parallel. EPS R^2 is 0.84 although Value Line gives a mediocre Earnings Predictability score of 35 (probably dating farther back than ’20).

Since ’20, PTPM leads peer and industry averages while increasing from 3.7% to 10.3% (’23) with a 4-year mean of 10.7%. ROE leads peer and industry averages while increasing from 3.8% to 25.6% (’23) with a 4-year mean of 19.2%. Debt-to-Capital is less than peer and industry averages while falling from 37.4% to 13.3% (’23) with a 4-year mean of 21.2%.

Quick Ratio is 1.2 and Interest Coverage is 30.4 per M* who also rates the company “Exemplary” for Capital Allocation. Value Line gives an A grade for Financial Strength.

With regard to sales growth:

With ’24 looking to be slow, my 9.0% per year forecast is below the range of ’25 and beyond.

With regard to EPS growth:

I am not as puzzled by YF long-term estimate as I am Argus that implies [more than] doubling every year for the next 5 years.

My 10.0% per year forecast is near bottom of the long-term-estimate range (mean of six: 29.7%). Initial value is 2024 Q2 EPS of $3.56/share (annualized) rather than ’23 EPS of $4.30.

My Forecast High P/E is 40.0. Since ’20, high P/E falls from 1124 to 69.6 (’23). I regard all these numbers as NMF until the company reports more profitable years allowing the market to settle upon a more stable valuation. I now forecast at the upper end of my comfort zone (lower than the historical range).

My Forecast Low P/E is 23.0. Since ’20, low P/E falls from 109 to 23.7 (’23). I am below the range.

My Low Stock Price Forecast (LSPF) is $138.80. Default ($81.90) based on initial value given above seems unreasonably low at 59.2% less than the previous closing price and 41.0% less than the 52-week low. Instead, I will use the 52-week low itself: 30.8% less than the previous close.

These inputs land TSLA in the HOLD zone with a U/D ratio of 0.5. Total Annualized Return (TAR) is 2.7%.

PAR (using Forecast Average—not High—P/E) of -2.1% is unacceptable for any size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR [even that is less than the current yield on T-bills, however].

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 97 studies (my study and 18 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 13.9%, 17.4%, 55.2, and 30.0, respectively. I am lower across the board. Value Line’s projected average annual P/E of 41.0 is less than MS (42.6) and greater than mine (31.5).

MS high / low EPS are $8.78/ $3.91 versus my $5.73 / $3.56 (per share). My high EPS is less due to a lower growth rate. Value Line is higher than both at $9.00.

MS LSPF of $117.60 implies Forecast Low P/E of 30.1: nearly a perfect match indicating the default value. This is 15.3% less than mine resulting in more conservative zoning.

With regard to valuation, PEG is 4.0 and 5.1 per Zacks and my projected P/E, respectively: substantially overvalued.

MOS is robust because my inputs (and most-recent-quarter initial value) are near or below respective analyst/historical ranges and MS inputs. Further substantiating this is MS TAR of 18.5% that is 15.8%/year greater than mine.

A TAR discrepancy that large makes me question whether my inputs are unreasonably low, but lack of data leaves the door open to almost everyone. The company has yet to be profitable for a full business cycle and nobody truly knows how it will react. With regard to YF and Argus, 105% is legitimatized as much as 3.0%.

Per U/D, TSLA is a BUY under $161. BI TAR criterion is met ~ $115/share given a forecast high price of ~ $229.

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KEYS Stock Study (8-6-24)

Posted by on September 29, 2024 at 07:01 | Last modified: August 7, 2024 11:09

I recently did a stock study on Keysight Technologies Inc. (KEYS) with a closing price of $122.81.

M* writes:

     > Keysight Technologies is a leader in the field of testing
     > and measurement, helping electronics OEMs and suppliers
     > alike bring products to market to fit industry standards
     > and specifications. Keysight specializes in the
     > communications market, but also supplies into the
     > government, automotive, industrial, and semiconductor
     > manufacturing markets. Keysight’s solutions include
     > testing tools, analytical software, and services. The
     > firm’s stated objective is to reduce time to market and
     > improve efficiency at its more than 30,000 customers.

Spinning off from Agilant after FY 2014, the first few years were rough. I am excluding 2017 from the full analysis pursuant to 2017 Form 10-K:

     > Net income was $102 million in 2017 compared to net
     > income of $335 million and $513 million in 2016 and 2015,
     > respectively… The decline in net income for the year ended
     > October 31, 2017 is primarily driven by the unfavorable
     > impact from amortization of acquisition-related balances.

Since 2015, the medium-size company has grown sales and EPS at annualized rates of 9.2% and 16.3%, respectively. Lines are mostly up, straight, and parallel (especially following ’18) except for a sales dip in ’20 and EPS dips in ’16, ’18, and ’23. Five-year EPS R^2 is 0.87 although Value Line gives an Earnings Predictability score of only 50 (probably including more than the last five years).

Since 2015, PTPM is roughly even with peer and industry averages while increasing from 13.6% to 24.8% (’23) with a last-5-year mean of 20.7%. ROE leads peer and industry averages despite falling from 46.2% to 21.1% (’23) with a last-5-year mean of 22.3%. Debt-to-Capital is higher than peer and industry averages despite falling from 45.8% to 30.3% (’23) with a last-5-year mean of 34.5%.

M* reports Quick Ratio of 1.2, Interest Coverage of 14.5, and assigns a “Wide” Economic Moat. Value Line gives an A grade for Financial Strength.

With regard to sales growth:

I am forecasting flat sales due to three estimates of near-term contraction.

With regard to EPS growth:

I am forecasting in lower end of the long-term-estimate range (mean of five: 3.0%). Initial value is ’23 EPS of $5.91/share.

My Forecast High P/E is 30.0. Since 2015, high P/E increases from 13.0 to 32.1 (’23) with a last-5-year mean of 33.9 and a last-5-year-mean average P/E of 27.2. I am below the last-5-year range.

My Forecast Low P/E is 16.0. Since 2015, low P/E increases from 9.5 to 20.1 (’23) with a last-5-year mean of 20.5. I am forecasting below the last-5-year range.

My Low Stock Price Forecast (LSPF) of $94.60 is default based on initial value given above. This is 23.0% less than the previous close and 20.2% less than the 52-week low.

These inputs land KEYS in the HOLD zone with a U/D ratio of 1.9. Total Annualized Return (TAR) is 7.6%.

PAR (using Forecast Average—not High—P/E) of 2.1% is less than I seek for any size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 8 studies (my study and 2 other outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 4.5%, 9.9%, 31.3, and 20.0, respectively. I am lower across the board. Value Line’s projected average annual P/E of 21.5 is not only lower than MS (25.7) but mine as well (23.0).

MS high / low EPS are $7.59 / $4.79 versus my $5.91 / $5.91 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $10.50 soars above both.

MS LSPF of $102.50 implies a Forecast Low P/E of 21.4: more than the above-stated 20.0. MS LSPF is 7.0% higher than the default $4.79/share * 20.0 = $95.80 resulting in more aggressive zoning. MS LSPF is also 8.6% greater than mine.

With regard to valuation, PEG is 3.9 per Zacks: quite expensive. Relative Value [(current P/E) / 5-year-mean average P/E] is fair at 0.99.

I believe MOS is healthy but not robust. My inputs could be less despite being toward the bottom of analyst/historical ranges. Growth forecast is zero (but not negative). Forecast P/E range is below that of the last 5 years (but not more). Initial value is not a lower 2024 Q1 or Q2 EPS (the latter would be an additional 20%+ discount, which may be unreasonably extreme).

KEYS is a BUY per U/D under $115/share. BI TAR criterion is met ~$89 given a forecast high price ~$177.

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HAE Stock Study (8-5-24)

Posted by on September 28, 2024 at 06:28 | Last modified: August 5, 2024 17:11

I recently did a stock study on Haemonetics Corp. (HAE) with a closing price of $89.95.

M* writes:

     > Haemonetics Corp aims to improve patient care and reduce the
     > cost of healthcare by providing medical products and solutions
     > in the blood and plasma component collection, surgical suite,
     > and hospital transfusion service spaces. As such, the company
     > operates under three segments: plasma, blood center, and
     > hospital. The company places primary emphasis on its plasma
     > and hospital segments due to their robust growth potential,
     > whereas the blood center segment tends to be constrained by
     > higher competition. Product revenue is driven by demand for
     > disposable blood component collection and processing sets
     > and the related equipment needed for proper functionality.

2016-17 (FY ends Mar 31; yearly references on BI website and Value Line incremented to match) are ugly years for this company. In looking at 2016 Form 10-K, I see mentions of “Russian economic conditions” and “declines in US blood center collections.” 2017 Form 10-K mentions “declines in US blood center collections,” goodwill impairments, and restructuring [costs]. Value Line considers much of this nonrecurring as it excludes losses of $2.72 and $2.04/share for the respective years.

Although I have doubts about recurrent exclusions for supposedly nonrecurrent events, I am excluding 2015-17 from the full analysis. One caveat I do acknowledge is the distant past of which this is a part.

Since 2018, then, the medium-size company has grown sales and earnings at annualized rates of 5.5% and 15.1%, respectively. Lines are mostly up and parallel except for a sales decline in ’21 and EPS decline in ’22. Five-year EPS R^2 is only 0.23 and Value Line gives a similarly lackluster Earnings Predictability score of 45.

Overlapping price bars in ’18 and ’25 represent several years without significant stock appreciation. I hope for a “coiled spring” effect when seeing this.

Since ’18, PTPM trails peer and industry averages despite increasing from 6.6% (’18) to 11.6% (’24) with a last-5-year mean of 9.5%. ROE exceeds peer and industry averages while ranging from 5.4% in ’18 to 14.6% in ’23 with a last-5-year mean of 11.3%. Debt-to-Capital is greater than peer and industry averages in rising from 25.2% (’18) to 45.7% (’24) with a last-5-year mean of 47.9%.

Quick Ratio and Interest Coverage are 1.2 and 12.6 per M* who also assigns a [quantitative] “Narrow” Economic Moat. Value Line gives an A grade for financial strength.

With regard to sales growth:

My 4.0% annualized forecast is below the range.

With regard to EPS growth:

My 10.0% forecast is below the long-term-estimate range (mean of five: 12.4%). Initial value is ’24 EPS of $2.29/share.

My Forecast High P/E is 40.0. Since ’18, high P/E falls from 88.8 to 41.6 (’24) with a last-5-year mean (excluding 143 in ’22) of 67.2 and a last-5-year-mean average P/E of 53.1. I am below the range.

My Forecast Low P/E is 30.0. Since ’18, low P/E falls from 45.3 to 30.9 (’24) with a last-5-year mean of 39.1. I am forecasting near bottom of the range [only ’23 (21.7) is less].

My Low Stock Price Forecast of $68.70 is default based on initial value given above. This is 23.5% less than the previous close and 2.8% less than the 52-week low.

These inputs land HAE in the HOLD zone with a U/D ratio of 2.7. Total Annualized Return (TAR) is 10.4%.

PAR (using Forecast Average—not High—P/E) is 7.5%, which is less than I seek for a medium-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR 10.4% instead.

To assess MOS, I would normally start by comparing my inputs with those of Member Sentiment but only two other studies have been done in the past 90 days (my study and three outliers excluded): not enough for comparison.

Value Line projects a future average annual P/E of 28.0: much lower than my 35.0. My high EPS of $3.69 is much lower than Value Line’s $6.80/share.

With regard to valuation, PEG is 1.6 and 3.6 per Zacks and my projected P/E, respectively: somewhat expensive. Relative Value [(current P/E) / 5-year-mean average P/E] is a bit low at 0.74.

MOS is fair (not robust) in this study because my inputs are near or below respective analyst/historical ranges. I’m concerned that my P/E range is high relative to Value Line.

Haemonetics strikes me as a decent company but nothing great. I question consistency of execution as discussed near the top. ROE seems a bit low. Sales growth seems a bit low. I was initially impressed with the Value Line projections, but overall analyst estimates don’t quite measure up. The stock is trading well off its 52-week lows, which could otherwise help.

Per U/D, HAE is a BUY under $88/share. BI TAR criterion is met ~$73/share given a forecast high price ~$147. I will wait until at most the latter to invest.

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SON Stock Study (8-5-24)

Posted by on September 26, 2024 at 06:27 | Last modified: August 4, 2024 12:02

I recently did a stock study on Sonoco Products Co. (SON) with a closing price of $51.64. The previous study is here.

M* writes:

     > Over its 100-year-plus history, Sonoco Products has steadily assembled
     > a diverse portfolio of industrial and consumer packaging product
     > offerings such as flexible and rigid plastics, reels and spools,
     > pallets, and composite cans. The company serves a variety of
     > consumer and industrial end markets throughout North America. Sonoco
     > has raised its dividend each year for more than 40 years.

Over the past 10 years, this medium-size company has grown sales and earnings at annualized rates of 4.2% and 8.0%, respectively. I have excluded ’21 EPS from the full analysis per the company’s 10-K:

     > The full-year 2021 GAAP loss per diluted share was $(0.86)… The
     > full-year 2021 GAAP loss was driven by $410.4 million after-tax
     > pension settlement charges mostly related to the Company’s
     > settlement of its U.S. Inactive Plan in the second quarter.

Lines are up, jagged, and somewhat parallel. Sales [EPS] declines in ’15, ’16, ’19, ’20, and ’23 [’17, ’19, and ’20]. Five- and 10-year EPS R^2 are 0.68 and 0.47, respectively, but Value Line gives an Earnings Predictability score of 95.

Over the past decade, PTPM trails peer and industry averages while ranging from 4.9% in ’20 to 9.2% in ’16 with a last-5-year mean of 7.3%. ROE also trails peer and industry averages despite increasing from 13.6% (’14) to 20.2% (’23) with a last-5-year mean of 17.7%. Debt-to-Capital is less than peer and industry averages despite trending up from 45.4% (’14) to 58.0% (’23) with a last-5-year mean of 55.8%.

Interest Coverage is 4.6 and Quick Ratio is 0.74 per M* who also rates the company “Standard” for Capital Allocation and describes its balance sheet as sound. Value Line gives an A grade for Financial Strength.

With regard to sales growth:

My 2.0% per year forecast is below the long-term estimates.

With regard to EPS growth:

My 4.0% per year forecast is below the long-term-estimate range (mean of six: 6.1%). Initial value is 2024 Q2 EPS of $3.72/share (annualized) rather than ’23 EPS of $4.80.

My Forecast High P/E is 17.0. Over the past decade, high P/E ranges from 13.3 in ’23 to 32.1 in ’17 with a last-5-year mean of 20.3 and a last-5-year-mean average P/E of 17.3. I am near bottom of the range [only ’23 and ’22 (14.2) are less].

My Forecast Low P/E is 11.0. Over the past decade, low P/E ranges from 10.4 in ’23 to 27.1 in ’17 with a last-5-year mean of 14.3. I am forecasting toward bottom of the range [only ’23 and ’22 (10.9) are less].

My Low Stock Price Forecast (LSPF) of $40.90 is default based on initial value from above. This is 20.8% less than the previous closing price and 15.1% less than the 52-week low.

Over the past decade, Payout Ratio (PR) ranges from 40.7% in ’22 to 88.5% in ’17 with a last-5-year mean of 56.4%. I am forecasting below the range at 40.0%.

These inputs land SON in the HOLD zone with a U/D ratio of 2.4. Total Annualized Return (TAR) is 10.7%.

PAR (using Forecast Average—not High—P/E) of 7.1% is less than I seek in a medium-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 16 studies (my study and four other outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 4.0%, 5.9%, 17.5, 13.1, and 56.4%, respectively. I am lower across the board. Value Line’s projected average annual P/E of 17.0 is higher than MS (15.3) and higher than mine (14.0).

MS high / low EPS are $5.58/ $3.96 versus my $4.53 / $3.72 (per share). My high EPS is less due to a lower growth rate. Value Line soars above both with its $7.30 projection.

MS LSPF of $45.00 implies Forecast Low P/E of 11.4: less than the 13.1 mentioned above. MS LSPF is 13.3% less than default $3.96/share * 13.1 = $51.88 (INVALID on today’s date) resulting in more conservative zoning. MS LSPF is 10.0% greater than mine, however.

With regard to valuation, PEG is 2.3 and 3.3 per Zacks and my projected P/E, respectively: somewhat overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is a bit low at 0.8.

MOS is robust because my inputs (and most-recent-quarter initial value) are near or below respective analyst/historical ranges. MS sample is too small for meaningful comparison, but anecdotally its 16.8% TAR is 6.1%/year greater than mine.

Per U/D, SON is a BUY under $48. BI TAR criterion is met at $38.50/share given a forecast high price of $77.

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EXPE Stock Study (8-2-24)

Posted by on September 24, 2024 at 06:42 | Last modified: August 3, 2024 11:23

I recently did a stock study on Expedia Group Inc. (EXPE) with a closing price of $121.48.

M* writes:

     > Expedia is the world’s second-largest online travel agency by
     > bookings, offering services for lodging (80% of total 2023
     > sales), air tickets (3%), rental cars, cruises, in-destination, and
     > other (11%), and advertising revenue (6%). Expedia operates
     > a number of branded travel booking sites, but its three core
     > online travel agency brands are Expedia, Hotels.com, and Vrbo.
     > It also has a metasearch brand, Trivago. Transaction fees for
     > online bookings account for the bulk of sales and profits.

Over the past 10 years, this large-size company has grown sales and EPS at annualized rates of 5.7% and -31.4%, respectively. Not gonna lie: it’s ugly at first glance.

M*, Value Line, and CFRA all agree that sales have been growing consistently with the exception of ’20 and ’21. Being a travel-related company, it makes sense to exclude those years from the full analysis due to COVID-19.

Value Line and CFRA [normalized earnings] suggest the YOY EPS spike (’15) and crash (-68.1% in ’16) reported by M* may not be as bad as they appear. Value Line reports the crash (-43.3% to the same 2016 M* number of $1.82) in ’16 but no spike in ’15. CFRA reports a dip in ’15 and strong growth in ’16 [mostly sustained rather than a transient spike]. I see enough reasonable doubt to believe the growth story and will exclude ’15 and ’16 from the full analysis.

As a result of the processing, over the last 10 years Expedia grows sales and EPS at annualized rates of 7.8% and 3.5%. Lines are mostly up and parallel with a sales/EPS decline in ’22. Five- and 10-year EPS R^2 are still a dismal 0.01 and 0.12 but to me, visual inspection for the six included years [especially since 2017] looks borderline acceptable.

Over the last decade, PTPM trails peer and industry averages while falling from 8.1% (’14) to 7.9% (’23) with a last-5-year mean (three data points) of 6.3%. ROE also trails peer and industry averages despite increasing from 20.2% (’14) to 43.5% (’23) with a last-5-year mean of 23.7%. Debt-to-Capital is lower than (even with) peer (industry) averages despite increasing from 49.5% (’14) to 81.1% (’23) with a last-5-year mean of 71.1%.

M* reports Quick Ratio of 0.61, Interest Coverage of 4.8, gives a “Standard” rating for Capital Allocation, and assigns a “Narrow” Economic Moat. Value Line gives a B++ grade for Financial Strength.

With regard to sales growth:

My 6.0% forecast is below the range.

With regard to EPS growth:

My 18.0% forecast is below the long-term-estimate range (mean of six: 23.3%). Because M* ’23 EPS of $5.31/share is up 145% YOY and may be a transient spike, I am using trendline $3.96/share as the initial value.

My Forecast High P/E is 29.0. Over the past decade, high P/E ranges from 29.3 in ’23 to 66.5 in ’17 (excluding upside outlier of 100 in ’22) with a last-5-year mean (two values) of 33.8 and a last-5-year-mean average P/E (also excluding 76.2 low P/E in ’21) of 30.1. I am below the range.

My Forecast Low P/E is 21.0. Over the past decade, low P/E ranges from 16.3 in ’23 to 46.2 in ’17 with a last-5-year mean (three values) of 26.3. I am forecasting near bottom of the range (only ’23 is less).

My Low Stock Price Forecast (LSPF) of $83.20 is default based on initial value given above. This is 31.5% less than the previous close and 10.1% less than the 52-week low.

Over the past decade (excluding ’15 and ’16), Payout Ratio (PR) ranges from 22.1% in ’14 to 47.9% in ’17 before being eliminated in ’21. I forecast zero dividend [a course of action M* applauds].

These inputs land EXPE in the HOLD zone with a U/D ratio of 2.4. Total Annualized Return (TAR) is 12.9%.

PAR (using Forecast Average—not High—P/E) of 9.6% is decent for a large-size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 11 studies (my study and 5 other outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 7.7%, 17.8%, 28.8, 17.9, and 35.0%, respectively. I am higher on EPS growth rate and P/E range. Value Line’s projected average annual P/E of 20.0 is lower than MS (23.4) and mine (25.0).

MS high / low EPS are $12.25 / $5.34 versus my $8.11 / $3.96 (per share). My high EPS is less due to a lower initial value. Value Line’s high EPS of $13.80 is higher than both.

MS LSPF of $84.30 implies a Forecast Low P/E of 15.8: less than the above-stated 17.9. MS LSPF is 11.8% less than the default $5.34/share * 17.9 = $95.59 resulting in more conservative zoning. MS LSPF is 1.3% greater than mine, however.

With regard to valuation, PEG is 0.4 and 1.1 per Zacks and my projected P/E: quite low on average. Relative Value [(current P/E) / 5-year-mean average P/E] is slightly low at 0.80.

MOS is robust because my inputs (especially low EPS) are below respective analyst/historical ranges. Except for EPS range, I am not particularly low compared to MS [all 11 studies projecting PR > 35.0% make me question these studies a bit] but a low sample size renders the comparison moot anyway. Anecdotally, MS TAR of 23.8% is 10.9% per year greater than mine.

The unanimous high EPS growth rate projections are what initially caught my eye. After reading the analyst reports, I’m still wondering why these are so high. Not only have earnings more than rebounded from COVID-19, caution abounds over a potential near-term slowdown in travel spending.

Nevertheless, EXPE is a BUY per U/D under $121/share. BI TAR criterion is met ~$117 given a forecast high price ~$235.

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WBS Stock Study (8-1-24)

Posted by on September 23, 2024 at 07:00 | Last modified: August 1, 2024 10:33

I recently did a stock study on Webster Financial Corp. (WBS) with a closing price of $49.62.

M* writes:

     > Webster Financial Corp is a full-service provider of financial
     > services, offering commercial and consumer banking, mortgages,
     > and investment advisory along with trust and wealth management
     > services in Connecticut, New York, Rhode Island, Massachusetts,
     > and Pennsylvania. The company’s segment includes Commercial
     > Banking, HSA Bank, and Consumer Banking. It generates
     > maximum revenue from the Commercial Banking segment.

Over the past 10 years, the medium-size company (bank) has grown sales and EPS at annualized rates of 12.2% and 9.4%, respectively. Lines are somewhat up, straight, and parallel except for sales/EPS declines in ’20 [case could be made to exclude due to COVID-19] and an additional EPS dip in ’22. Five- and 10-year EPS R^2 are 0.22 and 0.66, respectively, and Value Line gives an Earnings Predictability score of 70.

Over the past decade, PTPM trails peer [slightly] and industry averages while ranging from 23.8% in ’20 to 43.6% in ’21 with a last-5-year mean of 40.9%. ROE leads peer averages and trails the industry while ranging from 6.9% in ’20 to 13.2% in ’18 with a last-5-year mean of 10.2%. Debt-to-Capital is higher than peer and industry averages despite falling from 57.1% (’14) to 28.2% with a last-5-year mean of 31.3%.

Value Line gives a B++ grade for Financial Strength. M* reports ROAA last-5-year mean of 1.09%.

With regard to sales growth:

My 1.0% forecast is near bottom of the range.

With regard to EPS growth:

My 9.0% forecast is below the long-term-estimate range (mean of four: 12.8%). Initial value is 2024 Q2 EPS of $4.59/share (annualized) rather than ’23 EPS of $4.91.

My Forecast High P/E is 12.0. Over the past decade, high P/E falls from 16.0 (’14) to 11.4 (’23) with a last-5-year mean of 16.1 and a last-5-year-mean average P/E of 12.5. I am near bottom of the range (only ’23 is less).

My Forecast Low P/E is 7.5. Over the past decade, low P/E falls from 12.8 (’14) to 6.3 (’23) with a last-5-year mean of 8.9. I am forecasting near bottom of the range (only ’23 is less).

My Low Stock Price Forecast (LSPF) of $34.40 is default based on initial value given above. This is 30.7% less than previous close and 5.5% less than 52-week low.

Over the past decade, Payout Ratio (PR) ranges from 32.6% in ’23 to 45.4% in ’16 (excluding 68.1% outlier in ’20) with a last-5-year mean 37.4%. I am forecasting below the range at 32.0%.

These inputs land WBS in the HOLD zone with a U/D ratio of 2.6. Total Annualized Return (TAR) is 14.6%.

PAR (using Forecast Average—not High—P/E) of 10.6% is decent for a medium-size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I usually start by comparing my inputs with those of Member Sentiment. I will skip this because only eight studies (mine and three other outliers excluded) have been done over the past 90 days and seven are duplicates.

Value Line projects an average annual P/E of 10.0 that is slightly higher than mine (9.8).

Value Line projects high EPS of $9.50/share versus my $7.06.

My LSPF well exceeds the rule-of-thumb [which really isn’t] 20% discount to previous closing price.

MOS is robust because my inputs (and most-recent-quarter initial value) are near/below respective analyst/historical ranges.

With regard to valuation, PEG is 0.84 and 1.1 per Zacks and my projected P/E, respectively: quite reasonable. Relative Value [(current P/E) / 5-year-mean average P/E] is slightly low at 0.85.

To be rigorous, I would like to see 5-year mean ROAA > 1.25%. Incidentally [or perhaps less so], Value Line reports return on total assets of 1.38% for 2023 and projects 1.65% in ’27-’29.

Per U/D, WBS is a BUY under $47/share. BI TAR criterion is met < $42/share given a forecast high price ~$85.

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CHKP Stock Study (7-31-24)

Posted by on September 20, 2024 at 07:03 | Last modified: July 31, 2024 11:56

I recently did a stock study on Check Point Software Technologies Inc. (CHKP) with a closing price of $182.43.

M* writes:

     > Check Point Software Technologies is a pure-play cybersecurity
     > vendor. The company offers solutions for network, endpoint,
     > cloud, and mobile security in addition to security management.
     > Check Point, a software specialist, sells to enterprises,
     > businesses, and consumers. Around 50% of revenue is generated
     > in Europe, the Middle East, and Africa, 40% from the Americas,
     > and 10% from the Asia-Pacific region. The firm, based in Tel
     > Aviv, Israel, was founded in 1993 and has about 5,000 employees.

Over the past 10 years, this medium-size company has grown sales and EPS at annualized rates of 5.1% and 8.0%, respectively. Lines are up, straight, and parallel without exception. Value Line gives an Earnings Predictability score of 100. Stock price shows a similar upward march and is now trading near top of its 52-week range. Except for the latter, perhaps, visual inspection is picture-perfect.

Over the past decade, PTPM leads peer and industry averages despite [also] trending lower from 55.5% (’14) to 40.4% (’23) with a last-5-year mean of 43.8%. ROE leads peer and industry averages while increasing from 17.4% (’14) to 28.8% (’23) with a last-5-year mean of 25.0%. Debt-to-Capital is much less than peer and industry averages at zero throughout: a horizontal line. I’ve never seen such a thing (especially given the 2017 FASB GAAP change in 2017 with regard to rentals/leases) and am honestly a bit puzzled since Value Line reports annual rentals of $6.3M.

M* reports Quick Ratio of 1.2, rates the company “Standard” for Capital Allocation, and assigns a “Narrow” Economic Moat. Value Line gives an A+ grade for Financial Strength.

With regard to sales growth:

My 4.0% forecast is below the range.

With regard to EPS growth:

My 5.0% forecast is at bottom of the long-term-estimate range (mean of six: 7.3%). Initial value is ’23 EPS of $7.10/share (annualized) rather than 2024 Q2 EPS of $7.24 (annualized).

My Forecast High P/E is 21.0. Over the past decade, high P/E ranges from 21.5 in ’16 to 24.7 in ’17 with a last-5-year mean of 23.2 and a last-5-year-mean average P/E of 20.3 (19.9 including 2020 low P/E). I am below the 10-year range.

My Forecast Low P/E is 16.0. Over the past decade, low P/E ranges from 16.5 in ’23 (excluding 13.4 in ’20—possibly due to COVID-19) to 18.5 in ’19 with a last-5-year mean of 17.5 (16.7 with ’20 included). I am forecasting below the range.

My Low Stock Price Forecast (LSPF) is $127.00. The default ($115.80) based on initial value given above seems unreasonably low at 36.5% less than previous close and 7.9% less than 52-week low. My (arbitrary) projection is 30.4% less and 1.0% above, respectively.

These inputs land CHKP in the SELL zone with a U/D ratio of 0.1. Total Annualized Return (TAR) is 0.8%.

PAR (using Forecast Average—not High—P/E) of -1.7% is unacceptable for any size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead but even that falls well short of the current yield on T-bills.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 32 studies (my study and six outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 5.5%, 6.8%, 22.9, and 16.4, respectively. I am lower across the board. Value Line’s projected average annual P/E of 22.0 is higher than MS (19.7) and higher than mine (18.5).

MS high / low EPS are $10.15 / $7.17 versus my $9.06 / $7.24 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $12.20 is greater than both.

MS LSPF of $115.20 implies Forecast Low P/E of 16.1: close to the 16.4 above. MS LSPF is 2.0% less than the default $7.17/share * 16.4 = $117.59 resulting in more conservative zoning. MS LSPF is also 9.3% less than mine.

With regard to valuation, PEG is 2.5 and 4.8 per Zacks and my projected P/E, respectively: decisively overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is quite high at 1.3.

MOS is robust because my inputs are near or below respective analyst/historical ranges. Although comparison with MS is limited due to small sample size, its 6.5% TAR is anecdotally 5.7%/year greater than mine.

Based on visual inspection and management metrics, this feels like an overvalued yet high-quality stock. While PTPM is in a clear downtrend (suggesting increasing COGS), it remains higher than a similar-trending line for peers and the industry.

I feel comfortable to say investing in such high-flying, overvalued stocks is not the BI way. Debate in the financial industry does rage on between growth or momentum and value, however. CFRA rates the company a Buy and just two weeks [albeit 17 points] ago, Value Line wrote “appreciation potential to 2027-2029 is attractive. This issue is suitable for most accounts.”

Per U/D, CHKP is a BUY under $142/share. BI TAR criterion is met < $95/share given a forecast high price ~$190.

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GPN Stock Study (7-30-24)

Posted by on September 18, 2024 at 07:11 | Last modified: July 30, 2024 11:14

I recently did a stock study on Global Payments Inc. (GPN) with a closing price of $101.57. Previous studies are here and here.

M* writes:

     > Global Payments is a leading provider of payment processing and
     > software solutions and focuses on serving small and midsize
     > merchants. The company operates in 30 countries and generates
     > about one fourth of its revenue from outside North America,
     > primarily in Europe and Asia. In 2019, Global Payments merged
     > with Total System Services in an all-stock deal that gave Total
     > System Services shareholders 48% of the combined company’s
     > shares. The merger added issuer processing operations.

Over the last 10 years, the medium-size company has grown sales and earnings at annualized rates of 16.9% and 5.4%, respectively. I am excluding ’22 from the whole analysis due to EPS impact by goodwill impairment. Per the 2022 10-K:

     > A sustained decline in our share price and increases in discount
     > rates, primarily resulting from increased economic uncertainty,
     > indicated a potential decline in fair value and triggered a
     > requirement to evaluate our Issuer Solutions and our former
     > Business and Consumer Solutions reporting units for potential
     > impairment as of June 30, 2022… Based on the quantitative
     > assessment of our former Business and Consumer Solutions
     > reporting unit, including consideration of the consumer business
     > disposal group and the remaining assets of the reporting unit,
     > we recognized a goodwill impairment charge of $833.1 million
     > in our consolidated statement of income during the three
     > months ended June 30, 2022.

Global Payments Inc. probably does not clear the barbed wire fence (visual inspection), which may explain why so few stock studies have been done. Revenue [data is missing for ’16 and] is down YOY in ’18 while EPS is [missing for ’16 and] down in ’15, ’18, ’19, and ’20. EPS R^2 is 0.77 and 0.33 for 5 and 10 years, respectively.

Although I would therefore limit investment to speculative size only, price bars in ’17 and ’24 overlap. This represents several years without significant stock appreciation. I hope for a “coiled spring” effect when seeing this.

Over the last decade, PTPM is higher than peer and industry averages while ranging from 8.0% in ’20 to 16.7% in ’18 with a last-5-year mean of 10.7%. ROE is [alarmingly low albeit] slightly better than peer and industry averages while ranging from 2.1% in ’20 to 37.5% in ’15 with a last-5-year mean of 3.1%. Debt-to-Capital is less than peer and industry averages since 2019 while falling from 75.5% (’14) to 43.0% (’23) with a last-5-year mean of 31.8%.

Per M*, Quick Ratio and Interest Coverage are a concerning 0.31 and 3.2, respectively.

The numerous analysts covering this company gives me some reassurance about liquidity. Aside from all the analysts included in consensus estimates shown below, M* says the balance sheet is sound and gives a “Standard” rating for Capital Allocation. Value Line gives a B++ rating for Financial Strength (one notch above its median) and says Global Payments “should continue to meet its various obligations with minimal difficulty.”

With regard to sales growth:

My 4.0% forecast is near bottom of the range.

With regard to EPS growth:

My 11.0% forecast is below the long-term-estimate range (mean of six: 14.9%). Initial value is ’23 EPS of $3.77/share rather than 2024 Q1 $5.04 (annualized).

My Forecast High P/E is 30.0. Over the last 10 years, high P/E trends up from 25.7 in ’14 to 36.6 in ’23 with what I suspect are surrounding NMF [85.8, 111, 67.1, and 384 in ’19, ’20, ’21, and ’22]. The last-5-year mean reduces to 36.6 (’23 value) and the last 5-year-mean average P/E (with respective exclusions for low P/E) reduces to 30.8 (’23 value). I am near lower end of the 10-year range (only ’14 is less).

My Forecast Low P/E is 21.0. Over the last 10 years, low P/E trends up from 16.3 in ’14 to 24.9 in ’23 with what I suspect are surrounding NMF [45.6, 54.1, and 231 in ’19, ’20, and ’22]. The last-5-year mean reduces to 30.2 (’21 and ’23 values). My forecast is near bottom of the range (only ’14 is less).

My Low Stock Price Forecast (LSPF) is default $79.20 based on initial value given above. This is 22.0% less than the previous close and 13.5% less than the 52-week low.

Over the last decade, Payout Ratio (PR) ranges from 1.4% in ’17-’18 to 40.0% in ’20 (excluding 250% in ’22) with a last-5-year mean of 26.5%. My 10.0% forecast is near bottom of the range.

These inputs land GPN in the BUY zone with a U/D ratio of 4.0. Total Annualized Return (TAR) is 13.7%.

PAR (using Forecast Average—not High—P/E) is 10.2%, which is less than I seek for a medium-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only eight studies done in the past 90 days (my study along with seven outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 5.0%, 12.0%, 29.0, 19.5, and 52.2%. My forecast P/E range is higher. Value Line projects a future average annual P/E of 22.5: lower than MS (24.3) and lower than mine (25.5).

MS high / low EPS are $7.85 / $4.69 versus my $6.35 / $3.77 (per share). My high EPS is less due to a lower initial value. Value Line’s high EPS of $7.25 is in the middle.

MS LSPF of $86.70 implies a Forecast Low P/E of 18.5: less than the above-stated 19.5. MS LSPF is 5.2% less than the default $4.69/share * 19.5 = $91.46 resulting in more conservative zoning. MS LSPF is 9.5% greater than mine, however.

With regard to valuation, PEG is 0.81 and 1.7 per Zacks and my projected P/E, respectively: fairly valued. Relative Value [(current P/E) / 5-year-mean average P/E] is quite low at 0.66.

MOS is robust because my inputs are near or below respective analyst/historical ranges and MS averages. Comparison with the latter carries little impact due to a tiny sample size, but MS TAR of 19.2% is anecdotally 5.5% per year greater than mine.

Per U/D, GPN is a BUY under $100/share. BI TAR criterion is met ~$95/share given a forecast high price ~$190.

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