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ULTA Stock Study (7-15-24)

Posted by on August 31, 2024 at 07:14 | Last modified: July 15, 2024 10:45

I recently did a stock study on Ulta Beauty, Inc. (ULTA, $412.94). Previous studies are here, here, and here.

M* writes:

     > With 1,385 stores at the end of fiscal 2023 and a partnership with
     > Target, Ulta Beauty is the largest specialized beauty retailer in
     > the US. The firm offers makeup (41% of 2023 sales), fragrances,
     > skin care (19% of sales), and hair care products (19% of sales),
     > and bath and body items. Ulta offers private-label products and
     > merchandise from more than 500 vendors. It also offers salon
     > services, including hair, makeup, skin, and brow services, in
     > all stores. Most Ulta stores are approximately 10,000 square feet
     > and are in suburban strip centers. Ulta was founded in 1990 and
     > is based in Bolingbrook, Illinois.

Over the past 10 years, this large-size company grows sales and earnings at annualized rates of 13.5% and 19.9%. Lines are mostly up, straight, and parallel except for a sales/EPS dip in ’20 [CFRA explains FY ends Saturday closest to Jan 31 but is labeled as previous calendar year]. Value Line gives an Earnings Predictability score of 45—likely low due to COVID ’20.

Over the past decade, PTPM leads peer and industry averages by increasing from 12.7% (’14) to 15.1% (’23) with a last-5-year mean (excluding ’20 downside outlier) of 14.6%. ROE also leads peer and industry averages by increasing from 21.5% (’14) to 62.3% (’23) with a last-5-year mean (excluding ’21 downside outlier) of 52.5%. Debt-to-Capital is less than peer and industry averages (no long-term debt) with a last-5-year mean of 49.7% (seems high to me but a glance at the 2023 Consolidated Balance Sheet does not show any debt).

Current Ratio is 1.76 and Quick Ratio is 0.46. M* rates the company “Exemplary” for Capital Allocation, and Value Line gives an A rating for Financial Strength.

With regard to sales growth:

I am forecasting below the range at 3.0%.

With regard to EPS growth:

My 5.0% per year forecast is below the long-term-estimate range (mean of five: 8.5%). I will use 2024 Q1 EPS of $25.64/share (annualized) as the initial value rather than ’23 EPS of $26.03.

My Forecast High P/E is 21.0. Over the past decade, high P/E falls from 34.5 (’14) to 21.2 (’23) with a last-5-year mean of 24.1 (excluding 99.8 upside outlier in ’21) and a last-5-year-mean average P/E of 19.8. I am below the 10-year range.

My Forecast Low P/E is 12.5. Over the past decade, low P/E falls from 20.7 (’14) to 14.1 (’23) with a last-5-year mean (excluding 39.9 upside outlier in ’21) of 15.5. I am forecasting below the range.

My Low Stock Price Forecast (LSPF) of $320.50 is default based on initial value given above. This is 22.4% less than the last closing price and 12.9% less than the 52-week low.

These inputs land ULTA on the BUY threshold with a U/D ratio of 3.0. Total Annualized Return (TAR) is 10.7%.

PAR (using Forecast Average—not High—P/E) of 5.8% is less than I seek for a large-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 230 studies (my study and 79 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 6.0%, 7.1%, 22.0, and 15.1, respectively. I am lower across the board. Value Line’s projected average annual P/E of 18.0 is lower than MS (18.6) and higher than mine (16.8).

MS high / low EPS are $36.97 / $25.45 versus my $32.72 / $25.64 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $36.00 is in the middle.

MS LSPF of $340.30 implies a Forecast Low P/E of 13.4: less than the above-stated 15.1. MS LSPF is 11.5% less than the default $25.45/share * 15.1 = $384.30 resulting in more conservative zoning. MS LSPF is 6.2% greater than mine, however.

With regard to valuation, PEG is 1.8 and 3.1 per Zacks and my projected P/E, respectively: a bit high on average. Relative Value [(current P/E) / 5-year-mean average P/E] is slightly low at 0.81.

MOS is robust because my inputs (including most-recent-quarter initial value) are below respective analyst/historical ranges and MS averages. MS TAR of 15.4% is 4.7% per year greater than mine.

Per U/D, ULTA is a BUY under $412/share. BI TAR criterion is met < $344 given a forecast high price ~$687.

Disclaimer: I own shares in this security.

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MGPI Stock Study (7-12-24)

Posted by on August 29, 2024 at 06:28 | Last modified: July 12, 2024 12:24

I recently did a stock study on MGP Ingredients, Inc. (MGPI) with a closing price of $74.83.

M* writes:

     > MGP Ingredients Inc is a producer and supplier of premium
     > distilled spirits and specialty wheat protein and starch food
     > ingredients. MGP also produces high-quality industrial alcohol
     > for use in both food and non-food applications. It operates in
     > three segments: Distillery Solutions, Branded Spirits Segment,
     > and Ingredient Solutions. Distillery Solutions provides
     > distillery co-products, such as distillers feed, fuel grade
     > alcohol, and corn oil: and warehouse services, including barrel
     > put away, storage, and retrieval services. It derives most of
     > its revenue from the Distillery Solutions segment.

Over the past 10 years, this small-size company has grown sales and EPS at annualized rates of 12.0% and 15.9%, respectively. Lines are mostly up and parallel except for sales dips in ’16 and ’19 along with EPS dips in ’18 and ’23. 5-year EPS R^2 is 0.83 and Value Line’s Earnings Predictability score is 75.

Over the past decade, PTPM leads peer averages but trails the industry despite increasing from 8.3% (’14) to 16.9% (’23) with a last-5-year mean of 16.0%. ROE also leads peer averages but trails the industry while decreasing from 24.1% (’14) to 12.9% (’23) with a last-5-year mean of 15.4%. Debt-to-Capital is less than peer and industry averages despite increasing from 9.0% (’14) to 26.2% (’23) with a last-5-year mean of 22.0%.

Quick (Current) Ratio is 1.9 (6.3) and Interest Coverage is 17.7 per M*. Value Line grades the company [only?] B+ for Financial Strength.

With regard to sales growth:

My 1.0% per year forecast is a substantial discount to the one long-term estimate due to several near-term estimates projecting contraction.

With regard to EPS growth:

I suspect data duplication with four long-term estimates of 11.0%. The number of analysts are few and it would only take a single analyst to vary an assumption here or there by a few tenths of a percentage point to get a result other than 11.0%. If they’re all the same batch of analysts, though, or all using the same primary source, then it makes more sense.

Data duplication would mean one 11.0% estimate and Value Line for a mean of 9.8% instead of four 11.0% estimates and Value Line for a mean of 10.5%. I am therefore lowering my below-the-range forecast from 8.0% to 7.0%. I am also using 2024 Q1 EPS of $4.33/share (annualized) as the initial value rather than ’23 EPS of $4.80.

My Forecast High P/E is 20.0. Over the past decade, high P/E increases from 12.9 (’14) to 26.0 (’23) with a last-5-year mean of 27.8 and a last-5-year-mean average P/E of 20.9. I am near bottom of the range [only ’14 and ’15 (18.6) are less].

My Forecast Low P/E is 12.0. Over the past decade, low P/E increases from 3.9 (’14) to 17.2 (’23) with a last-5-year mean of 14.0 and 10-year median of 12.8. I am forecasting below the latter.

My Low Stock Price Forecast (LSPF) is the default $52.00 given initial value from above. This is 30.5% less than the previous closing price and 24.5% less than 52-week low.

Over the past decade, Payout Ratio (PR) ranges from 3.8% in ’14 to 20.3% in ’20 with a last-5-year mean of 13.7%. I am forecasting below the range at 3.0%.

These inputs land MGPI in the HOLD zone with a U/D ratio of 2.0. Total Annualized Return (TAR) is 10.3%.

PAR (using Forecast Average—not High—P/E) of 5.6% is less than I seek for a small-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 15 studies in the past 90 days (my study and 8 other 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 6.6%, 8.0%, 21.9, 13.0, and 13.7%, respectively. I am lower across the board. Value Line projects a future average annual P/E of 18.0 that is greater than MS (17.5) and greater than mine (16.0).

MS high / low EPS are $7.96 / $4.67 versus my $6.07 / $4.33 (per share). My high EPS is less due to a lower initial value and growth rate. Value Line’s high EPS of $8.40 tops both.

MS LSPF of $61.70 implies a Forecast Low P/E of 13.2: almost a perfect match to the above-stated 13.0. MS LSPF is 18.7% greater than mine, however, resulting in more aggressive zoning.

With regard to valuation, PEG is 1.1 and 2.3 per Zacks and my projected P/E, respectively: fairly valued on average. Relative Value [(current P/E) / 5-year-mean average P/E] is slightly low at 0.83.

I think MOS is robust because my inputs (including most-recent-quarter initial value) are near or below respective analyst/historical ranges. Forecast Low P/E is the exception but significant P/E expansion (and stock appreciation) has taken place since ’14 from which I do not expect levels to return. I can’t do much comparison with MS due to the tiny sample size but as anecdotal reference, MS TAR of 18.0% is 7.7% per year greater than mine.

Looking back, I see a stock now trading at 2017 price levels when EPS is half today’s value. That is attractive.

Per U/D, MGPI is a BUY under $69/share. BI TAR criterion is met < $61 given a forecast high price $121.50.

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BF.B Stock Study (7-11-24)

Posted by on August 28, 2024 at 06:30 | Last modified: July 11, 2024 11:03

I recently did a stock study on Brown-Forman Corp (BF.B) with a closing price of $42.66.

M* writes:

     > Brown-Forman is a US-based manufacturer of premium distilled
     > spirits that generates close to 70% of revenues in the whiskey
     > category, under well-known Tennessee whiskey brand Jack Daniel’s
     > and bourbon brands Woodford Reserve and Old Forester. It also
     > manufactures and distributes tequila, vodka, rum, gin, and premium
     > wines. The company generates 45% of sales from its home market,
     > while the bulk of international revenues come from Europe,
     > Australia, and Latin America. The Brown family controls over 50%
     > of the economic interests and a 67% voting power of the company.

Over the past 10 years (FY ends Apr 30; references to year at BI and Value Line incremented to align), this medium-size company has grown sales and EPS at annualized rates of 3.9% and 4.8%, respectively (’16 EPS, up 63.3% YOY, excluded due to one-time sale of Southern Comfort and Tuaca brands). Lines are weakly up and parallel with sales dips in ’16, ’17, and ’24 along with EPS dips in ’20, ’22, and ’23. Value Line gives an Earnings Predictability score of 95.

Over the past decade, PTPM trails peer and industry averages while ranging from 24.1% in ’23 to 32.0% in ’15 (48.2% in ’16 excluded) with a last-5-year mean of 28.9%. ROE leads peer and industry averages, ranging from 25.7% in ’23 to 59.3% in ’18 (72.8% in ’16 excluded) with a last-5-year mean of 33.5%. Debt-to-Capital is less than peer and industry averages despite increasing from 38.4% (’15) to 46.8% (’24) with a last-5-year mean of 49.0%.

Quick Ratio is 0.8 and Interest Coverage is 11.2 (21.1) per M* (Value Line). M* rates the company “Exemplary” for Capital Allocation and assigns a “Wide” Economic Moat. Value Line grades the company A for Financial Strength.

With regard to sales growth:

I am forecasting near the bottom of the range at 1.0% per year.

With regard to EPS growth:

My 1.0% forecast is near bottom of the long-term-estimate range (mean of four: 4.3%). I will use ’24 EPS of $2.14/share as the initial value.

My Forecast High P/E is 30.0. Over the past decade, high P/E ranges from 21.3 in ’16 to 47.9 in ’23 with a last-5-year mean of 43.0 and a last-5-year-mean average P/E of 36.8. I am near bottom of the range (only ’16 is less).

My Forecast Low P/E is 16.0. Over the past decade, low P/E ranges from 17.2 in ’16 to 37.0 in ’23 with a last-5-year mean of 30.6. I am forecasting below the entire range.

My Low Stock Price Forecast (LSPF) is the default $34.20 given initial value above. This is 19.8% less than the previous closing price and 17.4% less than the 52-week low.

Over the past decade, Payout Ratio (PR) ranges from 25.1% in ’16 to 48.3% in ’23 with a last-5-year mean of 41.5%. I am forecasting below the range at 25.0%.

These inputs land BF.B in the HOLD zone with a U/D ratio of 2.9. Total Annualized Return (TAR) is 10.4%.

PAR (using Forecast Average—not High—P/E) of 5.0% is less than I seek 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 compare my inputs with those of Member Sentiment (MS). Based on only 6 studies in the past 90 days (my study and 2 other 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 3.8%, 8.1%, 38.2, 26.7, and 40.8%, respectively. I am lower across the board. Value Line projects a future average annual P/E of 20.0 that is less than MS (32.5) and less than mine (23.0).

MS high / low EPS are $2.85 / $1.96 versus my $2.25 / $2.14 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $4.25 soars above both.

MS LSPF of $41.90 implies a Forecast Low P/E of 21.4: less than the above-stated 26.7. MS LSPF is 19.9% less than the default $1.96/share * 26.7 = $52.33 (INVALID on today’s date) resulting in more conservative zoning. MS LSPF is 22.5% greater than mine, however.

With regard to valuation, PEG is 19.7 per my projected P/E: NMF due to my 1.0 denominator (growth rate). Relative Value [(current P/E) / 5-year-mean average P/E] is fire-sale low at 0.54. This may be deceiving if the stock has been enjoying elevated P/E levels over the last few years due to COVID-19.

I think MOS is robust because my inputs are near or below respective analyst/historical ranges. I can’t do much comparison with MS due to the tiny sample size but as anecdotal reference, MS TAR of 17.1% is 6.7% per year greater than mine.

Despite doing business for over 150 years, Brown-Forman is “undiscovered country” for the BI community although its brands (Jack Daniel’s, Canadian Mist, Korbel—who knew?) probably are not. It’s not a fast grower and that may be significant. However, it seems built to last with solid financial strength. Unless one thinks alcohol will be phased out in coming years (think DEO as well), it may be worth a look.

Per U/D, BF.B is a BUY under $42/share. BI TAR criterion is met < $34 given a forecast high price ~$68.

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MIDD Stock Study (7-10-24)

Posted by on August 26, 2024 at 07:15 | Last modified: July 10, 2024 09:50

I recently did a stock study on The Middleby Corp. (MIDD) with a closing price of $120.02.

M* writes:

     > The Middleby Corp is engaged in designing, manufacturing, marketing,
     > distribution and service of a broad line of foodservice equipment
     > used in all types of commercial restaurants and institutional
     > kitchens, food preparation, cooking, baking, chilling and packaging
     > equipment for food processing operations, and premium kitchen
     > equipment including ranges, ovens, refrigerators, ventilation,
     > dishwashers and outdoor cooking equipment used in the residential
     > market. The company conducts its business through three principal
     > business segments namely the Commercial Foodservice Equipment
     > Group, the Food Processing Equipment Group and the Residential
     > Kitchen Equipment Group. The firm derives majority revenue from
     > Commercial Foodservice Equipment Group segment.

Over the past 10 years, this medium-size company has grown sales and earnings at annualized rates of 10.0% and 9.4%, respectively. Lines are up and somewhat parallel with a sales dip in ’20 and EPS dips in ’15, ’20, ’22, and ’23 (sounds worse than it looks). Value Line gives an Earnings Predictability score of 70.

Over the last decade, PTPM leads peer and industry averages despite trending slightly down from 17.2% (’14) to 12.9% (’23) with a last-5-year mean of 14.5%. ROE leads peer averages but trails the industry while falling from 20.2% (’14) to 12.8% (’23) with a last-5-year mean of 16.0%. Debt-to-Capital is higher than peer averages and about even with the industry while increasing from 37.3% (’14) to 43.0% (’23) with a last-5-year mean of 47.6%.

Quick Ratio is 1.1 and Interest Coverage is 5.3 per M* who assigns a “Narrow” Economic Moat. Value Line grades the company B++ for Financial Strength.

I find these fundamentals glaringly average.

With regard to sales growth:

I am forecasting near the bottom of the range at 1.0% per year.

With regard to EPS growth:

Although these estimates seem a bit more lively than sales (especially CFRA, which seems almost outlandish), only two are long-term. My 4.0% per year forecast is less than both (average 7.1%). I will use 2024 Q1 EPS of $7.18 (annualized) as the initial value rather than ’23 EPS of $7.41/share to be more conservative.

My Forecast High P/E is 20.0. Over the past decade, high P/E falls from 30.0 (’14) to 21.9 (’23) with a last-5-year mean (excluding 39.7 in ’20) of 23.2 and a last-5-year-mean average P/E of 18.7. I am below the 10-year range.

My Forecast Low P/E is 13.0. Over the past decade, low P/E falls from 21.0 (’14) to 15.0 (’23) with a last-5-year mean (including dip to 11.1 in ’20) of 14.2. I am forecasting near the bottom of the range (only ’20 is less).

My Low Stock Price Forecast (LSPF) is the default value of $93.30 given initial value above. This is 22.3% less than the previous closing price and 14.9% less than the 52-week low.

These inputs land MIDD in the HOLD zone with a U/D ratio of 2.1. Total Annualized Return (TAR) is 7.8%.

PAR (using Forecast Average—not High—P/E) of 3.8% is less than the current yield 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 only 41 studies in the past 90 days (my study along with 12 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 5.0%, 8.0%, 22.0, and 14.2, respectively. I am lower across the board. Value Line projects a future average annual P/E of 19.0 that is greater than MS (18.1) and greater than mine (16.5).

MS high / low EPS are $10.89 / $7.18 versus my $8.74 / $7.18 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $12.95 soars above both.

MS LSPF of $100.50 implies a Forecast Low P/E of 14.0: very close to the above-stated 14.2. MS LSPF is 7.7% greater than mine thereby resulting in more aggressive zoning.

With regard to valuation, PEG is 4.0 per my projected P/E: quite overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is slightly low at 0.89.

MOS is robust in the current study because my inputs are below MS and near or below respective analyst/historical ranges. The quarterly initial value accentuates this. As a result, MS TAR (13.6%) is 5.8% per year greater than mine.

Per U/D, MIDD is a BUY under $113/share. Given a forecast high price ~$175, stock meets the BI TAR criterion under $88.

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FTNT Stock Study (7-9-24)

Posted by on August 24, 2024 at 08:36 | Last modified: July 11, 2024 10:40

I recently did a stock study on Fortinet, Inc. (FTNT) with a closing price of $60.11. The previous study is here.

Value Line writes:

     > Fortinet, Inc. provides cyber security solutions to businesses
     > and government agencies. Its flagship solution, FortiGate,
     > includes integrated security and networking functions to protect
     > data, applications, users from network- and content-level
     > security threats across firewall, software defined networking
     > (SD-WAN), Wifi and switch (LAN Edge) and secure access edge
     > (SASE). It sells products and services to distributors.

Over the past 10 years, this medium-size company has grown sales and earnings at annualized rates of 23.1% and 33.3%, respectively (excludes ’14-’17 EPS ranging from $0.01-$0.05/share that otherwise results in 73.5% annualized EPS growth rate). Lines are up, straight, and parallel except for an EPS dip in ’19. Value Line gives an Earnings Predictability score of 80.

PTPM over the last decade is generally above peer but below industry averages while increasing from 8.0% (’14) to 25.1% (’23) with a last-5-year mean of 20.8%. Stock repurchases really take off since ’20 thereby driving ROE negative in ’22 and over 1000% in ’23. Repurchases raise Debt-to-Capital > 100% the last couple years as stockholders’ equity turns into deficit.

Quick Ratio is 1.0 and Interest Coverage is 66.7 per M* who gives a “Standard” rating for Capital Allocation and assigns a “Wide” Economic Moat. Value Line grades the company B++ for Financial Strength.

High Interest Coverage suggests solid financial footing that is consistent with other data. Retained Earnings have been negative 6 out of the last 7 years. However, the negative stockholders’ equity is not due to increased debt or incurred losses. Net cash is higher over the last decade and has been positive throughout. Net income has been positive and climbing since ’18. Net profit margin has been climbing since ’21 and is at an all-time high.

With regard to sales growth:

These estimates are ~40% lower than my previous study 13 months ago. I am forecasting below the range at 9.0% per year.

With regard to EPS growth:

Except for M*, these estimates are ~40% lower than previous. I am below the long-term-estimate range at 10.0% per year (mean of five: 14.4%). I will use ’23 EPS of $1.46/share as the initial value rather than 2024 Q1 $1.53 (annualized).

My Forecast High P/E is 44.0. High P/E from ’14-’17 is in the triple digits (i.e. NMF). Since then, the lowest high P/E is 48.5 in ’18 and the last-5-year-mean high P/E is 58.9 (excluding 102 in ’21). The last-5-year-mean average P/E is 46.2. I am below the range but above my comfort zone.

My Forecast Low P/E is 30.0. Low P/E from ’14-’17 is in the triple digits (i.e. NMF). Since then, the lowest low P/E is 22.8 in ’18 and the last-5-year-mean low P/E is 33.4. I am forecasting toward the bottom of the range (only ’18 is less).

My Low Stock Price Forecast (LSPF) is the default of $43.80 based on initial value given above: 27.1% less than the previous closing price and 0.7% less than the 52-week low.

These inputs land FTNT in the HOLD zone with a U/D ratio of 2.7. Total Annualized Return (TAR) is 11.5%.

PAR (using Forecast Average—not High—P/E) of 7.7% is less than I seek 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 compare my inputs with those of Member Sentiment (MS). Based on 171 studies in the past 90 days (my study along with 65 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 12.0%, 13.0%, 49.7, and 31.8, respectively. I am lower across the board. Value Line projects a future average annual P/E of 45.0 that is greater than MS (40.8) and greater than mine (37.0).

MS high / low EPS are $2.81 / $1.49 versus my $2.35 / $1.46 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $2.60 is in the middle.

MS LSPF of $45.90 implies a Forecast Low P/E of 30.8: less than the above-stated 31.8. MS LSPF is 3.1% less than the default $1.49/share * 31.8 = $47.38 resulting in more conservative zoning. MS LSPF is 4.8% greater than mine, however.

With regard to valuation, PEG is 2.5 and 3.6 per Zacks and my projected P/E, respectively: both overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is slightly low at 0.85.

MOS is robust in the current study because my inputs—especially EPS growth—are below MS and near or below respective analyst/historical ranges. MS TAR of 18.1% is 6.6% per year greater than mine.

Per U/D, FTNT is a BUY under $58/share. Given forecast high price ~$104, stock under $52 meets the BI TAR criterion.

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MNST Stock Study (7-8-24)

Posted by on August 22, 2024 at 06:42 | Last modified: July 8, 2024 11:49

I recently did a stock study on Monster Beverage Corp. (MNST) with a closing price of $49.75. The previous study is here.

M* writes:

     > Monster Beverage is a leader in the energy drink subsegment
     > of the nonalcoholic beverage market, generating two thirds
     > of revenue in the US and Canada. The well-known Monster
     > trademark includes brands such as Monster Energy, Monster
     > Ultra, Java Monster, and Juice Monster. The firm also owns
     > other energy drink brands, such as Reign, NOS, Burn, and
     > Mother, and brews and distributes beers and flavored malt
     > beverages following the acquisition of a craft brewer in 2022.
     > Monster controls branding and innovation but outsources
     > beverage manufacturing and packaging to copackers and
     > finished goods distribution to bottlers in the global Coca-
     > Cola system (pursuant to a 20-year agreement inked in 2015).
     > Coke is the largest shareholder of Monster with a 19.5% stake.

Over the last 10 years, this medium-size company has grown sales and EPS at annualized rates of 12.5% and 14.7%, respectively. Lines are mostly up, straight, and parallel except for EPS declines in ’21 and ’22. Value Line scores the company 90 for Earnings Predictability.

Over the past decade, PTPM leads peer and industry averages while ranging from 24.9% in ’22 to 35.7% in ’17 with a last-5-year mean of 31.1%. ROE trails the industry and is just lower than peer averages while ranging from 12.4% in ’15 to 33.5% in ’14 with a last-5-year mean of 23.2%. Debt-to-Capital is much lower than peer and industry averages as the company has no long-term debt.

Quick Ratio is 4.0 per M* who gives the company a “Standard” rating for Capital Allocation. Value Line grades the company A+ for Financial Strength.

With regard to sales growth:

My 5.0% per year forecast is at the lower end of the range.

With regard to EPS growth:

My 10.0% per year forecast is below the long-term-estimate range (mean of five: 13.7%). Initial value is ’23 EPS of $1.54/share rather than 2024 Q1 EPS of $1.59 (annualized).

My Forecast High P/E is 33.0. Over the past decade, high P/E ranges from 32.7 in ’19 to 56.6 in ’15 with a last-5-year mean of 38.6 and a last-5-year-mean average P/E of 33.0. I am near the bottom of the range (only ’19 is lower).

My Forecast Low P/E is 23.0. Over the past decade, low P/E ranges from 19.0 in ’20 to 37.6 in ’15 with a last-5-year average of 27.4. I am forecasting near the bottom of the range [only ’20 and ’14 (22.7) are lower].

My Low Stock Price Forecast (LSPF) of $35.40 is default based on initial value given above. This is 28.8% less than the previous closing price and 24.8% less than the 52-week low.

These inputs land MNST in the HOLD zone with a U/D ratio of 2.2. The Total Annualized Return (TAR) is 10.5%.

PAR (using Forecast Average–not High–P/E) is less than I seek for a medium-size company at 6.9%. 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 205 studies done in the past 90 days (my study along with 84 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E, are 10.7%, 13.0%, 36.1, and 26.8. I am lower across the board. Value Line projects a future average annual P/E of 40.0 that is higher than MS (31.0) and much higher than mine (28.0).

MS high / low EPS are $2.89 / $1.58 versus my $2.48 / $1.54 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $2.60 is in the middle.

MS LSPF of $41.80 implies a Forecast Low P/E of 26.5: slightly less than the above-stated 26.8. MS LSPF is 1.3% less than default $1.58/share * 26.8 = $42.34 resulting in more conservative zoning. MS LSPF is 18.1% greater than mine, however.

With regard to valuation, PEG is 2.0 and 2.8 per Zacks and my projected P/E, respectively: a bit overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is fair at 0.95.

MOS is robust in the current study because my inputs are at or below MS and near the bottom of or below respective analyst/historical ranges. MS TAR of 15.1% is 4.6% per year greater than mine as a result.

Per U/D, MNST is a BUY under $47/share. Stock must fall to ~$41 to meet the BI TAR criterion (forecast high price ~$82).

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IPAR Stock Study (7-5-24)

Posted by on August 19, 2024 at 06:54 | Last modified: July 5, 2024 09:43

I recently studied Inter Parfums Inc. (IPAR) with a closing price of $114.28.

M* writes:

     > Inter Parfums Inc operates in the fragrance business and manufactures,
     > markets, and distributes fragrances and fragrance-related products.
     > It sells its product under the brand names called JIMMY CHOO, bebe,
     > Paul Smith, Abercrombie and Fitch, COACH, and others. The company
     > operates in two operating segments namely European based operations,
     > and United-States operations. The group sells its products to
     > department stores, perfumeries, specialty stores, and domestic and
     > international wholesalers and distributors.

Over the past 10 years, this medium-size company has grown sales and EPS at annualized rates of 10.9% and 18.8%, respectively. Lines are mostly up, straight, and parallel except for a sales decline in ’15 and sales/EPS decline in ’20. I won’t exclude ’20 to avoid artificial inflation of growth rates, but 5- and 10-year R^2 of 0.74 and 0.83 could justify it.

Over the past decade, PTPM leads peer averages but trails the industry while increasing from 11.4% (’14) to 18.9% (’23) with a last-5-year mean of 16.3%. ROE trails peer and industry averages despite increasing from 7.5% (’14) to 22.0% (’23) with a last-5-year mean of 15.7%. Debt-to-Capital is much lower than peer and industry averages despite increasing from 0.1% (’14) to 21.6% (’23) with a last-5-year mean of 18.0%.

Quick Ratio is 1.3 per M* and Interest Coverage is 22.2. Value Line grades the company “A” for Financial Strength.

With regard to sales growth:

I am forecasting below the range at 7.0% per year.

With regard to EPS growth:

My 7.0% per year forecast is below the long-term estimate range (average of two: 11.0%). Initial value is 2024 Q1 EPS of $4.35 (annualized) rather than ’23 EPS of $4.75/share.

My Forecast High P/E is 28.0. Over the past decade, high P/E falls from 39.7 (’14) to 33.9 (’23) with a last-5-year mean of 36.1 (excluding outlier 62.0 in ’20) and a last-5-year-mean average P/E of 29.2. I am below the entire range.

My Forecast Low P/E is 20.0. Over the past decade, low P/E falls from 26.1 (’14) to 20.2 (’23) with a last-5-year mean of 23.5 (no outlier in ’20). I am forecasting near the bottom of the range [only ’22 (17.1) and ’16 (19.0) are less].

My Low Stock Price Forecast (LSPF) of $87.00 is default based on initial value given above. This is 23.9% less than the previous low and 19.7% less than the 52-week low.

Over the past decade, Payout Ratio (PR) ranges from 27.3% in ’20 to 60.8% in ’19 with a last-5-year mean of 46.0%. I am forecasting below the range at 27.0%.

These inputs land IPAR in the HOLD zone with a U/D ratio of 2.1. Total Annualized Return (TAR) is 9.3%.

PAR (using Forecast Average—not High—P/E) of 6.2% 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 57 studies in the past 90 days (my study along with 22 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 9.5%, 11.0%, 30.0, 20.0, and 46.0%, respectively. I am lower on all but the fourth (20.0). Value Line projects a future average annual P/E of 25.0 that is equal to MS and higher than mine (24.0).

MS high / low EPS are $7.58 / $4.35 versus my $6.10 / $4.35 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $7.65 is greater than both.

MS LSPF of $93.00 implies a Forecast Low P/E of 21.4: greater than the above-stated 20.0. MS LSPF is 6.9% greater than the default $4.35/share * 20.0 = $87.00 (identical to mine) resulting in more aggressive zoning.

With regard to valuation, PEG is 3.5 (overvalued) per my projected P/E. Relative Value [(current P/E) / 5-year-mean average P/E] is slightly low at 0.88.

MOS is robust in the current study because my inputs—especially EPS growth—are at or below MS and near the bottom of or below respective analyst/historical ranges. MS TAR of 15.3% is six percentage points greater than mine.

Per U/D, IPAR is a BUY under ~$107/share. The stock needs to fall under $86 to meet the BI TAR criterion given a forecast high price ~$171.

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MKTX Stock Study (7-3-24)

Posted by on August 18, 2024 at 06:29 | Last modified: July 3, 2024 11:06

I recently studied MarketAxess Holdings, Inc. (MKTX) with a closing price of $193.80. Previous studies are here and here.

M* writes:

     > Founded in 2000, MarketAxess is a leading electronic fixed-income
     > trading platform that connects broker/dealers and institutional
     > investors. The company is primarily focused on credit based fixed
     > income securities with its main trading products being U.S.
     > investment-grade and high-yield bonds, Eurobonds, and Emerging
     > Market corporate debt. Recently the company has expanded more
     > aggressively into Treasuries and municipal bonds with the
     > acquisitions of LiquidityEdge and MuniBrokers in 2019 and 2021,
     > respectively. The company also provides pre- and post-trade
     > services with its acquisition of Regulatory Reporting Hub from
     > Deutsche Börse Group in 2020 adding to its product offerings.

Over the past 10 years, this small-size company has grown sales and EPS at annualized rates of 13.2% and 15.5%, respectively. Lines are mostly up, parallel, and flattening except for EPS dips in ’21 and ’22.

Over the past decade, PTPM leads peer and industry averages while recently trending lower from 45.1% in ’14 to 51.8% in ’16 to 44.2% in ’23 with a last-5-year mean of 48.7%. ROE leads peer and industry averages going from 22.5% in ’14 to 29.5% in ’19 then decreasing to 21.8% in ’23 with a last-5-year mean of 26.7%. Debt-to-Capital is much lower than peer and industry averages as the company has no debt (uncapitalized leases only): last-5-year mean is 8.2%.

Quick Ratio is 2.2 and Interest Coverage is 153. M* assigns the company a “Wide” economic moat and gives an “Exemplary” rating for Capital Allocation. Value Line gives a Financial Strength grade of A.

With regard to sales growth:

I am forecasting below the range at 7.0% per year.

With regard to EPS growth:

My 4.0% per year forecast is near bottom of the 5-long-term-estimate range (mean 7.4%). Initial value is ’23 EPS of $6.85/share rather than 2024 Q1 EPS of $6.81 (annualized).

My Forecast High P/E is 35.0. Over the past decade, high P/E ranges from 37.4 in ’14 to 87.0 in ’21 with a last-5-year mean of 72.6. The last-5-year-mean average P/E is 54.9. I am forecasting below the range and closer to the current P/E of 28.5.

My Forecast Low P/E is 23.0. Over the past decade, low P/E ranges from 24.0 in ’14 to 50.4 in ’21 with a last-5-year mean of 37.1. I am forecasting below the range.

My Low Stock Price Forecast (LSPF) of $155.00 is default based on initial value given above. This is 20.0% less than the previous closing price and 19.4% less than the 52-week low.

Over the past decade, Payout Ratio (PR) ranges from 30.6% in ’20 to 42.1% in ’22 with a last-5-year mean of 38.3%. I am forecasting below the range at 30.0%.

These inputs land MKTX in the HOLD zone with a U/D ratio of 2.7. Total Annualized Return (TAR) is 9.4%.

PAR (using Forecast Average—not High—P/E) of 5.5% is less than I seek for a small-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 15 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 8.6%, 10.1%, 41.5, 29.8, and 37.7%, respectively. I am lower across the board. Value Line’s projected average P/E of 40.0 is higher than MS (35.7) and much higher than mine (29.0).

MS high / low EPS are $11.08 / $6.80 versus my $8.33 / $6.85 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS exceeds both at $11.25.

MS LSPF of $163.40 implies a Forecast Low P/E of 24.0: less than the above-stated 29.8. MS LSPF is 19.4% less than the default $6.80/share * 29.8 = $202.64 resulting in more conservative zoning. MS LSPF is 5.4% higher than mine, though.

With regard to valuation, PEG is 4.9 and 6.8 per Zacks and my projected P/E, respectively: substantially overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is substantially undervalued at 0.52.

MOS is robust in the current study. I am much lower than MS TAR of 18.9% although the small MS sample size limits importance of the comparison. My inputs are also near the bottom of or below respective analyst/historical ranges.

The SA estimate hurts stock prospects by lowering my forecast. Despite SA being so low, I don’t think my forecast is outlandish being less than 4% less than the analyst mean (and still above SA).

Per U/D, MKTX is a BUY under $191/share. The stock needs to fall to ~$146 to meet the BI TAR criterion given a forecast high price ~$292.

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AKAM Stock Study (7-2-24)

Posted by on August 17, 2024 at 06:38 | Last modified: July 2, 2024 10:11

I recently did a stock study on Akamai Technologies, Inc. (AKAM) with a closing price of $89.53. The previous study is here.

M* writes:

     > Akamai operates a content delivery network, or CDN, which entails
     > locating servers at the edges of networks so its customers, which
     > store content on Akamai servers, can reach their own customers
     > faster, more securely, and with better quality. Akamai has over
     > 325,000 servers distributed over 4,100 points of presence in more
     > than 1,000 cities worldwide. The firm also offers security and
     > cloud computing for its customers, and those businesses have
     > grown to be bigger than the legacy CDN.

Over the past 10 years, this medium-size company has grown sales and EPS at annualized rates of 7.7% and 11.2%, respectively. While sales have been up and straight, EPS declines in ’15, ’17, and ’22 somewhat dent the “up, straight, and parallel” appearance we all like to see.

Over the past decade, PTPM leads peers and trails the industry as it trends down from 24.4% (’14) to 17.1% (’23) with a last-5-year mean of 18.8%. ROE leads peers and trails the industry while ranging from 6.5% in ’17 to 13.8% in ’21 with a last-5-year mean of 13.0%. Debt-to-Capital is lower than peer and industry averages despite trending higher from 0% (’14) to 49.7% (’23) with a last-5-year mean of 42.4%.

Quick Ratio is 2.9 and Interest Coverage is 33.7. M* gives an Exemplary rating for Capital Allocation and Value Line gives an A grade for Financial Strength.

With regard to sales growth:

I am forecasting near the bottom of the range at 4.0%.

With regard to EPS growth:

My 5.0% forecast is near the bottom of the 5-long-term-estimate range (mean 7.8% per year). Initial value is ’23 EPS of $3.52 rather than 2024 Q1 EPS of $4.02/share (annualized).

My Forecast High P/E is 30.0. Over the past decade, high P/E ranges from 31.8 in ’21 to 56.9 in ’17 with a last-5-year mean of 34.3 and a last-5-year-mean average P/E of 28.1. I am forecasting below the high P/E range.

My Forecast Low P/E is 20.0. Over the past decade, low P/E ranges from 19.7 in ’19 to 35.4 in ’17 with a last-5-year mean of 21.8. I am forecasting near the bottom of the range (only ’19 is less).

My Low Stock Price Forecast (LSPF) of $70.40 is default based on initial value given above. This is 21.4% less than the previous closing price, 19.6% less than the 52-week low, and 0.4% less than the 2023 low.

These inputs land AKAM in the HOLD zone with a U/D ratio of 2.4. Total Annualized Return (TAR) is 8.5%.

PAR (using Forecast Average—not High—P/E) is less than I seek for a medium-size company at 4.6%. 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 27 studies (my study and 7 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 5.8%, 6.7%, 32.8, and 21.8, respectively. I am lower across the board. Value Line’s projected average annual P/E of 34.0 is greater than MS (27.3) and greater than mine (25.0).

MS high / low EPS are $5.25 / $3.53 versus my $4.49 / $3.52 (per share). My high EPS is less due to a lower growth rate. Value Line is in the middle at $5.05/share.

MS LSPF of $77.00 implies a Forecast Low P/E of 21.8: a perfect match. MS LSPF is 9.4% greater than mine resulting in more aggressive zoning.

With regard to valuation, PEG is 3.0 and 4.2 per Zacks and my projected P/E: both substantially overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is a bit low at 0.8.

MOS in this study is robust despite a small MS sample size for comparison. Not only is my TAR (over 15.0% preferred) much less than MS 13.2%, my forecast growth rates and P/E range are near or below analyst estimate ranges.

U/D has AKAM a BUY under $86/share. The stock needs to approach $68 in order to meet the BI TAR criterion given a forecast high price ~$135.

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WAL Stock Study (7-1-24)

Posted by on August 15, 2024 at 06:48 | Last modified: July 1, 2024 11:30

I recently did Western Alliance Bancorp (WAL) with a closing price of $62.82. Previous studies are here, here, and here.

M* writes:

     > Western Alliance Bancorporation is a Las Vegas-based holding company
     > with regional banks operating in Nevada, Arizona, and California. The bank
     > offers retail banking services and focuses on mortgages for retail
     > customers and commercial loans. The company’s reportable segments are
     > Commercial segment includes provides commercial banking and treasury
     > management products and services to small and middle-market businesses,
     > specialized banking services to sophisticated commercial institutions and
     > investors within niche industries, as well as financial services to the
     > real estate industry. Consumer Related segment offers both commercial
     > banking services to enterprises in consumer-related sectors and consumer
     > banking services, such as residential mortgage banking. Corporate & Other.

Over the past 10 years, this medium-size company has grown sales and EPS at annualized rates of 21.1% and 20.6%, respectively. Lines are mostly up, straight, and parallel except for ’23 declines in sales and total assets.

Over the past decade, PTPM leads peer and industry averages despite falling from 48.2% (’14) to 43.9% (’23) with a last-5-year mean of 53.9%. ROE leads peer and industry averages despite falling from 17.4% (’14) to 13.1% (’23) with a last-5-year mean of 17.8%. Debt-to-Capital is lower than peer and industry averages despite increasing from 30.1% (’14) to 57.2% (’23) with a last-5-year mean of 33.8%.

Value Line rates the company B+ for Financial Strength.

ROAA increases from 1.36% in ’13 to 1.69% in ’22 before falling to 1.36% and 1.02% in the last two years (each a subsequent 10-year low). ROAA is one of several metrics that fall in ’23 as a series of bank failures rock the industry.

With regard to sales growth:

I am forecasting below the range at 10.0% per year.

With regard to EPS growth:

My forecast of 5.0% per year is below the long-term estimate range. Mean of four estimates is 7.7% but I am skeptical of data duplication (lighter analyst coverage than four data sources suggest) because three are exact matches. Initial value is 2023 EPS of $6.54 (down 32.6% YOY) rather than 2024 Q1 EPS of $6.86/share (annualized).

My Forecast High P/E is 10.0. Over the past decade, high P/E ranges from 11.9 in ’19 to 20.3 in ’16 with a last-5-year mean of 12.7 and a last-5-year-mean average P/E of 8.9. I am below the entire 10-year high P/E range.

My Forecast Low P/E is 5.0. Over the past decade, low P/E falls from 12.2 (’14) to 1.1 (’23) with a last-5-year mean of 5.1. I am forecasting toward the lower end of the range [only ’23 (outlier) and ’20 (4.1) are lower].

My Low Stock Price Forecast (LSPF) is $43.00. Default based on initial value given above seems unreasonably low (47.9% less than previous close). My LSPF (arbitrary) is 31.6% less than the previous low and 20.5% greater than 52-week low.

WAL commences dividend in 2019 with a last-5-year mean Payout Ratio (PR) of 16.2%. My 9.0% forecast is below the range.

These inputs land WAL in the HOLD zone with a U/D ratio of 1.0. Total Annualized Return (TAR) is 6.7%.

PAR (using Forecast Average—not High—P/E) of 1.1% is less than the current yield on T-bills. 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 75 studies done in the past 90 days (my study along with 38 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 13.4%, 11.9%, 11.4, 5.1, and 15.3%, respectively. I am lower across the board. Value Line projects a 2025 [versus 2028] average annual P/E of 6.7 that is less than MS (8.3) and myself (7.5).

MS high / low EPS are $12.09 / $6.86 versus my $8.35 / $6.54 (per share). My high EPS is less due to a lower growth rate. Value Line’s ACE high EPS ~$9.20 is in the middle.

MS LSPF of $35.00 implies a Forecast Low P/E of 5.1: a perfect match. MS LSPF is 18.6% less than mine resulting in more conservative zoning.

With regard to valuation, PEG is 1.2 and 1.7 per Zacks and my projected P/E, respectively: the latter slightly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is slightly elevated at 1.02.

MOS is robust in the current study because my inputs are below MS and the respective analyst/historical ranges. As further evidence, MS TAR of 19.8% is much higher than mine.

Western Alliance has survived the 2023 industry turbulence and bounced back from fire sale stock valuations. Those [of us: full disclosure] who bought with “blood in the streets” may consider selling now that valuation has normalized. My hesitation is the forecast double-digit sales growth and my sub-trendline initial value. If the latter normalizes, then next year’s First Cut should make for a more interesting read.

Per U/D, WAL is a BUY under ~$53/share. The stock needs to fall under $42 to meet the BI TAR criterion given a forecast high price of $83.50.

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