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LKQ Stock Study (6-3-24)

Posted by on July 9, 2024 at 06:39 | Last modified: June 3, 2024 12:15

I recently did a stock study on LKQ Corp. (LKQ) with a closing price of $43.03.

M* writes:

     > LKQ is a Global distributor of non-OEM automotive parts. Initially
     > formed in 1998 as a consolidator of auto salvage operations in the
     > United States, it has since greatly expanded its scope to include
     > distribution of new mechanical and collision parts, specialty auto
     > equipment, and remanufactured and recycled parts in both Europe
     > and North America. It still maintains its auto salvage business and
     > owns over 70 LKQ pick-your-part junkyards. Separate from the self-
     > service business, LKQ purchases over 300,000 salvage automobiles
     > annually that are used to extract vehicle parts for resale. Globally,
     > the company maintains approximately 1,700 facilities.

Over the last 10 years, this large-size company has grown sales and EPS at annualized rates of 8.3% and 14.4%, respectively. Lines are somewhat up and parallel except for sales dips in ’20 and ’22 along with EPS dips in ’18 and ’23.

Over the last decade, PTPM edges out peer and industry averages while ranging from 6.3% in ’18-’19 to 11.9% in ’22 with a last-5-year mean of 9.1%. ROE trails peer and industry averages by ranging from 10.1% in ’18 to 20.9% in ’22 with a last-5-year mean of 15.5%. Debt-to-Capital is generally higher than peer and industry averages while ranging from 33.7% in ’15 to 51.9% in ’19 with a last-5-year mean of 45.4%.

M* reports Quick Ratio of 0.6 and Interest Coverage of 5.6: both of which have trended lower over the years. Value Line gives an “A” rating for Financial Strength.

With regard to sales growth:

My forecast is near the bottom of the range at 6.0%.

With regard to EPS growth:

My 6.0% per year forecast is below the long-term-estimate range. Although the mean of three estimates is 15.8%, YF seems like an upside outlier. Initial value is ’23 EPS of $3.52/share rather than 2024 Q1 EPS of $3.10 (annualized).

My Forecast High P/E is 14.0. Over the past 10 years, high P/E trends down from 26.3 (’14) to 16.9 (’23) with a last-5-year mean of 17.4 and a last-5-year-mean average P/E of 13.8. I am below the range.

My Forecast Low P/E is 11.0. Over the past 10 years, low P/E trends down from 19.6 (’14) to 11.8 (’23) with a last-5-year mean (excluding 6.3 outlier in 2020) of 11.1. I am near the bottom of the range [’20, ’21 (9.3), and ’22 (10.3) are lower].

My Low Stock Price Forecast (LSPF) of $34.10 is default based on initial value given above. This is 20.8% less than the previous close and 17.4% less than the 52-week low.

Since dividend inception in 2021, Payout Ratio (PR) increases from 6.8% to 32.0%. I am forecasting below the range at 6.0%.

These inputs land LKQ in the HOLD zone with a U/D ratio of 2.6. Total Annualized Return (TAR) is 9.3%.

PAR (using Forecast Average—not High—P/E) of 7.0% is less than I seek 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 101 studies in the past 90 days (my study and 27 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 6.7%, 7.0%, 17.1, 10.1, and 16.2%, respectively. I am lower on all but the fourth (11.0). Value Line projects future average annual P/E of 16.0: greater than MS (13.6) and greater than mine (12.5).

MS high / low EPS are $4.72 / $3.34 versus my $4.71 / $3.10 (per share). My initial value is lower. Value Line’s high EPS of $5.35 exceeds both.

MS LSPF of $35.20 implies a Forecast Low P/E of 10.5 versus the above-stated 10.1. MS LSPF is 4.4% greater than the default $3.34/share * 10.1 = $33.73, which results in more aggressive zoning. MS LSPF also 3.2% greater than mine.

TAR is less than MS 13.1%. MOS is robust in the current study especially if one believes YF’s long-term estimate.

With regard to valuation, PEG is 2.2 per my projected P/E: a bit expensive. Relative Value [(current P/E) / 5-year-mean average P/E] is fair at 1.01.

LKQ is a BUY under $34/share. All other things being equal, that will also come close to satisfying the 15% TAR criterion based on my forecast high price ~$66.

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KNSL Stock Study (5-31-24)

Posted by on July 6, 2024 at 08:34 | Last modified: June 2, 2024 14:06

I recently did a stock study on Kinsale Capital Group, Inc. (KNSL) with a closing price of $385.81.

M* writes:

     > Kinsale Capital Group Inc is an insurance holding company. The company
     > is engaged in offering property, casualty, and specialty insurance
     > products. It offers specialty insurance products for allied health,
     > healthcare, life sciences, a professional, and a public entity. The
     > company operates in only one reportable segment which is the Excess
     > and Surplus Lines Insurance segment, which includes commercial excess
     > and surplus lines liability and property insurance products through
     > its underwriting divisions. The company generates revenues in the
     > form of premiums and investment income.

Over the last 10 years, this large-size company has grown sales and EPS at annualized rates of 38.2% and 38.1%, respectively. Except for an EPS dip in ’17 and some added burst in ’23, this is a posterchild for “up, straight, and parallel.”

Over the last decade, PTPM leads peer and industry averages while ranging from 18.2% in ’18 to 41.6% in ’15 with a last-5-year mean of 26.1%. ROE leads peer and industry averages by increasing from 12.4% in ’16 to 33.2% (’23) with a last-5-year mean of 22.9%. A lower Debt-to-Capital than peer and industry averages completes the trifecta ranging from 0% in 2016-18 to 22.9% in ’14 with a last-5-year mean of 10.4%.

Interest Coverage is 43.5 and Value Line gives a “B++” rating for Financial Strength.

With regard to sales growth:

I am forecasting below the range at 15.0% per year.

With regard to EPS growth:

My 7.0% forecast is below the long-term-estimate range (mean of two: 12.9%). Initial value is ’23 EPS of $13.22/share [not 2024 Q1 EPS of $15.05 (annualized)]: a leap of 92.2% YOY.

My Forecast High P/E is 30.0. Since 2016, high P/E ranges from 28.2 in ’16 to 48.7 in ’22 (excluding 65.3 in COVID year of ’20) with a last-5-year mean of 39.6 and a last-5-year-mean average P/E of 30.6. I am forecasting near the bottom of the range (only ’16 is lower).

My Forecast Low P/E is 18.0. Since 2016, low P/E ranges from 14.5 in ’16 to 26.8 in ’18 with a last-5-year mean of 21.6. I am forecasting near the bottom of the range (only ’16 is lower).

My Low Stock Price Forecast (LSPF) is $301.70. The default $238 based on initial value given above seems unreasonably low being 38.3% less than the previous close. I am going with the 52-week low instead: 21.8% less.

Since dividend begins in 2016, Payout Ratio (PR) ranges from 4.2% in ’23 to 20.7% in ’17 with a last-5-year mean of 7.8%. I am forecasting below the range at 4.0%.

These inputs land KNSL in the HOLD zone with a U/D ratio of 1.2. Total Annualized Return (TAR) is 7.7%.

PAR (using Forecast Average—not High—P/E) of 3.1% 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 (still less than I like to see for a medium-size company).

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 190 studies done in the past 90 days (my study and 79 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 19.3%, 15.5%, 34.8, 21.3, and 7.8%, respectively. I am lower across the board. Value Line projects a future average annual P/E of 30.0 that is greater than MS (28.1) and greater than mine (24.0).

MS high / low EPS are $29.14 / $13.22 versus my $18.54 / $13.22 (per share). My high EPS is less due to a much lower growth rate. Value Line’s high EPS of $20.25 is in the middle.

MS LSPF of $284.80 implies a Forecast Low P/E of 21.5 versus the above-stated 21.3. MS LSPF is 1.1% greater than the default $13.22/share * 21.3 = $281.59, which results in more aggressive zoning. MS LSPF is 5.6% less than mine, however.

TAR (over 15.0% preferred) is much less than MS 18.6%. MOS is robust in the current study. Given only two long-term analyst estimates available, I have applied a larger growth-rate haircut toto account for potential bias/uncertainty. I am using the lofty recent-year EPS that may or may not be an anomaly, though.

With regard to valuation, PEG is 3.4 per my projected P/E: quite expensive. Relative Value [(current P/E) / 5-year-mean average P/E] is somewhat cheap at 0.84.

With the stock up ~28% in the past 12 months, I am not surprised to see it well extended right now.

KNSL is a BUY under $317/share. All else being equal, given my forecast high price ~$556 the stock needs to fall about 107 points to meet the BI TAR criterion.

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ACGL Stock Study (5-30-24)

Posted by on July 3, 2024 at 07:02 | Last modified: May 30, 2024 14:11

I recently did a stock study on Arch Capital Group, Ltd. (ACGL) with a closing price of $203.09.

M* writes:

     > Arch Capital Group Ltd is a Bermuda company which writes insurance
     > and reinsurance with operations in Bermuda, the United States,
     > Canada, Europe, Australia and United Kingdom. The business operates
     > through three underwriting segments: insurance, reinsurance, and
     > mortgage two operating segments: corporate and other. The insurance
     > segment provides specialty risk solutions to client across a variety
     > of industries. The reinsurance segment provides reinsurance services
     > which cover property catastrophe, property, liability, marine,
     > aviation and space, trade credit and surety, agriculture, accident,
     > life and health, and political risk. The mortgage business provides
     > risk management and risk financing products to the mortgage
     > insurance sectors through platforms in the U.S., Europe and Bermuda.

Over the last 10 years, this large-size company has grown sales and EPS 14.2% and 21.3% per year, respectively. Lines are mostly up, straight, and parallel with a sales dip in 2015 and some rockiness due to EPS dips in ’15, ’17, ’20, and ’22.

Over the last decade, PTPM lags peer and industry averages while ranging from 14.1% in ’17 to 27.3% in ’19 with a last-5-year mean of 22.2%. ROE also lags peer and industry averages despite increasing from 13.3% (’14) to 30.1% (’23) with a last-5-year mean of 17.1%. Debt-to-Capital is lower than peer and industry averages while ranging from 12.8% in ’14 to 23.2% in ’16 with a last-5-year mean of 16.5%.

Interest Coverage is 29.2 and Value Line gives a “B++” rating for Financial Strength.

With regard to sales growth:

I am forecasting below the range at 12.0% per year.

With regard to EPS growth:

My 3.0% forecast is below the long-term-estimate range (mean of four: 9.9%). Initial value is ’23 EPS of $11.62/share rather than 2024 Q1 EPS of $12.67 (annualized).

My Forecast High P/E is 9.0. Over the past decade, high P/E ranges from 7.8 in ’23 to 25.2 in ’17 (TCJA?) with a last-5-year mean of 11.8 and a last-5-year-mean average P/E of 9.4. I am forecasting toward the lower end of the range [only ’23 and ’21 (8.6) are less].

My Forecast Low P/E is 6.0. Over the past decade, low P/E ranges from 5.2 in ’23 to 20.7 in ’17 (TCJA?) with a last-5-year mean of 7.0. I am forecasting near the bottom of the range (only ’23 is lower).

My Low Stock Price Forecast (LSPF) of $69.70 is default based on initial value given above. This is 31.4% less than the previous close but 1.0% greater than the 52-week low.

These inputs land ACGL in the HOLD zone with a U/D ratio of 0.6. Total Annualized Return (TAR) is 3.6%.

PAR (using Forecast Average—not High—P/E) of -0.1% is unacceptable for any size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR but even that is lower than the current yield on T-bills.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 49 studies done in the past 90 days (my study and 11 other outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 13.6%, 11.8%, 11.3, and 7.0, respectively. I am lower across the board. Value Line projects a future average annual P/E of 13.0 that is greater than MS (9.2) and greater than mine (7.5).

MS high / low EPS are $20.03 / $10.92 versus my $13.47 / $11.62 (per share). My high EPS is lower due to a much lower growth rate. Value Line’s high EPS of $14.40 is closer to mine.

MS LSPF of $68.40 implies a Forecast Low P/E of 6.3 versus the above-stated 7.0. MS LSPF is 10.5% less than the default $10.92/share * 7.0 = $76.44 resulting in more conservative zoning. MS LSPF is also 1.9% less than mine.

TAR (over 15.0% preferred) is much less than MS 17.4%. I believe MOS to be robust in the current study.

With regard to valuation, PEG is 2.4 and 2.6 per Zacks and my projected P/E: both overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is slightly cheap at 0.85.

With the stock up 42% in the past year (per CFRA), I’m not surprised to see it far extended at the present time.

I may have lowballed the EPS forecast in going below the range. For initial value I do use ’23 EPS: up 206% YOY. I typically avoid using such a trendline excursion for the base in thinking mean reversion lurks ahead. I can’t help but wonder if this factors into the wide range of analyst estimates: some projecting a low (high) growth rate based off (pre-) 2023 earnings. While I have no additional info about those estimates, I can see that MS uses a slightly lower base.

More support of a lowball forecast is the discrepancy between sales and EPS growth rates. A 9.0% annualized difference over several years seems unsustainable.

Per U/D, ACGL is a BUY under $82/share. With a forecast high price ~$122, the BI TAR criterion won’t be satisfied until the stock falls to $61.

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MOH Stock Study (5-30-24)

Posted by on July 2, 2024 at 07:06 | Last modified: May 30, 2024 09:44

I recently did a stock study on Molina Healthcare, Inc. (MOH) with a closing price of $315.00.

M* writes:

     > Molina Healthcare Inc offers healthcare plans focused on Medicaid-related
     > solutions for low-income families and individuals. Its health plans are
     > operated by a network of subsidiaries, each of which is licensed as a
     > health maintenance organization (HMO). It has four segments: Medicaid,
     > Medicare, Marketplace and Others. The Medicaid, Medicare, and Marketplace
     > segments represent the government-funded or sponsored programs under
     > which it offers managed healthcare services. The Other segment, which is
     > insignificant to its consolidated results of operations, includes
     > long-term services and supports consultative services in Wisconsin. It
     > generates majority revenue from Medicaid segment.

Over the last 10 years, this large-size company has grown sales and EPS at annualized rates of 13.7% and 30.8%, respectively (’16 and ’17 excluded due to outlier losses that otherwise result in inflated EPS growth rates). Lines (sans ’16 and ’17) are mostly up, straight, and parallel with a sales dip in ’19 and EPS dip in ’20.

Over the last decade, PTPM trails peer and industry averages despite increasing from 1.4% (’14) to 4.3% (’23) with a last-5-year mean of 4.3%. ROE leads peer and industry averages by increasing from 6.7% (’14) to 28.2% (’23) with a last-5-year mean of 29.8%. Debt-to-Capital is higher than peer and industry averages despite falling from 47.3% (’14) to 36.1% (’23) for a last-5-year mean of 44.9%.

Quick Ratio is 1.44 and Interest Coverage is 14.3. Value Line gives an “A” rating for Financial Strength.

With regard to sales growth:

My 6.0% per year forecast is at the bottom of the range.

With regard to EPS growth:

My 9.0% forecast is below the long-term-estimate range (mean of four: 12.2%). Initial value is 2024 Q1 EPS of $18.43/share rather than ’23 EPS of $18.77.

My Forecast High P/E is 17.0. Over the past decade, high P/E trends down from 40.2 (’14) to 20.5 (’23) with a last-5-year mean of 22.2 and a last-5-year-mean average P/E of 17.9. I am below the latter [only ’18 (14.5) and ’19 (13.9) are lower].

My Forecast Low P/E is 13.0. Over the past decade, low P/E trends down from 24.9 (’14) to 13.6 (’23) with a last-5-year mean of 13.6. I am forecasting near the bottom of the range (only ’19 and ’20 are lower at 9.2).

My Low Stock Price Forecast (LSPF) of $239.60 is default based on initial value given above. This is 23.9% less than the previous close and 10.1% less than the 52-week low.

These inputs land MOH in the HOLD zone with a U/D ratio of 1.9. Total Annualized Return (TAR) is 8.3%.

PAR (using Forecast Average—not High—P/E) of 5.6% 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 only 10 studies done in the past 90 days (my study and 4 other outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 10.0%, 11.5%, 20.0, and 13.5, respectively. I am lower across the board. Value Line projects a future average annual P/E of 17.0 that is greater than MS (16.8) and greater than mine (15.0).

MS high / low EPS are $31.76 / $18.43 versus my $28.36 / $18.43 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $33.20 is greater than both.

MS LSPF of $250.70 implies a Forecast Low P/E of 13.6 versus the above-stated 13.5: both roughly equivalent. MS LSPF is 4.6% greater than mine resulting in more aggressive zoning.

TAR (over 15.0% preferred) is much less than MS 12.9%. Despite the small MS sample size, I believe MOS to be robust in the current study relative to analyst estimates and historical P/E ranges.

With regard to valuation, PEG is 1.0 and 1.8 per Zacks and my projected P/E (fairly valued). Relative Value [(current P/E) / 5-year-mean average P/E] is also fair at 0.98.

MOH is a BUY under $300/share. All else being equal, given my forecast high price ~$482 the stock needs to fall about 74 points to meet the BI TAR criterion.

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VEEV Stock Study (5-29-24)

Posted by on July 1, 2024 at 07:11 | Last modified: May 29, 2024 11:02

I recently did a stock study on Veeva Systems, Inc. (VEEV) with a closing price of $203.09. The previous stock study is here.

M* writes:

     > Veeva is the global leading supplier of cloud-based software
     > solutions for the life sciences industry. The company’s best-of-
     > breed offerings address operating and regulatory requirements
     > for customers ranging from small, emerging biotechnology
     > companies to departments of global pharmaceutical manufacturers.
     > The company leverages its domain expertise to improve the
     > efficiency and compliance of the underserved life sciences
     > industry, displacing large, highly customized and dated
     > enterprise resource planning systems that have limited
     > flexibility. Its two main products are Veeva CRM, a customer
     > relationship management platform for companies with a salesforce,
     > and Veeva Vault, a content management platform that tackles
     > various functions within any life sciences company.

Since 2018 (FY ends Jan 31; references to year at BI and Value Line incremented to align), this medium-size company has grown sales and EPS at annualized rates of 24.2% and 21.7%, respectively (earlier years excluded due to low base that otherwise further inflate EPS growth rate). Lines are up, straight, and parallel.

Over the last decade, PTPM leads peer and industry averages while increasing from 21.4% (’15) to 24.9% (’24) with a last-5-year mean of 26.3%. ROE leads peer and industry averages by increasing from 9.6% (’15) to 11.9% (’24) with a last-5-year mean of 15.1%. To complete the trifecta, the company has no long-term debt; Debt-to-Capital is lower than peer and industry averages with a last-5-year mean of 2.1%.

Quick Ratio is 4.2. M* rates the company “Exemplary” for Capital Allocation and awards a “Wide” economic moat. Value Line gives an “A” rating (down from A+ nine months ago) for Financial Strength.

With regard to sales growth:

I am forecasting below the range at 12.0% per year.

With regard to EPS growth:

My 13.0% forecast is below the long-term-estimate range (mean of five: 19.5%). Initial value is 2024 EPS of $3.22/share.

My Forecast High P/E is 50.0. Over the past decade, high P/E trends down from 142 (’15) to 70.0 (’24) with a last-5-year mean of 101 and a last-5-year-mean average P/E of 79.6. I expect these values to moderate as the company matures.

My Forecast Low P/E is 40.0. Over the past decade, low P/E ranges from 35.5 in ’19 to 80.8 in ’22 with a last-5-year mean of 57.8. I am forecasting near the bottom of the range (only ’19 is lower).

My Low Stock Price Forecast (LSPF) is $162.40. Default $128.80 based on initial value given above seems unreasonably low at 36.6% less than the previous close. I am going with the 52-week low instead: 20.0% less than the previous close.

These inputs land VEEV in the HOLD zone with a U/D ratio of 2.3. Total Annualized Return (TAR) is 7.9%.

PAR (using Forecast Average—not High—P/E) of 5.6% 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 158 studies done in the past 90 days (my study and 46 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 13.0%, 14.4%, 67.0, and 49.0, respectively. I am lower across the board. Value Line projects a future average annual P/E of 38.0 that is less than MS (58.0) and less than mine (45.0).

MS high / low EPS are $6.37 / $3.22 versus my $5.93 / $3.22 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $9.50 is much greater than both.

MS LSPF of $159.50 implies a Forecast Low P/E of 49.5 versus the above-stated 49.0. MS LSPF is 1.1% greater than the default $3.22/share * 49.0 = $157.78, which results in more aggressive zoning. MS LSPF is 1.8% less than mine.

TAR (over 15.0% preferred) is less than MS 14.9%. I believe MOS to be robust in the current study.

With regard to valuation, PEG is 1.3 and 4.3 per Zacks and my projected P/E. The respective projected growth rates of 25.4% and 13.0% help to explain this. Relative Value [(current P/E) / 5-year-mean average P/E] is somewhat cheap at 0.79.

With a forecast high price ~$296, the BI TAR criterion will be satisfied ~$148. This is so much lower than the current price for two reasons. First, my EPS forecast is 6.5% per year less than the mean. I often go below the range, but the wide dispersion in estimates (11.8%) may compound the effect. Second, the stock is trading in the middle of the 52-week range. A selloff should improve U/D and TAR.

Per U/D, the current study has VEEV a BUY under $195/share.

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HEI Stock Study (5-28-24)

Posted by on June 29, 2024 at 07:13 | Last modified: May 28, 2024 12:53

I recently did a stock study on HEICO Corp. (HEI) with a closing price of $217.31. Previous studies are here, here, and here.

M* writes:

     > Heico is an aerospace and defense supplier that focuses on creating niche
     > replacement parts for commercial aircraft and components for defense
     > products. In commercial aerospace, Heico is the largest independent
     > producer of replacement aircraft parts, primarily for engines. In the
     > defense market, the company produces niche subcomponents used in
     > targeting technology as well as simulation equipment, among other things.
     > It operates as two segments: the flight support group, or FSG, and the
     > electronic technologies group, or ETG, both of which supply the aerospace
     > and defense sectors to different degrees. The company is highly
     > acquisitive, focusing on companies in similar or adjacent markets that
     > are generating strong cash flow with the potential for growth.

Over the last 10 years, this medium-size company has grown sales and EPS at annualized rates of 9.6% and 13.6%, respectively. Lines are mostly up, straight, and parallel with a slight dip in ’20 [and ’21 for EPS].

Over the last decade, PTPM leads industry and peer averages by ranging from 17.5% in ’14 to 22.2% in ’22 with a last-5-year mean of 20.7%. ROE leads peers and lags the industry while declining from 17.8% (’14) to 13.8% (’23) with a last-5-year mean of 15.5%. Debt-to-Capital is less than peer and industry averages while ranging from 10.0% in ’21 to 44.3% in ’23 with a last-5-year mean of 23.5%.

Quick Ratio is 1.3 and Interest Coverage is 6.4. Value Line gives an “A” rating for Financial Strength, and M* gives a “Standard” rating for Capital Allocation.

With regard to sales growth:

I am forecasting below the range at 14.0% per year.

With regard to EPS growth:

My 15.0% forecast is less than the long-term-estimate range (mean of five: 17.8%). Initial value is ’23 EPS of $2.91/share rather than 2024 Q1 EPS of $3.06 (annualized).

My Forecast High P/E is 45.0. Over the last decade, high P/E ranges from 32.3 in ’15 to 67.4 in ’21 with a last-5-year mean of 63.1. The trend is higher, but I don’t expect this to continue forever. The last-5-year-mean average P/E is 51.7. My forecast is below the latter.

My Forecast Low P/E is 35.0. Over the past decade, low P/E trends higher with a range from 19.8 in ’17 to 50.8 in ’23 and a last-5-year mean of 40.3. My forecast is below the latter.

My Low Stock Price Forecast (LSPF) of $153.60 is the 52-week low: 29.3% lower than previous close. The default based on initial value given above seems unreasonably low at $101.90 (53.1% lower than previous close).

Over the past decade, Payout Ratio (PR) ranges from 5.7% to 7.7% with a last-5-year mean of 6.7%. I am forecasting conservatively at 5.0%.

These inputs land HEI in the HOLD zone with a U/D ratio of 0.7. Total Annualized Return (TAR) is 4.0%.

PAR (using Forecast Average—not High—P/E) is less than the current yield on T-bills at 1.6%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR albeit still lower than the risk-free rate.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 38 studies done 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 14.0%, 15.0%, 56.3, 40.3, and 6.8%, respectively. I am equal to or lower across the board. Value Line projects a future average annual P/E of 40.0 that is less than MS (48.3) and equal to mine.

MS high / low EPS are $6.15 / $2.97 versus my $5.85 / $2.91 (per share). Value Line’s high EPS of $6.50 is greater than both.

MS LSPF of $128.80 implies a Forecast Low P/E of 43.4 versus the above-stated 40.3. MS LSPF is 7.6% greater than the default $2.97/share * 40.3 = $119.69, which results in more aggressive zoning. MS LSPF is 16.2% less than mine, however.

TAR (over 15.0% preferred) is much less than MS 11.2%. I believe MOS to be robust in the current study.

With regard to valuation, PEG is 3.3 and 4.1 per Zacks and my projected P/E: significantly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is also expensive at 1.4.

Up 23.1% over the past year, the stock continues to be on a roll and is nowhere close to the BUY zone. Shareholders are likely quite happy with this 1-in-5 stock that wildly defies its fundamentals. While I can’t recommend an entry here, it’s tough to recommend a sale because of the historical stock appreciation and persistently high analyst growth estimates.

HEI is a BUY under $181/share. With a forecast high price ~$263, the BI TAR criterion would not be met until ~$132.

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FWRD Stock Study (5-24-24)

Posted by on June 28, 2024 at 06:57 | Last modified: May 24, 2024 16:40

I recently did a stock study on Forward Air Corp. (FWRD, $12.50). Previous studies are here, here, and here.

M* writes:

     > Forward Air Corp is an asset-light freight and logistics company. The
     > company’s operating segment includes Expedited Freight and Intermodal.
     > It generates maximum revenue from the Expedited Freight segment. The
     > expedited Freight segment operates a comprehensive national network to
     > provide expedited regional, inter-regional and national LTL (less-than-
     > truckload) services. It also offers customers local pick-up and
     > delivery and other services including final mile, truckload, shipment
     > consolidation and deconsolidation, warehousing, customs brokerage, and
     > other handling. The Company conducts business in the United States,
     > Canada, and Mexico.

The Rule of Five says for every five stocks purchased through the BI process, one can be expected to vastly underperform. This would be the one. It’s a true fallen angel.

From what I can tell, the medium-size company endured a tumultuous acquisition of Omni Logistics that closed in Jan 2024. The process involved C-suite conflict, resignation of the CEO, and a last-ditch effort to back out of the deal. A class-action lawsuit by shareholders is pending.

This First Cut is to determine whether the market has vastly overreacted to bad news—akin to the banks one year ago.

Articles to read for more background on the story may be found here, here, and here.

My previous studies can be referenced to see how the company performs pre-merger.

Due to depressed/negative earnings, FWRD no longer passes visual inspection and would surely score low on Quality. This would not be suitable as a core portfolio position. Any purchase of the stock is probably best regarded as gambling since we have no idea how it will perform as a combined entity under new management.

With regard to sales growth:

Analysts project the acquisition to dramatically increase sales. Growth rate is uncertain, however. I am forecasting below the ’25 YOY estimates at 5.0% per year.

With regard to EPS growth:

Consensus is that 2024 will be a down year but only some are predicting actual loss. Percentage changes from negative numbers make no sense. Value Line and YF are the two sources that could be giving credible estimates. I’m skeptical of latter being unchanged from nine months ago. The former is wildly optimistic.

I am forecasting zero growth to be conservative. Initial value will be 2023 EPS of $1.64/share. Value Line predicts the acquisition to be dilutive for ’24 and accretive thereafter. If the company is well-run, then growth should resume by ’25.

My Forecast High P/E is 17.0. Over the past decade (74.0 outlier in ’23 excluded), high P/E ranges from 17.6 in ’22 to 56.4 in ’16 with a last-5-year mean of 28.1. The last-5-year-mean average P/E is 24.4 ($12.50 / $1.64 = 7.6 makes sense to me as current P/E despite website stating -5.5). I am forecasting below the range.

My Forecast Low P/E is 5.0. Over the past decade, low P/E ranges from 11.8 in ’22 to 40.0 in ’16 with a last-5-year mean of 20.8. I am forecasting below the entire range and less than the current P/E.

My Low Stock Price Forecast (LSPF) of $8.20 is default based on initial value given above. This is 34.4% less than the previous close and 26.8% less than the 52-week low.

Over the past decade, the lowest Payout Ratio (PR) is 13.4% in ’22 and the last-5-year mean is 24.2% (excluding ’23 outlier of 58.5%). The current dividend yield is an attractive 7.7%. With the company taking on substantial debt to make the acquisition, though, I will forecast well below the range by setting the dividend aside completely (i.e. zero).

These inputs land FWRD in the BUY zone with a U/D ratio of 3.1. Total Annualized Return (TAR) is 17.4%.

PAR (using Forecast Average—not High—P/E) is less than I seek for a medium-size company at 7.6%. 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 six studies in the past 90 days (my study and one other outlier excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 5.3%, 12.0%, 23.0, 16.4, and 28.5%, respectively. I am lower across the board. Value Line projects average annual P/E of 23.0 that is higher than MS (19.7) and much higher than mine (11.0).

MS high / low EPS are $5.12 / $2.94 versus my $1.64 / $1.64 (per share). I use zero growth and a minimally low EPS. Value Line’s high EPS of $3.00 is in the middle.

MS LSPF of $18.70 (INVALID on today’s date) implies a Forecast Low P/E of 6.4 versus the above-stated 22.0. MS LSPF is 61.2% less than the default $2.94/share * 16.4 = $48.22 (also INVALID). MS LSPF is 128% greater than mine, though. One of the six studies (from 5/23/24) has a LSPF of -$15.90 (stock prices cannot be negative). The other five studies were done at least three weeks ago with stock ~$22.

TAR (over 15.0% preferred) is less than MS 35.7%. I can’t rely too much on comparison with a tiny MS sample. Value Line clearly thinks the company will survive and I’ve discounted EPS growth to zero off an already-depressed base (down 77.0% YOY in ’23). I believe MOS is robust in the current study.

With regard to valuation, Relative Value [(current P/E) / 5-year-mean average P/E] is fire-sale cheap at 0.31.

Despite a robust MOS, my major concerns include:

FWRD is a BUY under $13/share. Were visual inspection successful, the BI TAR criterion would be satisfied right now. As a low-quality stock, however, I would limit any purchase to speculative capital only.

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NICE Stock Study (5-23-24)

Posted by on June 26, 2024 at 06:44 | Last modified: May 23, 2024 09:13

I recently did a stock study on Nice Ltd. ADR (NICE) with a closing price of $196.58. Previous studies are here and here.

M* writes:

     > Nice is an enterprise software company that serves the customer
     > engagement and financial crime and compliance markets. The company
     > provides data analytics-based solutions through both a cloud
     > platform and on-premises infrastructure. Within customer
     > engagement, Nice’s CXone platform delivers solutions focused on
     > contact center software and workforce engagement management,
     > or WEM. Contact center offerings include solutions for digital
     > self-service, customer journey and experience optimization, and
     > compliance. WEM products optimize call center efficiency,
     > leveraging data and AI analytics for call volume forecasting and
     > agent scheduling. Within financial crime and compliance, Nice
     > offers risk and investigation management, fraud prevention,
     > anti-money laundering, and compliance solutions.

Over the last 10 years, this medium-size company has grown sales and EPS at 11.3% and 10.7% per year, respectively. Lines are mostly up, straight, and parallel except for a sales dip in ’15 and EPS dip in ’16.

Over the past decade, PTPM leads peer and industry averages while trending up from 11.4% (’14) to 19.3% (’23) with a last-5-year mean of 15.4%. ROE leads peer and industry averages while ranging from 6.9% in ’21 to 10.1% in ’23 with a last-5-year mean of 8.3%. Debt-to-Capital is much lower than peer and industry averages with a last-5-year mean of 21.7%.

Quick Ratio is 2.0 per M* and Interest Coverage is 21.8 per Value Line. The former rates the company “Exemplary” for Capital Allocation while the latter gives an “A” rating for Financial Strength.

With regard to sales growth:

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

With regard to EPS growth:

My 11.0% forecast is below the long-term-estimate range (mean of five: 14.7%). Initial value is ’23 EPS of $5.11/share rather than 2024 Q1 $5.54 (annualized)

My Forecast High P/E is 39.0. Over the past decade, high P/E ranges from 29.9 in ’15 to 107 in ’21 with a last-5-year mean of 76.4, last-10-year median of 46.5, and last-5-year-mean average P/E of 56.1. I am forecasting toward the lower end of the range [’15, ’16 (29.9), and ’17 (34.5) are lower].

My Forecast Low P/E is 29.0. Over the past decade, low P/E ranges from 20.9 in ’15 to 41.2 in ’22 (excluding 70.9 in ’21). The last-5-year mean (outlier excluded) is 35.8 and the last-10-year median is 31.5. I am forecasting toward the lower end of the range [’15, ’14 (21.9), ’16 (26.8), and ’17 (28.4) are lower].

My Low Stock Price Forecast (LSPF) of $148.20 is default based on initial value given above. This is 24.6% less than the previous close and 0.9% less than the 52-week low.

Payout Ratio decreases from 53.9% in ’13 to zero in ’18 where it has remained ever since. I will not forecast a dividend until/unless payment is reinstituted.

These inputs land NICE in the BUY zone with a U/D ratio of 2.9. Total Annualized Return (TAR) is 11.3%.

PAR (using Forecast Average—not High—P/E) is less than I seek for a medium-size company at 8.3%. 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 101 studies done in the past 90 days (my study and 35 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%, 12.0%, 50.0, and 35.7, respectively. I am lower across the board. Value Line projects a future average annual P/E of 23.0 that is much less than both MS (42.9) and me (34.0).

MS high / low EPS are $9.15 / $5.09 versus my $8.61 / $5.11 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $20.25 is much greater than both.

MS LSPF of $157.80 implies a Forecast Low P/E of 31.0 versus the above-stated 35.7. MS LSPF is 13.2% less than the default $5.09/share * 35.7 = $181.71, which results in more conservative zoning. MS LSPF is 6.5% greater than mine, however.

TAR (over 15.0% preferred) is less than MS 15.2%. I believe MOS to be robust in the current study.

With regard to valuation, PEG is 1.3 and 2.9 per Zacks and my projected P/E: clearly overvalued by the latter. Relative Value [(current P/E) / 5-year-mean average P/E] is cheap at 0.63.

Analyst estimates have climbed over the past seven months but so too has stock price leaving U/D relatively constant.

Study question for the day: why does Value Line have such highly discrepant [and offsetting] average annual P/E and EPS projections? I see this periodically in its analysis.

NICE is a BUY under $195/share. With my forecast high price ~$336, the BI TAR criterion will be satisfied ~$168.

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CMCSA Stock Study (5-22-24)

Posted by on June 24, 2024 at 06:50 | Last modified: May 22, 2024 11:36

I recently did a stock study on Comcast Corp. (CMCSA) with a closing price of $39.21. Previous studies are here and here.

M* writes:

     > Comcast is made up of three parts. The core cable business owns
     > networks capable of providing television, internet access, and
     > phone services to 63 million US homes and businesses, or nearly
     > half of the country. About 55% of the locations in this territory
     > subscribe to at least one Comcast service. Comcast acquired
     > NBCUniversal from General Electric in 2011. NBCU owns several
     > cable networks, including CNBC, MSNBC, and USA, the NBC network,
     > the Peacock streaming platform, several local NBC affiliates,
     > Universal Studios, and several theme parks. Sky, acquired in 2018,
     > is the dominant television provider in the UK and has invested
     > heavily in proprietary content to build this position. Sky is
     > also the largest pay-television provider in Italy and has a
     > presence in Germany and Austria.

Over the last 10 years, this mega-size (greater than $50B annual revenue) company has grown sales and earnings 7.0% and 10.0% per year, respectively (excluding upside EPS outlier in ’17 due to TCJA and downside outlier in ’22 due to goodwill impairment). Lines are mostly up, straight, and parallel except for sales/EPS decline in ’20.

Over the past decade, PTPM leads peer and industry averages despite decreasing from 18.1% (’14) to 16.8% (’23) with a last-5-year mean (excluding ’22) of 15.6%. ROE leads peer and industry averages since ’18 with a last-5-year mean (excluding ’22) of 15.2%. Debt-to-Capital is less than peer and industry averages despite increasing from 47.8% (’14) to 54.0% (’23) with a last-5-year mean of 50.3%.

Although Interest Coverage and Quick Ratio are only 6.0 and 0.5, respectively per M*, Value Line gives an “A+” rating for Financial Strength. M* gives a “Standard” rating for Capital Allocation, assigns a “Wide” economic moat, and writes:

     > We believe the firm’s balance sheet is sound and shareholder
     > returns are generally appropriate. The firm instituted a
     > dividend in 2008 as the business started to generate strong
     > cash flows and has increased its payout tenfold since then,
     > or 15% annually on average.

With regard to sales growth:

I am forecasting flat growth below the long-term estimate.

With regard to EPS growth:

My 7.0% forecast is below the long-term estimate range (mean of five: 9.6%). Initial value is 2023 EPS of $3.71/share.

My Forecast High P/E is 15.0. Over the past decade, high P/E ranges from 12.8 in ’23 to 23.0 in ’20 (8.9 in ’17 and 43.1 in ’22 excluded as outliers) with a last-5-year mean of 18.2. The last-5-year-mean average P/E is 15.4. I am forecasting toward the bottom of the range (only ’23 is lower).

My Forecast Low P/E is 8.0. Over the past decade, low P/E ranges from 9.3 in ’23 to 15.4 in ’15 (7.2 in ’17 and 23.5 in ’22 excluded as outliers) with a last-5-year mean of 12.6. I am forecasting below the range.

My Low Stock Price Forecast (LSPF) of $29.70 is default based on initial value given above. This is 24.3% less than the previous closing price and 18.7% less than the 52-week low.

The lowest Payout Ratio (PR) over the past decade is 28.1% in ’14 (excluding 13.3% outlier in ’17) and the last-5-year mean is 33.5% (excluding the upside outlier of 89.3% in ’22). I am forecasting below the range at 28.0%.

These inputs land CMCSA in the BUY zone with a U/D ratio of 4.1. Total Annualized Return (TAR) is 16.6%.

PAR (using Forecast Average—not High—P/E) is decent for a mega-size company at 11.3%. 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 50 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%, 7.6%, 17.3, 11.1, and 38.8%, respectively. I am lower across the board. Value Line projects a future average annual P/E of 15.0 that is greater than MS (14.2) and greater than mine (11.5).

MS high / low EPS are $5.38/ $3.61 versus my $5.20 / $3.71 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $5.70 is greater than both.

MS LSPF of $32.40 implies a Forecast Low P/E of 9.0 versus the above-stated 11.1. MS LSPF is 19.1% less than the default $3.61/share * 11.1 = $40.07 (INVALID on today’s date), which results in more conservative zoning. MS LSPF is still 9.1% greater than mine.

TAR (over 15.0% preferred) is less than MS 20.1%. I believe MOS to be robust in the current study.

With regard to valuation, PEG is 1.0 and 1.4 per Zacks and my projected P/E, respectively: fairly valued. Relative Value [(current P/E) / 5-year-mean average P/E] is cheap at 0.68.

CMCSA is a BUY under $41/share and the BetterInvesting TAR criterion is satisfied right now.

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G Stock Study (5-21-24)

Posted by on June 20, 2024 at 06:55 | Last modified: May 21, 2024 11:27

I recently did a stock study on Genpact Ltd. (G) with a closing price of $37.18. Previous studies are here and here.

M* writes:

     > Genpact Ltd is a provider of business process management
     > services. Clients are industry verticals and operate in banking and
     > financial services, insurance, capital markets, consumer product
     > goods, life sciences, infrastructure, manufacturing and services,
     > healthcare, and high-tech. Genpact’s services include aftermarket,
     > procurement, risk and compliance, human resources, IT, industrial
     > direct solutions, collections, finance and accounting, and media
     > services. Genpact’s end market by revenue is India. The company
     > is a General Electric spin-off, which is still a large source of
     > revenue for Genpact.

Over the last 10 years, this medium-size company has grown sales and EPS at annualized rates of 8.5% and 12.1%, respectively. Lines are up, straight, and parallel except for an EPS dip in ’22.

Over the past decade, PTPM leads peer and industry averages while ranging from 10.8% in ’20 to 13.5% in ’23 with a last-5-year mean of 11.6%. ROE slightly trails the industry while beating peer averages by ranging from 14.9% (’14) to 30.8% (’23) with a last-5-year mean of 20.8%. Debt-to-Capital is lower than industry averages and higher than peers in climbing from 38.2% (’14) to 40.1% (’23) with a last-5-year mean of 48.7%.

Quick Ratio is 1.4 and Interest Coverage is 10.1. Value Line rates the company “A” for Financial Strength and CFRA describes the balance sheet as “clean, with a low net debt-to-EBITDA ratio of 0.9x on a TTM basis.”

With regard to sales growth:

I am forecasting toward the lower end of the range at 3.0% per year.

With regard to EPS growth:

My 3.0% forecast is below the long-term-estimate range (mean of four: 6.9%). The initial value is ’23 EPS of $3.41/share rather than 2024 Q1 EPS of $3.50 (annualized). While the forecast may seem low, initial value is 81.4% greater than the previous year. I typically expect some mean reversion when I see such dramatic changes.

My Forecast High P/E is 14.0. Over the past decade, high P/E increases from 22.8 (’14) to 28.7 (’22) before tanking to 14.2 in ’23. The last-5-year mean is 25.7 and the last-5-year-mean average P/E is 21.0. I am forecasting below the range.

My Forecast Low P/E is 8.0. Over the past decade, low P/E increases from 16.1 (’14) to 20.0 (’21/’22; temporary COVID disruption in ’20 of 12.4) before tanking to 8.6 in ’23 with a last-5-year mean of 16.4. I am forecasting below the range.

My Low Stock Price Forecast (LSPF) of $27.30 is default based on the initial value. This is 20.5% less than the previous closing price and 7.1% less than the 52-week low.

Since dividend payments begin in 2017, the lowest Payout Ratio (PR) is 16.1% in ’23 with a last-5-year mean of 22.4%. I am forecasting below the range at 16.0%.

These inputs land G in the HOLD zone with a U/D ratio of 3.0. Total Annualized Return (TAR) is 11.1%.

PAR (using Forecast Average—not High—P/E) is less than I seek for a medium-size company at 6.3%. 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 87 studies done in the past 90 days (my study and 20 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 6.0%, 6.7%, 20.4, 13.3, and 22.4%, respectively. I am lower across the board. Value Line projects a future average annual P/E of 16.0 that is less than MS (16.9) and much greater than mine (11.0).

MS high / low EPS are $4.33 / $2.96 versus my $3.95 / $3.41 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $4.10 is in the middle.

MS LSPF of $28.10 implies a Forecast Low P/E of 9.5 versus the above-stated 13.3. MS LSPF is 28.6% less than the default $2.96/share * 13.3 = $39.37: quite a big discrepancy! MS LSPF is still 2.9% greater than mine, however.

TAR (over 15.0% preferred) is much less than MS 22.5% (another big discrepancy). Especially given my conservative judgments, I believe MOS to be robust in the current study.

Big discrepancies are also seen with regard to valuation. PEG is 1.4 and 3.2 per Zacks and my projected P/E: the latter significantly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is extremely cheap at 0.47.

The P/E compression in 2023 makes for a very interesting stock study. EPS spikes but stock price does not follow. The difference between P/E remaining at ’23 levels or returning to historical levels is the TAR difference between MS and the current study: all highly discrepant.

G is a BUY under $34/share. With a forecast high price ~$55, my personal TAR criterion is satisfied ~$27.50.

In reading the Apr 2024 BI Magazine, I realize “my personal TAR criterion” stems from BI. As discussed in Daniel Boyle’s “Repair Shop” article:

     > BetterInvesting teaches us to focus on companies that can consistently grow their
     > earnings at least 15% per year so that if valuation, as measured by the P/E ratio,
     > doesn’t change the stock is expected to double over five years.

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