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OPCH Stock Study (8-26-24)

Posted by on October 18, 2024 at 06:11 | Last modified: August 26, 2024 16:35

I recently did a stock study on Option Care Health, Inc. (OPCH) with a closing price of $31.83.

M* writes:

     > Option Care Health Inc is the provider of home and alternate-
     > site infusion services. It provides treatment for bleeding
     > disorders, neurological disorders, heart failure, anti-
     > infectives, and chronic inflammatory disorders among others.

Since 2014 and 2021 (first year of profitability), this medium-size company has grown sales and earnings at annualized rates of 11.9% and 23.4%, respectively. Lines are somewhat up, straight, and parallel (since ’21) with YOY sales dips each year between ’14-’18. EPS R^2 is 0.83 (three data points) but Value Line gives an Earnings Predictability score of 30.

Since 2021, PTPM trails peer and industry averages despite increasing from 3.4% to 8.3% (mean 5.6%). ROE leads industry averages while increasing from 12.6% to 17.9% (mean 14.0%). Debt-to-Capital is less than industry averages while falling from 49.6% to 45.1% (mean 46.7%).

Quick Ratio is 1.2 and Interest Coverage is 6.6 per M* who assigns a “Narrow” [Quantitative] Economic Moat. Value Line gives a B+ grade for Financial Strength.

With regard to sales growth:

My 8.0% per year forecast is near bottom of the range.

With regard to EPS growth:

The spectre of data duplication is raised with YF and Zacks having almost identical estimates. Even assuming this to be the case, however, the mean [of four] is little changed [at 11.5% per year].

My 8.0% per year forecast is near bottom of the long-term-estimate range (mean of five: 11.2%). Initial value is 2024 Q2 EPS of $1.19/share (annualized) rather than ’23 EPS of $1.52.

My Forecast High P/E is 24.0. From 2021-3, high P/E is 37.5, 43.2, and 24.1, respectively (mean 34.9). The mean average P/E is 27.8. I am below the range.

My Forecast Low P/E is 19.0. From 2021-3, low P/E is 20.0, 25.7, and 16.4, respectively (mean 20.7). I am forecasting in lower portion of the range.

My Low Stock Price Forecast (LSPF) of $22.60 is default based on initial value given above. This is 29.0% less than the previous closing price and 13.4% less than the 52-week low.

These inputs land OPCH in the HOLD zone with a U/D ratio of 1.1. Total Annualized Return (TAR) is 5.7%.

PAR (using Forecast Average—not High—P/E) of 3.4% 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 10 studies (my study and 3 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 9.7%, 10.0%, 28.1, and 17.7, respectively. I am lower on all but the latter (19.0). Value Line’s projected average annual P/E of 29.0 is greater than MS (22.9) and greater than mine (21.5).

MS high / low EPS are $2.38 / $1.45 versus my $1.75 / $1.19 (per share). My high EPS is less due to a lower growth rate and initial value. Value Line’s $1.90 is in the middle.

MS LSPF of $22.90 implies Forecast Low P/E of 15.8: less than the above-stated 17.7. MS LSPF is 10.8% less than the default $1.45/share * 17.7 = $25.67 resulting in more conservative zoning. MS LSPF is 1.3% greater than mine, however.

With regard to valuation, PEG is 2.4 and 3.1 per Zacks and my projected P/E, respectively: a bit rich. Relative Value [(current P/E) / 5-year-mean average P/E] is fair at 0.96.

MOS is robust because my inputs (including quarterly initial value) are near or below respective analyst/historical ranges. While MS sample size is too small for a meaningful comparison, its 15.3% TAR is anecdotally 9.6% per year greater than mine.

With only three years of profitable data recorded, I think estimates have to lean conservative because few analysts have little on which to base judgments.

Per U/D, OPCH is a BUY under $27/share. BI TAR criterion is met at $21/share given a forecast high price of $42 (no dividend).

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CNC Stock Study (8-26-24)

Posted by on October 16, 2024 at 06:47 | Last modified: August 26, 2024 07:27

I recently did a stock study on Centene Corp. (CNC) with a closing price of $78.55. The previous study is here.

M* writes:

     > Centene is a managed-care organization focused on government-
     > sponsored healthcare plans, including Medicaid, Medicare, and
     > the individual exchanges. Centene served 24 million medical
     > members as of June 2023, mostly in Medicaid (67% of membership),
     > the individual exchanges (14%), Medicare Advantage (6%), and
     > the balance in Tricare (West region), correctional facility,
     > and commercial plans. The company also serves traditional
     > Medicare users with its Medicare Part D pharmaceutical program.

Over the past 10 years, the mega-size ( > $50B annual revenue) company has grown sales and earnings at annualized rates of 28.5% and 11.9%, respectively. Lines are somewhat up, straight, and parallel except for YOY EPS declines in ’18, ’20, ’21, and ’22 (recent year catches back up to previous trendline). Ten- (Five-) year EPS R^2 is 0.65 (0.05), but Value Line gives an Earnings Predictability score of 90.

Over the past decade, PTPM trails peer and industry averages while falling from 2.8% (’14) to 2.3% (’23) with a last-5-year mean of 2.0%. ROE also trails peer and industry averages while falling from 16.2% (’14) to 10.5% (’23) with a last-5-year mean of 7.5%. Debt-to-Capital is about even with peer and industry averages while increasing from 33.9% (’14) to 42.2% (’23) with a last-5-year mean of 44.8%.

Value Line gives a B++ grade for Financial Strength. Quick Ratio is 1.1 and Interest Coverage is 6.3 per M* who assigns a “Narrow” Economic Moat, “Standard” Capital Allocation, and writes:

     > Overall, while the balance sheet appears weak to us, it is
     > improving and could reach sound territory in the near future if the
     > firm refrains from significant, leverage-increasing acquisitions.

With regard to sales growth:

My 2.0% per year forecast is near bottom of the range.

With regard to EPS growth:

My 8.0% per year forecast is near bottom of the long-term-estimate range (mean of six using lower for M*: 10.8%). Initial value is ’23 EPS of $4.95/share rather than 2024 Q2 EPS of $5.27 (annualized).

My Forecast High P/E is 17.0. Over the past decade, high P/E ranges from 16.9 in ’23 to 47.6 in ’22 with a last-5-year mean of 29.6 and a last-5-year-mean average P/E of 24.8. I am near bottom of the range (only ’23 is less).

My Forecast Low P/E is 12.0. Over the past decade, low P/E ranges from 11.9 in ’17 to 35.4 in ’22 with a last-5-year mean of 20.2. I am forecasting near bottom of the range (only ’17 is less).

My Low Stock Price Forecast (LSPF) of $59.40 is default based on initial value given above. This is 24.4% less than the previous closing price and 2.3% less than the 52-week low.

These inputs land CNC in the HOLD zone with a U/D ratio of 2.4. Total Annualized Return (TAR) is 9.5%.

PAR (using Forecast Average—not High—P/E) of 6.1% is less than I seek for a mega-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 55 studies (my study and 18 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E, are 4.5%, 10.0%, 22.0, and 14.0, respectively. I am lower across the board. Value Line’s projected average annual P/E of 13.5 is less than MS (18.0) and less than mine (14.5).

MS high / low EPS are $8.13 / $5.03 versus my $7.27 / $4.95 (per share). My high EPS is less due to a lower growth rate. Value Line’s $10.50 soars above both.

MS LSPF of $55.60 implies Forecast Low P/E of 11.0: less than the above-stated 14.0. MS LSPF is 21.5% less than the default $5.03/share * 14.0 = $70.42 resulting in more conservative zoning. MS LSPF is also 6.9% less than mine.

With regard to valuation, PEG is 1.1 and 1.7 per Zacks and my projected P/E, respectively: fairly valued. Relative Value [(current P/E) / 5-year-mean average P/E] is quite low at 0.60.

MOS is robust because my inputs are near or below respective analyst/historical ranges and MS averages. That is further supported by an MS TAR that is 9.9% per year greater than mine at 19.4%.

I approach Centene with hesitation because of its low sales growth and high debt load. M* comments like those included above are unusually sour. Value Line forecasts long-term debt to decrease by 38% over the next five years, which should help.

Per U/D, CNC is a BUY under $75/share. BI TAR criterion is met ~ $62/share given a forecast high price ~ $124 (no dividend).

A 90-day free trial to BetterInvesting® may be secured here (also see link under “Pages” section at top right of this page).

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ACMR Stock Study (10-14-24)

Posted by on October 14, 2024 at 06:23 | Last modified: August 23, 2024 11:16

I recently did a stock study on ACM Research, Inc. (ACMR) with a closing price of $19.22.

CFRA writes:

     > ACM Research, Inc… develops, manufactures, and sells single-wafer wet
     > cleaning equipment for enhancing the manufacturing process and yield for
     > integrated chips worldwide. It offers space alternated phase shift
     > technology for flat and patterned wafer surfaces, which employs
     > alternating phases of megasonic waves to deliver megasonic energy in a
     > uniform manner on a microscopic level; timely energized bubble oscillation
     > technology for patterned wafer surfaces at advanced process nodes, which
     > provides cleaning for 2D and 3D patterned wafers; Tahoe technology for
     > delivering cleaning performance using less sulfuric acid and hydrogen
     > peroxide; and electro-chemical plating technology for advanced metal
     > plating. The company markets and sells its products under the SAPS,
     > TEBO, ULTRA C, ULTRA Fn, Ultra ECP, Ultra ECP map, and Ultra ECP ap
     > trademarks through direct sales force and third-party representatives.

Since 2018, this small-size company has grown sales and earnings at annualized rates of 51.0% and 47.6%, respectively (pre-2018 data excluded from full analysis due to fractional/negative EPS numbers, triple-digit Debt-to-Capital, and a negative ROE print). Lines are up, straight, and parallel except for a YOY EPS decline in ’20. Five-year EPS R^2 is 0.86. Value Line SMC edition mentions a page 4210 that is inaccessible online.

Since 2018, PTPM leads peer averages but trails the industry while increasing from 9.9% to 20.8% (’23) with a last-5-year mean of 16.9%. ROE also leads peer averages and trails the industry while ranging from 5.5% in ’22 to 19.6% in ’19 and ’21 with a last-5-year mean of 13.5%. Debt-to-Capital is slightly higher than peer averages and lower than the industry while ranging from 5.5% in ’21 to 26.2% in ’20 with a last-5-year mean of 13.8%.

Quick Ratio is 1.2 and Interest Coverage is 43.7 per M*.

With regard to sales growth:

My 19.0% per year forecast is below the range.

With regard to EPS growth:

My 15.0% per year forecast is below the long-term-estimate range (mean of only two: 31.4%). Initial value is ’23 EPS of $1.16/share rather than 2024 Q2 EPS of $1.26 (annualized).

My Forecast High P/E is 18.0. Since 2018, high P/E ranges from 18.2 in ’23 to 83.7 in ’21 (excluding 128 in ’20) with last-5-year mean of 43.9 and last-5-year-mean average P/E (also excluding 35.1 low P/E in ’21) of 27.4. I am below the range.

My Forecast Low P/E is 8.0. Since 2018, low P/E ranges from 7.5 in ’23 to 17.9 in ’20 (excluding 35.1 in ’21) with a last-5-year mean of 11.0. I am forecasting near bottom of the range (only ’23 is less).

My Low Stock Price Forecast (LSPF) is $12.50. Default ($10.10) based on initial value seems unreasonably low at 47.5% (19.2%) less than the previous closing price (52-week low). I am using the 52-week low instead: previous close less 35.0%.

These inputs land ACMR on the cusp of the HOLD zone with U/D ratio of 3.0. Total Annualized Return (TAR) is 16.1%.

PAR (using Forecast Average—not High—P/E) of 8.8% 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 109 studies (my study and 32 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 18.4%, 18.2%, 23.2, and 12.0, respectively. I am lower on all but sales (19.0%). MS projected average annual P/E is 17.6 versus my 13.0.

MS high / low EPS are $2.95/ $1.31 versus my $2.23 / $1.26 (per share). My high EPS is less due to a lower growth rate.

MS LSPF of $13.70 implies Forecast Low P/E of 10.5: less than the 12.0 above. MS LSPF is 12.9% less than the default $1.31/share * 12.0 = $15.72, which results in more conservative zoning. MS LSPF is still 9.6% greater than mine, though.

With regard to valuation, PEG is 0.9 per my projected P/E (Zacks unavailable): one of the lowest I have seen. Relative Value [(current P/E) / 5-year-mean average P/E] is extremely low at 0.58. While the latter excludes the two highest extremes around COVID, subsequent values may also prove to be inflated.

MOS is robust because my inputs are near or below respective analyst/historical ranges and MS averages (sales immaterial to the analysis). Consistent with this is MS TAR being 10.1%/year greater than mine.

I’ve done a decent job putting ACM Research through the ringer and multiple facets look pretty good. I learned about it in a Manifest Investing “Bull Sessions” as a candidate for the 2024 Best Small Companies portfolio. Hopefully soon we can get a more complete data set (e.g. Value Line and possibly M* coverage, Zacks EPS estimate, more from Nasdaq.com and perhaps Argus). Until then, maybe we can also get a lower stock price for the volatile issue [beta 1.55 and “Extreme” uncertainty rating by M* (quantitative)].

Per U/D, ACMR is a BUY under $19.90/share. BI TAR criterion is met right now given a forecast high price ~ $42 (no dividend; this is an unusual circumstance of U/D criterion being more stringent than the TAR criterion).

A 90-day free trial to BetterInvesting® may be secured here (also see link under “Pages” section at top right of this page).

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DGII Stock Study (8-22-24)

Posted by on October 13, 2024 at 06:45 | Last modified: August 22, 2024 12:04

I recently did a stock study on Digi International Inc. (DGII) with a closing price of $28.87.

M* writes:

     > Digi International Inc… provides business and mission-critical and
     > Internet of Things (IoT) connectivity products and services. It
     > has two segments: IoT Products and Services and IoT Solutions.
     > The IoT Products and Services segment consists of distinct
     > communications products and communication product development
     > services. IoT Solutions segment offers wireless temperature and
     > other environmental condition monitoring services as well as
     > employee task management services. The company generates
     > majority of its revenue from the IoT Products & Services segment.
     > Geographically, the company generates majority of its revenue
     > from its business in the United States and also has its presence
     > in Europe, Middle East and Africa and Rest of the world.

Over the past 10 years, the small-size company has grown sales and earnings at annualized rates of 9.7% and 15.8%, respectively (FY ends Sep 30). Lines are somewhat up, straight, and parallel except for YOY sales declines in ’16 and ’17 along with EPS declines in ’17, ’18, and ’20. Ten- (Five-) year EPS R^2 is 0.27 (0.68), and Value Line gives a lackluster Earnings Predictability score of 40.

I deem visual inspection to be “fair.” Sales looks better than EPS albeit single digits. EPS is hurt by ’18 (exclusion improves 10-year R^2 to 0.44). Leaving a more sour taste in my mouth is ’16 EPS of $0.51/share not being eclipsed until $0.54 in ’22.

Over the past decade, PTPM leads peer averages but trails the industry while ranging from 0.4% in ’14 to 8.2% in ’16 with a last-5-year mean of 4.1%. ROE also leads peer averages and trails the industry while ranging from 0.4% in ’18 to 4.6% in ’23 with a last-5-year mean of 3.2%. Debt-to-Capital is less than peer and industry averages despite increasing from 0% (through ’19) to 29.0% (’23) with a last-5-year mean of 18.6%.

Quick Ratio is 1.2 and Interest Coverage is 2.0 per M*. Value Line gives a B+ grade for Financial Strength and writes:

     > Since the end of fiscal 2022, the amount of outstanding debt
     > has declined 36%, from about $238 million to under $152 million.
     > The ratio of total debt to equity stands at a modest 21%.

With regard to sales growth:

My 1.0% per year forecast applies a significant haircut to Value Line due to multiple estimates of short-term contraction.

With regard to EPS growth:

Given the limited number of analysts for this small-size company, I have data concerns:

All that aside, my 12.0%/year forecast undercuts the long-term-estimate range [mean of three unique estimates is 15.3% (versus 16.0% across all five)]. Initial value is 2024 Q3 EPS of $0.46/share (annualized) rather than ’23 EPS of $0.67.

My Forecast High P/E is 40.0. Since 2015 (excluding 182 in ’14), high P/E increases from 46.5 to 65.2 (excluding 294 in ’18) with last-5-year mean of 65.4 and last-5-year-mean average P/E of 49.7. I am near range bottom [only ’16 (26.5) is less].

My Forecast Low P/E is 22.0. Since 2015 (excluding 107 in ’14), low P/E increases from 26.5 to 40.3 (excluding 184 in ’18) with a last-5-year mean of 34.0. I am forecasting below the range [only ’16 (15.1) is less].

My Low Stock Price Forecast is $20.20. Default ($10.10) based on initial value seems unreasonably low at 65.0% (50.0%) less than the previous closing price (52-week low). I will use the 52-week low instead: 30.0% discount to previous close.

These inputs land DGII in the HOLD zone with a U/D ratio of 0.4. Total Annualized Return (TAR) is 2.3%.

PAR (using Forecast Average—not High—P/E) of -2.8% is unacceptable for any size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead but even that is less than the current yield on T-bills.

To assess MOS, I usually start by comparing my inputs with those of Member Sentiment. I will skip because only four other studies have been done over the past 90 days (two outliers including mine excluded).

Value Line is more aggressive than me with average annual P/E of 41.0 (31.0) and high EPS of $1.30/share ($0.81).

My Low Stock Price Forecast exceeds the pseudo-rule-of-thumb 20% discount to previous closing price.

With regard to valuation, PEG is 0.9 and 4.7 per Zacks and my projected P/E. The latter is much higher due to my lower growth rate and initial value selection. Relative Value [(current P/E) / 5-year-mean average P/E] is also high at 1.3.

MOS is robust because my inputs are near/below analyst/historical ranges. This especially pertains to the most-recent-quarter initial value, which might be unreasonably low.

I do not share Value Line’s rosy outlook for this company. Sales growth and ROE are minimal. Interest Coverage is minimal (although Quick Ratio and Debt-to-Capital are fine). Historical EPS includes a disturbing flat time. 2-year sales estimates are negative. YTD EPS is contracting. Long-term EPS estimates light the way—if I can believe and [big if] P/E remains elevated.

I am eager to see next year’s SSG right now.

Per U/D, DGII is a BUY under $23/share. BI TAR criterion is met ~ $16/share given a forecast high price $32.40 (no dividend).

A 90-day free trial to BetterInvesting® may be secured here (also see link under “Pages” section at top right of this page).

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AXTA Stock Study (8-21-24)

Posted by on October 12, 2024 at 06:43 | Last modified: August 21, 2024 10:23

I recently did a stock study on Axalta Coating Systems Ltd. (AXTA) with a closing price of $34.33.

M* writes:

     > Axalta Coating Systems Ltd is a manufacturer, marketer and
     > distributor of high-performance coatings systems. It operates in
     > two segments. The Performance Coatings segment provides liquid
     > and powder coatings solutions to a fragmented and local customer
     > base. Its end markets include refinish and industrial. The Mobility
     > Coatings segment relates to the provision of coating technologies
     > to original equipment manufacturers of light and commercial
     > vehicles. The company operates in the geographic areas of North
     > America, EMEA countries, Asia-Pacific and Latin America.

Over the past 10 years, the medium-size company has grown sales and earnings at annualized rates of 1.6% and 27.3%, respectively. Lines are narrowing, somewhat up, and somewhat straight except for YOY sales declines in ’15, ’16, ’19, and ’20 along with EPS declines in ’16, ’17, ’20, and ’22. Ten- (Five-) year EPS R^2 is 0.66 (0.13), and Value Line gives an Earnings Predictability score of 40.

I think visual inspection just barely clears the barbed-wire fence. Sales growth is subbornly low while EPS—despite starting from a fractional base ($0.12 in ’14)—appears somewhat cyclical but certainly growing.

Over the past decade, PTPM trails peer and industry averages while increasing from 0.8% (’14) to 6.8% (’23) with a last-5-year mean of 6.1%. ROE also trails peer and industry averages despite increasing from 2.4% (’14) to 16.6% (’23) with a last-5-year mean of 15.6%. Debt-to-Capital is higher than peer and industry averages despite falling from 78.0% (’14) to 67.2% (’23) with a last-5-year mean of 71.7%.

Quick Ratio is 1.6 and Interest Coverage is 3.0 per M* who assigns a “Narrow” [quantitative] Economic Moat.

Value Line gives a B+ grade for Financial Strength and says the company is putting cash to good use:

     > Axalta closed the June quarter with $840 million in cash (up
     > from approximately $700 million at the end of 2023). The
     > company expanded its revolving credit facility to $800 million
     > in order to complete the CoverFlexx acquisition. The board
     > recently authorized a $700 million stock-repurchase program.
     > It may also use resources to refinance some of its debt.

With regard to sales growth:

My 2.0% per year forecast is below the range.

With regard to EPS growth:

My 12.0% per year forecast is below the long-term-estimate range (mean of four: 18.2%). Initial value is ’23 EPS of $1.21/share rather than 2024 Q2 EPS of $1.35 (annualized).

My Forecast High P/E is 28.0. Over the past decade, high P/E falls from 229 (’14) to 28.5 (’23) with a last-5-year mean of 37.7 and a last-5-year-mean average P/E of 30.3. I am below the range.

My Forecast Low P/E is 20.0. Over the past decade, low P/E falls from 168 (’14) to 20.7 (’23) with a last-5-year mean of 22.8. I am forecasting below the range.

My Low Stock Price Forecast (LSPF) of $24.20 is default based on initial value given above. This is 29.5% less than the previous closing price and 3.2% less than the 52-week low.

These inputs land AXTA in the HOLD zone with a U/D ratio of 2.4. Total Annualized Return (TAR) is 11.5%.

PAR (using Forecast Average—not High—P/E) of 8.2% is less than I seek from a medium-size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I usually start by comparing my inputs with those of Member Sentiment. I will skip because only one other study has been done over the past 90 days.

Value Line is more aggressive than me with average annual P/E of 30.0 (24.0) and high EPS of $2.30/share ($2.13).

My LSPF exceeds the pseudo-rule-of-thumb 20% discount to previous closing price.

MOS is robust because my inputs are near/below respective analyst/historical ranges.

With regard to valuation, PEG is 0.8 and 1.9 per Zacks and my projected P/E, respectively: fairly valued on average. Relative Value [(current P/E) / 5-year-mean average P/E] is somewhat low at 0.84.

I am concerned that sales may eventually be a drag on EPS growth, but the former is not material to this analysis.

Per U/D, AXTA is a BUY under $33/share. BI TAR criterion is met ~ $30/share given a forecast high price ~ $60 (no dividend).

A 90-day free trial to BetterInvesting® may be secured here (also see link under “Pages” section at top right of this page).

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EPD Stock Study (8-20-24)

Posted by on October 11, 2024 at 06:40 | Last modified: August 20, 2024 12:12

I recently did a stock study on Enterprise Product Partners L.P. (EPD) with a closing price of $29.44.

M* writes:

     > Enterprise Products Partners is a master limited partnership
     > that transports and processes natural gas, natural gas liquids,
     > crude oil, refined products, and petrochemicals. It is one of
     > the largest midstream companies, with operations servicing
     > most producing regions in the Lower 48 states. Enterprise is
     > particularly dominant in the NGL market and is one of the
     > few MLPs that provide midstream services across the full
     > hydrocarbon value chain.

Master Limited Partnerships are not recommended for investment clubs. Slide 23 of Doug Gerlach’s presentation explains why.

I don’t think this should necessarily preclude individual investors from buying units (shares) as long as we stay mindful of tax implications and additional tax preparation costs depending on whether we hold in taxable or retirement accounts. I encourage doing your own research (i.e. search “should MLPs be held in an IRA”) and/or consulting a tax specialist.

Over the past 10 years, this large-size company has grown sales and earnings at annualized rates of 5.1% and 8.4%, respectively. Lines are somewhat up, straight, and parallel except for YOY sales declines in ’19 and ’23 and sales+EPS declines in ’15, ’16, and ’20. Ten- (Five-) year EPS R^2 is 0.77 (0.56), and Value Line gives an Earnings Predictability score of 80.

Over the past decade, PTPM leads peer and industry averages while increasing from 6.0% (’14) to 11.5% (’23) with a last-5-year mean of 12.3%. ROE also leads peer and industry averages by ranging from 11.7% in ’16 to 20.6% in ’22 with a last-5-year mean of 18.5%.

Remaining at 100.0% throughout, Debt-to-Capital is greater than peer and industry averages (~93% with minimum ~91% in ’17-’18). I wonder if this takes on a different M* meaning for MLPs, which pay out majority of cash flows as distributions to unit holders [and therefore depend nearly as much on loans/debt to finance operations as they do equity]. CFRA provides a table with eight peers for whom “LTD-to-Cap” ranges from 45.3% to 63.9%. EPD is second-lowest at 47.4%.

Quick Ratio is 0.6 and Interest Coverage is 5.5 per M* who also rates the company “Exemplary” for Capital Allocation and assigns a “Wide” Economic Moat.

Value Line gives a B++ grade for Financial Strength and writes:

     > Enterprise is one of the few dividend aristocrats in the MLP
     > sector… Finances are solid. Many MLPs are finally recovering
     > from the damage sustained during the pandemic. So, there
     > aren’t many members here with even average balance
     > sheets. Enterprise has managed to fund a large construction
     > program while keeping its debt levels under control.

With regard to sales growth:

My 4.0% per year forecast is near bottom of the range.

With regard to EPS growth:

I don’t typically include CFRA’s 3-year CAGR as a long-term estimate because sometimes it makes no sense. EPD EPS from ’20 through ’25 [with the last two being estimated] are $2.11/share, $2.21, $2.52, $2.53, $2.71, and $2.97: nowhere is a 24.0% 3-year CAGR even close (6.2%, 7.0%, and 5.6%, respectively).

My 4.0% per year forecast is near bottom of the long-term-estimate range (mean of six: 6.1%). Initial value is ’23 EPS of $2.52/share rather than 2024 Q2 EPS of $2.62 (annualized).

My Forecast High P/E is 12.0. Over the past decade, high P/E falls from 18.1 (’14) to 11.1 (’23) with a last-5-year mean of 13.3 and a last-5-year-mean average P/E of 11.2. I am near bottom of the range [only ’22 (11.5) and ’23 (11.1) are less].

My Forecast Low P/E is 8.5. Over the past decade, low P/E falls from 20.9 (’14) to 9.5 (’23) with a last-5-year mean of 9.0. I am forecasting toward bottom of the range [only ’20 (6.0) is less].

My Low Stock Price Forecast (LSPF) of $22.30 is default based on initial value from above. This is 24.3% less than the previous closing price and 12.9% less than the 52-week low.

Over the past decade, Payout Ratio (PR) ranges from 75.2% in ’22 to 133% in ’16 with a last-5-year mean of 85.5%. I am forecasting below the range at 75.0%.

These inputs land EPD in the HOLD zone with a U/D ratio of 1.1. Total Annualized Return (TAR) is 11.0%.

PAR (using Forecast Average—not High—P/E) of 8.8% is less than I seek from a large-size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 24 studies (my study and 18 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 7.5%, 5.9%, 12.8, 9.0, and 85.5%, respectively. I am lower across the board. Value Line’s projected average annual P/E of 16.0 is higher than MS (10.9) and higher than mine (10.3).

MS high / low EPS are $3.39 / $2.55 versus my $3.07 / $2.55 (per share). My high EPS is less due to a lower growth rate. Value Line is in the middle at $3.55.

MS LSPF of $22.80 implies Forecast Low P/E of 8.9: roughly equal to the 9.0 mentioned above. MS LSPF is 2.2% greater than mine thereby resulting in slightly more aggressive zoning.

With regard to valuation, PEG is 1.5 and 2.7 per Zacks and my projected P/E, respectively: somewhat overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is fair at 1.0.

MOS is robust because my inputs are near or below respective analyst/historical ranges. MS sample is too small for meaningful comparison, but anecdotally its 15.2% TAR is 4.2%/year greater than mine.

Per U/D, EPD is a BUY under $25.90.

Until today, I would go on to say BI TAR criterion is met at $18.50/share given a forecast high price ~ $37.

This is incorrect because it excludes the [sizeable] dividend. Going forward, I will proceed by subtracting average yield (given my conservative PR) at Forecast High P/E (lower than yield at average P/E) from 15.0% (actually 14.87% with this number being inversely proportional to BUY threshold) and discounting forecast high price by resultant percentage for five years.

In this case, BI TAR criterion is actually met closer to $23.30 not $18.50: 6.3% average yield at Forecast High P/E subtracted from 15.0% equals 8.7% and $36.80 * (1 – (8.7 / 100) ) ^ 5 = $23.35.

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EOG Stock Study (8-19-24)

Posted by on October 9, 2024 at 07:00 | Last modified: August 19, 2024 11:33

I recently did a stock study on EOG Resources, Inc. (EOG) with a closing price of $128.06.

M* writes:

     > EOG Resources is an oil and gas producer with acreage in several
     > US shale plays, primarily in the Permian Basin and the Eagle
     > Ford. At the end of 2023, it reported net proven reserves of
     > 4.5 billion barrels of oil equivalent. Net production averaged
     > roughly 985,000 barrels of oil equivalent per day in 2023 at a
     > ratio of 71% oil and natural gas liquids and 29% natural gas.

Energy is notorious for being cyclical. As a result, I usually avoid these companies because visual inspection fails. I wonder, though, are we really to blacklist an entire sector for this reason? Is it not possible to realize phenomenal investment returns here? The recent inclusion of SLB in a Manifest Investing portfolio (along with its 99 Quality score) suggests otherwise.

Visual inspection for EOG cleans up relatively well with the exclusion of 2015, ’16, and ’20 from the full analysis. ’20 probably makes sense due to COVID-19. Rather than dig to figure out plausible excuses for ’15-’16, I will defer to the overriding question asked in the first paragraph.

Pressing onward with stated exclusions, over the past 10 years this large-size company has grown sales and earnings at annualized rates of 7.1% and 12.8%, respectively. Lines are somewhat up and parallel with YOY sales+EPS declines in ’19 and ’23. Ten-year EPS R^2 is 0.67, but Value Line gives a weak Earnings Predictability score of 30.

Over the past decade, PTPM leads peer and industry averages while ranging from 5.9% in ’17 to 41.8% in ’23 with a last-5-year mean of 31.6%. ROE also leads peer and industry averages while increasing from 14.5% (’14) to 27.2% (’23) with a last-5-year mean of 23.6%. Debt-to-Capital completes the trifecta being much lower than peer and industry averages while falling from 25.0% (’14) to 14.6% (’23) with a last-5-year mean of 18.9%.

Quick Ratio is 1.7 and Interest Coverage is 69.3 per M* who also rates the company “Exemplary” for Capital Allocation and assigns a “Narrow” Economic moat. Value Line gives a B++ grade for Financial Strength.

With regard to sales growth:

My 2.0% per year forecast is near bottom of the range.

With regard to EPS growth:

My 3.0% per year forecast is toward bottom of the long-term-estimate range (mean of six: 7.2%). Initial value is 2024 Q2 EPS of $12.95/share (annualized) rather than ’23 EPS of $13.00.

My Forecast High P/E is 11.0. Over the past decade, high P/E falls from 22.3 (’14) to 10.6 (’23) with a last-5-year mean of 14.3 and a last-5-year-mean average P/E of 11.4. I am near bottom of the range (only ’23 is less).

My Forecast Low P/E is 7.0. Over the past decade, low P/E falls from 15.2 (’14) to 7.6 (’23) with a last-5-year mean of 8.5. I am forecasting toward bottom of the range [only ’21 (6.1) and ’22 (6.7) are less].

My Low Stock Price Forecast (LSPF) of $90.60 is default based on initial value from above. This is 29.3% less than the previous closing price and 16.8% less than the 52-week low.

Over the past decade, Payout Ratio (PR) increases from 9.6% in ’14 to 25.4% in ’23 with a last-5-year mean of 22.5%. I am forecasting below the range at 9.0%.

These inputs land EOG in the HOLD zone with a U/D ratio of 1.0. Total Annualized Return (TAR) is 6.0%.

PAR (using Forecast Average—not High—P/E) of 2.1% is less than I seek for any size company. If a healthy margin of safety (MOS) anchors 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 19 studies (my study and eight 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 5.7%, 4.1%, 13.4, 8.2, and 21.9%, respectively. I am lower across the board. Value Line’s projected average annual P/E of 14.0 is higher than MS (10.8) and higher than mine (9.0).

MS high / low EPS are $15.55/ $12.66 versus my $15.01 / $12.95 (per share). My high EPS is less due to a lower growth rate. Value Line soars above both with its $17.50 projection.

MS LSPF of $102.30 implies Forecast Low P/E of 8.1: very close to the 8.2 mentioned above. MS LSPF is 12.9% greater than mine thereby resulting in more aggressive zoning.

With regard to valuation, PEG is 2.2 and 3.2 per Zacks and my projected P/E, respectively: somewhat overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is a bit low at 0.87.

MOS is robust because my inputs (and most-recent-quarter initial value) are near or below respective analyst/historical ranges. MS sample size is too small for valid comparison, but its 12.3% TAR is anecdotally 6.3%/year greater than mine.

EPS estimates for the company don’t level up to management metrics. The latter [three described near top] would have me believe it to be an industry leader. The former is particularly dogged by M*’s 0.2%.

Per U/D, EOG is a BUY under $109. BI TAR criterion is met ~ $82/share given a forecast high price ~ $165.

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ARCB Stock Study (8-14-24)

Posted by on October 7, 2024 at 06:25 | Last modified: August 14, 2024 16:23

I recently did a stock study on ArcBest Corp. (ARCB) with a closing price of $106.04.

M* writes:

     > ArcBest Corp is engaged in logistics operations. The company operates
     > in two operating segments, The Asset-Based segment includes
     > the results of operations of ABF Freight System, Inc. and certain
     > other subsidiaries. The segment operations include national, inter-
     > regional, and regional transportation of general commodities through
     > standard, expedited, and guaranteed LTL services. The services
     > including freight transportation related to managed transportation
     > solutions and other services. The Asset-Light segment includes the
     > results of operations of the Company’s service offerings in truckload,
     > ground expedite, dedicated, intermodal, household goods moving,
     > managed transportation, warehousing and distribution, and
     > international freight transportation for air, ocean, and ground.

Over the past 10 years, the medium-size company has grown sales and EPS at annualized rates of 7.3% and 25.0%, respectively. Lines are borderline up and parallel with YOY sales declines in ’19, ’20, and ’23 along with EPS declines in ’15, ’16, ’19, and ’23. Five- and 10-year EPS R^2 are both 0.63 and Value Line gives an Earnings Predictability score of 45.

Over the past decade, PTPM trails peer and industry averages (both appear identical) despite increasing from 2.7% (’14) to 4.2% (’23) with a last-5-year mean of 4.7%. ROE trails peer and industry averages (both appear identical) despite increasing from 8.0% (’14) to 11.1% (’23) with a last-5-year mean of 14.1%. Debt-to-Capital is less than peer and industry averages (both appear identical) despite increasing from 20.4% (’14) to 26.1% (’23) with a last-5-year mean of 29.5%.

Quick Ratio is 1.1 and Interest Coverage is 19.0 per M* who also assigns a Narrow (quantitative) Economic Moat. Value Line gives a B+ grade for Financial Strength.

With regard to sales growth:

My 1.0% per year forecast is near bottom of the range.

With regard to EPS growth:

My 9.0% per year forecast is below the long-term-estimate range (mean of four: 12.4%). Initial value is 2024 Q2 EPS of $5.27/share (annualized) rather than ’23 EPS of $5.77.

My Forecast High P/E is 15.0. Over the past decade, high P/E ranges from 10.6 in ’22 to 47.8 in ’16 with a last-5-year mean of 18.6 and a last-5-year-mean average P/E of 13.7. I am near bottom of the range (only ’22 is less).

My Forecast Low P/E is 11.0. Over the past decade, low P/E falls from 17.7 (’14) to 11.8 (’23) with a last-5-year mean of 8.8. I am forecasting near bottom of the range [’20 (5.0), ’21 (5.3), ’22 (5.6), and ’17 (7.5) are less].

My Low Stock Price Forecast (LSPF) is $74.00. Default ($58.00) based on initial value given above seems unreasonably low at 45.3% (33.3%) less than previous close (52-week low). My [arbitrary] forecast is 30.2% and 14.8% less, respectively.

Over the past decade, Payout Ratio ranges from 3.8% in ’22 to 45.1% in ’16 with a last-5-year mean 9.8%. I am forecasting below the range at 3.0%.

These inputs land ARCB in the HOLD zone with a U/D ratio of 0.5. Total Annualized Return (TAR) is 3.0%.

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 the study, then I can proceed based on TAR instead although even that is less than the current yield on T-bills.

To assess MOS, I usually start by comparing my inputs with those of Member Sentiment. I will skip this because only one other study has been done over the past 90 days.

Value Line projects an average annual P/E of 15.0 that is greater than mine (13.0). Value Line projects high EPS of $13.00/share versus my $8.11.

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

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

With regard to valuation, PEG is 1.1 and 2.1 per Zacks and my projected P/E, respectively: mostly reasonable. Relative Value [(current P/E) / 5-year-mean average P/E] is much higher than I like to see at 1.47 (due to low P/E from ’20-’22).

Projected EPS growth is what drew my attention to this stock, but the hype doesn’t live up to the numbers. Visual inspection is mediocre. Projected sales growth is nowhere near double digits. The company is not an industry leader with regard to management metrics. PTPM is less than the 5-year average. Relative Value is an issue as just discussed. Last but not least, only one other person has given this stock time of day.

Per U/D, ARCB is a BUY under $85/share. BI TAR criterion is met ~ $61/share given a forecast high price ~ $121.

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SBUX Stock Study (8-13-24)

Posted by on October 6, 2024 at 07:01 | Last modified: August 13, 2024 11:02

I recently did a stock study on Starbucks Corp. (SBUX, $77.03). Previous studies are here, here, and here.

Value Line writes:

     > Starbucks Corp. is the leading retailer, roaster, and brand of
     > specialty coffee in the world. Sells whole bean coffees through
     > its specialty sales group, mail-order business, supermarkets, and
     > online. Had 10,628 company-owned stores in the Americas and
     > 8,964 elsewhere. Also had 18,216 licensed stores worldwide (as
     > of 10/1/23). Food & beverage: 78% of ’23 total; CPG and other,
     > 22%. Has joint ventures with Pepsi-Cola and Dreyer’s to develop
     > bottled coffee drinks and ice creams, respectively.

Over the last 10 years (excluding 2020 from the full analysis due to COVID-19), the large-size company has grown sales and earnings at annualized rates of 8.2% and 10.2%. Lines are mostly up, straight, and parallel except for EPS declines in ’19 and ’22 (FY ends Sep 30). Ten- (five-) year EPS R^2 is 0.78 (0.20), and Value Line gives an Earnings Predictability score of 50.

Over the last decade, PTPM leads industry averages but trails peers while falling from 19.2% (’14) to 15.0% (’23) with a last-5-year mean (’20 excluded throughout) of 15.8%. ROE last-5-year mean is -57.0%: not atypical as the industry average is negative five times between ’14 and ’22. Debt-to-Capital is greater than peer and industry averages since ’19 with a last-5-year mean of 165%.

Quick Ratio is 0.59 and Interest Coverage is 10.5 per M* who gives an “Exemplary” rating for Capital Allocation and assigns a “Wide” Economic Moat. Value Line gives a B++ (down from A three months ago) rating for Financial Strength.

In looking at the 2021 balance sheet, long-term debt, operating lease liability, and deferred revenue are the largest contributions. As discussed in https://bit.ly/3KpHOOj , the latter is a deal made in late 2018 that allows Nestle to market, sell and distribute SBUX consumer packaged goods. SBUX was paid an upfront royalty of $6.7B to be recorded in equal amounts as “other revenue” x40 years. This means the deferred revenue liability will decrease by ~$175M per year until ~2061. The liability is really of no concern as long as SBUX stays in business; without this liability, shareholders’ equity would be positive.

With regard to sales growth:

I am forecasting toward the lower end of the range at 4.0% per year.

With regard to EPS growth:

My 7.0% per year forecast is below the long-term-estimate range (mean of six: 11.8%). I will use ’23 EPS of $3.58/share as the initial value [comparable to 2024 Q3 EPS of $3.57 (annualized)].

My Forecast High P/E is 29.0. Over the past decade, high P/E ranges from 30.4 in ’14 (excluding 19.1 in ’18) to 41.6 in ’22 (excluding 119 in ’20) with a last-5-year mean of 35.9 and a last-5-year-mean average P/E of 29.2. I am below the range.

My Forecast Low P/E is 17.0. Over the past decade, low P/E ranges from 14.6 in ’18 (possibly a downside outlier) to 27.7 in ’16 (excluding 63.3 in ’20) with a last-5-year mean of 22.5. I am forecasting near the bottom of the range (only ’18 is lower).

My Low Stock Price Forecast (LSPF) of $60.90 is default based on initial value given above. This is 20.9% less than the previous close and 14.8% less than the 52-week low.

The lowest Payout Ratio (PR) over the past decade is 35.2% in ’15 and the last-5-year mean is 57.2% (excluding the upside outlier of 208% in ’20). I am forecasting below the range at 35.0%.

These inputs land SBUX in the BUY zone with a U/D ratio of 4.2. Total Annualized Return (TAR) is 14.8%.

PAR (using Forecast Average—not High—P/E) is decent for a large-size company at 10.0%. 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 155 studies done in the past 90 days (my study and 54 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%, 8.7%, 29.3, 20.0, and 68.6%, respectively. I am lower across the board. Value Line projects a future average annual P/E of 20.0 that is less than MS (24.7) and less than mine (23.0).

MS high / low EPS are $5.48 / $3.57 versus my $5.02 / $3.58 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $5.30 is in the middle.

MS LSPF of $66.60 implies a Forecast Low P/E of 18.7 versus the above-stated 20.0. MS LSPF is 6.7% less than the default $3.57/share * 20.0 = $71.40, which results in more conservative zoning. MS LSPF is still 9.4% greater than mine, however.

With regard to valuation, PEG is 1.8 and 2.9 per Zacks and my projected P/E: both a bit high. Relative Value is low at 0.74 [(current P/E) / 5-year-mean average P/E].

MOS is robust because my inputs are near or below respective analyst/historical ranges and MS averages. That is further supported by an MS TAR of 17.9%: 3.1%/year greater than mine.

SBUX is a BUY per U/D under $82/share. BI TAR criterion is met ~ $73 given a forecast high price ~ $145.

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CSGP Stock Study (8-12-24)

Posted by on October 5, 2024 at 06:20 | Last modified: August 12, 2024 15:12

I recently did a stock study on CoStar Group, Inc. (CSGP) with a closing price of $73.88.

M* writes:

     > CoStar Group is a leading provider of commercial real estate data
     > and marketplace listing platforms. Its data offering contains
     > in-depth analytical information on over 5 million commercial real
     > estate properties related to various subsectors including office,
     > retail, hotels, multifamily, healthcare, industrial, self-storage,
     > and data centers. It operates many flagship brands such as
     > CoStar Suite, LoopNet, Apartments.com, BizBuySell, and Lands of
     > America, with more than 80% of its revenue classified as
     > subscription-based. The company recently expanded its presence
     > in Canada, the United Kingdom, Spain, and France.

Since 2016 (two preceding years excluded from full analysis due to fractional EPS base that otherwise drastically inflates growth rate), this medium-size company has grown sales and EPS at annualized rates of 17.1% and 17.4%, respectively. Eight- and 5-year EPS R^2 are 0.73 and 0.24; Value Line scores the company 75 for Earnings Predictability.

Since ’16, PTPM leads peer and industry averages while ranging from 16.3% in ’16 and ’20 to 27.9% in ’19 with a last-5-year mean of 21.5%. ROE leads peer averages but trails the industry while ranging from 4.4% in ’20 to 9.6% in ’19 with a last-5-year mean of 6.0% (Value Line projects 14% for ’27-’29). Debt-to-Capital is less than peer and industry averages while ranging from 0% in ’17-’18 to 17.5% in ’20 with a last-5-year mean of 13.1%.

Quick Ratio is 9.1 and the company has no debt due within the next 5 years. M* rates the company “Exemplary” for Capital Allocation and assigns a “Wide” Economic Moat. Value Line gives a B++ grade for Financial Strength.

With regard to sales growth:

My 10.0% per year forecast is below the range.

With regard to EPS growth:

My 13.0% per year forecast is below the long-term-estimate range (mean of five: 17.6%). Initial value is 2024 Q1 EPS of $0.73/share (annualized) rather than ’23 EPS of $0.92 [$0.73 * (1.13 ^ 5) = $1.68, which is about equal to a 26.0% growth rate on 24 Q2 EPS of $0.53].

My Forecast High P/E is 60.0. Since 2016, high P/E ranges from 68.6 in ’18 to 160 in ’20 with a last-5-year mean of 113 and a last-5-year-mean average P/E of 91. I am below the range but well above my comfort zone.

My Forecast Low P/E is 35.0. Since 2016, low P/E ranges from 37.8 in ’19 to 100 in ’21 with a last-5-year mean of 69.2. I am forecasting below the range.

My Low Stock Price Forecast is $52.00. Default ($25.60) based on initial value given above seems unreasonably low at 65.3% (62.0%) less than the previous closing price (52-week low). My [arbitrary] forecast is 29.6% and 22.7% less, respectively.

These inputs land CSGP in the HOLD zone with a U/D ratio of 1.2. Total Annualized Return (TAR) is 6.5%.

PAR (using Forecast Average—not High—P/E) of 1.6% is unacceptable for any size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

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

Value Line projects a future average annual P/E of 50.0: greater than my 47.5. My high EPS of $1.68 is much lower than Value Line’s $3.05/share.

With regard to valuation, PEG is 8.2 and 4.3 per Zacks and my projected P/E, respectively. While both are substantially overvalued, initial value is not taken into account. Regardless, the extent to which these exceed the [1.0 – 1.5] range generally regarded as fair value [along with no MS being available] suggests to me the market is not yet sure how to price the stock [possibly leaving door open to the sky-high P/E ranges seen to date].

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

Qualitatively, the bullish case is quite impressive especially as presented by M* and CFRA.

Quantitatively, CSGP is a BUY under $64 per U/D. BI TAR criterion is met ~ $51/share given a forecast high price of $101.

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