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XPEL Stock Study (6-6-24)

Posted by on July 15, 2024 at 10:53 | Last modified: June 6, 2024 11:33

I recently did a stock study on XPEL Inc. (XPEL) with a closing price of $39.56.

M* writes:

     > XPEL, Inc. sells, distributes, and installs after-market automotive
     > products. The company offers automotive surface and paint
     > protection, headlight protection, and automotive and architectural
     > window films, as well as proprietary software. It also provides
     > merchandise and apparel; ceramic coatings; and tools and
     > accessories, which include squeegees and microfiber towels,
     > application fluids, plotter cutters, knives, and other products.
     > In addition, the company offers paint protection kits, car wash
     > products, after-care products, and installation tools through its
     > website. The company sells and distributes its products through
     > independent installers and new car dealerships, third-party
     > distributors, automobile original equipment manufacturers, and
     > company-owned installation centers, as well as through franchisees
     > and online channels… XPEL is headquartered in San Antonio, TX.

Over the past six years since public trading began, this small-size company has grown sales and earnings at annualized rates of 31.7% and 43.8%, respectively. Lines are up, mostly straight, and parallel.

Since 2018, PTPM leads peer and industry averages while trending higher from 10.4% (’18) to 16.7% (’23) with a last-5-year mean of 15.0%. ROE also leads peer and industry averages despite falling from 42.5% (’18) to 31.7% (’23) with a last-5-year mean of 38.7%. Debt-to-Capital is lower than peer and industry averages despite increasing from 8.1% (’18) to 16.7% (’23) with a last-5-year mean of 21.2%.

Quick Ratio is 1.2 and Interest Coverage is 51.2. Value Line gives a B+ rating for Financial Strength.

With regard to sales growth:

With only one long-term projection, I am applying a 50% haircut for my conservative forecast of 5.0% per year.

With regard to EPS growth:

Analyst estimates are scant—both in number of sources and analysts per source. I therefore want a solid margin of safety (MOS). As one of two long-term projections, Seeking Alpha not only seems very high but is also unchanged from nine months ago making me question its legitimacy. I am forecasting less than both projections (mean: 19.9%) at 9.0% per year. I will use 2024 Q1 EPS of $1.73/share (annualized) as the initial value rather than ’23 EPS of $1.91.

My Forecast High P/E is 28.0. Since 2018, high P/E ranges from 22.5 in ’18 to 91.1 in ’21 with a last-5-year mean of 62.0 and a last-5-year-mean average P/E of 41.6. I am near the bottom of the range (only ’18 is lower).

My Forecast Low P/E is 15.0. Since 2018, low P/E ranges from 8.2 in ’19 to 38.7 in ’21 with a last-5-year mean of 21.2 and a last-6-year median of 17.8. I am forecasting toward the lower end of the range [only ’19 and ’20 (11.4) are less].

My Low Stock Price Forecast (LSPF) of $29.40 is default given initial value from above. This is 25.7% less than the previous close and 4.5% less than the 52-week low.

These inputs land XPEL in the HOLD zone with a U/D ratio of 2.6. Total Annualized Return (TAR) is 13.5%.

PAR (using Forecast Average—not High—P/E) is less than I seek for a small-size company at 7.6%. If a healthy 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 141 studies done in the past 90 days (my study and 27 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 13.0%, 13.0%, 31.0, and 19.6, respectively. I am lower across the board. Value Line projects a future average annual P/E of 21.0 that is less than MS (25.3) and less than mine (21.5).

MS high / low EPS are $3.47 / $1.84 versus my $2.66 / $1.73 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $3.05 is in the middle.

MS LSPF of $33.40 implies a Forecast Low P/E of 18.2 versus the above-stated 19.6. MS LSPF is 7.4% less than the default $1.84/share * 19.6 = $36.06, which results in more conservative zoning. MS LSPF is 13.6% greater than mine, however.

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 2.3 per my projected P/E: slightly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is extremely low at 0.53.

Value Line projects 65% stock appreciation over the next 18 months while its analyst writes, “shares… are ranked to underperform the broader market averages in the year ahead.” Something seems off unless they are projecting a sharp stock rally in months 13-18, but even their Timeliness rank does not aim for that level of precision.

U/D has XPEL a BUY under $38/share while the BI TAR criterion will be satisfied ~$37 given a forecast high price over $74.

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DORM Stock Study (6-5-24)

Posted by on July 13, 2024 at 08:17 | Last modified: June 5, 2024 11:01

I recently did a stock study on Dorman Products Inc. (DORM) with a closing price of $90.15. The previous study is here.

M* writes:

     > Dorman Products Inc is a supplier of original equipment parts
     > for automobiles. The company produces automotive and heavy-
     > duty replacement parts, automotive hardware, brake parts, and
     > fasteners for the automotive and heavy-duty aftermarket. The
     > products are sold under the Dorman brand and its sub-brands
     > OE Solutions, Help!, Conduct-Tite, and HD Solutions through
     > aftermarket retailers, regional and local warehouse
     > distributors, specialty markets, and salvage yards. It
     > operates as a single reportable operating segment, namely,
     > the sale of replacement and upgrades parts in the motor
     > vehicle aftermarket industry, serving passenger cars, light-,
     > medium-,and heavy-duty trucks as well as specialty vehicles.
     > The company operates primarily in the United States.

Over the last 10 years, this medium-size company has grown sales and EPS at annualized rates of 10.7% and 5.2%, respectively. Lines are up, somewhat straight, and [I stretch to say] parallel. Admittedly, visual inspection is mediocre due to EPS declines in ’19 (big) and ’22 making growth appear inconsistent.

Over the past decade, management metrics are trending the wrong way. PTPM leads peer and industry averages despite falling from 19.2% (’13) to 9.0% (’22) with a last-5-year mean of 12.5%. ROE is roughly even with the industry and leading peer averages despite falling from 19.9% (’14) to 11.4% (’23) with a last-5-year mean of 12.3%. Debt-to-Capital is less than peer and industry averages despite increasing from 0% (through ’18) to 36.3% (’23) with a last-5-year mean of 22.5%.

Interest Coverage is 5.4 and Quick Ratio is 1.1. Value Line gives a B++ rating for Financial Strength.

With regard to sales growth:

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

With regard to EPS growth:

My 10.0% forecast is well below either long-term projection (mean 14.4%). I just don’t have a lot to go on with 2-3 estimates behind each number (Zacks and YF even seem to duplicate each other on YOY EPS). I think greater uncertainty warrants a more conservative forecast.

Initial value is ’23 EPS of $4.10 rather than 2024 Q1 $4.97/share (annualized).

My Forecast High P/E is 22.0. Over the past decade, high P/E ranges from 20.7 in ’15 to 38.0 in ’19 with a last-5-year mean of 30.8 and a last-5-year-mean average P/E of 24.9. I am near the bottom of the range (only ’15 is lower).

My Forecast Low P/E is 14.0. Over the past decade, low P/E ranges from 13.1 in ’16 to 26.3 in ’19 with a last-5-year mean of 18.9. I am forecasting toward the bottom of the range [only ’16 and ’20 (13.5) are lower].

My Low Stock Price Forecast (LSPF) of $57.40 is default based on initial value from above. This is 36.3% less than the previous close and 4.3% less than the 52-week low.

These inputs land DORM in the HOLD zone with a U/D ratio of 1.6. Total Annualized Return (TAR) is 9.6%.

PAR (using Forecast Average—not High—P/E) is less than I like to see for a medium-size company at 5.3%. 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 only 29 studies done in the past 90 days (my study and 6 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 6.4%, 9.9%, 27.0, and 16.6, respectively. I am lower on all but EPS growth (10.0%). Value Line projects a future average annual P/E of 20.0 that is less than MS (21.8) and greater than mine (18.0).

MS high / low EPS are $7.26 / $4.35 versus my $6.60 / $4.10 (per share). My high EPS is less due to low EPS. Value Line’s high EPS of $9.30 is much greater than both.

MS LSPF of $66.30 implies a Forecast Low P/E of 15.2 versus the above-stated 16.6. MS LSPF is 8.2% less than the default $4.35/share * 16.6 = $72.21, which results in more conservative zoning. MS LSPF is 15.5% greater than mine, however.

TAR (over 15.0% preferred) is much less than MS 16.2%. Despite the small MS sample size, I believe MOS to be robust.

With regard to valuation, PEG is 1.7 per my projected P/E: roughly fairly valued. Relative Value [(current P/E) / 5-year-mean average P/E] is cheap at 0.74.

Declining estimates over the past nine months combined with stock price near the YTD high make for a tough investment proposition right now. In case my LSPF is unreasonable, I would feel comfortable raising to the 52-week low thereby adding two points to the next number you read.

DORM is a BUY under $79/share. All else remaining equal, the BI TAR criterion will be satisfied ~$73 given a forecast high price ~$145.

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AMT Stock Study (6-4-24)

Posted by on July 11, 2024 at 06:58 | Last modified: June 4, 2024 11:58

I recently did a stock study on American Tower Corp. (AMT) with a closing price of $196.97. The previous study is here.

M* writes:

     > American Tower [a REIT] owns and operates more than 220,000
     > cell towers throughout the U.S., Asia, Latin America, Europe, and
     > Africa. It also owns and/or operates 28 data centers in 10
     > U.S. markets after acquiring CoreSite. On its towers, the company
     > has a very concentrated customer base, with most revenue in each
     > market being generated by just the top few mobile carriers. The
     > company operates more than 40,000 towers in the U.S., which
     > accounted for roughly half of the company’s total revenue in 2023.
     > Outside the U.S., American Tower operates over 75,000 towers in
     > India, almost 50,000 towers in Latin America (dominated by Brazil),
     > 30,000 towers in Europe, and nearly 25,000 towers in Africa.

Over the last 10 years, this large-size company (REIT) has grown sales and earnings at annualized rates of 11.3% and 27.1%, respectively. Lines are mostly up, straight, and parallel except for an EPS decline in ’15 [my previous First Cut on 8/24/23 also showed YOY declines for ’20, and ’22. The numbers have changed].

Over the past decade, PTPM leads (lags) industry (peer) averages while ranging from 13.7% in ’23 to 30.2% in ’21 with a last-5-year mean of 21.6%. ROE leads industry (peer data unavailable) averages while trending up from 18.9% (’14) to 102% (’23) with a last-5-year mean of 77.9%. Debt-to-Capital is higher than industry (peer data unavailable) averages while increasing from 78.7% (’14) to 91.8% (’23) with a last-5-year mean of 89.7%.

Quick Ratio is 0.5 and Interest Coverage is 2.5. Value Line gives a “B++” rating for Financial Strength (down from “A” nine months ago) while M* gives a “Standard” rating for Capital Allocation. M* and CFRA both note the company has been deleveraging with Net Debt/EBITDA now down to (or below) 5.0 (still seems high to me?).

With regard to sales growth:

I am forecasting toward the lower end of the range at 1.0% per year.

With regard to EPS growth:

My 7.0% forecast is below the long-term-estimate range (mean of five: 20.2%). Initial value is ’23 EPS of $9.87/share.

My Forecast High P/E is 23.0. Over the past decade, high P/E falls from 53.2 (’14) to 23.9 (’23) with a last-5-year mean of 35.1 and a last-5-year-mean average P/E of 28.7. I am below the range.

My Forecast Low P/E is 15.0. Over the past decade, low P/E falls from 39.2 (’14) to 15.7 (’23) with a last-5-year mean of 22.4. I am below the range.

My Low Stock Price Forecast (LSPF) of $148.00 is default given initial value from above. This is 24.9% less than the previous close and 4.3% less than the 52-week low.

Over the past decade, Payout Ratio (PR) falls from 70.0% (’14) to 48.1% (’23) with a last-5-year mean of 61.2%. I am forecasting below the range at 48.0%.

These inputs land AMT in the HOLD zone with a U/D ratio of 2.6. Total Annualized Return (TAR) is 12.3%.

PAR (using Forecast Average—not High—P/E) is less than I seek for a large-sized company at 8.6%. 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 25 studies (my study and 9 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 2.9%, 12.2%, 54.2, 40.6, and 118.6%. I am lower across the board. Value Line projects a future average annual P/E of 36.0 that is less than MS (47.4) but much greater than mine (19.0).

MS high / low EPS are $6.71 / $3.18 vs. my $13.84 / $9.87 (per share). Comparison is difficult because [recall near the top I said the numbers have changed?] as of 6/3/24, BI switched to display Funds from Operations (FFO) in place of EPS for REITs. Previous stock studies in MS use EPS and will be lower. P/E ranges are also based on FFO, which probably explains the disjunct between mine and MS. I can expect MS to come more into line with my study over the next 90 days.

MS LSPF of $152.10 implies a Forecast Low P/E of 47.8 as opposed to the above-stated 40.6. MS LSPF is 17.8% greater than the default $3.18/share * 41.0 = $129.11, which results in more aggressive zoning. MS LSPF is also 2.8% greater than mine.

While I can’t really compare my inputs with MS due to yesterday’s FFO change, I believe MOS to be robust in the current study. I forecast below the entire historical P/E range and significantly lowballed the EPS growth forecast relative to analysts. I feel comfortable with my forecast due to skepticism around >20% estimates from YF and Value Line. Even MarketWatch has huge 2-3-year estimates that include a 79% YOY spike in ’23. If growth is muted thereafter, then what portion should carry into the future EPS growth estimate? Not the 79% YOY spike, in my opinion (especially to be conservative).

By the way, FFO is smoother than the 2023 79% EPS spike. Sidestepping such volatility is a big reason BI made the change [even FFO shows a 99% YOY FFO spike in ’20, however; digging into the 10-K could help to understand that].

With regard to valuation, PEG is 1.4 and 3.0 per Zacks and my projected P/E: reasonably priced or overvalued? Growth rate makes all the difference. Relative Value [(current P/E) / 5-year-mean average P/E] is somewhat low at 0.78.

AMT is a BUY under $190/share. With a forecast high price ~$318, the stock has some distance to fall before satisfying the 15% TAR criterion ~$159.

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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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