YETI Stock Study (5-22-23)

I recently did a stock study on YETI Holdings (YETI) with a closing price of $39.33.

M* writes:

     > YETI Holdings Inc is a designer, marketer, and distributor of premium
     > products for the outdoor and recreation market sold under the YETI
     > brand. The company offers products including coolers and equipment,
     > drinkware, and other accessories. Its trademark products include YETI,
     > Tundra, Hopper, YETI TANK, Rambler, Colster, Rambler Colster, Roadie,
     > and Wildly Stronger! Keep Ice Longer!, SideKick, FatWall, PermaFrost,
     > T-Rex, ColdLock, NeverFail, AnchorPoint, InterLock, BearFoot, Vortex,
     > DoubleHaul, LipGrip, Vortex, DryHide, ColdCell, HydroLock, Over-the-
     > Nose, and LOAD-AND-LOCK. The company distributes products through
     > wholesale channels and through direct-to-consumer, or DTC, channels.

This medium-size company has grown sales and earnings at annualized rates of 32.5% and 19.3% over the last 9 and 7 years, respectively [’13-’14 EPS excluded due to small fractional values that artificially inflate the growth rate]. The visual inspection is mediocre. Sales are up and straight except for spike in ’15 and decline in ’17. EPS are down in ’16, ’17, ’19, and ’22 [I will exclude the latter 57.1% YOY decline due to operational snafus including recall of defective items and inflation-induced demand destruction per Value Line]. PTPM has led peer and industry averages with a last-5-year average of 12.3%.

ROE has averaged 47.6% over the last four years (too brief a history to compare peer and industry averages). Debt-to-Capital has been declining since ’16 and fell below than peer and industry averages in ’20 with a last-5-year average of 50.9% [23.8% in ’22]. Interest coverage is 23.7 and quick ratio is 0.80. Value Line rates the company B+ for Financial Strength.

I forecast long-term sales growth of 7% based on the following:

• CNN Business projects 6.3% YOY and 9.0% per year for ’23 and ’22-’24 (based on 14 analysts).
• YF projects YOY 6.4% and 12.1% for ’23 and ’24, respectively (16 analysts).
• Zacks projects YOY 3.7% growth and 11.5% contraction for ’23 and ’24, respectively (8).
• Value Line projects 9.4% annualized growth from ’22-’27.
• CFRA projects growth of 6.4% YOY and 9.2% per year for ’23 and ’22-’24, respectively (16).
• M* offers a 2-year annualized ACE of 9.5% growth.

I am forecasting conservatively below the long-term estimate.

I forecast long-term annualized EPS growth of 8% based on the following:

• CNN Business projects 6.8% YOY contraction and 8.1% growth per year for ’23 and ’22-’24, respectively (based on 14 analysts), along with 5-year annualized growth of 9.4%.
• MarketWatch projects growth of 7.9% and 12.7% per year for ’22-’24 and ’22-’25, respectively (16 analysts).
• Nasdaq.com projects 26.4% YOY growth for ’24 (8).
• Seeking Alpha projects 4-year annualized growth of 11.2%.
• YF projects YOY 6.8% contraction and 25.5% growth for ’23 and ’24, respectively (14), along with 5-year annualized growth of 8.6%.
• Zacks projects YOY 7.6% contraction and 24.3% growth for ’23 and ’24, respectively (9), along with 5-year annualized growth of 14.7%.
• Value Line projects annualized growth of 12.5% from ’22-’27.
• CFRA projects 4.3% YOY contraction and 4.9% growth per year for ’23 and ’22-’24, respectively (14).

I am forecasting below the long-term-estimate range (mean of six: 11.3%). I am also projecting from the trendline ($1.90/share) rather than ’22 EPS of $1.03/share or Q1 ’23 EPS of $0.85/share (annualized). I would have otherwise projected from the ’20 EPS [rather than the ’21 $2.40/share due to its 33% YOY spike] of $1.77/share [close to the ’22 trendline at $1.90] and projected forward seven years [rather than five]. The trendline works out well.

My Forecast High P/E is 31. With the stock trading publicly since ’18, high P/E has increased since the first year’s 31.1 for a last-5-year average of 53.0. The last-5-year-average average P/E is 36.9. I am forecasting below the range.

My Forecast Low P/E is 14. Over the last five years, low P/E has ranged from 8.6 (perhaps a downside outlier) in ’20 to 27.0 in ’22 with a last-5-year average of 20.8. I am forecasting conservatively (18.0 in ’18 being the second-lowest value).

My Low Stock Price Forecast (LSPF) is the default [using $1.90/share] value of $26.60. This is 32.4% less than the previous close and 4.7% less than the 52-week low.

These inputs land YETI in the BUY zone with an U/D ratio of 3.7. Total Annualized Return (TAR) is 17.1%.

PAR (using Forecast Average—not High—P/E) is 9.8%, which is less than I seek for a medium-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 72 studies done in the past 90 days (my study and 15 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%, 14.5%, 31.6, and 18.7. I am lower across the board. Value Line’s future average annual P/E of 20.0 is lower than both MS (25.2) and mine (22.5).

With regard to EPS, MS high and low are $2.09/share and $1.02/share in contrast to my $2.79 and $1.90. I’m guessing many studies use ’22 EPS as the initial value. I won’t call this unreasonable because only in time can we know if that was a non-recurring item, but I feel my above-stated reasoning for using the trendline is conservative. As another data point, Value Line projects high EPS of $4.25/share: a much higher value that offsets my 2.5-point higher average annual P/E. I believe MOS to be healthy in this study provided the earnings bounceback does occur.

MS LSPF of $23.30 implies a Forecast Low P/E of 22.8 (versus the above-stated 18.7), is 12.4% less than mine (more conservative), and is 22.2% higher (more aggressive) than the $1.02 * 18.7 = $19.07 default.

YETI is a BUY under $41. Given my assumption for bounceback, I will lower this to $39.

All this complication over what to use as an initial projection point is good reason to prefer “up, straight, and parallel.”