YETI Stock Study (7-26-23)

I recently did a stock study on YETI Holdings (YETI) with a closing price of $41.50.

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 am excluding 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 mean of 12.3%.

ROE averages 47.6% over the last four years (too brief a history to compare peer and industry averages). Debt-to-Capital is declining since ’16 and falls below peer and industry averages in ’20 with a last-5-year mean of 50.9% [23.8% in ’22].

Value Line rates the company B+ for Financial Strength. Interest Coverage is 23.7 and Quick Ratio is 0.80.

With regard to sales growth:

• CNN Business projects 6.3% YOY and 9.0% per year for ’23 and ’22-’24 (based on 15 analysts).
• YF projects YOY 6.2% and 11.9% for ’23 and ’24, respectively (16 analysts).
• Zacks projects YOY 3.4% and 11.1% for ’23 and ’24, respectively (8).
• Value Line projects 9.4% annualized growth from ’22-’27.
• CFRA projects growth of 6.3% YOY and 9.0% per year for ’23 and ’22-’24, respectively (15).
• M* offers a 2-year annualized ACE of 9.4%.

I am forecasting conservatively toward the bottom of the range at 6.0% per year.

With regard to EPS growth:

• CNN Business projects 7.2% YOY contraction and 7.8% growth per year for ’23 and ’22-’24, respectively (based on 15 analysts), along with 5-year annualized growth of 9.4%.
• MarketWatch projects growth of 7.5% and 12.3% per year for ’22-’24 and ’22-’25, respectively (16 analysts).
• Nasdaq.com projects 27.6% YOY growth for ’24 (8).
• Seeking Alpha projects 4-year annualized growth of 11.2%.
• YF projects YOY 7.2% contraction and 25.1% growth for ’23 and ’24, respectively (15), along with 5-year annualized growth of 8.6%.
• Zacks projects YOY 7.2% contraction and 23.3% growth for ’23 and ’24, respectively (9), along with 5-year annualized growth of 9.0%.
• Value Line projects annualized growth of 12.5% from ’22-’27.
• CFRA projects growth of 112.6% YOY and 63.1% per year for ’23 and ’22-’24, respectively (14).

I am forecasting below the long-term-estimate range (mean of five: 10.1%) at 8.0% per year. As the initial value, I will not use ’22 EPS of $1.03/share or Q1 ’23 EPS of $0.85/share (annualized) since those numbers are affected by product recall and production issues [strange that CFRA is the only data source projecting huge percentage increases relative to the depressed ’22 EPS]. Instead, I will use ’20 EPS of $1.77/share and extrapolate to $1.77/share * (1.08 ^ 5) = $2.60/share. I can almost ($2.56/share) get to this as a [website] workaround with a 20.0% growth rate and ’22 EPS.

My Forecast High P/E is 31.0. With the stock trading publicly since 2018, high P/E has increased since 31.1 in ’18 for a last-5-year mean of 53.0. The last-5-year-mean average P/E is 36.9. I am forecasting below the range.

My Forecast Low P/E is 16.0. Over the past five years, low P/E ranges from 8.6 (perhaps a downside outlier) in ’20 to 27.0 in ’22 with a last-5-year mean of 20.8. I am forecasting conservatively (18.0 in ’18 being the second-lowest value).

My Low Stock Price Forecast (LSPF) of $26.60 is the default value based on of $1.77/share. This is 35.9% less than the previous close and 4.7% less than the 52-week low.

These inputs land YETI in the HOLD zone with a U/D ratio of 2.6. Total Annualized Return (TAR) is 13.9%.

PAR (using Forecast Average—not High—P/E) of 7.3% is less than I prefer for a medium-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 58 studies done in the past 90 days (23 outliers and my study excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 10.3%, 13.0%, 31.1, and 17.4. I am lower across the board. Value Line projects a future average annual P/E of 20.0, which is lower than MS (24.3) and me (23.5).

MS high / low EPS is $1.82 / $0.85 vs. my $2.56 / $1.77 (per share). I think many studies are using ’22 for low EPS. Not only would I argue this to be unreasonable, it also obscures MOS.

MS LSPF of $17.70 implies a Forecast Low P/E of 20.8 vs. the above-stated 17.4. MS LSPF is 19.7% greater than the default value of $0.85/share * 17.4 = $14.79/share, which results in more aggressive zoning and suggests MS studies may not be comfortable with the $0.85. MS LSPF, which I believe to be unreasonably low, is 33.5% less than mine.

With regard to valuation metrics, PEG ratio is 2.0 per Zacks while Relative Value [(current P/E) / 5-year-mean average P/E] is 1.32 per M*. Both suggest the stock to be overvalued. According to Kim Butcher’s “quick and dirty DCF,” the stock should be priced at 17 * [$4.85 – ($0.00 + $0.70)] = $70.55 (i.e. stock undervalued by 41.0%).

I would look to re-evaluate PAR with the stock under $39/share.