MYRG Stock Study (9-26-23)

I recently did a stock study on MYR Group, Inc. (MYRG) with a closing price of $136.97.

M* writes:

     > MYR Group Inc is a U.S.-based holding company that provides
     > specialty electrical construction services through its
     > subsidiaries. The company operates through two segments.
     > The transmission and distribution segment provides designing,
     > engineering, procurement, construction, upgrade, maintenance,
     > and repair services on transmission and distribution network
     > and substation facilities. The commercial and industrial
     > segment provides services such as the design, installation,
     > maintenance, and repair of commercial and industrial wiring,
     > installation of traffic networks, and the installation of
     > bridges. MYR Group generates the majority of its sales from
     > the United States and Canada.

Over the past decade, this medium-size company has grown sales and EPS at annualized rates of 15.1% and 16.1%, respectively. Lines are mostly up, straight, and parallel except for EPS declines in ’15, ’16, and ’22. PTPM roughly matches industry averages but trails peers as it declines from 6.1% (’13) to 3.8% (’22) with a last-5-year mean of 3.5%.

Also over the past decade, ROE leads peer and industry averages by increasing from 12.0% (’13) to 15.2% (’22) with a last-5-year mean of 13.4%. Debt-to-Capital is far below peer and industry averages, ranging from 0% (through ’15) to 34.3% in ’19 with a last-5-year mean of 16.7%.

Interest Coverage is 29.7 and Quick Ratio is 1.3. Value Line gives a B+ rating for Financial Strength and M* assigns the company a “Narrow” economic moat.

With regard to sales growth:

• CNN Business projects 10.0% and 8.0% per year for ’23 and ’22-’24, respectively (based on 2 analysts).
• YF projects YOY 16.0% and 6.0% for ’23 and ’24, respectively (2 analysts).
• Zacks projects YOY 12.0% and 8.1% for ’23 and ’24, respectively (1).
• Value Line projects 13.6% annualized growth from ’22-’27.
• CFRA projects 15.5% YOY and 10.9% per year for ’23 and ’22-’24, respectively (3).

I am discounting the long-term estimate to 9.0% per year based on lower short-term growth projections.

With regard to EPS growth:

• CNN Business projects 17.7% YOY and 18.3% per year for ’23 and ’22-’24, respectively (based on 2 analysts), along with 5-year annualized growth of 20.0%.
• MarketWatch projects 24.2% and 24.6% per year for ’22-’24 and ’22-’25, respectively (3 analysts).
• Nasdaq.com projects 19.8% YOY for ’24 (1).
• Seeking Alpha projects 4-year annualized growth of 15.0%.
• YF projects YOY 17.3% and 18.9% for ’23 and ’24, respectively (2), along with 5-year annualized growth of 20.0%.
• Zacks projects YOY 19.4% and 19.8% for ’23 and ’24, respectively (1).
• Value Line projects 21.1% annualized growth from ’22-’27.
• CFRA projects 17.3% YOY and 19.1% per year for ’23 and ’22-’24, respectively (3).

I am forecasting below the long-term-estimate range (mean of four: 19.0%) at 14.0%. I will use ’22 EPS of $4.91 rather than 2023 Q2 EPS of $5.26/share (annualized).

My Forecast High P/E is 20.0. Over the past decade, high P/E ranges from 16.8 in ’14 to 34.2 in ’17 with a last-5-year mean of 20.7 and last-10-year median of 22.3. My forecast is below these averages. The last-5-year-mean average P/E is 16.1.

My Forecast Low P/E is 13.0. Over the past decade, low P/E ranges from 4.7 (downside outlier in ’20) to 18.0 in ’17 with a last-5-year mean of 13.1 (excluding the outlier). I am forecasting just below the latter.

My Low Stock Price Forecast (LSPF) is $77.00. The default based on $4.91/share initial value is $63.80, which is 53.4% less than the previous close. I am overriding this to the 52-week low price that is still 43.8% less than the previous close and implies a Forecast Low P/E of 15.7.

These inputs land MYRG in the HOLD zone with a U/D ratio of 0.9. Total Annualized Return (TAR) is 6.7%.

PAR (using Forecast Average—not High—P/E) of 4.3% 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.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 72 studies (my study and 22 other 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 11.7%, 12.1%, 21.5, and 12.5, respectively. My EPS growth rate and Forecast Low P/E are both higher. Value Line’s projected average annual P/E of 18.0 is higher than MS (17.0) and mine (17.5).

MS high / low EPS are $9.23 / $4.74 versus my $9.45 / $4.91 (per share). These are roughly equal and far below Value Line’s $12.80 high EPS.

MS LSPF of $69.50 implies a Forecast Low P/E of 14.7: greater than the above-stated 12.5. MS LSPF is 17.3% greater than than the default $4.74/share * 12.5 = $59.25, which results in more aggressive zoning. MS LSPF is still 9.7% less than mine.

My TAR (over 15.0% preferred) is slightly less than the 7.0% from MS. MOS seems weak in the current study. While selecting inputs, I noticed this when choosing Forecast High P/E, Forecast Low P/E, and LSPF.

I track a few different valuation metrics. PEG is 1.6 per my projected P/E (based on what may be a relatively high EPS growth rate): slightly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is about as expensive as I have ever seen at 1.6. Kim Butcher’s “quick and dirty DCF” prices the stock at 13.0 * [$16.85 – ($0.00 + $6.25)] = $137.80, which suggests the stock to be 0.6% undervalued.

MYRG is a BUY under $105. With a forecast high price of $189.10, TAR should meet my 15% criterion around $95/share.