YETI Stock Study (10-26-23)

I recently did a stock study on YETI Holdings (YETI) with a closing price of $41.50. Previous studies are here and here.

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. YOY EPS are down in ’16, ’17, ’19, and ’22 [I am excluding the latter 57.1% decline due to operational snafus including recall of defective items and inflation-induced demand destruction per Value Line]. PTPM leads peer and industry averages despite generally trending lower from 12.3% (’13) to 7.3% (’22) with a last-5-year mean of 12.3%.

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

Interest Coverage is 22.3 and Quick Ratio is 1.0. Value Line gives a “B+” rating for Financial Strength.

With regard to sales growth:

• CNN Business projects 6.3% YOY and 9.0% per year for ’23 and ’22-’24 (based on 16 analysts).
• YF projects YOY 6.6% and 10.6% for ’23 and ’24, respectively (17 analysts).
• Zacks projects YOY 4.3% and 9.9% for ’23 and ’24, respectively (9).
• Value Line projects 9.4% annualized growth from ’22-’27.
• CFRA projects 6.6% YOY and 8.6% per year for ’23 and ’22-’24, respectively (17).
• M* offers a 2-year annualized ACE of 9.8%.

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 16 analysts), along with 5-year annualized growth of 10.4%.
• MarketWatch projects growth of 7.3% and 10.9% per year for ’22-’24 and ’22-’25, respectively (17 analysts).
• Nasdaq.com projects growth of 22.7% YOY and 16.3% per year for ’24 and ’23-’25 [10/10/1 analyst(s) for ’23/’24/’25].
• Seeking Alpha projects 4-year annualized growth of 10.4%.
• YF projects YOY 3.0% contraction and 19.7% growth for ’23 and ’24 (17) along with 5-year annualized growth of 8.6%.
• Zacks projects YOY 3.0% contraction and 18.3% growth for ’23 and ’24 (11) and 5-year annualized growth of 9.4%.
• Value Line projects annualized growth of 12.2% from ’22-’27.
• CFRA projects 2.3% contraction per year and 4.5% growth per year for ’21-’23 and ’21-’24, respectively (16).

I am forecasting below the long-term-estimate range (mean of five: 10.2%) at 8.0% per year. I will not use ’22 EPS of $1.03/share or 2023 Q2 $0.76/share (annualized) as the initial value since those numbers are affected by [temporary] product recall and production issues. Instead, I will start with ’20 EPS ($1.77) and extrapolate to $1.77 * (1.08 ^ 7) = $3.03/share. I can almost ($3.02/share) get to this as a [website] workaround with a 24.0% growth rate projected from ’22 EPS.

My Forecast High P/E is 31.0. With the stock trading publicly since 2018, high P/E has increased from 31.1 to 80.6 in ’22 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 below the latter (18.0 in 2018 being the second-lowest value).

My Low Stock Price Forecast (LSPF) of $28.30 is default based on initial value of $1.77/share. This is 32.7% less than the previous close and 3.7% less than the 52-week low.

These inputs land YETI in the BUY zone with a U/D ratio of 3.5. Total Annualized Return (TAR) is 16.9%.

PAR (using Forecast Average—not High—P/E) of 10.6% 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 start by comparing my inputs with those of Member Sentiment (MS). Based on only 43 studies (my study and 17 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 10.0%, 13.0%, 35.0, and 17.7, respectively. I am lower across the board. Value Line’s projected average annual P/E of 20.0 is lower than MS (26.4) and lower than mine (23.5).

MS high / low EPS are $1.66 / $0.76 versus my $3.02 / $1.77 (per share). My EPS range is higher, which is quite rare. I think selection of 2023 Q2 as low EPS is unreasonable since results are still being affected by the recall [per Value Line]. I also don’t understand MS high EPS being less than 2020 EPS (7 years earlier). Value Line’s high EPS is $4.20: higher than mine and ~2.5x MS. What doesn’t surprise me is seeing big differences (and questionable ranges) given such a small MS sample size.

MS LSPF of $15.80 implies a Forecast Low P/E of 20.8: greater than the above-stated 17.7. MS LSPF is 17.5% greater than the default $13.28/share * 17.8 = $13.45, which results in more aggressive zoning. MS LSPF is a whopping 44.2% less than mine. I think MS LSPF is unreasonably low: consistent with skepticism expressed in the last paragraph.

My TAR (over 15.0% preferred) is dramatically higher than the 8.4% from MS. I can’t put much faith in MS given the limited sample size of 43. Comparing my inputs with the analyst estimates and P/E ranges as discussed above, I believe MOS to be moderate or better in the current study.

I track a few different [usually conflicting] valuation metrics. PEG is 2.0 and 1.9 per Zacks and my projected P/E, respectively: slightly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] of 1.5 (M*) is very high, but I believe it to be skewed by a low ’22 EPS caused by nonrecurring events. Kim Butcher’s “quick and dirty DCF” has the stock 40.4% undervalued: 17.0 * [$4.85 – ($0.00 + $0.70)] = $70.55. I’m skeptical of this as well (big discrepancy).

YETI is a BUY under $44. My main source of reluctance is the rocky visual inspection. As additional MOS, I would look to invest at $44 – 10% (arbitrary) = $39.60/share or less.