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EOG Stock Study (8-19-24)

Posted by on October 9, 2024 at 07:00 | Last modified: August 19, 2024 11:33

I recently did a stock study on EOG Resources, Inc. (EOG) with a closing price of $128.06.

M* writes:

     > EOG Resources is an oil and gas producer with acreage in several
     > US shale plays, primarily in the Permian Basin and the Eagle
     > Ford. At the end of 2023, it reported net proven reserves of
     > 4.5 billion barrels of oil equivalent. Net production averaged
     > roughly 985,000 barrels of oil equivalent per day in 2023 at a
     > ratio of 71% oil and natural gas liquids and 29% natural gas.

Energy is notorious for being cyclical. As a result, I usually avoid these companies because visual inspection fails. I wonder, though, are we really to blacklist an entire sector for this reason? Is it not possible to realize phenomenal investment returns here? The recent inclusion of SLB in a Manifest Investing portfolio (along with its 99 Quality score) suggests otherwise.

Visual inspection for EOG cleans up relatively well with the exclusion of 2015, ’16, and ’20 from the full analysis. ’20 probably makes sense due to COVID-19. Rather than dig to figure out plausible excuses for ’15-’16, I will defer to the overriding question asked in the first paragraph.

Pressing onward with stated exclusions, over the past 10 years this large-size company has grown sales and earnings at annualized rates of 7.1% and 12.8%, respectively. Lines are somewhat up and parallel with YOY sales+EPS declines in ’19 and ’23. Ten-year EPS R^2 is 0.67, but Value Line gives a weak Earnings Predictability score of 30.

Over the past decade, PTPM leads peer and industry averages while ranging from 5.9% in ’17 to 41.8% in ’23 with a last-5-year mean of 31.6%. ROE also leads peer and industry averages while increasing from 14.5% (’14) to 27.2% (’23) with a last-5-year mean of 23.6%. Debt-to-Capital completes the trifecta being much lower than peer and industry averages while falling from 25.0% (’14) to 14.6% (’23) with a last-5-year mean of 18.9%.

Quick Ratio is 1.7 and Interest Coverage is 69.3 per M* who also rates the company “Exemplary” for Capital Allocation and assigns a “Narrow” Economic moat. Value Line gives a B++ grade for Financial Strength.

With regard to sales growth:

My 2.0% per year forecast is near bottom of the range.

With regard to EPS growth:

My 3.0% per year forecast is toward bottom of the long-term-estimate range (mean of six: 7.2%). Initial value is 2024 Q2 EPS of $12.95/share (annualized) rather than ’23 EPS of $13.00.

My Forecast High P/E is 11.0. Over the past decade, high P/E falls from 22.3 (’14) to 10.6 (’23) with a last-5-year mean of 14.3 and a last-5-year-mean average P/E of 11.4. I am near bottom of the range (only ’23 is less).

My Forecast Low P/E is 7.0. Over the past decade, low P/E falls from 15.2 (’14) to 7.6 (’23) with a last-5-year mean of 8.5. I am forecasting toward bottom of the range [only ’21 (6.1) and ’22 (6.7) are less].

My Low Stock Price Forecast (LSPF) of $90.60 is default based on initial value from above. This is 29.3% less than the previous closing price and 16.8% less than the 52-week low.

Over the past decade, Payout Ratio (PR) increases from 9.6% in ’14 to 25.4% in ’23 with a last-5-year mean of 22.5%. I am forecasting below the range at 9.0%.

These inputs land EOG in the HOLD zone with a U/D ratio of 1.0. Total Annualized Return (TAR) is 6.0%.

PAR (using Forecast Average—not High—P/E) of 2.1% is less than I seek for any 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 19 studies (my study and eight 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 5.7%, 4.1%, 13.4, 8.2, and 21.9%, respectively. I am lower across the board. Value Line’s projected average annual P/E of 14.0 is higher than MS (10.8) and higher than mine (9.0).

MS high / low EPS are $15.55/ $12.66 versus my $15.01 / $12.95 (per share). My high EPS is less due to a lower growth rate. Value Line soars above both with its $17.50 projection.

MS LSPF of $102.30 implies Forecast Low P/E of 8.1: very close to the 8.2 mentioned above. MS LSPF is 12.9% greater than mine thereby resulting in more aggressive zoning.

With regard to valuation, PEG is 2.2 and 3.2 per Zacks and my projected P/E, respectively: somewhat overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is a bit low at 0.87.

MOS is robust because my inputs (and most-recent-quarter initial value) are near or below respective analyst/historical ranges. MS sample size is too small for valid comparison, but its 12.3% TAR is anecdotally 6.3%/year greater than mine.

EPS estimates for the company don’t level up to management metrics. The latter [three described near top] would have me believe it to be an industry leader. The former is particularly dogged by M*’s 0.2%.

Per U/D, EOG is a BUY under $109. BI TAR criterion is met ~ $82/share given a forecast high price ~ $165.

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ARCB Stock Study (8-14-24)

Posted by on October 7, 2024 at 06:25 | Last modified: August 14, 2024 16:23

I recently did a stock study on ArcBest Corp. (ARCB) with a closing price of $106.04.

M* writes:

     > ArcBest Corp is engaged in logistics operations. The company operates
     > in two operating segments, The Asset-Based segment includes
     > the results of operations of ABF Freight System, Inc. and certain
     > other subsidiaries. The segment operations include national, inter-
     > regional, and regional transportation of general commodities through
     > standard, expedited, and guaranteed LTL services. The services
     > including freight transportation related to managed transportation
     > solutions and other services. The Asset-Light segment includes the
     > results of operations of the Company’s service offerings in truckload,
     > ground expedite, dedicated, intermodal, household goods moving,
     > managed transportation, warehousing and distribution, and
     > international freight transportation for air, ocean, and ground.

Over the past 10 years, the medium-size company has grown sales and EPS at annualized rates of 7.3% and 25.0%, respectively. Lines are borderline up and parallel with YOY sales declines in ’19, ’20, and ’23 along with EPS declines in ’15, ’16, ’19, and ’23. Five- and 10-year EPS R^2 are both 0.63 and Value Line gives an Earnings Predictability score of 45.

Over the past decade, PTPM trails peer and industry averages (both appear identical) despite increasing from 2.7% (’14) to 4.2% (’23) with a last-5-year mean of 4.7%. ROE trails peer and industry averages (both appear identical) despite increasing from 8.0% (’14) to 11.1% (’23) with a last-5-year mean of 14.1%. Debt-to-Capital is less than peer and industry averages (both appear identical) despite increasing from 20.4% (’14) to 26.1% (’23) with a last-5-year mean of 29.5%.

Quick Ratio is 1.1 and Interest Coverage is 19.0 per M* who also assigns a Narrow (quantitative) Economic Moat. Value Line gives a B+ grade for Financial Strength.

With regard to sales growth:

My 1.0% per year forecast is near bottom of the range.

With regard to EPS growth:

My 9.0% per year forecast is below the long-term-estimate range (mean of four: 12.4%). Initial value is 2024 Q2 EPS of $5.27/share (annualized) rather than ’23 EPS of $5.77.

My Forecast High P/E is 15.0. Over the past decade, high P/E ranges from 10.6 in ’22 to 47.8 in ’16 with a last-5-year mean of 18.6 and a last-5-year-mean average P/E of 13.7. I am near bottom of the range (only ’22 is less).

My Forecast Low P/E is 11.0. Over the past decade, low P/E falls from 17.7 (’14) to 11.8 (’23) with a last-5-year mean of 8.8. I am forecasting near bottom of the range [’20 (5.0), ’21 (5.3), ’22 (5.6), and ’17 (7.5) are less].

My Low Stock Price Forecast (LSPF) is $74.00. Default ($58.00) based on initial value given above seems unreasonably low at 45.3% (33.3%) less than previous close (52-week low). My [arbitrary] forecast is 30.2% and 14.8% less, respectively.

Over the past decade, Payout Ratio ranges from 3.8% in ’22 to 45.1% in ’16 with a last-5-year mean 9.8%. I am forecasting below the range at 3.0%.

These inputs land ARCB in the HOLD zone with a U/D ratio of 0.5. Total Annualized Return (TAR) is 3.0%.

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 the study, then I can proceed based on TAR instead although even that is less than the current yield on T-bills.

To assess MOS, I usually start by comparing my inputs with those of Member Sentiment. I will skip this because only one other study has been done over the past 90 days.

Value Line projects an average annual P/E of 15.0 that is greater than mine (13.0). Value Line projects high EPS of $13.00/share versus my $8.11.

My LSPF exceeds the rule-of-thumb [which really isn’t] 20% discount to previous closing price.

MOS is robust because my inputs (and most-recent-quarter initial value) are near/below respective analyst/historical ranges.

With regard to valuation, PEG is 1.1 and 2.1 per Zacks and my projected P/E, respectively: mostly reasonable. Relative Value [(current P/E) / 5-year-mean average P/E] is much higher than I like to see at 1.47 (due to low P/E from ’20-’22).

Projected EPS growth is what drew my attention to this stock, but the hype doesn’t live up to the numbers. Visual inspection is mediocre. Projected sales growth is nowhere near double digits. The company is not an industry leader with regard to management metrics. PTPM is less than the 5-year average. Relative Value is an issue as just discussed. Last but not least, only one other person has given this stock time of day.

Per U/D, ARCB is a BUY under $85/share. BI TAR criterion is met ~ $61/share given a forecast high price ~ $121.

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SBUX Stock Study (8-13-24)

Posted by on October 6, 2024 at 07:01 | Last modified: August 13, 2024 11:02

I recently did a stock study on Starbucks Corp. (SBUX, $77.03). Previous studies are here, here, and here.

Value Line writes:

     > Starbucks Corp. is the leading retailer, roaster, and brand of
     > specialty coffee in the world. Sells whole bean coffees through
     > its specialty sales group, mail-order business, supermarkets, and
     > online. Had 10,628 company-owned stores in the Americas and
     > 8,964 elsewhere. Also had 18,216 licensed stores worldwide (as
     > of 10/1/23). Food & beverage: 78% of ’23 total; CPG and other,
     > 22%. Has joint ventures with Pepsi-Cola and Dreyer’s to develop
     > bottled coffee drinks and ice creams, respectively.

Over the last 10 years (excluding 2020 from the full analysis due to COVID-19), the large-size company has grown sales and earnings at annualized rates of 8.2% and 10.2%. Lines are mostly up, straight, and parallel except for EPS declines in ’19 and ’22 (FY ends Sep 30). Ten- (five-) year EPS R^2 is 0.78 (0.20), and Value Line gives an Earnings Predictability score of 50.

Over the last decade, PTPM leads industry averages but trails peers while falling from 19.2% (’14) to 15.0% (’23) with a last-5-year mean (’20 excluded throughout) of 15.8%. ROE last-5-year mean is -57.0%: not atypical as the industry average is negative five times between ’14 and ’22. Debt-to-Capital is greater than peer and industry averages since ’19 with a last-5-year mean of 165%.

Quick Ratio is 0.59 and Interest Coverage is 10.5 per M* who gives an “Exemplary” rating for Capital Allocation and assigns a “Wide” Economic Moat. Value Line gives a B++ (down from A three months ago) rating for Financial Strength.

In looking at the 2021 balance sheet, long-term debt, operating lease liability, and deferred revenue are the largest contributions. As discussed in https://bit.ly/3KpHOOj , the latter is a deal made in late 2018 that allows Nestle to market, sell and distribute SBUX consumer packaged goods. SBUX was paid an upfront royalty of $6.7B to be recorded in equal amounts as “other revenue” x40 years. This means the deferred revenue liability will decrease by ~$175M per year until ~2061. The liability is really of no concern as long as SBUX stays in business; without this liability, shareholders’ equity would be positive.

With regard to sales growth:

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

With regard to EPS growth:

My 7.0% per year forecast is below the long-term-estimate range (mean of six: 11.8%). I will use ’23 EPS of $3.58/share as the initial value [comparable to 2024 Q3 EPS of $3.57 (annualized)].

My Forecast High P/E is 29.0. Over the past decade, high P/E ranges from 30.4 in ’14 (excluding 19.1 in ’18) to 41.6 in ’22 (excluding 119 in ’20) with a last-5-year mean of 35.9 and a last-5-year-mean average P/E of 29.2. I am below the range.

My Forecast Low P/E is 17.0. Over the past decade, low P/E ranges from 14.6 in ’18 (possibly a downside outlier) to 27.7 in ’16 (excluding 63.3 in ’20) with a last-5-year mean of 22.5. I am forecasting near the bottom of the range (only ’18 is lower).

My Low Stock Price Forecast (LSPF) of $60.90 is default based on initial value given above. This is 20.9% less than the previous close and 14.8% less than the 52-week low.

The lowest Payout Ratio (PR) over the past decade is 35.2% in ’15 and the last-5-year mean is 57.2% (excluding the upside outlier of 208% in ’20). I am forecasting below the range at 35.0%.

These inputs land SBUX in the BUY zone with a U/D ratio of 4.2. Total Annualized Return (TAR) is 14.8%.

PAR (using Forecast Average—not High—P/E) is decent for a large-size company at 10.0%. 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 155 studies done in the past 90 days (my study and 54 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 6.0%, 8.7%, 29.3, 20.0, and 68.6%, respectively. I am lower across the board. Value Line projects a future average annual P/E of 20.0 that is less than MS (24.7) and less than mine (23.0).

MS high / low EPS are $5.48 / $3.57 versus my $5.02 / $3.58 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $5.30 is in the middle.

MS LSPF of $66.60 implies a Forecast Low P/E of 18.7 versus the above-stated 20.0. MS LSPF is 6.7% less than the default $3.57/share * 20.0 = $71.40, which results in more conservative zoning. MS LSPF is still 9.4% greater than mine, however.

With regard to valuation, PEG is 1.8 and 2.9 per Zacks and my projected P/E: both a bit high. Relative Value is low at 0.74 [(current P/E) / 5-year-mean average P/E].

MOS is robust because my inputs are near or below respective analyst/historical ranges and MS averages. That is further supported by an MS TAR of 17.9%: 3.1%/year greater than mine.

SBUX is a BUY per U/D under $82/share. BI TAR criterion is met ~ $73 given a forecast high price ~ $145.

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CSGP Stock Study (8-12-24)

Posted by on October 5, 2024 at 06:20 | Last modified: August 12, 2024 15:12

I recently did a stock study on CoStar Group, Inc. (CSGP) with a closing price of $73.88.

M* writes:

     > CoStar Group is a leading provider of commercial real estate data
     > and marketplace listing platforms. Its data offering contains
     > in-depth analytical information on over 5 million commercial real
     > estate properties related to various subsectors including office,
     > retail, hotels, multifamily, healthcare, industrial, self-storage,
     > and data centers. It operates many flagship brands such as
     > CoStar Suite, LoopNet, Apartments.com, BizBuySell, and Lands of
     > America, with more than 80% of its revenue classified as
     > subscription-based. The company recently expanded its presence
     > in Canada, the United Kingdom, Spain, and France.

Since 2016 (two preceding years excluded from full analysis due to fractional EPS base that otherwise drastically inflates growth rate), this medium-size company has grown sales and EPS at annualized rates of 17.1% and 17.4%, respectively. Eight- and 5-year EPS R^2 are 0.73 and 0.24; Value Line scores the company 75 for Earnings Predictability.

Since ’16, PTPM leads peer and industry averages while ranging from 16.3% in ’16 and ’20 to 27.9% in ’19 with a last-5-year mean of 21.5%. ROE leads peer averages but trails the industry while ranging from 4.4% in ’20 to 9.6% in ’19 with a last-5-year mean of 6.0% (Value Line projects 14% for ’27-’29). Debt-to-Capital is less than peer and industry averages while ranging from 0% in ’17-’18 to 17.5% in ’20 with a last-5-year mean of 13.1%.

Quick Ratio is 9.1 and the company has no debt due within the next 5 years. M* rates the company “Exemplary” for Capital Allocation and assigns a “Wide” Economic Moat. Value Line gives a B++ grade for Financial Strength.

With regard to sales growth:

My 10.0% per year forecast is below the range.

With regard to EPS growth:

My 13.0% per year forecast is below the long-term-estimate range (mean of five: 17.6%). Initial value is 2024 Q1 EPS of $0.73/share (annualized) rather than ’23 EPS of $0.92 [$0.73 * (1.13 ^ 5) = $1.68, which is about equal to a 26.0% growth rate on 24 Q2 EPS of $0.53].

My Forecast High P/E is 60.0. Since 2016, high P/E ranges from 68.6 in ’18 to 160 in ’20 with a last-5-year mean of 113 and a last-5-year-mean average P/E of 91. I am below the range but well above my comfort zone.

My Forecast Low P/E is 35.0. Since 2016, low P/E ranges from 37.8 in ’19 to 100 in ’21 with a last-5-year mean of 69.2. I am forecasting below the range.

My Low Stock Price Forecast is $52.00. Default ($25.60) based on initial value given above seems unreasonably low at 65.3% (62.0%) less than the previous closing price (52-week low). My [arbitrary] forecast is 29.6% and 22.7% less, respectively.

These inputs land CSGP in the HOLD zone with a U/D ratio of 1.2. Total Annualized Return (TAR) is 6.5%.

PAR (using Forecast Average—not High—P/E) of 1.6% is unacceptable for any size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I would normally start by comparing my inputs with those of Member Sentiment but only three other studies have been done in the past 90 days (my study and three outliers excluded): not enough to compare.

Value Line projects a future average annual P/E of 50.0: greater than my 47.5. My high EPS of $1.68 is much lower than Value Line’s $3.05/share.

With regard to valuation, PEG is 8.2 and 4.3 per Zacks and my projected P/E, respectively. While both are substantially overvalued, initial value is not taken into account. Regardless, the extent to which these exceed the [1.0 – 1.5] range generally regarded as fair value [along with no MS being available] suggests to me the market is not yet sure how to price the stock [possibly leaving door open to the sky-high P/E ranges seen to date].

MOS is robust as my inputs (and most-recent-quarter initial value) are near or below respective analyst/historical ranges.

Qualitatively, the bullish case is quite impressive especially as presented by M* and CFRA.

Quantitatively, CSGP is a BUY under $64 per U/D. BI TAR criterion is met ~ $51/share given a forecast high price of $101.

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FDS Stock Study (8-12-24)

Posted by on October 3, 2024 at 06:38 | Last modified: August 12, 2024 11:50

I recently did a stock study on FactSet Research Systems Inc. (FDS) with a closing price of $403.03. Previous study is here.

M* writes:

     > FactSet provides financial data and portfolio analytics to the
     > Global investment community. The company aggregates data from
     > third-party data suppliers, news sources, exchanges, brokerages,
     > and contributors into its workstations. In addition, it
     > provides essential portfolio analytics that companies use to
     > monitor portfolios and address reporting requirements. Buy-side
     > clients account for 82% of FactSet’s annual subscription value.
     > In 2015, the company acquired Portware, a provider of trade
     > execution software. In 2017, it acquired BISAM, a risk
     > management and performance measurement provider. In 2022,
     > it completed its purchase of CUSIP Global Services.

Over the last 10 years, this medium-size company has grown sales and earnings at annualized rates of 8.8% and 9.4%, respectively. Lines are mostly up, straight, and parallel except for EPS declines in ’17 and ’22. Five- and 10-year EPS R^2 are 0.88 and 0.87, respectively, and Value Line gives an impressive Earnings Predictability score of 100.

Over the past decade, PTPM trails peer and industry averages while ranging from 24.1% in ’22 to 40.9% in ’16 with a last-5-year mean of 27.9%. ROE leads peer averages but trails the industry while ranging from 27.4% in ’23 to 60.3% in ’16 with a last-5-year mean of 39.0%. Debt-to-Capital is less than peer and industry averages despite increasing from from 0% in ’14 to 53.2% in ’23 with a last-5-year mean of 51.4% (CGS acquisition from S&P Global).

Quick Ratio is 1.1 and Interest Coverage is 10.6 per M* who assigns a “Standard” rating for Capital Allocation and a “Narrow” Economic Moat. Value Line gives an A grade for Financial Strength (down from A+ in previous study).

With regard to sales growth:

My 4.0% per year forecast is below the range.

With regard to EPS growth:

My 8.0% per year forecast is below the long-term-estimate range (mean of five: 9.9%). Initial value is ’23 EPS of $12.04/share instead of 2024 Q3 $12.26 (annualized).

My Forecast High P/E is 30. Over the last decade, high P/E trends up from 26.3 (’14) to 39.4 (’23) with a last-5-year mean of 39.2 and a last-5-year-mean average P/E of 32.6. I am near bottom of the range [’14 and ’16 (21.9) are less].

My Forecast Low P/E is 20. Over the last decade, low P/E trends up from 20.5 (’14) to 31.4 (’23) with a last-5-year mean of 26.9. I am forecasting near bottom of the range [16.6 (’16) and 19.4 (’15) are less].

My Low Stock Price Forecast (LSPF) is $300.00. Default ($265.20) based on initial value from above seems unreasonably low at 34.2% (32.3%) less than the previous close (52-week low). My [arbitrary] forecast is 25.6% and 23.4% less, respectively.

Payout Ratio (PR) over the last 10 years ranges from 23.0% in ’16 to 35.4% in ’18 with a last-5-year average of 31.2%. I am forecasting conservatively at 23.0%.

These inputs land FDS in the HOLD zone with a U/D ratio of 1.2. Total Annualized Return (TAR) is 6.4%.

PAR (using Forecast Average–not High–P/E) is 2.8%, which is lower than the current return on T-bills. 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 90 studies (my study and 31 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 6.9%, 10.0%, 35.3, 25.3, and 31.0%, respectively. I am lower across the board. Value Line’s projected average annual P/E of 32.0 is greater than MS (30.3) and much greater than mine (25.0).

MS high / low EPS are $20.55/ $12.63 versus my $17.69 / $13.26 (per share). My high EPS is less due to a lower growth rate. Value Line’s $22.00 is greater than both.

MS LSPF of $336.60 implies Forecast Low P/E of 26.7: greater than the above-stated 25.3. MS LSPF is 5.3% higher than the default $12.63/share * 25.3 = $319.54 resulting in more aggressive zoning. MS LSPF is also 12.2% greater than mine.

With regard to valuation, PEG is 2.4 and 3.5 per Zacks and my projected P/E, respectively: both overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is fair at 0.93.

MOS is robust because my inputs are near or below respective analyst/historical ranges and MS averages. That is further supported by an MS TAR of 12.8%: 6.4%/year greater than mine.

FactSet caught my eye because of its textbook visual inspection and price near 52-week low. Qualitatively, the Value Line report ends with “we have little reason to recommend these shares at this time.” CFRA does not at all agree.

Per U/D, FDS is a BUY under $351. BI TAR criterion is met ~ $265/share given a forecast high price of ~ $530.

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EW Stock Study (8-8-24)

Posted by on October 2, 2024 at 06:27 | Last modified: August 8, 2024 10:16

I recently did a stock study on Edwards Lifesciences Corp. (EW) with a closing price of $61.07.

M* writes:

     > Spun off from Baxter International in 2000, Edwards Lifesciences
     > designs, manufactures, and markets a range of medical devices
     > and equipment for advanced stages of structural heart disease.
     > It has established itself as a leader across key products,
     > including surgical tissue heart valves, transcatheter valve
     > technologies, surgical clips, and catheters. The firm derives
     > about 55% of its total sales from outside the US.

Over the last 10 years, the medium-size company has grown sales and EPS at annualized rates of 11.3% and 13.1%. Lines are mostly up, straight, and parallel except for EPS dips in ’15, ’20, and ’23. Five- and 10-year EPS R^2 are 0.55 and 0.72, respectively, and Value Line gives an impressive Earnings Predictability score of 100.

Over the last decade, PTPM leads peer and industry averages despite falling from 49.2% (’14) to 26.6% (’23) with a last-5-year mean of 27.9%. ROE leads peer and industry averages despite falling from 39.5% (’14) to 20.8% (’23) with a last-5-year mean of 23.6%. To complete the trifecta, Debt-to-Capital is much lower than peer and industry averages while falling from 21.4% (’14) to 9.5% (’23) with a last-5-year mean of 11.6%.

Quick Ratio is 2.3 and Interest Coverage is NMF (interest income exceeds interest expense) per M* who rates the company “Exemplary” for Capital Allocation and awards a “Narrow” economic moat. Value Line gives a B++ grade for Financial Strength.

With regard to sales growth:

My 3.0% per year forecast is below the range.

With regard to EPS growth:

My 7.0% per year forecast is below the long-term-estimate range (mean of five: 9.3%). Initial value is ’23 EPS of $2.30/share rather than 2024 Q2 $2.43 (annualized).

My Forecast High P/E is 35.0. Over the past decade, high P/E increases from 17.9 (’14) to 41.2 (’23) with a last-5-year mean (excluding 70.8 in ’20) of 50.1 and a last-5-year-mean average P/E (also excluding ’20 low P/E) of 39.5. I am forecasting the lowest value since ’14.

My Forecast Low P/E is 20.0. Over the past decade, low P/E increases from 8.4 (’14) to 26.3 (’23) with a last-5-year mean (excluding 39.6 in ’20) of 28.8. I am forecasting the lowest value since ’14.

My Low Stock Price Forecast (LSPF) of $48.60 is default based on initial value given above. This is 20.4% less than the previous close and 17.5% less than the 52-week high.

These inputs land EW in the BUY zone with a U/D ratio of 4.2. Total Annualized Return (TAR) is 13.1%.

PAR (using Forecast Average—not High—P/E) of 7.8% 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 136 studies done in the past 90 days (my study and 52 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 9.0%, 9.6%, 40.6, and 29.1, respectively. I am lower across the board. Value Line projects a future average annual P/E of 30.0 that is less than MS (34.9) but greater than mine (27.5).

MS high / low EPS are $3.78 / $2.32 versus my $3.23 / $2.43 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $4.00 is greater than both.

MS LSPF of $64.20 implies a Forecast Low P/E of 27.7 versus the above-stated 29.1. While more conservative than default, only 41 of 136 studies are done since the stock drops 31% on 7/25/24. As a result, default LSPF is currently INVALID. MY LSPF fully accounts for the drop and is 24.3% lower.

MOS is robust because my inputs are near or below respective analyst/historical ranges and MS inputs. Further substantiation is MS TAR 13.6% that is 0.5%/year greater than mine despite only fractionally factoring in the stock price crash.

Pertaining to valuation, PEG is 2.6 and 3.4 per Zacks and my projected P/E, respectively: both regarded as rich. On the other hand, relative Value [(current P/E) / 5-year-mean average P/E] is quite cheap at 0.64.

Per U/D, EW is a BUY under $64. BI TAR criterion is met ~ $57/share given a forecast high price of $113.

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TSLA Stock Study (8-7-24)

Posted by on September 30, 2024 at 07:09 | Last modified: August 7, 2024 11:53

I recently did a stock study on Tesla, Inc. (TSLA) with a closing price of $200.64.

M* writes:

     > Tesla is a vertically integrated battery electric vehicle automaker
     > and developer of autonomous driving software. The company has
     > multiple vehicles in its fleet, which include luxury and midsize
     > sedans, crossover SUVs, a light truck, and a semi-truck. Tesla
     > also plans to begin selling more affordable vehicles, and a sports
     > car. Global deliveries in 2023 were a little over 1.8 million
     > vehicles. The company also sells batteries for stationary storage
     > for residential and commercial properties including utilities
     > and solar panels and solar roofs for energy generation. Tesla also
     > owns a fast-charging network.

Despite only being profitable since 2020, the company is already mega ( > $50B annual revenue) in size. I am excluding previous losing years from the full analysis.

Since ’20, Tesla grows sales and EPS at annualized rates of 45.9% and 167%. Lines are up, narrowing, and parallel. EPS R^2 is 0.84 although Value Line gives a mediocre Earnings Predictability score of 35 (probably dating farther back than ’20).

Since ’20, PTPM leads peer and industry averages while increasing from 3.7% to 10.3% (’23) with a 4-year mean of 10.7%. ROE leads peer and industry averages while increasing from 3.8% to 25.6% (’23) with a 4-year mean of 19.2%. Debt-to-Capital is less than peer and industry averages while falling from 37.4% to 13.3% (’23) with a 4-year mean of 21.2%.

Quick Ratio is 1.2 and Interest Coverage is 30.4 per M* who also rates the company “Exemplary” for Capital Allocation. Value Line gives an A grade for Financial Strength.

With regard to sales growth:

With ’24 looking to be slow, my 9.0% per year forecast is below the range of ’25 and beyond.

With regard to EPS growth:

I am not as puzzled by YF long-term estimate as I am Argus that implies [more than] doubling every year for the next 5 years.

My 10.0% per year forecast is near bottom of the long-term-estimate range (mean of six: 29.7%). Initial value is 2024 Q2 EPS of $3.56/share (annualized) rather than ’23 EPS of $4.30.

My Forecast High P/E is 40.0. Since ’20, high P/E falls from 1124 to 69.6 (’23). I regard all these numbers as NMF until the company reports more profitable years allowing the market to settle upon a more stable valuation. I now forecast at the upper end of my comfort zone (lower than the historical range).

My Forecast Low P/E is 23.0. Since ’20, low P/E falls from 109 to 23.7 (’23). I am below the range.

My Low Stock Price Forecast (LSPF) is $138.80. Default ($81.90) based on initial value given above seems unreasonably low at 59.2% less than the previous closing price and 41.0% less than the 52-week low. Instead, I will use the 52-week low itself: 30.8% less than the previous close.

These inputs land TSLA in the HOLD zone with a U/D ratio of 0.5. Total Annualized Return (TAR) is 2.7%.

PAR (using Forecast Average—not High—P/E) of -2.1% is unacceptable for any size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR [even that is less than the current yield on T-bills, however].

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 97 studies (my study and 18 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 13.9%, 17.4%, 55.2, and 30.0, respectively. I am lower across the board. Value Line’s projected average annual P/E of 41.0 is less than MS (42.6) and greater than mine (31.5).

MS high / low EPS are $8.78/ $3.91 versus my $5.73 / $3.56 (per share). My high EPS is less due to a lower growth rate. Value Line is higher than both at $9.00.

MS LSPF of $117.60 implies Forecast Low P/E of 30.1: nearly a perfect match indicating the default value. This is 15.3% less than mine resulting in more conservative zoning.

With regard to valuation, PEG is 4.0 and 5.1 per Zacks and my projected P/E, respectively: substantially overvalued.

MOS is robust because my inputs (and most-recent-quarter initial value) are near or below respective analyst/historical ranges and MS inputs. Further substantiating this is MS TAR of 18.5% that is 15.8%/year greater than mine.

A TAR discrepancy that large makes me question whether my inputs are unreasonably low, but lack of data leaves the door open to almost everyone. The company has yet to be profitable for a full business cycle and nobody truly knows how it will react. With regard to YF and Argus, 105% is legitimatized as much as 3.0%.

Per U/D, TSLA is a BUY under $161. BI TAR criterion is met ~ $115/share given a forecast high price of ~ $229.

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KEYS Stock Study (8-6-24)

Posted by on September 29, 2024 at 07:01 | Last modified: August 7, 2024 11:09

I recently did a stock study on Keysight Technologies Inc. (KEYS) with a closing price of $122.81.

M* writes:

     > Keysight Technologies is a leader in the field of testing
     > and measurement, helping electronics OEMs and suppliers
     > alike bring products to market to fit industry standards
     > and specifications. Keysight specializes in the
     > communications market, but also supplies into the
     > government, automotive, industrial, and semiconductor
     > manufacturing markets. Keysight’s solutions include
     > testing tools, analytical software, and services. The
     > firm’s stated objective is to reduce time to market and
     > improve efficiency at its more than 30,000 customers.

Spinning off from Agilant after FY 2014, the first few years were rough. I am excluding 2017 from the full analysis pursuant to 2017 Form 10-K:

     > Net income was $102 million in 2017 compared to net
     > income of $335 million and $513 million in 2016 and 2015,
     > respectively… The decline in net income for the year ended
     > October 31, 2017 is primarily driven by the unfavorable
     > impact from amortization of acquisition-related balances.

Since 2015, the medium-size company has grown sales and EPS at annualized rates of 9.2% and 16.3%, respectively. Lines are mostly up, straight, and parallel (especially following ’18) except for a sales dip in ’20 and EPS dips in ’16, ’18, and ’23. Five-year EPS R^2 is 0.87 although Value Line gives an Earnings Predictability score of only 50 (probably including more than the last five years).

Since 2015, PTPM is roughly even with peer and industry averages while increasing from 13.6% to 24.8% (’23) with a last-5-year mean of 20.7%. ROE leads peer and industry averages despite falling from 46.2% to 21.1% (’23) with a last-5-year mean of 22.3%. Debt-to-Capital is higher than peer and industry averages despite falling from 45.8% to 30.3% (’23) with a last-5-year mean of 34.5%.

M* reports Quick Ratio of 1.2, Interest Coverage of 14.5, and assigns a “Wide” Economic Moat. Value Line gives an A grade for Financial Strength.

With regard to sales growth:

I am forecasting flat sales due to three estimates of near-term contraction.

With regard to EPS growth:

I am forecasting in lower end of the long-term-estimate range (mean of five: 3.0%). Initial value is ’23 EPS of $5.91/share.

My Forecast High P/E is 30.0. Since 2015, high P/E increases from 13.0 to 32.1 (’23) with a last-5-year mean of 33.9 and a last-5-year-mean average P/E of 27.2. I am below the last-5-year range.

My Forecast Low P/E is 16.0. Since 2015, low P/E increases from 9.5 to 20.1 (’23) with a last-5-year mean of 20.5. I am forecasting below the last-5-year range.

My Low Stock Price Forecast (LSPF) of $94.60 is default based on initial value given above. This is 23.0% less than the previous close and 20.2% less than the 52-week low.

These inputs land KEYS in the HOLD zone with a U/D ratio of 1.9. Total Annualized Return (TAR) is 7.6%.

PAR (using Forecast Average—not High—P/E) of 2.1% is less than I seek for any 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 only 8 studies (my study and 2 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 4.5%, 9.9%, 31.3, and 20.0, respectively. I am lower across the board. Value Line’s projected average annual P/E of 21.5 is not only lower than MS (25.7) but mine as well (23.0).

MS high / low EPS are $7.59 / $4.79 versus my $5.91 / $5.91 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $10.50 soars above both.

MS LSPF of $102.50 implies a Forecast Low P/E of 21.4: more than the above-stated 20.0. MS LSPF is 7.0% higher than the default $4.79/share * 20.0 = $95.80 resulting in more aggressive zoning. MS LSPF is also 8.6% greater than mine.

With regard to valuation, PEG is 3.9 per Zacks: quite expensive. Relative Value [(current P/E) / 5-year-mean average P/E] is fair at 0.99.

I believe MOS is healthy but not robust. My inputs could be less despite being toward the bottom of analyst/historical ranges. Growth forecast is zero (but not negative). Forecast P/E range is below that of the last 5 years (but not more). Initial value is not a lower 2024 Q1 or Q2 EPS (the latter would be an additional 20%+ discount, which may be unreasonably extreme).

KEYS is a BUY per U/D under $115/share. BI TAR criterion is met ~$89 given a forecast high price ~$177.

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HAE Stock Study (8-5-24)

Posted by on September 28, 2024 at 06:28 | Last modified: August 5, 2024 17:11

I recently did a stock study on Haemonetics Corp. (HAE) with a closing price of $89.95.

M* writes:

     > Haemonetics Corp aims to improve patient care and reduce the
     > cost of healthcare by providing medical products and solutions
     > in the blood and plasma component collection, surgical suite,
     > and hospital transfusion service spaces. As such, the company
     > operates under three segments: plasma, blood center, and
     > hospital. The company places primary emphasis on its plasma
     > and hospital segments due to their robust growth potential,
     > whereas the blood center segment tends to be constrained by
     > higher competition. Product revenue is driven by demand for
     > disposable blood component collection and processing sets
     > and the related equipment needed for proper functionality.

2016-17 (FY ends Mar 31; yearly references on BI website and Value Line incremented to match) are ugly years for this company. In looking at 2016 Form 10-K, I see mentions of “Russian economic conditions” and “declines in US blood center collections.” 2017 Form 10-K mentions “declines in US blood center collections,” goodwill impairments, and restructuring [costs]. Value Line considers much of this nonrecurring as it excludes losses of $2.72 and $2.04/share for the respective years.

Although I have doubts about recurrent exclusions for supposedly nonrecurrent events, I am excluding 2015-17 from the full analysis. One caveat I do acknowledge is the distant past of which this is a part.

Since 2018, then, the medium-size company has grown sales and earnings at annualized rates of 5.5% and 15.1%, respectively. Lines are mostly up and parallel except for a sales decline in ’21 and EPS decline in ’22. Five-year EPS R^2 is only 0.23 and Value Line gives a similarly lackluster Earnings Predictability score of 45.

Overlapping price bars in ’18 and ’25 represent several years without significant stock appreciation. I hope for a “coiled spring” effect when seeing this.

Since ’18, PTPM trails peer and industry averages despite increasing from 6.6% (’18) to 11.6% (’24) with a last-5-year mean of 9.5%. ROE exceeds peer and industry averages while ranging from 5.4% in ’18 to 14.6% in ’23 with a last-5-year mean of 11.3%. Debt-to-Capital is greater than peer and industry averages in rising from 25.2% (’18) to 45.7% (’24) with a last-5-year mean of 47.9%.

Quick Ratio and Interest Coverage are 1.2 and 12.6 per M* who also assigns a [quantitative] “Narrow” Economic Moat. Value Line gives an A grade for financial strength.

With regard to sales growth:

My 4.0% annualized forecast is below the range.

With regard to EPS growth:

My 10.0% forecast is below the long-term-estimate range (mean of five: 12.4%). Initial value is ’24 EPS of $2.29/share.

My Forecast High P/E is 40.0. Since ’18, high P/E falls from 88.8 to 41.6 (’24) with a last-5-year mean (excluding 143 in ’22) of 67.2 and a last-5-year-mean average P/E of 53.1. I am below the range.

My Forecast Low P/E is 30.0. Since ’18, low P/E falls from 45.3 to 30.9 (’24) with a last-5-year mean of 39.1. I am forecasting near bottom of the range [only ’23 (21.7) is less].

My Low Stock Price Forecast of $68.70 is default based on initial value given above. This is 23.5% less than the previous close and 2.8% less than the 52-week low.

These inputs land HAE in the HOLD zone with a U/D ratio of 2.7. Total Annualized Return (TAR) is 10.4%.

PAR (using Forecast Average—not High—P/E) is 7.5%, 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 10.4% instead.

To assess MOS, I would normally start by comparing my inputs with those of Member Sentiment but only two other studies have been done in the past 90 days (my study and three outliers excluded): not enough for comparison.

Value Line projects a future average annual P/E of 28.0: much lower than my 35.0. My high EPS of $3.69 is much lower than Value Line’s $6.80/share.

With regard to valuation, PEG is 1.6 and 3.6 per Zacks and my projected P/E, respectively: somewhat expensive. Relative Value [(current P/E) / 5-year-mean average P/E] is a bit low at 0.74.

MOS is fair (not robust) in this study because my inputs are near or below respective analyst/historical ranges. I’m concerned that my P/E range is high relative to Value Line.

Haemonetics strikes me as a decent company but nothing great. I question consistency of execution as discussed near the top. ROE seems a bit low. Sales growth seems a bit low. I was initially impressed with the Value Line projections, but overall analyst estimates don’t quite measure up. The stock is trading well off its 52-week lows, which could otherwise help.

Per U/D, HAE is a BUY under $88/share. BI TAR criterion is met ~$73/share given a forecast high price ~$147. I will wait until at most the latter to invest.

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SON Stock Study (8-5-24)

Posted by on September 26, 2024 at 06:27 | Last modified: August 4, 2024 12:02

I recently did a stock study on Sonoco Products Co. (SON) with a closing price of $51.64. The previous study is here.

M* writes:

     > Over its 100-year-plus history, Sonoco Products has steadily assembled
     > a diverse portfolio of industrial and consumer packaging product
     > offerings such as flexible and rigid plastics, reels and spools,
     > pallets, and composite cans. The company serves a variety of
     > consumer and industrial end markets throughout North America. Sonoco
     > has raised its dividend each year for more than 40 years.

Over the past 10 years, this medium-size company has grown sales and earnings at annualized rates of 4.2% and 8.0%, respectively. I have excluded ’21 EPS from the full analysis per the company’s 10-K:

     > The full-year 2021 GAAP loss per diluted share was $(0.86)… The
     > full-year 2021 GAAP loss was driven by $410.4 million after-tax
     > pension settlement charges mostly related to the Company’s
     > settlement of its U.S. Inactive Plan in the second quarter.

Lines are up, jagged, and somewhat parallel. Sales [EPS] declines in ’15, ’16, ’19, ’20, and ’23 [’17, ’19, and ’20]. Five- and 10-year EPS R^2 are 0.68 and 0.47, respectively, but Value Line gives an Earnings Predictability score of 95.

Over the past decade, PTPM trails peer and industry averages while ranging from 4.9% in ’20 to 9.2% in ’16 with a last-5-year mean of 7.3%. ROE also trails peer and industry averages despite increasing from 13.6% (’14) to 20.2% (’23) with a last-5-year mean of 17.7%. Debt-to-Capital is less than peer and industry averages despite trending up from 45.4% (’14) to 58.0% (’23) with a last-5-year mean of 55.8%.

Interest Coverage is 4.6 and Quick Ratio is 0.74 per M* who also rates the company “Standard” for Capital Allocation and describes its balance sheet as sound. Value Line gives an A grade for Financial Strength.

With regard to sales growth:

My 2.0% per year forecast is below the long-term estimates.

With regard to EPS growth:

My 4.0% per year forecast is below the long-term-estimate range (mean of six: 6.1%). Initial value is 2024 Q2 EPS of $3.72/share (annualized) rather than ’23 EPS of $4.80.

My Forecast High P/E is 17.0. Over the past decade, high P/E ranges from 13.3 in ’23 to 32.1 in ’17 with a last-5-year mean of 20.3 and a last-5-year-mean average P/E of 17.3. I am near bottom of the range [only ’23 and ’22 (14.2) are less].

My Forecast Low P/E is 11.0. Over the past decade, low P/E ranges from 10.4 in ’23 to 27.1 in ’17 with a last-5-year mean of 14.3. I am forecasting toward bottom of the range [only ’23 and ’22 (10.9) are less].

My Low Stock Price Forecast (LSPF) of $40.90 is default based on initial value from above. This is 20.8% less than the previous closing price and 15.1% less than the 52-week low.

Over the past decade, Payout Ratio (PR) ranges from 40.7% in ’22 to 88.5% in ’17 with a last-5-year mean of 56.4%. I am forecasting below the range at 40.0%.

These inputs land SON in the HOLD zone with a U/D ratio of 2.4. Total Annualized Return (TAR) is 10.7%.

PAR (using Forecast Average—not High—P/E) of 7.1% is less than I seek in 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 16 studies (my study and four 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 4.0%, 5.9%, 17.5, 13.1, and 56.4%, respectively. I am lower across the board. Value Line’s projected average annual P/E of 17.0 is higher than MS (15.3) and higher than mine (14.0).

MS high / low EPS are $5.58/ $3.96 versus my $4.53 / $3.72 (per share). My high EPS is less due to a lower growth rate. Value Line soars above both with its $7.30 projection.

MS LSPF of $45.00 implies Forecast Low P/E of 11.4: less than the 13.1 mentioned above. MS LSPF is 13.3% less than default $3.96/share * 13.1 = $51.88 (INVALID on today’s date) resulting in more conservative zoning. MS LSPF is 10.0% greater than mine, however.

With regard to valuation, PEG is 2.3 and 3.3 per Zacks and my projected P/E, respectively: somewhat overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is a bit low at 0.8.

MOS is robust because my inputs (and most-recent-quarter initial value) are near or below respective analyst/historical ranges. MS sample is too small for meaningful comparison, but anecdotally its 16.8% TAR is 6.1%/year greater than mine.

Per U/D, SON is a BUY under $48. BI TAR criterion is met at $38.50/share given a forecast high price of $77.

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