NFLX Stock Study (10-24-23)

I recently did a stock study on Netflix Inc. (NFLX) with a closing price of $406.84. Previous studies are here, here, and here.

M* writes:

     > Netflix’s primary business is a streaming video on demand
     > service now available in almost every country worldwide
     > except China. The firm primarily generates revenue from
     > subscriptions to its eponymous service. Netflix delivers
     > original and third-party digital video content to PCs,
     > internet-connected TVs, and consumer electronic devices,
     > including tablets, video game consoles, Apple TV, Roku,
     > and Chromecast. Netflix is the largest SVOD platform in
     > the world with over 220 million subscribers globally.

Over the past decade, this large-size company has grown sales and earnings at annualized rates of 26.6% and 58.4%, respectively. Lines are mostly up, narrowing, and parallel except for EPS declines in ’15 and ’22. PTPM lags peer and industry averages despite trending higher from 3.9% (’13) to 16.6% (’22) with a last-5-year mean of 13.4%.

Also over the past decade, ROE lags peer and industry averages despite trending up from 9.2% (’13) to 21.6% (’22) with a last-5-year mean of 26.0%. Debt-to-Capital is roughly even with peer and industry averages while increasing from 27.3% in ’13 to 66.4% in ’18 then reversing lower to 40.9% in ’22 for a last-5-year mean of 56.5%.

Interest Coverage and Quick Ratio are 7.5 and 1.1, respectively. M* gives the company a “Standard” rating for Capital Allocation while Value Line gives an A rating for Financial Strength.

With regard to sales growth:

• CNN Business projects 7.3% YOY and 10.2% per year for ’23 and ’22-’24, respectively (based on 39 analysts).
• YF projects YOY 0.3% and 13.9% for ’23 and ’24, respectively (37 analysts).
• Zacks projects YOY 6.2% and 13.6% for ’23 and ’24, respectively (14).
• Value Line projects 9.9% growth per year from ’22-’27.
• CFRA projects 6.4% YOY and 9.9% per year for ’23 and ’22-’24, respectively.
• M* provides a 2-year ACE of 10.0%/year while projecting 5-year annualized growth of 8.0% in its analyst note.

I am forecasting toward the low end of the range at 6.0% per year.

With regard to EPS growth:

• CNN Business projects 16.0% YOY and 23.0% per year for ’23 and ’22-’24, respectively (based on 39 analysts), along with 5-year annualized growth of 28.9%.
• MarketWatch projects annualized ACE of 24.2% and 23.8% for ’22-’24 and ’22-’25, respectively (48 analysts).
• Nasdaq.com projects 25.1% and 19.8% per year for ’23-’25 and ’23-’26 (15, 12, and 4 analysts for ’23, ’25, and ’26).
• Seeking Alpha projects 4-year annualized growth of 23.1%.
• YF projects YOY 14.6% and 29.6% for ’23 and ’24, respectively (38), along with 5-year annualized growth of 23.0%.
• Zacks projects YOY 21.1% and 31.6% for ’23 and ’24, respectively (14), along with 5-year annualized growth of 21.3%.
• Value Line projects annualized growth of 13.6% from ’22-’27.
• CFRA projects 22.6% YOY and 26.0% per year for ’23 and ’22-’24, along with a 3-year CAGR of 20.0%.
• M* gives a long-term annualized growth estimate of 15.8%.

I am forecasting just under the long-term-estimate range (mean of six: 21.0%) at 13.0% per year. I will use 2023 Q2 EPS of $9.39/share (annualized) as the initial value rather than ’22 EPS of $9.95.

My Forecast High P/E is 35.0. Over the past decade, high P/E has decreased from 211 (’13) to 61.3 (’22) with a last-5-year mean of 93.9. The last-5-year-mean average P/E is 71.0. At some point, I expect P/E to fall back to earth. For now, I am forecasting at the upper end of my comfort zone.

My Forecast Low P/E is 30.0. Over the past decade, low P/E has decreased from 49.1 (’13) to 16.4 (’22) with a last-5-year mean of 48.1. Again, at some point I expect P/E to fall back to earth and we may already be starting to see this with a current P/E of 43.3. I am forecasting toward the bottom of the range (only ’22 is lower).

My Low Stock Price Forecast (LSPF) is $281.70: default based on $9.39/share initial value. This is 30.8% less than the previous close but 11.7% greater than the 52-week low.

These inputs land NFLX in the HOLD zone with a U/D ratio of 1.6. Total Annualized Return (TAR) is 8.3%.

PAR (using Forecast Average—not High—P/E) of 6.7% is less than I seek for a large-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 182 studies (my study and 40 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%, 12.9%, 48.5, and 30.0. I am lower on the first and third but slightly higher on the second (13.0%). Value Line’s projected average annual P/E of 38.0 is lower than MS (39.3) and higher than mine (32.5).

MS high / low EPS are $17.54 / $9.27 versus my $17.30 / $9.39 (per share). My high EPS is lower due to a lower growth rate. Value Line’s high EPS is $18.85. I am lowest of the three.

MS LSPF of $225 implies a Forecast Low P/E of 24.3: less than the above-stated 30.0. MS LSPF is 19.1% less than the default $9.27/share * 30.0 = $278.10, which results in more conservative zoning. MS LSPF is also 20.1% less than mine.

My TAR (over 15.0% preferred) is much less than the 16.3% from MS. MOS seems robust in the current study.

I track a few different [usually conflicting] valuation metrics. PEG is 1.3 and 2.9 per Zacks and my projected P/E, respectively: the latter significantly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is cheap at 0.6. Kim Butcher’s “quick and dirty DCF” prices the stock at 12.0 * [$18.85 – ($0.00 + $1.25)] = $211.20: overvalued by 48.1%.

NFLX is a BUY under $362. With a forecast high price of $605.50, TAR should meet my 15% criterion around $303/share.

MBUU Stock Study (10-23-23)

I recently did a stock study on Malibu Boats Inc. (MBUU, $50.00). Previous studies are here and here.

M* writes:

     > Malibu Boats is a leading designer and manufacturer of power
     > boats in the United States. It is the market leader in
     > performance sport boats, sold under its Malibu and Axis brands.
     > It acquired Cobalt Boats, a leading producer of sterndrive
     > boats in the U.S. in the 24-foot to 29-foot segment, and
     > Pursuit Boats, which makes high-end offshore and outboard
     > motorboats in 2018. In 2021, it purchased Maverick Boat Group,
     > a leading seller of flat fishing boats, with exposure to bay,
     > dual-console, and center-console boats. Malibu has also
     > expanded into boat trailers and accessories, and in 2020
     > began producing its own engines (Monsoon) for its performance
     > sport boats. Malibu’s target market includes a wide range of
     > water enthusiasts who embrace the active outdoor lifestyle.

Over the past decade, this medium-size company has grown sales and earnings at annualized rates of 26.6% and 30.5% [86.0% if the 2014 loss is included], respectively. Lines are mostly up, straight, and parallel except for a sales decline in ’20 (FY ends Jun 30) and EPS declines in ’18, ’20, and ’23. PTPM is higher than peer and industry averages, ranging from 10.2% in ’23 (excluding the loss from ’14) to 18.0% in ’18 with a last-5-year mean of 13.9%.

Over the past five years, ROE is slightly better than peer and industry averages despite falling from 35.6% in ’19 to 16.7% in ’23 with a mean of 28.6%. Debt-to-Capital is lower than peer and industry averages by falling from 35.7% in ’19 to 0.4% in ’23 with a last-5-year mean of 21.7%.

Interest Coverage is 48.8 and Quick Ratio is 0.63. M* rates the company “Standard” for Capital Allocation while Value Line assigns a B+ rating (down from B++ last quarter) for Financial Strength. The company currently has zero long-term debt.

With regard to sales growth:

• CNN Business projects contraction of 14.3% YOY and 3.6% per year for ’24 and ’23-’25 (based on 7 analysts).
• YF projects YOY 16.7% contraction and 6.4% growth for ’24 and ’25, respectively (8 analysts).
• Zacks projects YOY 16.8% contraction and 4.6% growth for ’24 and ’25, respectively (4).
• Value Line projects 0.2% annualized growth from ’23-’27.
• CFRA projects contraction of 16.6% YOY and 5.9% per year for ’24 and ’23-’25, respectively (8).
• M* gives 2-year annualized ACE of 3.9% contraction and projects growth of 5.0%/year x5 years (analyst note).

I am forecasting less than both long-term estimates at 0%.

With regard to EPS growth:

• CNN Business projects contraction of 19.0% YOY and 8.7% per year for ’24 and ’23-’25, respectively (based on 7 analysts), along with a 5-year annualized growth of 10.1%.
• MarketWatch projects contraction of 29.9% YOY and 11.1% per year for ’24 and ’23-’25, respectively (8 analysts).
• Nasdaq.com projects 11.3% YOY growth for ’25 (4).
• YF projects YOY 34.4% contraction and 14.3% growth for ’24 and ’25, respectively (8), along with 5-year annualized growth of 15.0%.
• Zacks projects YOY 33.3% contraction and 10.8% growth for ’24 and ’25, respectively (4).
• Value Line projects 2.5% annualized contraction from ’23-’27.
• CFRA projects growth of 19.2% YOY and 16.7% per year for ’24 and ’23-’25, respectively (7).
• M* projects long-term annualized growth of 5.8%.

I am forecasting toward the bottom of the long-term-estimate range (mean of four: 7.1%). I will use ’23 EPS of $5.06/share as the initial value.

My Forecast High P/E is 12.0. Since 2015, high P/E falls from 26.0 (34.2 in ’18 excluded) to 14.0 (’23) with a last-5-year mean of 16.3. The last-5-year-mean average P/E is 12.2. I am forecasting below the latter [only ’22 is lower (11.5)].

My Forecast Low P/E is 7.0. Since 2015, low P/E generally trends down from 17.4 to 9.2 (’23) with a last-5-year mean of 8.1. I am forecasting toward the bottom of the range [only 6.1 (’20) and 6.4 (’22) are lower].

My Low Stock Price Forecast (LSPF) is $35.40: default based on $5.06/share initial value. This is 29.2% less than the previous close and 24.0% less than the 52-week low.

These inputs land MBUU in the HOLD zone with a U/D ratio of 1.6. Total Annualized Return (TAR) is 8.1%.

PAR (using Forecast Average—not High—P/E) is 3.2%, which 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 196 studies (my study and 29 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 9.0%, 8.9%, 14.0, and 7.6, respectively. I am lower across the board. Value Line’s projected average annual P/E of 10.0 is lower than MS (10.8) and higher than mine (9.5).

MS high / low EPS are $8.82 / $5.06 versus my $6.16 / $5.06 (per share). My high EPS is lower due to a lower growth rate. Value Line’s high EPS is $8.30. I am lowest of the three.

MS LSPF of $38.20 implies a Forecast Low P/E of 7.5, which is consistent with above. MS LSPF is 7.9% greater than mine thereby implying more aggressive zoning.

My TAR (over 15.0% preferred) is much less than the 20.2% from MS. MOS seems robust in the current study.

I track a few different [usually conflicting] valuation metrics. PEG per my projected P/E is overvalued at 2.4. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is slightly undervalued at 0.8. Kim Butcher’s “quick and dirty DCF” prices the stock at 8.0 * [$10.05 – ($0.00 + $2.60)] = $59.60, which suggests the stock to be 15.9% undervalued.

MBUU is a BUY under $45. With a forecast high price near $74, TAR should meet my 15% criterion around $37/share.

TGT Stock Study (10-20-23)

I recently did a stock study on Target Corp. (TGT) with a closing price of $108.36. Previous studies are here, here, and here.

CFRA writes:

     > Incorporated in 1902 and headquartered in Minneapolis, Target
     > Corporation is one of the largest retailers in the U.S. As of
     > January 29, 2022, the company operated 1,926 Target locations
     > in the U.S. with 243.3 million square feet of floor space, up
     > from 1,897 stores with 241.6 million square feet of floor
     > space twelve months earlier. Target currently has stores in
     > all 50 states and the District of Columbia. Its stores
     > generally cater to middle- and upper-income consumers,
     > carrying a broad assortment of fashion apparel, electronics,
     > home furnishings, household products, and other general
     > merchandise. Target.com offers a more extensive selection of
     > merchandise than the company’s physical stores, including
     > exclusive online products.

Over the past decade, this mega-sized company (revenue > $50B) has grown sales and earnings at annualized rates of 4.9% and 11.9%, respectively (FY ends Jan 31). Lines are mostly up except for dips in sales (’17) and EPS (’17 and ’23). PTPM leads peer and industry averages throughout the decade despite a disappointing ’23 contributing to a last-5-year mean of 5.5%.

Also over the past decade, ROE leads peer and industry averages by increasing from 12.0% (’14) to 25.0% (’23) with a last 5-year mean of 31.9%. Debt-to-Capital is higher than peer and industry averages, increasing from 45.9% (’14) to 62.9% (’23) with a last-5-year mean of 55.7%.

Quick Ratio is chronically low (0.08 in the last quarter), but Interest Coverage is 8.8. Value Line gives a B++ rating for Financial Strength while M* assigns an “Exemplary” rating for Capital Allocation.

With regard to 2023 EPS decline, Value Line wrote:

     > Followers of this story will recall that the bottom line last year
     > was torpedoed when management announced a serious inventory
     > bloat would be worked down by across-the-board discounting.
     > Shortly thereafter, a clearance run event was held to get
     > shoppers to spend at the tail end of the holiday season, thus
     > again clearing inventory space for items geared toward warmer
     > weather. The end result was a sharp drop in profitability and
     > a full-year earnings figure of just $5.98 a share.

With regard to sales growth:

• CNN Business projects 0.9% YOY and 1.3% per year for ’24 and ’23-’25 (based on 29 analysts).
• YF projects YOY 1.8% contraction and 0.8% growth for ’24 and ’25, respectively (29 analysts).
• Zacks projects YOY 1.8% contraction and 0.6% growth for ’24 and ’25, respectively (13).
• Value Line projects 3.2% annualized growth from ’23-’28.
• CFRA projects contraction of 1.8% YOY and 0.4% per year for ’24 and ’23-’25, respectively.
• M* gives a 2-year ACE of 0.8% contraction per year.

I am forecasting less than the long-term estimate at 1.0% per year.

With regard to EPS growth:

• CNN Business projects 36.0% YOY and 30.0% per year for ’24 and ’23-’25, respectively (based on 29 analysts), along with 5-year annualized growth of 15.0%.
• MarketWatch projects 27.3% and 21.8% per year for ’23-’25 and ’23-’26, respectively (36 analysts).
• Nasdaq.com projects 18.3% YOY and 14.3% per year for ’25 and ’24-’26 (17, 17, and 7 analysts for ’24, ’25, and ’26).
• Seeking Alpha projects 4-year annualized growth of 13.4%.
• YF projects YOY 25.7% and 18.5% for ’24 and ’25 (30) along with 5-year annualized growth of 18.3%.
• Zacks projects YOY 25.9% and 18.3% for ’24 and ’25 (17) along with 5-year annualized growth of 12.7%.
• Value Line projects 23.2% growth per year from ’23-’28.
• CFRA projects 23.3% YOY and 17.8% per year for ’24 and ’23-’25 along with a 3-year CAGR of -15.0% [NOTE: the 3 years must begin (a long-time curiosity of mine) in ’22 as discounting $13.56/share by 15%/year results in $8.33 for ’25, which is very close to the stated $8.35/share].
• M* projects long-term annualized growth of 15.7%.

The long-term estimates are dramatically higher than three months ago. The mean (of six) has increased from 10.3% to 16.4%. This is primarily due to two negative estimates (Seeking Alpha at -0.6% and YF at -7.5%) that are now significantly positive. It’s almost mind-boggling to imagine the arithmetic average of ~30 analysts changing so much over one quarter. I sometimes wonder if I’m looking at data importation errors on the website. One such error, which could never actually be confirmed, can dramatically affect my forecast.

I am forecasting below the long-term-estimate range at 12.0% per year. I will use ’23 EPS of $5.98 as the initial value. Three months ago, I went with the trendline since $5.98/share—down 57.6% YOY—seemed unreasonably low. Owing largely to the negative long-term estimates just discussed, however, three months ago my forecast EPS growth rate was only 4.0%.

My Forecast High P/E is 15.0. Over the past decade, high P/E ranges from 14.8 (’18) to 42.6 (upside outlier in ’23) with a last-5-year mean (excluding the outlier) of 19.8. The last-5-year-mean average P/E is 15.4. I am forecasting near the bottom of the range (only ’18 is lower).

My Forecast Low P/E is 10.5. Over the past decade, low P/E ranges from 9.1 (’18) to 22.9 (’23). Low P/E has been 14.2 or less since ’15, which makes the 22.9 seem like an outlier. Excluding that, the last-5-year mean is 11.0. I am forecasting near the bottom of the range [only ’18 and ’21 (10.4) are lower].

My Low Stock Price Forecast (LSPF) is $80.00. This is a rare instance where the default value of $62.80 is unreasonably low. That would be 42.0% less than the previous close and a whopping 39.0% less than the 52-week low. The stock has already fallen 59.7% from its all-time high (2021) and with EPS cratering in ’23, growth is expected moving forward. Sticking with the default in this case feels like trying to fit a square peg in a round hole. Instead, I am going with a price 26.2% less than the previous close and 22.3% less than the 52-week low. In my opinion, that is still conservative.

Over the past decade, Payout Ratio ranges from 22.4% (’22) to 66.2% (’23). The last-5-year mean is 41.3%. I am forecasting below the range at 22.0%.

These inputs land TGT in the HOLD zone with a U/D ratio of 1.8. Total Annualized Return (TAR) is 9.3%.

PAR (using Forecast Average—not High—P/E) of 6.1% is less than I seek for a mega-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 120 studies (my study and 62 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 Payout Ratio are 3.7%, 10.0%, 19.0, 11.5, and 41.3%, respectively. I am lower on all but EPS growth (12.0%). Value Line’s projected average annual P/E of 15.0 is just lower than MS (15.8) and higher than mine (12.8).

MS high / low EPS are $11.32 / $6.89 versus my $10.54 / $5.98 (per share). My high EPS is lower due to a lower growth rate. Value Line’s high EPS is $17.00. I am lowest of the three.

MS LSPF of $92.20 implies a Forecast Low P/E of 13.4: more than the above-stated 11.5. MS LSPF is 16.4% greater than the default $11.32/share * 11.5 = $79.24, which results in more aggressive zoning. Like mine, other studies may also have overridden default to select a higher LSPF. MS LSPF is 15.3% greater than mine.

My TAR (over 15.0% preferred) is much less than MS 15.3%. MOS seems robust in the current study.

I track a few different valuation metrics. PEG is 1.1 per Zacks and my projected P/E: fairly valued. Relative Value per M* [(current P/E) / 5-year-mean average P/E] is fair at 1.0. Although these metrics often conflict, they are quite consistent here.

TGT is a BUY under $99. With a forecast high price around $158, TAR should meet my 15% criterion around $79/share.

DG Stock Study (10-19-23)

I recently did a stock study on Dollar General Corp. (DG) with a closing price of $116.02. Previous studies are here and here.

M* writes:

     > A leading American discount retailer, Dollar General operates
     > over 19,000 stores in 47 states, selling branded and private-
     > label products across a wide variety of categories. In fiscal
     > 2022, 80% of net sales came from consumables (including paper
     > and cleaning products, packaged and perishable food, tobacco,
     > and health and beauty items), 11% from seasonal merchandise
     > (such as toys, greeting cards, decorations, and gardening
     > supplies), 6% from home products (for example, kitchen
     > supplies, small appliances, and cookware), and 3% from
     > apparel. Stores average roughly 7,500 square feet, and about
     > 75% of Dollar General locations are in towns of 20,000 or
     > fewer people. The firm emphasizes value, with most of its
     > items sold at everyday low prices of $5 or less.

Over the past decade, this large-size company has grown sales and EPS at annualized rates of 9.1% and 16.1%, respectively. Lines are up, straight, and parallel except for an EPS dip in ’22. PTPM leads peer and industry averages while decreasing from 9.3% (’14) to 8.2% (’23) with a last-5-year mean of 8.6% (FY ends Jan 31).

Also over the past decade, ROE leads peer and industry averages while trending higher from 19.1% (’14) to 39.2% (’23) with a last-5-year mean of 32.7%. Debt-to-Capital is less than peer and industry averages until ’20 when it spikes higher and continues to increase. The last-5-year mean is somewhat uncomfortable at 61.4%.

Despite a Quick Ratio of only 0.08, Current Ratio is 1.39 and Interest Coverage is 10.5. Value Line gives an A rating for Financial Strength. M* gives a “Standard” rating for Capital Allocation and writes:

     > Dollar General has featured a sound balance sheet
     > historically, and we see little reason for solvency concerns
     > moving forward as we look at the firm’s midterm prospects.

With regard to sales growth:

• CNN Business projects 4.0% YOY and 5.4% per year for ’24 and ’23-’25, respectively (based on 27 analysts).
• YF projects YOY 1.9% and 5.3% for ’24 and ’25, respectively (25 analysts).
• Zacks projects YOY 2.3% and 5.3% for ’24 and ’25, respectively (10 [sic?]).
• Value Line projects 4.0% annualized growth from ’23-’28.
• CFRA projects 2.3% YOY and 4.5% per year for ’24 and ’23-’25, respectively.
• M* offers a 2-year ACE of 3.4%/year.

I am forecasting near the bottom of the range at 2.0% per year.

With regard to EPS growth:

• CNN Business reports ACE of 5.7% YOY contraction and 1.3% growth per year for ’24 and ’23-’25, respectively (based on 27 analysts), along with 5-year annualized contraction of 6.1%.
• MarketWatch projects annualized contraction of 14.8% and 7.1% for ’23-’25 and ’23-’26, respectively (33 analysts).
• Nasdaq.com projects annualized growth of 9.5% and 11.7% for ’24-’26 and ’24-’27, respectively (17, 15, and 5 analysts for ’24, ’26, and ’27).
• Seeking Alpha projects 4-year annualized contraction of 4.9%.
• YF projects YOY 29.9% contraction and 3.6% growth for ’24 and ’25, respectively (27), along with 5-year annualized contraction of 6.5%.
• Zacks projects YOY 28.5% contraction and 4.1% growth for ’24 and ’25, respectively (23), along with 5-year annualized growth of 7.2%.
• Value Line projects 2.0% annualized growth from ’23-’28.
• CFRA projects contraction of 30.5% YOY and 11.1% per year for ’24 and ’23-’25, respectively, along with a 3-year projected CAGR of -6.0%.
• M* projects long-term annualized growth of 6.5%.

I am forecasting just below the mean long-term estimate (-0.3%) at -1.0% per year. This is not conservative unless one is convinced the company will grow long-term earnings. Analyst long-term estimates are split with three each siding for growth and contraction. I will use 2024 Q2 EPS of $9.76 (annualized) rather than ’23 EPS of $10.68/share to get a high EPS of 9.76 * (0.99 ^ 5) = $9.28/share. As low EPS, $9.76 * (0.97 ^ 5) = $8.38/share uses a -3.0% [arbitrary] growth rate.

My Forecast High P/E is 19.0. Over the past decade, high P/E increases from 19.9 (’14) to 24.6 (’23) with a last-5-year mean of 22.9. The last-5-year-mean average P/E is 19.1. I am forecasting near the bottom of the range (only 18.8 in ’17 is lower).

My Forecast Low P/E is 11.0. Over the past decade, low P/E ranges from 11.7 in ’18 to 17.2 in ’23 with a last-5-year mean of 15.3. I am forecasting below the entire range.

My Low Stock Price Forecast (LSPF) of $92.20 is default based on low EPS of $8.38/share. This is 20.5% less than the previous close and 8.8% less than the 52-week low.

Since a dividend was first issued in ’16, Payout Ratio ranges from 13.6% in ’21 to 22.6% in ’17. I am forecasting below the range at 13.0%.

These inputs land DG in the HOLD zone with a U/D ratio of 2.5. Total Annualized Return (TAR) is 9.4%.

PAR (using Forecast Average—not High—P/E) of 4.6% 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 210 studies (my study and 102 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 Payout Ratio are 6.0%, 8.2%, 21.3, 14.4, and 17.9%, respectively. I am lower across the board. Value Line’s projected average annual P/E of 19.0 is higher than MS (17.9) and higher than mine (16.0).

MS high / low EPS are $15.33 / $9.96 versus my $9.28 / $8.38 (per share). Despite mentioning above that my forecast growth rate is not conservative, my EPS range is completely below MS thereby suggesting it may be more conservative than I think. Value Line’s high EPS is $11.80. I am lowest of the three.

MS LSPF of $130.30 (invalid on today’s date) implies a Forecast Low P/E of 13.1: less than the above-stated 14.4. MS LSPF is 9.2% less than the default $9.96/share * 14.4 = $143.42 (also invalid on today’s date), which results in more conservative zoning. MS LSPF is still 41.3% greater than mine.

My TAR (over 15.0% preferred) is much less than MS 21.7%. MOS seems robust in the current study.

I track a few different [usually conflicting] valuation metrics. PEG (Zacks) is overvalued at 2.1. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is cheap around 0.6. Kim Butcher’s “quick and dirty DCF” suggests the stock to be 51.0% overvalued with a fair value of: 14.5 * [$15.00 – ($2.68 + $8.40)] = $56.84 [from 2023 10-K, $1.9B projected ’24 Capex / 226.3M diluted shares outstanding = $8.40—and even that is likely less than the 5-year projection].

DG is a BUY under $113. With a forecast high price near $176, TAR should meet my 15% criterion around $88/share.

ULTA Stock Study (10-18-23)

I recently did a stock study on Ulta Beauty, Inc. (ULTA) with a closing price of $383.66. Previous studies are here and here.

M* writes:

     > With roughly 1,350 stores and a partnership with Target, Ulta
     > Beauty is the largest specialized beauty retailer in the U.S.
     > The firm offers makeup (42% of 2022 sales), fragrances, skin
     > care, and hair care products (21% of 2022 sales), and bath
     > and body items. Ulta offers private-label products and
     > merchandise from more than 500 vendors. It also offers salon
     > services, including hair, makeup, skin, and brow services, in
     > all stores. Most Ulta stores are approximately 10,000 square
     > feet and are in suburban strip centers. Ulta was founded in
     > 1990 and is based in Bolingbrook, Illinois.

Over the past decade, this large-size company has grown sales and earnings at annualized rates of 14.7% and 18.9%. Lines are mostly up, straight, and parallel except for a sales/EPS dip in ’21 (FY ends Jan 31). PTPM leads peer and industry averages by increasing from 12.3% (’14) to 16.1% (’23) with a last-5-year mean (excluding ’21 downside outlier) of 14.0%.

Also over the past decade, ROE leads peer and industry averages by increasing from 21.8% (’14) to 62.9% (’23) with a last-5-year mean (excluding ’21 downside outlier) of 45.8%. Debt-to-Capital is less than peer and industry averages (no long-term debt) with a last-5-year mean of 40.6% (annual rentals).

Current Ratio is 1.69 and Quick Ratio is 0.38. M* rates the company “Exemplary” for Capital Allocation, and Value Line gives an A rating for Financial Strength.

With regard to sales growth:

• CNN Business projects 8.8% YOY and 6.6% per year for ’24 and ’23-’25 (based on 23 analysts).
• YF projects YOY 9.2% and 4.7% for ’24 and ’25, respectively (26 analysts).
• Zacks projects YOY 9.5% and 5.2% for ’24 and ’25, respectively (11).
• Value Line projects 6.5% annualized growth from ’23-’28.
• CFRA projects growth of 9.1% YOY and 7.1% per year for ’24 and ’23-’25, respectively.
• M* provides a 2-year ACE of 6.8% and projects 10-year annualized growth of 6.0% in its analyst note.

I am forecasting conservatively below the range at 5.0%.

With regard to EPS growth:

• CNN Business projects 4.6% YOY and 5.2% per year for ’24 and ’23-’25, respectively (based on 23 analysts), along with 5-year annualized growth of 6.5%.
• MarketWatch projects annualized growth of 7.8% and 7.9% for ’23-’25 and ’23-’26, respectively (29 analysts).
• Nasdaq.com projects 7.2% and 8.3% per year for ’24-’26 and ’24-’27 [15, 4, and 1 analyst(s) for ’24, ’26, and ’27].
• Seeking Alpha projects 4-year annualized growth of 9.7%.
• YF projects YOY 5.8% and 6.3% for ’24 and ’25, respectively (28), along with 5-year annualized growth of 6.2%.
• Zacks projects YOY 5.7% and 6.9% for ’24 and ’25, respectively (15) along with 5-year annualized growth of 8.9%.
• Value Line projects 5.9% per year from ’23-’28.
• CFRA projects 5.6% YOY and 6.3% per year for ’24 and ’23-’25, respectively, along with a 3-year CAGR of 15.0%.
• M* projects long-term annualized growth of 9.6%.

I am forecasting below the long-term-estimate range (mean of six: 7.8%) at 5.0%. I will use ’23 EPS of $24.01/share as the initial value rather than 2024 Q2 EPS of $24.92 (annualized).

My Forecast High P/E is 21.0. Over the past decade, high P/E falls from 42.1 (’14) to 21.4 (’23) with a last-5-year mean of 26.2 (excluding 99.8 upside outlier in ’21). The last-5-year-mean average P/E is 21.3. My forecast is below the range.

My Forecast Low P/E is 12.5. Over the past decade, low P/E falls from 23.0 (’14) to 13.8 (’23). The last-5-year mean (excluding 39.9 upside outlier in ’21) is 16.3. My forecast is below the range.

My Low Stock Price Forecast (LSPF) of $300.10 is default based on $24.01/share initial value. This is 21.8% less than the last closing price, 19.7% less than the 52-week low, and 9.3% less than the 2022 low.

These inputs land ULTA in the BUY zone with a U/D ratio of 3.1. Total Annualized Return (TAR) is 10.9%.

PAR (using Forecast Average—not High—P/E) of 6.0% is less than I seek for a large-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 389 studies (my study and 73 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 8.5%, 9.1%, 26.0, and 17.0, respectively. I am lower across the board. Value Line’s projected average annual P/E of 21.0 is lower than MS (21.5) and higher than mine (16.8).

MS high / low EPS are $37.81 / $19.91 vs. my $30.64 / $24.01 (per share). 55 MS studies have low EPS under $10/share, which I think is unreasonably low. This (14.1% of sample) contributes to the $19.91 (vs. my $24.01). With regard to high EPS, Value Line projects $32.00/share. I am lowest of the three.

MS LSPF of $306.30 implies a Forecast Low P/E of 15.4: less than the above-stated 17.0. MS LSPF is 9.5% less than the default $19.91/share * 17.0 = $338.47, which results in more conservative zoning. MS LSPF is still 2.1% greater than mine.

My TAR (over 15.0% preferred) is much less than the MS 18.4%. MOS seems robust in the current study.

I track a few different [usually conflicting] valuation metrics. PEG is 1.7 and 2.9 per Zacks and my projected P/E, respectively: the latter significantly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is cheap at 0.72. Kim Butcher’s “quick and dirty DCF” prices the stock at 17.0 * [$38.50 – ($0.00 + $10.96)] = $468.18, which suggests the stock to be 18.1% undervalued [3.6% CapEx (M*) of $14B (Value Line) / 46M shares (Value Line) = $10.96/share].

ULTA is a BUY under $386. With a forecast high price near $644, TAR should meet my 15% criterion around $322/share.

FIVE Stock Study (10-17-23)

I recently did a stock study on Five Below, Inc. (FIVE) with a closing price of $171.24. The original study is here.

M* writes:

     > Five Below is a value-oriented retailer that operated 1,340
     > stores in the United States as of the end of fiscal 2022.
     > Catering to teen and preteen consumers, its stores feature
     > a wide variety of merchandise, the vast majority of which
     > is priced below $6. The assortment focuses on discretionary
     > items in several categories, particularly leisure (such as
     > sporting goods, toys, and electronics; 48% of fiscal 2022
     > sales), fashion and home (for example, beauty products and
     > accessories, home goods, and storage solutions; 29% of
     > fiscal 2022 sales), and party and snack (including seasonal
     > goods, candy, and beverages; 23% of fiscal 2022 sales). The
     > chain had stores in 42 states as of the end of fiscal 2022.

Over the past decade, this medium-size company has grown sales and earnings at annualized rates of 21.5% and 25.5%, respectively. Lines are mostly up, straight, and parallel except for EPS declines in ’20 and ’22. PTPM leads peer and industry averages while increasing from 9.7% (’13) to 11.3% (’22) with a last-5-year mean of 11.3%.

Also over the past decade, ROE leads peer and industry averages despite falling from 35.9% (’13) to 22.0% (’22) with a last-5-year mean of 24.1%. Debt-to-capital is lower than peer and industry averages with a last-5-year mean of 43.5%.

FIVE has no long-term debt (just leases and uncapitalized rentals), a Current Ratio of 1.7, and a Quick Ratio of 0.7. Value Line gives an A rating for Financial Strength, and M* assigns a “Wide” Economic Moat.

With regard to sales growth:

• CNN Business projects 16.1% YOY and 16.4% per year for ’24 (FY ends Jan 31) and ’23-’25 (based on 21 analysts).
• YF projects YOY 15.3% and 16.9% for ’24 and ’25, respectively (21 analysts).
• Zacks projects YOY 15.3% and 16.7% for ’24 and ’25, respectively (10).
• Value Line projects 16.1% annualized growth from ’22-’27.
• CFRA projects 15.0% YOY and 16.1% per year for ’24 and ’23-’25, respectively.
• M* provides a 2-year ACE of 17.0% annualized growth.

I am forecasting below the range at 14.0% per year.

With regard to EPS growth:

• CNN Business projects 19.0% YOY and 20.3% per year for ’24 (FY ends Jan 31) and ’23-’25, respectively (based on 21 analysts), along with a 5-year annualized growth of 21.8%.
• MarketWatch projects annualized rates of 18.3% and 19.7% for ’23-’25 and ’23-’26, respectively (23 analysts).
• Nasdaq.com projects 21.5% YOY and 21.9% per year for ’24 and ’23-’25 (11, 11, and 6 analysts for ’23, ’24, and ’25).
• Seeking Alpha projects 4-year annualized growth of 22.7%.
• YF projects YOY 16.0% and 20.8% for ’24 and ’25, respectively (21), along with 5-year annualized growth of 21.5%.
• Zacks projects YOY 16.2% and 21.5% for ’24 and ’25, respectively (11), along with 5-year annualized growth of 21.5%.
• Value Line projects annualized growth of 18.6% from ’22-’27.
• CFRA projects 15.6% YOY and 19.8% per year for ’24 and ’23-’25, respectively.
• M* projects long-term annualized growth of 25.0%.

I am forecasting below the long-term-estimate range (mean of six: 21.8%) at 16.0% per year. My initial value will be ’22 EPS of $4.69/share rather than 2023 Q2 EPS of $4.87 (annualized).

My Forecast High P/E is 35.0. Over the past decade, high P/E ranges from 39.5 in ’15 to 93.7 in ’13 with a last-5-year mean of 55.7 and a last-5-year-mean average P/E of 40.7. I am forecasting below the entire range (close to the current P/E).

My Forecast Low P/E is 22.0. Over the past decade, low P/E has trended down from 58.7 (’13) to 23.3 (’22) with a last-5-year mean of 25.7. I am forecasting near the low end of the range [only ’17 (20.2) and ’20 (21.6) are lower].

My Low Stock Price Forecast (LSPF) of $103.20 is default based on $4.69/share initial value. This is 39.7% less than the previous close and 20.7% less than the 52-week low.

These inputs land FIVE in the HOLD zone with a U/D ratio of 2.6. Total Annualized Return (TAR) is 15.0%.

PAR (using Forecast Average—not High—P/E) of 10.4% 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 206 studies (my study and 102 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 15.0%, 16.0%, 38.2, and 24.4, respectively. I am equal on EPS growth and lower on the other three. Value Line’s projected average annual P/E of 30.0 is lower than MS (31.3) and higher than mine (28.5).

MS high / low EPS are $10.19 / $4.54 versus my $9.85 / $4.69 (per share). My high EPS is lower due to a lower growth rate. Value Line’s high EPS is $11.00. I am lowest of the three.

MS LSPF of $114.70 implies a Forecast Low P/E of 25.3: more than the above-stated 24.4. MS LSPF is 3.5% greater than the default $4.54/share * 24.4 = $110.78, which results in more aggressive zoning. MS LSPF is also 11.1% greater than mine.

My TAR (over 15.0% preferred) is less than the 17.9% from MS. MOS seems robust in the current study.

I track a few different [usually conflicting] valuation metrics. PEG is 1.0 and 1.9 per Zacks and my projected P/E, respectively: the latter being overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is slighly undervalued. Kim Butcher’s “quick and dirty DCF” prices the stock at 25.0 * [$13.75 – ($0.00 + $4.55)] = $230.00, which suggests the stock to be 25.5% undervalued [NOTE: Value Line does not include CapEx in the FIVE statistical matrix. I found $251.95M for ’23 on wsj.com and calculated a per share number based on the FCF vs. FCF/share values on the same web page to get the $4.55].

FIVE is a BUY under $163. With a forecast high price around $344, TAR meets my 15% criterion right about now.

DEO Stock Study (10-13-23)

I recently did a stock study on Diageo PLC ADR (DEO) with a closing price of $151.30.

M* writes:

     > The product of a merger between Grand Metropolitan and Guinness
     > in 1997, Diageo is one of the world’s leading producers of branded
     > premium spirits, approximately level with Kweichow Moutai in
     > revenue terms. It also produces and markets beer and wine. Brands
     > include Johnnie Walker blended scotch, Smirnoff vodka, Crown Royal
     > Canadian whiskey, Captain Morgan rum, Casamigos tequila, Tanqueray
     > gin, Baileys Irish Cream, and Guinness stout. Diageo also owns 34%
     > of premium champagne and cognac maker Moet Hennessy, a
     > subsidiary of French luxury-goods maker LVMH Moet Hennessy-Louis
     > Vuitton, and a near-56% stake in India’s United Spirits.

Over the past decade excluding 2020 (COVID-19), this large-size company has grown sales and EPS at annualized rates of 2.6% and 3.3%, respectively (2.2% and 1.8% including ’20). Lines are somewhat up, straight, and parallel with sales declines in ’16 and ’17 along with EPS declines in ’15, ’16, and ’21. A question can be asked about whether this is high-quality growth. I listed several YOY declines. Some would also say a large company with a sub-5.0% historical/projected growth rate is suspect.

Over the past decade, PTPM trails industry averages (peer data not available) while ranging from 17.4% in ’20 to 32.9% in ’19 with a last-5-year mean of 27.1%. ROE trails industry averages despite trending higher from 31.6% (’14) to 43.2% (’23) with a last-5-year mean of 35.9%. Debt-to-Capital is lower than industry averages despite increasing from 58.2% (’14) to 68.4% (’23) for a last-5-year mean of 67.4%.

Interest Coverage is 7.0 and Quick Ratio is 0.5. Value Line rates the company A for Financial Strength and M* gives a “Standard” rating for Capital Allocation.

With regard to sales growth:

• CNN Business projects 1.4% YOY and 3.4% per year for ’24 (FY ends Jun 30) and ’23-’25 (based on 22 analysts).
• Zacks projects YOY 9.9% and 5.3% growth for ’24 and ’25, respectively (4 analysts).
• Value Line projects 3.8% annualized growth from ’23-’27.
• CFRA projects 8.5% YOY and 4.8% per year for ’24 and ’23-’25, respectively.
• M* offers a 2-year ACE of 3.8%/year and projects 5-year annualized growth of 4.5% in its analyst note.

I am forecasting toward the lower end of the range at 2.0% per year.

With regard to EPS growth:

• CNN Business projects 4.8% YOY and 6.8% per year for ’24 and ’23-’25, respectively (based on 22 analysts), along with 5-year annualized growth of 7.7%.
• MarketWatch projects 4.2% and 5.7% per year for ’23-’25 and ’23-’26, respectively (25 analysts).
• Nasdaq.com projects 7.7% YOY and 7.2% per year for ’24 and ’23-’25 (7, 5, and 2 analysts for ’24, ’25, and ’26).
• Seeking Alpha projects 4-year annualized growth of 7.7%.
• YF projects 5-year annualized growth of 7.7% (rest of web page is either blank or “N/A”).
• Zacks projects YOY 0.6% and 7.7% for ’24 and ’25, respectively (5), along with 5-year annualized growth of 7.3%.
• Value Line projects 7.3% annualized growth from ’23-’27.
• CFRA projects 9.6% and 9.2% per year for ’22-’24 and ’22-’25, respectively (2023 data seems corrupt).
• M* projects long-term growth of 9.7% per year.

My 6.0%/year forecast is below the 6-long-term-estimate range (mean 7.9%). Initial value is ’23 EPS of $7.91/share.

As a partial aside, I don’t usually believe a significant difference between sales and EPS growth rates is sustainable. Because the analysis depends more on EPS than sales growth, I attempt to make reasonable, independent predictions for both. Were it deemed necessary, I would be more likely to alter a sales growth forecast to narrow the difference since fewer long-term sales than EPS estimates are available.

My Forecast High P/E is 22.0. Over the past decade, high P/E ranges from 22.0 in ’15 to 32.4 in ’21 (2020’s 58.4 excluded) with a last-5-year mean of 28.1 and last-5-year-mean average P/E of 25.7. I am forecasting at the bottom of the range.

My Forecast Low P/E is 15.0. Over the past decade, low P/E ranges from 18.0 in ’15 to 22.4 in ’22 (2020’s 33.3 excluded) for a last-5-year mean of 20.7. I am forecasting below the entire range.

My Low Stock Price Forecast (LSPF) of $118.70 is default based on $7.91/share EPS. This is 21.5% less than the previous closing price, 19.0% less than the 52-week/2022 low stock price, and 6.6% less than the ’21 low stock price.

Over the past decade, Payout Ratio ranges from 46.8% in ’23 to 64.6% in ’16 (2020’s 115.9% excluded) with a last-5-year mean of 52.5%. I am forecasting just below the range at 46.0%.

These inputs land DEO in the HOLD zone with a U/D ratio of 2.2. Total Annualized Return (TAR) is 10.6%.

PAR (using Forecast Average—not High—P/E) of 7.3% is less than I seek for a large-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 17 studies (my study and 3 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 Payout Ratio are 3.5%, 6.7%, 24.6, 18.8, and 60.6%. I am lower across the board. Value Line’s projected average annual P/E of 20.0 is just higher than MS (21.7) and higher than mine (18.5).

MS high / low EPS are $10.73 / $5.72 versus my $10.58 / $7.91 (per share). MS low EPS seems like an “unreasonable” candidate. $5.72/share would be the lowest annual EPS since $5.46 in 2017. Looking closer at MS, five studies (29.4% of the sample) use $5.28 or lower with three studies at zero (definitely unreasonable). A case could be made to recognize the $7.00 median as MS low EPS instead. With regard to high EPS, mine is lower due to a lower growth rate. Value Line’s high EPS is $11.00/share. I am lowest of the three.

MS LSPF of $124.60 implies a Forecast Low P/E of 21.8: greater than the above-stated 18.8. MS LSPF is 15.9% greater than the default $5.72/share * 18.8 = $107.54 [the large discrepancy is another suggestion that MS low EPS may be too extreme], which results in more aggressive zoning. MS LSPF is also 5.0% greater than mine.

My TAR (over 15.0% preferred) is less than the 12.7% from MS. The MS sample size is too small to allow for a valid comparison alone. Based on input selection below or near the bottom of analyst and historical P/E ranges including LSPF less than multi-year lows, MOS seems robust in the current study.

I track a few different [usually conflicting] valuation metrics. PEG is 2.6 and 3.1 per Zacks and my projected P/E, respectively: the latter significantly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is somewhat cheap at 0.8. Kim Butcher’s Quick and Dirty DCF prices the stock at 17.0 * [$12.90 – ($5.00 + $3.20)] = $79.90, which suggests the stock to be 47.2% undervalued. The “quick and dirty” sometimes produces such wild results. I don’t know if it’s a reflection of cash flow inefficiency, currency conversion, something else, or a true reflection of stock price.

DEO is a BUY under $147. With a forecast high price around $232, TAR should meet my 15% criterion around $116/share.

TSCO Stock Study (10-12-23)

I recently did a stock study on Tractor Supply Co (TSCO) with a closing price of $204.31.

M* writes:

     > Tractor Supply is the largest operator of retail farm and ranch
     > stores in the United States. The company targets recreational
     > farmers and ranchers and has little exposure to commercial and
     > industrial farm operations. Currently, the company operates
     > 2,181 of its namesake banners in 49 states, along with 192
     > Petsense by Tractor Supply stores and 81 Orscheln Farm and
     > Home stores (to be converted to Tractor Supply banners). Stores
     > are generally concentrated in rural communities, as opposed
     > to urban and suburban areas. In fiscal 2022, revenue consisted
     > primarily of livestock and pet (50%), hardware, tools, and
     > truck (19%), and seasonal gift and toy (21%).

Over the past decade, this large-size company has grown sales and EPS at annualized rates of 11.6% and 17.2%, respectively. Lines are generally up, straight, and parallel without a single YOY decline. PTPM leads peer and industry averages, ranging from 8.6% in ’18 to 10.4% in ’15 with a last-5-year mean of 9.3%.

Also over the past decade, ROE leads peer and industry averages by increasing from 27.4% (’13) to 55.2% (’22) with a last-5-year mean of 43.0%. Debt-to-Capital is lower than peer and industry averages despite increasing from 0.1% (’13) to 67.6% (’22) for a last-5-year mean of 56.8%.

Quick Ratio is only 0.3, but Current Ratio is 1.6 and Interest Coverage (M*) is 35.4. M* gives an “Exemplary” rating for Capital Allocation, and Value Line rates the company A+ for Financial Strength.

With regard to sales growth:

• CNN Business projects 7.0% YOY and 6.8% per year for ’23 and ’22-’24, respectively (based on 29 analysts).
• YF projects YOY 4.6% and 5.7% for ’23 and ’24, respectively (29 analysts).
• Zacks projects YOY 4.5% and 5.9% for ’23 and ’24, respectively (11).
• Value Line projects 7.5% annualized growth from ’22-’27.
• CFRA projects 4.6% YOY and 6.5% per year for ’23 and ’22-’24, respectively.
• M* offers a 2-year ACE of 5.2% per year and projects 5-year annualized growth of 6.0% in its analyst note.

I am forecasting conservatively below the range at 4.0% per year.

With regard to EPS growth:

• CNN Business projects 7.5% YOY and 8.8% per year for ’23 and ’22-’24, respectively (based on 29 analysts), along with 5-year annualized growth of 10.0%.
• MarketWatch projects 7.3% and 8.0% per year for ’22-’24 and ’22-’25, respectively (33 analysts).
• Nasdaq.com projects 8.4% YOY and 8.6% per year for ’24 and ’23-’25 (16, 16, and 6 analysts for ’23, ’24, and ’25).
• Seeking Alpha projects 4-year annualized growth of 8.4%.
• YF projects YOY 5.8% and 8.5% for ’23 and ’24, respectively (31), along with 5-year annualized growth of 7.7%.
• Zacks projects YOY 5.3% and 8.4% for ’23 and ’24, respectively (16), along with 5-year annualized growth of 7.8%.
• Value Line projects 10.7% annualized growth from ’22-’27.
• CFRA projects 7.9% YOY and 8.6% per year for ’23 and ’22-’24, respectively, along with a 3-year CAGR of 15.0%.
• M* projects long-term annualized growth of 9.8%.

I am forecasting below the range of six long-term estimates (mean 9.1%). I will use ’22 EPS of $9.71/share as the initial value rather than 2023 Q2 EPS of $10.01 (annualized).

My Forecast High P/E is 21.0. Over the past decade, high P/E decreases from 33.7 (’13) to 24.9 (’22) with a low value of 22.7 in ’18 and last-5-year mean of 24.9. The last-5-year-mean average P/E is 19.8. I am forecasting below the 10-year range.

My Forecast Low P/E is 16.0. Over the past decade, low P/E goes from 19.1 (’13) to 17.1 (’22) with a last-5-year mean of 14.8. I am forecasting near the bottom of the range [only ’20 (10.0) and ’18 (13.5) are lower].

My Low Stock Price Forecast (LSPF) of $155.40 is default based on $9.71/share. This is 23.9% less than the previous closing price and 17.0% less than the 52-week low.

Over the past decade, Payout Ratio increases from 21.1% (’13) to 37.9% (’22) with a last-5-year mean of 28.5%. I am forecasting just below the range at 21.0%.

These inputs land TSCO in the HOLD zone with a U/D ratio of 1.7. Total Annualized Return (TAR) is 8.0%.

PAR (using Forecast Average—not High—P/E) of 5.4% is less than I seek in a large-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 316 studies (my study and 175 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 Payout Ratio are 7.5%, 9.3%, 24.3, 14.8, and 27.9%. I am lower on everything but Forecast Low P/E (16.0). Value Line’s projected average annual P/E of 22.0 is higher than MS (19.6) and higher than mine (18.5).

MS high / low EPS are $15.47 / $9.56 versus my $13.62 / $9.71 (per share). My high EPS is lower due to a lower growth rate. Value Line’s high EPS is $16.15. I am lowest of the three.

MS LSPF of $150.20 implies a Forecast Low P/E of 15.7: less than the above-stated 14.8. MS LSPF is 6.2% greater than the default $9.56/share * 14.8 = $141.49, which results in more aggressive zoning. MS LSPF is still 3.4% less than mine.

My TAR (over 15.0% preferred) is much less than the 13.2% from MS. MOS seems robust in the current study.

I track a few different [usually conflicting] valuation metrics. PEG is 2.6 and 2.7 per Zacks and my projected P/E, respectively: both overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is fair at 1.03. Kim Butcher’s “quick and dirty DCF” prices the stock at 15.0 * [$20.80 – ($5.50 + $0.00)] = $229.50, which suggests the stock to be 11.0% undervalued [NOTE: Value Line does not include “Capital Expenditures” in this statistical matrix. Looking at the 2022 10-K, I calculate this to be $773.4M / 112.1M shares = $6.90/share for ’22. Plugging this in for the $0.00 above cuts the stock valuation drastically to $126.00. Hopefully I have not overlooked anything as I’ve never done this calculation before].

TSCO is a BUY under $188. With a forecast high price at $286, TAR should meet my 15% criterion around $143/share.

AAP Stock Study (10-26-23)

I recently did a stock study on Advance Auto Parts Inc. (AAP) with a closing price of $49.84.

Value Line writes:

     > Advance Auto Parts, Inc. is a leading retailer of aftermarket auto
     > parts and accessories. Serves both the DIY and professional markets.
     > As of 12/31/22, operated 4,770 stores and 316 branch locations in
     > the U.S., Canada, Puerto Rico, and the Virgin Islands, primarily
     > under the Advance Auto Parts, Autopart International, Carquest, and
     > Worldpac banners. In addition to the 330 Carquest locations that
     > the company owns, serves approx. 1,310 independently owned stores
     > that operate under the Carquest name. Has about 40,000 full-time
     > employees and 27,000 part timers.

Over the past decade, this large-size company has grown sales and EPS at annualized rates of 3.6% and 4.4%, respectively. Lines are somewhat up and parallel but certainly not straight with sales declines in ’15, ’16, and ’17 along with EPS declines in ’15, ’16, ’18, and ’22. For me, visual inspection does not clear the barbed wire fence. I will continue the study for purposes of interest and the possibility of a speculative [not core] position.

Over the past decade, PTPM trails peer and industry averages while declining from 9.6% (’13) to 5.8% (’22) with a last-5-year mean of 6.4%. ROE leads industry averages while tracking evenly with peers in declining from 26.4% (’13) to 18.0% (’22) with a last-5-year mean of 13.6%. Debt-to-Capital is lower than peer and industry averages despite increasing from 41.0% (’13) to 57.7% (’22) with a last-5-year mean of 44.5%.

Quick Ratio per M* is a worrisome 0.21, but Interest Coverage per Value Line is 21.3. Value Line gives a “B+” rating for Financial Strength.

With regard to sales growth:

• CNN Business projects flat growth YOY and 1.3% per year for ’23 and ’22-’24, respectively (based on 19 analysts).
• YF projects YOY 1.0% and 1.9% for ’23 and ’24, respectively (22 analysts).
• Zacks projects YOY 1.0% and 2.0% for ’23 and ’24, respectively (8).
• Value Line projects 2.4% annualized growth from ’22-’27.
• CFRA gives ACE of 1.0% YOY and 1.8% per year for ’23 and ’22-’24, respectively.
• M* provides a 2-year ACE of 1.4% annualized growth.

I am forecasting toward the lower end of the range at 1.0% per year.

With regard to EPS growth:

• CNN Business projects contraction of 53.5% YOY and 28.9% per year for ’23 and ’22-’24, respectively (based on 19 analysts), along with 5-year annualized contraction of 14.8%.
• MarketWatch projects growth of 17.7% YOY and 18.5% per year for ’24 and ’23-’25, respectively (27 analysts).
• Nasdaq.com projects growth of 18.2% YOY and 16.9% per year for ’24 and ’23-’25 (12/12/6 analysts for ’23/’24/’25).
• Seeking Alpha projects 4-year annualized contraction of 11.3%.
• YF projects YOY 64.3% contraction and 18.5% growth for ’23 and ’24, respectively (24), along with 5-year annualized contraction of 14.7%.
• Zacks projects YOY 64.2% contraction and 18.2% growth for ’23 and ’24, respectively (12), along with 5-year annualized growth of 11.4%.
• Value Line projects 5.2% annualized contraction from ’22-’27.
• CFRA projects contraction of 62.8% YOY and 29.1% per year for ’23 and ’22-’24 along with a 3-year CAGR of -18.0%.

My -9.0% per year forecast is toward the lower end of the long-term-estimate range (mean of five: -6.9%). For low EPS, I will use a growth rate of -15.0%, which is rounding down the bottom of that range. These result in high and low EPS values of $5.16 and $3.67/share, respectively.

My Forecast High P/E is 21.0. Over the past decade, high P/E increases from 21.0 (’13) to 29.6 (’22) with a last-5-year mean of 27.6 and a last-5-year-mean average P/E of 21.6. I am forecasting at the bottom of the range.

My Forecast Low P/E is 10.0. Over the past decade, low P/E ranges from 10.0 in ’20 to 22.3 in ’15 with a last-5-year mean of 15.6. I am forecasting at the bottom of the range.

My Low Stock Price Forecast (LSPF) of $36.70 is default based on $3.67/share initial value. This is 30.4% less than the previous closing price and 23.1% less than the 52-week low.

Payout Ratio ranges from 3.5% in ’19 to 4.5% in ’13 before blasting off to 14.0%, 34.0%, and 72.6% in ’20, ’21, and ’22, respectively. I am forecasting below the range at 3.0%.

These inputs land AAP in the BUY zone with a U/D ratio of 4.5. Total Annualized Return (TAR) is 17.0%.

PAR (using Forecast Average—not High—P/E) of 10.1% is decent for a large-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 28 studies (my study and 6 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 Payout Ratio are 3.0%, 8.5%, 24.1, 14.8, and 9.5%, respectively. I am lower across the board. Value Line’s projected average annual P/E of 13.0 is less than MS (19.5) and less than mine (15.5).

MS high / low EPS are $11.28 / $5.83: much higher than my EPS range given above. With MS having the low sample size, I am not surprised to see big differences. Value Line’s high EPS is $10.00. I am lowest of the three by a substantial amount.

MS LSPF of $63.60 (invalid on today’s date) implies a Forecast Low P/E of 10.9: less than the above-stated 14.8. MS LSPF is 26.3% less than the default $5.83/share * 14.8 = $86.28 (also invalid on today’s date), which results in more conservative zoning. MS LSPF is still 83.3% greater than mine. Again, with MS having the low sample size, I am not surprised to see big differences (along with invalid ranges).

My TAR (over 15.0% preferred) is much less than the 38.8% from MS. Even discounting MOS relative to MS due to the low sample size, MS seems robust in the current study looking at my inputs relative to analyst estimates and historical ranges.

I track a few different valuation metrics. PEG is 0.94 per Zacks: slighly undervalued (something I very rarely see). Relative Value [(current P/E) / 5-year-mean average P/E] per M* is tremendously undervalued at 0.3. Kim Butcher’s “quick and dirty DCF” prices the stock at 11.0 * [$14.65 – ($4.00 + $5.65)] = $55.00: undervalued by 10.4%. Although I usually see these metrics conflict, they all agree here.

AAP is clearly not a high-quality growth stock right now. It does seem to be dirt cheap and a potential “value play.” This conservative analysis has it a BUY under $54/share. Do realize, though, that per Value Line the stock is down just over 60% over the last year, 3 years, and 5 years. Any investment should probably be done small in the speculative portion of the portfolio (if there is one) in case the doldrums—or worse—are to continue.

NICE Stock Study (10-11-23)

I recently did a stock study on Nice Ltd. ADR (NICE) with a closing price of $163.40. The original study is here.

M* writes:

     > Nice is an enterprise software company that serves the customer
     > engagement and financial crime and compliance markets. The company
     > provides data analytics-based solutions through both a cloud
     > platform and on-premises infrastructure. Within customer
     > engagement, Nice’s CXone platform delivers solutions focused on
     > contact center software and workforce engagement management,
     > or WEM. Contact center offerings include solutions for digital
     > self-service, customer journey and experience optimization, and
     > compliance. WEM products optimize call center efficiency,
     > leveraging data and AI analytics for call volume forecasting and
     > agent scheduling. Within financial crime and compliance, Nice
     > offers risk and investigation management, fraud prevention,
     > anti-money laundering, and compliance solutions.

Over the past decade, this medium-size company has grown sales and EPS at 10.3% and 12.9% per year, respectively. Lines are mostly up, straight, and parallel except for a sales dip in ’15 and EPS dip in ’16. PTPM leads peer and industry averages while trending up from 8.8% (’13) to 15.8% (’22) with a last-5-year mean of 14.1%.

Also over the past decade, ROE leads peer and industry averages while trending up from 4.4% (’13) to 8.7% (’22) with a last-5-year mean of 7.9%. Debt-to-Capital is much lower than peer and industry averages with a last-5-year mean of 21.6%.

Quick Ratio is 2.0 and Interest Coverage is 21.8. Value Line assigns an A rating for Financial Strength while M* rates the company “Exemplary” for Capital Allocation.

With regard to sales growth:

• CNN Business projects 9.1% YOY and 8.7% per year for ’23 and ’22-’24, respectively (based on 12 analysts).
• YF projects YOY 8.5% and 11.1% for ’23 and ’24, respectively (14 analysts).
• Zacks projects YOY 8.3% and 11.7% for ’23 and ’24, respectively (6).
• Value Line projects 10.5% annualized growth from ’22-’27.
• CFRA projects 9.1% and 11.1% per year for ’22-’24 and ’22-’25, respectively.
• M* gives a 2-year ACE of 10.5% per year and projects 5-year annualized growth of 15.0% in its analyst note.

I am forecasting conservatively below the range at 8.0% per year.

With regard to EPS growth:

• CNN Business projects 11.0% YOY and 12.0% per year for ’23 and ’22-’24, respectively (based on 12 analysts), along with 5-year annualized growth of 12.0%.
• MarketWatch projects 12.7% and 13.7% per year for ’22-’24 and ’22-’25, respectively (15 analysts).
• Nasdaq.com projects 14.8% YOY and 15.7% per year for ’24 and ’23-’25 (7, 7, and 4 analysts for ’23, ’24, and ’25).
• Seeking Alpha projects 4-year annualized growth of 12.5%.
• YF projects YOY 18.0% and 11.9% for ’23 and ’24, respectively (13), along with 5-year annualized growth of 11.8%.
• Zacks projects YOY 11.8% and 12.0% for ’23 and ’24, respectively (8), along with 5-year annualized growth of 12.7%.
• Value Line projects 14.9% annualized growth from ’22-’27.
• CFRA projects 13.6% YOY for ’24 and a 3-year CAGR of 16.0%.
• M* projects long-term annualized growth of 13.4%.

I am forecasting conservatively below the long-term-estimate range (mean of six: 12.9%) at 11.0% per year and using ’22 EPS of $4.00/share as the initial value rather than 2023 Q2 $4.60 (annualized).

My Forecast High P/E is 40.0. Over the past decade, high P/E ranges from 29.9 in ’15 to 107.3 in ’21 with a last-5-year mean of 76.8 (last-10-year median is 47.5). The last-5-year-mean average P/E is 60.3. The most recent three years all seem extreme (96.9, 107.3, 76.5). The last-10-year mean excluding these is 40.8. I am forecasting just below the latter.

My Forecast Low P/E is 32.0. Over the past decade, low P/E ranges from 20.9 in ’15 to 41.2 in ’22 (excluding 70.9 in ’21). The last-5-year mean (outlier excluded) is 36.9 and the last-10-year median is 34.6. I am forecasting below the latter.

My Low Stock Price Forecast (LSPF) of $128.00 is default based on $4.00/share initial value. This is 21.7% less than the previous close and 20.1% less than the 52-week low.

Payout Ratio decreases from 53.9% in ’13 to zero in ’18 where it has remained ever since. I will not forecast a dividend until reason is given to do otherwise [interesting that while MS (see below) has a median value of zero, the mean is 7.2% as 16 studies have values of 6.9% or greater].

These inputs land NICE in the BUY zone with a U/D ratio of 3.0. Total Annualized Return (TAR) is 10.5%.

PAR (using Forecast Average—not High—P/E) of 8.2% 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 only 41 studies (my study and 20 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%, 12.2%, 44.3, and 32.0, respectively. I am lower on the first three and equal on the latter. Value Line’s projected average annual P/E of 30.5 is lower than MS (38.2) and lower than mine (36.0).

MS high / low EPS are $7.80 / $4.15 versus my $6.74 / $4.00 (per share). My high EPS is lower due to a lower growth rate. Value Line’s high EPS is $15.25. I am lowest of the three.

MS LSPF of $136.40 implies a Forecast Low P/E of 32.9: greater than the above-stated 32.0. MS LSPF is 2.6% less than the default $4.15/share * 32.0 = $132.80, which results in more conservative zoning. MS LSPF is still 6.6% greater than mine.

My TAR (over 15.0% preferred) is less than the 14.8% from MS. Although the MS sample size is somewhat small, MOS seems robust in the current study.

I track a few different [usually conflicting] valuation metrics. PEG is 1.5 and 2.9 per Zacks and my projected P/E, respectively: the latter significantly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is cheap at 0.6. Kim Butcher’s “quick and dirty DCF” prices the stock at 22.0 * [$18.55 – ($0.00 + $0.95)] = $387.20 thus suggesting the stock to be 57.8% undervalued.

NICE is a BUY under $225. With a forecast high price of $270, TAR should meet my 15% criterion around $135/share.