TDY Stock Study (5-31-23)
Posted by Mark on July 7, 2023 at 06:34 | Last modified: May 31, 2023 12:41I recently did a stock study on Teledyne Technologies Inc. (TDY) with a closing price of $396.52.
M* writes:
> Teledyne Technologies Inc sells technologies for industrial markets.
> Roughly a fourth of Teledyne’s revenue comes from contracts with
> the United States government. The firm operates in four segments:
> instrumentation, digital imaging, aerospace and defense electronics,
> and engineered systems. The instrumentation segment provides
> monitoring instruments primarily for marine and environmental
> applications. The digital imaging segment contributes the largest
> proportion of revenue, and includes image sensors and cameras for
> industrial, government, and medical customers. The aerospace and
> defense electronics segment provides electronic components and
> communication products for aircraft. The engineered systems
> segment provides solutions for defense, space, environmental,
> and energy applications.
This medium-size company has grown sales and earnings at annualized rates of 9.5% and 13.4%, respectively, over the past decade. Lines are mostly up, straight, and parallel except for dips in ’15, ’16, and ’20 [and ’21 for EPS only]. PTPM has increased from 9.6% in ’13 to 16.6% in ’22 with a last-5-year mean of 14.4% but mostly trails peer and industry averages.
ROE is about even with peer and industry averages over the past decade but has decreased from 14.0% in ’13 to 10.1% in ’22 with a last-5-year mean of 11.9%. I would be more impressed with a number in the high teens to over 20.0%.
Debt-to-Capital has been about even with peer and industry averages over the past decade. The last-5-year average is 27.7%. Per M*, Quick Ratio is 1.2 and Interest Coverage is 11.6. Value Line rates the company A+ for Financial Strength.
With regard to sales growth:
- CNN Business projects 3.6% YOY and 4.4% per year for ’23 and ’22-’24, respectively (based on 7 analysts).
- YF projects YOY 5.1% and 4.6% for ’23 and ’24, respectively (7 analysts).
- Zacks projects YOY 5.0% and 4.4% for ’23 and ’24, respectively (3).
- Value Line projects 5.8% annualized growth from ’22-’27.
- CFRA projects 4.2% YOY and 4.3% per year for ’23 and ’22-’24, respectively.
- M* offers a 2-year ACE of 5.2% per year.
I forecast long-term sales growth just below the range at 3.0%.
With regard to EPS growth:
- CNN Business reports ACE of 5.1% YOY and 6.8% per year for ’23 and ’22-’24, respectively (based on 7 analysts), along with 5-year annualized growth of 6.5%.
- MarketWatch projects 8.0% and 7.0% per year for ’22-’24 and ’22-’25, respectively (8 analysts).
- Nasdaq.com projects 7.8% YOY and 5.7% per year for ’24 and ’23-’25 (5, 5, and 3 analysts for ’23, ’24, and ’25).
- Seeking Alpha projects 4-year annualized growth of 6.5%.
- YF projects YOY 5.2% and 8.2% for ’23 and ’24, respectively (7), along with 5-year annualized growth of 6.0%.
- Zacks projects YOY 5.1% and 7.8% for ’23 and ’24, respectively (5), along with 5-year annualized growth of 6.5%.
- Value Line projects 7.6% annualized growth from ’22-’27.
- CFRA projects 6.8% YOY and 8.4% per year for ’23 and ’22-’24, respectively, along with a 3-year CAGR of 10.0%.
I am forecasting below the long-term-estimate range (mean of five: 6.6%) at 5.0%. My initial value will be Q1 ’23 EPS of $15.80/share (annualized) rather than ’22 EPS of $16.53.
My Forecast High P/E is 28. Over the last decade, high P/E has ranged from 19.0 in ’14 to 46.3 in ’21 with a last-5-year mean of 34.9. The last-10-year median is 28.8. I am forecasting just below the last-5-year-mean average P/E of 28.5.
My Forecast Low P/E is 18. Over the last decade, low P/E has ranged from 13.5 in ’13 to 34.8 in ’21 (possible outlier) with a last-5-year mean of 22.1. I am forecasting just below the last-10-year median of 18.5.
My Low Stock Price Forecast (LSPF) is the default value of $284.40 (based on initial EPS of $15.80/share). This is 28.3% less than the previous closing price and 12.5% less than the 52-week low.
These inputs land TDY in the HOLD zone with a U/D ratio of 1.5. Total Annualized Return (TAR) is 7.3%.
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 [only] 18 studies over the past 90 days (my study and 5 outliers excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, and Forecast Low P/E are 6.8%, 8.9%, 30.0, and 18.3, respectively. I am lower across the board. Value Line has a projected average annual P/E ratio of 24.5, which is higher than MS (24.2) and mine (23.0).
MS high and low EPS are $24.81/share and $11.50/share in contrast to my $20.17 and $15.80. My high EPS is probably lower due to a lower growth rate. MS $11.50 seems extreme, however. Going back up to 90 days, the much higher ’22 EPS value of $16.53 would have been published. A closer look reveals five studies with similar inputs using a low EPS of $10.62; this could certainly skew the small sample size. I believe only one study per account will appear, which suggests the $10.62 may have been published somewhere and used by multiple people? Maybe an investment club discussion spurred multiple members to plug in the value? I’ll never know.
MS LSPF of $260.00 implies a low P/E of 22.6 (versus the above-stated 18.3) and is 23.5% greater than the default value of $11.50 * 18.3 = $210.45. Such a big discrepancy may be a consequence of the extreme low EPS number.
PEG ratio is another value check that I have recently begun to monitor. My forward PEG is 23.0 / 5 = 4.6. A generally accepted upper limit is 1.0 – 1.5, but it’s also good to compare against the industry average [for which I don’t have a number].
MOS seems healthy in this study, but the stock is currently too expensive. I would look to re-evaluate under $354/share.
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