⁠Dimitry Nakhla | Babylon Capital®
A sober valuation analysis on $FDS 🧘🏽‍♂️

•NTM P/E Ratio: 23.96x
•10-Year Mean: 26.10x

•NTM FCF Yield: 4.05%
•10-Year Mean: 4.01%

As you can see, $FDS appears to be trading below fair value

Going forward, investors can receive ~9% MORE in earnings per share & ~1% MORE in FCF per share***

Before we discuss valuation, let’s analyze why $FDS is a high-quality business

BALANCE SHEET✅
•Cash & Short-Term Inv: $522.10M
•Long-Term Debt: $1.24B

RETURN ON CAPITAL✅
•2019: 34.7%
•2020: 25.4%
•2021: 24.9%
•2022: 15.2%
•2023: 18.9%
•LTM: 20.2%

RETURN ON EQUITY✅
•2019: 58.9%
•2020: 47.5%
•2021: 41.8%
•2022: 33.8%
•2023: 31.7%
•LTM: 28.8%

$FDS has strong return metrics, highlighting the financial efficiency of the business

REVENUES✅
•2013: $0.86B
•2023: $2.09B
•CAGR: 9.28%

FREE CASH FLOW✅
•2013: $251.29M
•2023: $584.79M
•CAGR: 8.81%

NORMALIZED EPS✅
•2013: $5.04
•2023: $14.55
•CAGR: 11.18%

$FDS consistent growth in revenues, free cash flow, & net income is impressive especially when you consider the company has increased its revenues & earnings annually since for +20 years

SHARE BUYBACKS✅
•2014 Shares Outstanding: 44.62M
•LTM Shares Outstanding: 38.68M

By reducing its shares outstanding ~13.3%, $FDS increased its EPS by ~15.3% (assuming 0 growth)

PAID DIVIDENDS✅
•2013: $1.32
•2023: $3.74
•CAGR: 10.97%

As you can see, $FDS is a quality business and the financials reflect its high % of recurring revenues 👌🏽

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~9% MORE in EPS & ~1% MORE in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $FDS has to grow earnings at an 11.98% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2025 - 2026 EPS growth over the next few years to be less than the (11.98%) required growth rate:

2024E: $16.29 (12.0% YoY) *FY Aug

2025E: $17.43 (7.0% YoY)
2026E: $19.34 (11.0% YoY)

$FDS has a good track record of meeting analyst estimates ~2 years out, so let’s assume $FDS ends 2026 with $19.34 in EPS & see its CAGR potential assuming different multiples:

26x P/E: $502.84💵 … ~12.5% CAGR

25x P/E: $483.50💵 … ~10.3% CAGR

24x P/E: $464.16💵 … ~8.1% CAGR

23x P/E: $444.82💵 … ~5.9% CAGR

As you can see, $FDS appears to have attractive return potential if we assume at least 25x earnings (a multiple slightly below its 10-year mean, but may not be justified given its lower growth rate & excessively elevated multiple from 2020-2023 which skewed the average multiple higher)

Today at $404💵 $FDS appears to getting closer to a price where it will be a good consideration for investment

Similar to the last analysis, I’d get more interested in $FDS at $385💵 or at ~22.85x NTM earnings (5% below todays price) where I can reasonably anticipate double-digit CAGR potential with a 24x end multiple

#stocks #investing
___

𝐃𝐈𝐒𝐂𝐋𝐎𝐒𝐔𝐑𝐄‼️: 𝐓𝐡𝐢𝐬 𝐢𝐬 𝐍𝐎𝐓 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐀𝐝𝐯𝐢𝐜𝐞. 𝐁𝐚𝐛𝐲𝐥𝐨𝐧 𝐂𝐚𝐩𝐢𝐭𝐚𝐥® 𝐚𝐧𝐝 𝐢𝐭𝐬 𝐫𝐞𝐩𝐫𝐞𝐬𝐞𝐧𝐭𝐚𝐭𝐢𝐯𝐞𝐬 𝐦𝐚𝐲 𝐡𝐚𝐯𝐞 𝐩𝐨𝐬𝐢𝐭𝐢𝐨𝐧𝐬 𝐢𝐧 𝐭𝐡𝐞 𝐬𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬 𝐝𝐢𝐬𝐜𝐮𝐬𝐬𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭.

𝐓𝐡𝐞 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐢𝐬 𝐢𝐧𝐭𝐞𝐧𝐝𝐞𝐝 𝐟𝐨𝐫 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧𝐚𝐥 𝐩𝐮𝐫𝐩𝐨𝐬𝐞𝐬 𝐨𝐧𝐥𝐲 𝐚𝐧𝐝 𝐬𝐡𝐨𝐮𝐥𝐝 𝐧𝐨𝐭 𝐛𝐞 𝐜𝐨𝐧𝐬𝐭𝐫𝐮𝐞𝐝 𝐚𝐬 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐚𝐝𝐯𝐢𝐜𝐞 𝐭𝐨 𝐦𝐞𝐞𝐭 𝐭𝐡𝐞 𝐬𝐩𝐞𝐜𝐢𝐟𝐢𝐜 𝐧𝐞𝐞𝐝𝐬 𝐨𝐟 𝐚𝐧𝐲 𝐢𝐧𝐝𝐢𝐯𝐢𝐝𝐮𝐚𝐥 𝐨𝐫 𝐬𝐢𝐭𝐮𝐚𝐭𝐢𝐨𝐧. 𝐏𝐚𝐬𝐭 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐚𝐧𝐜𝐞 𝐢𝐬 𝐧𝐨 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞 𝐨𝐟 𝐟𝐮𝐭𝐮𝐫𝐞 𝐫𝐞𝐬𝐮𝐥𝐭𝐬.

𝐈𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐡𝐚𝐬 𝐛𝐞𝐞𝐧 𝐨𝐛𝐭𝐚𝐢𝐧𝐞𝐝 𝐟𝐫𝐨𝐦 𝐬𝐨𝐮𝐫𝐜𝐞𝐬 𝐛𝐞𝐥𝐢𝐞𝐯𝐞𝐝 𝐭𝐨 𝐛𝐞 𝐫𝐞𝐥𝐢𝐚𝐛𝐥𝐞, 𝐛𝐮𝐭 𝐢𝐬 𝐧𝐨𝐭 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞𝐝 𝐚𝐬 𝐭𝐨 𝐜𝐨𝐦𝐩𝐥𝐞𝐭𝐞𝐧𝐞𝐬𝐬 𝐨𝐫 𝐚𝐜𝐜𝐮𝐫𝐚𝐜𝐲.
tweet

⁠Stock Analysis Compilation
Loomis Sayles on Tencent Holdings $TCEHY US

Thesis: Tencent Holdings is well-positioned to leverage its dominant digital ecosystem in China for sustained long-term growth, despite near-term regulatory and economic challenges

(Extract from their Q2 letter) https://t.co/IyzrDm4xuP
tweet

⁠App Economy Insights
$WMT Walmart Q2 FY25 (ending in July):

• Revenue +5% Y/Y to $169.3B ($1.9B beat).
• Non-GAAP EPS $0.67 ($0.02 beat).
• Walmart US comp sales +4%.
• E-commerce +21% Y/Y.
• Advertising +26% Y/Y.

FY25 Guidance:
• Net sales +3.75% to 4.75% Y/Y (0.75% raise). https://t.co/Zb970ompZc
tweet

⁠Librarian Capital
Not obvious, but Japanese Yen is weaker vs. a year ago

15-Aug-23: $/¥ = 146
15-Aug-23: $/¥ = 149 https://t.co/xEaibM58fM
tweet

⁠Quiver Quantitative
This is getting RIDICULOUS.

We just caught ANOTHER politician violating the STOCK Act.

This time it’s Rep. Greg Landsman

He is now the 10th member of Congress who we have caught in the last month.

Here is my theory for why there have been so many violations this month:

Last month, a bill was advanced that would increase penalties for STOCK Act violations.

It seems like politicians are disclosing all their overdue trades now, to avoid those penalties.

But if that’s the case, does that mean that they have been aware they had these late, un-disclosed trades, and have just been waiting for a good time to disclose them?

That would be an intentional violation of anti-insider trading laws.

It should be investigated by the House Ethics Commmittee, but several of that committee’s members have violated the STOCT Act themselves.

What a mess.
tweet

AkhenOsiris
Recession delayed

Walmart CFO to @melissa_repko: "We don't see any additional fraying of consumer health."

Raises guidance.
Shares look to open at an all-time high. $WMT - Carl Quintanilla
tweet

AkhenOsiris
$AMZN pre-market strength primarily due to Yip AWS data, maybe a sprinkle of WMT in there
tweet

AkhenOsiris
Nimble Niles missed a 4.5% index move higher in 2+ days.

Trying to predict the timing of military action, gtfoh 😂

While I posted about a high probability of an oversold bounce following the 3% decline of the S&P on 8/5, I believe it is prudent to get more conservative following the recent rally that has erased all of those losses.

Two yrs ago, Russia waited to invade Ukraine till after the winter Olympics in China were over. I believe Iran could also be waiting to attack Israel till everyone returns home from the Olympics in France. Given the weaker than expected guidance from many of the AI driven Magnificent 7 names and the incremental weakening in consumer demand seen when Q2 results were reported, rising geopolitical tension might be a catalyst for a retest of the 8/5 lows this summer.

I am also not convinced the unwind of the Japanese yen carry trade that has been employed for more than a decade has been fully unwound in just a few weeks with no financial casualties. For example, Long-Term Capital Management failed when Russia devalued the ruble and defaulted on their debt in 1998.

From a longer-term perspective, I still do not believe we get a recession:
1) There are still over 10% more job openings than people unemployed.
2) Unemployment is still low at 4.3%.
3) The Fed is expected to cut multiple times this year.

As a result, I would become more bullish upon a retest of the 8/5 lows on the S&P. - Dan Niles
tweet

⁠Hidden Value Gems
RT @HiddenValueGems: Interesting analysis by @KevRGordon on what drove small-cap underperformance.

Key points:

1️⃣ Small-caps are more levered and are thus more sensitive to rate changes. They should do well if the FED starts cutting.

1/5 https://t.co/SQAOkFJvhp
tweet

⁠PitchDeckGuy
DraftKings is a $16B market cap leader in sports betting and continues to gain market share each year.

Here’s their deck: https://t.co/22VukpiPNZ
tweet

⁠Librarian Capital
This may be significant:

"FDA Announces Proposed Rule to Require Submission of Tracking Numbers for Imports of E-Cigarette Products"

"Any ENDS product ... for which the STN is not submitted may be denied entry into the US"

$MO $BATS $BTI $PM $IMB https://t.co/TL09eevLvA
tweet