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โ Dimitry Nakhla | Babylon Capitalยฎ
RT @DimitryNakhla: $CVS down ~22% since this post ๐
This highlights the importance of considering factors beyond value when investing โผ๏ธ
Thorough analysis of quality and capital allocation decisions is crucial to lessen the odds of falling into โvalue trapsโ
While $CVS made a strategic decision in acquiring Aetna, subsequent acquisitions of Oak Street Health and Signify Health were corrosive to shareholder value
Optimal resource allocation and operational efficiency maximization following the Aetna acquisition would have been the more effective approach for $CVS
#stocks #investing
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RT @DimitryNakhla: $CVS down ~22% since this post ๐
This highlights the importance of considering factors beyond value when investing โผ๏ธ
Thorough analysis of quality and capital allocation decisions is crucial to lessen the odds of falling into โvalue trapsโ
While $CVS made a strategic decision in acquiring Aetna, subsequent acquisitions of Oak Street Health and Signify Health were corrosive to shareholder value
Optimal resource allocation and operational efficiency maximization following the Aetna acquisition would have been the more effective approach for $CVS
#stocks #investing
@scroogecapital May be undervalued, yet I donโt consider $CVS investable due to its poor capital allocation & balance sheet โฆ from the moment I canโt consider it a high-quality business, I stay away
No need for me to consider $CVS when I have many others to choose from ๐ช๐ฝ tweet
Offshore
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โ Dimitry Nakhla | Babylon Capitalยฎ
RT @DimitryNakhla: A sober valuation analysis on $LULU ๐ง๐ฝโโ๏ธ
โขNTM P/E Ratio: 21.14x
โข10-Year Mean: 35.94x
โขNTM FCF Yield: 3.80%
โข10-Year Mean: 2.16%
As you can see, $LULU appears to be trading below fair value
Going forward, investors can receive ~70% MORE in earnings per share & ~75% MORE in FCF per share ๐ง ***
Before we get into valuation, letโs take a look at why $LULU is a good business
BALANCE SHEETโ
โขCash & Short-Term Inv: $2.24B
โขTotal Debt: $1.40B
$LULU has an excellent balance sheet
RETURN ON CAPITALโ
โข2020: 32.5%
โข2021: 23.8%
โข2022: 37.4%
โข2023: 40.4%
โข2024: 39.0%
RETURN ON EQUITYโ
โข2020: 38.0%
โข2021: 26.1%
โข2022: 36.8%
โข2023: 29.0%
โข2024: 42.0%
$LULU has strong return metrics, highlighting the financial efficiency of the business
REVENUESโ
โข2014: $1.59B
โข2024: $9.62B
โขCAGR: 19.72%
FREE CASH FLOWโ
โข2014: $171.93M
โข2024: $1.64B
โขCAGR: 25.33%
NORMALIZED EPSโ
โข2014: $1.91
โข2024: $12.77
โขCAGR: 20.92%
SHARE BUYBACKSโ
โข2014 Shares Outstanding: 146.04M
โขLTM Shares Outstanding: 127.06M
By reducing its shares outstanding ~13%, $LULU increased its EPS by ~15% (assuming 0 growth)
MARGINSโ
โขLTM Gross Margins: 58.3%
โขLTM Operating Margins: 22.9%
โขLTM Net Income Margins: 16.1%
***NOW TO VALUATION ๐ง
As stated above, investors can expect to receive ~70% MORE in EPS & ~75% MORE in FCF per share
Using Benjamin Grahamโs 2G rule of thumb, $LULU has to grow earnings at a 10.57% CAGR over the next several years to justify its valuation
Today, analysts anticipate 2025 - 2026 EPS growth over next few years to be slightly above the (10.57%) required growth rate:
2025E: $14.16 (10.9% YoY) *FY Jan
2026E: $15.86 (12.0% YoY)
$LULU has a decent track record of meeting analyst estimates ~2 years out, so letโs assume $LULU ends 2026 with $15.86 in EPS & see its CAGR potential assuming different multiples:
25x P/E: $396.50๐ต โฆ ~19.2% CAGR
24x P/E: $380.64๐ต โฆ ~16.2% CAGR
23x P/E: $364.78๐ต โฆ ~13.1% CAGR
22x P/E: $348.92๐ต โฆ ~10.0% CAGR
As you can see, $LULU appears to have attractive return potential IF it can demand a >22x multiple
However, itโs important to keep in mind that itโs difficult to maintain a strong competitive advantage (over long periods of time) in the athletic apparel space & recent growth concerns amid increased competition is why $LULU stock is trading near the lowest end of its historical multiple range
$LULU can demand a >20x multiple IF it beats growth estimates over the next few years, signaling that the sell-off due to competitive pressures may be overdone
I donโt believe itโs unreasonable to rely on ~22x (especially given $LULU return metrics, balance sheet, & strong history of growth โ $LULU has grown its revenues ANNUALLY since 2007 ๐คฏ)
Today at $300๐ต $LULU appears to be a worthwhile consideration for investment โ albeit with several competitive risks (and how $LULU responds) that should be monitored closely
#stocks #investing
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๐๐๐๐๐๐๐๐๐๐โผ๏ธ: ๐๐ก๐ข๐ฌ ๐ข๐ฌ ๐๐๐ ๐๐ง๐ฏ๐๐ฌ๐ญ๐ฆ๐๐ง๐ญ ๐๐๐ฏ๐ข๐๐. ๐๐๐๐ฒ๐ฅ๐จ๐ง ๐๐๐ฉ๐ข๐ญ๐๐ฅยฎ ๐๐ง๐ ๐ข๐ญ๐ฌ ๐ซ๐๐ฉ๐ซ๐๐ฌ๐๐ง๐ญ๐๐ญ๐ข๐ฏ๐๐ฌ ๐ฆ๐๐ฒ ๐ก๐๐ฏ๐ ๐ฉ๐จ๐ฌ๐ข๐ญ๐ข๐จ๐ง๐ฌ ๐ข๐ง ๐ญ๐ก๐ ๐ฌ๐๐๐ฎ๐ซ๐ข๐ญ๐ข๐๐ฌ ๐๐ข๐ฌ๐๐ฎ๐ฌ๐ฌ๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ.
๐๐ก๐ ๐ข๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง ๐๐จ๐ง๐ญ๐๐ข๐ง๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ ๐ข๐ฌ ๐ข๐ง๐ญ๐๐ง๐๐๐ ๐๐จ๐ซ ๐ข๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง๐๐ฅ ๐ฉ๐ฎ๐ซ๐ฉ๐จ๐ฌ๐๐ฌ ๐จ๐ง๐ฅ๐ฒ ๐๐ง๐ ๐ฌ๐ก๐จ๐ฎ๐ฅ๐ ๐ง๐จ๐ญ ๐๐ ๐๐จ๐ง๐ฌ๐ญ๐ซ๐ฎ๐๐ ๐๐ฌ ๐ข๐ง๐ฏ๐๐ฌ๐ญ๐ฆ๐๐ง๐ญ ๐๐๐ฏ๐ข๐๐ ๐ญ๐จ ๐ฆ๐๐๐ญ ๐ญ๐ก๐ ๐ฌ๐ฉ๐๐๐ข๐๐ข๐ ๐ง๐๐๐๐ฌ ๐จ๐ ๐๐ง๐ฒ ๐ข๐ง๐๐ข๐ฏ๐ข๐๐ฎ๐๐ฅ ๐จ๐ซ ๐ฌ๐ข๐ญ๐ฎ๐๐ญ๐ข๐จ๐ง. ๐๐๐ฌ๐ญ ๐ฉ๐๐ซ๐๐จ๐ซ๐ฆ๐๐ง๐๐ ๐ข๐ฌ ๐ง๐จ ๐ ๐ฎ๐๐ซ๐๐ง๐ญ๐๐ ๐จ๐ ๐๐ฎ๐ญ๐ฎ๐ซ๐ ๐ซ๐๐ฌ๐ฎ๐ฅ๐ญ๐ฌ.
๐๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง ๐๐จ๐ง๐ญ๐๐ข๐ง๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ ๐ก๐๐ฌ ๐๐๐๐ง ๐จ๐๐ญ๐๐ข๐ง๐๐ ๐๐ซ๐จ๐ฆ ๐ฌ๐จ๐ฎ๐ซ๐๐๐ฌ ๐๐๐ฅ๐ข๐๐ฏ๐๐ ๐ญ๐จ ๐๐ ๐ซ๐๐ฅ๐ข๐๐๐ฅ๐, ๐๐ฎ๐ญ ๐ข๐ฌ ๐ง๐จ๐ญ ๐ ๐ฎ๐๐ซ๐๐ง๐ญ๐๐๐ ๐๐ฌ ๐ญ๐จ ๐๐๐๐ฎ๐ซ๐๐๐ฒ.
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RT @DimitryNakhla: A sober valuation analysis on $LULU ๐ง๐ฝโโ๏ธ
โขNTM P/E Ratio: 21.14x
โข10-Year Mean: 35.94x
โขNTM FCF Yield: 3.80%
โข10-Year Mean: 2.16%
As you can see, $LULU appears to be trading below fair value
Going forward, investors can receive ~70% MORE in earnings per share & ~75% MORE in FCF per share ๐ง ***
Before we get into valuation, letโs take a look at why $LULU is a good business
BALANCE SHEETโ
โขCash & Short-Term Inv: $2.24B
โขTotal Debt: $1.40B
$LULU has an excellent balance sheet
RETURN ON CAPITALโ
โข2020: 32.5%
โข2021: 23.8%
โข2022: 37.4%
โข2023: 40.4%
โข2024: 39.0%
RETURN ON EQUITYโ
โข2020: 38.0%
โข2021: 26.1%
โข2022: 36.8%
โข2023: 29.0%
โข2024: 42.0%
$LULU has strong return metrics, highlighting the financial efficiency of the business
REVENUESโ
โข2014: $1.59B
โข2024: $9.62B
โขCAGR: 19.72%
FREE CASH FLOWโ
โข2014: $171.93M
โข2024: $1.64B
โขCAGR: 25.33%
NORMALIZED EPSโ
โข2014: $1.91
โข2024: $12.77
โขCAGR: 20.92%
SHARE BUYBACKSโ
โข2014 Shares Outstanding: 146.04M
โขLTM Shares Outstanding: 127.06M
By reducing its shares outstanding ~13%, $LULU increased its EPS by ~15% (assuming 0 growth)
MARGINSโ
โขLTM Gross Margins: 58.3%
โขLTM Operating Margins: 22.9%
โขLTM Net Income Margins: 16.1%
***NOW TO VALUATION ๐ง
As stated above, investors can expect to receive ~70% MORE in EPS & ~75% MORE in FCF per share
Using Benjamin Grahamโs 2G rule of thumb, $LULU has to grow earnings at a 10.57% CAGR over the next several years to justify its valuation
Today, analysts anticipate 2025 - 2026 EPS growth over next few years to be slightly above the (10.57%) required growth rate:
2025E: $14.16 (10.9% YoY) *FY Jan
2026E: $15.86 (12.0% YoY)
$LULU has a decent track record of meeting analyst estimates ~2 years out, so letโs assume $LULU ends 2026 with $15.86 in EPS & see its CAGR potential assuming different multiples:
25x P/E: $396.50๐ต โฆ ~19.2% CAGR
24x P/E: $380.64๐ต โฆ ~16.2% CAGR
23x P/E: $364.78๐ต โฆ ~13.1% CAGR
22x P/E: $348.92๐ต โฆ ~10.0% CAGR
As you can see, $LULU appears to have attractive return potential IF it can demand a >22x multiple
However, itโs important to keep in mind that itโs difficult to maintain a strong competitive advantage (over long periods of time) in the athletic apparel space & recent growth concerns amid increased competition is why $LULU stock is trading near the lowest end of its historical multiple range
$LULU can demand a >20x multiple IF it beats growth estimates over the next few years, signaling that the sell-off due to competitive pressures may be overdone
I donโt believe itโs unreasonable to rely on ~22x (especially given $LULU return metrics, balance sheet, & strong history of growth โ $LULU has grown its revenues ANNUALLY since 2007 ๐คฏ)
Today at $300๐ต $LULU appears to be a worthwhile consideration for investment โ albeit with several competitive risks (and how $LULU responds) that should be monitored closely
#stocks #investing
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๐๐๐๐๐๐๐๐๐๐โผ๏ธ: ๐๐ก๐ข๐ฌ ๐ข๐ฌ ๐๐๐ ๐๐ง๐ฏ๐๐ฌ๐ญ๐ฆ๐๐ง๐ญ ๐๐๐ฏ๐ข๐๐. ๐๐๐๐ฒ๐ฅ๐จ๐ง ๐๐๐ฉ๐ข๐ญ๐๐ฅยฎ ๐๐ง๐ ๐ข๐ญ๐ฌ ๐ซ๐๐ฉ๐ซ๐๐ฌ๐๐ง๐ญ๐๐ญ๐ข๐ฏ๐๐ฌ ๐ฆ๐๐ฒ ๐ก๐๐ฏ๐ ๐ฉ๐จ๐ฌ๐ข๐ญ๐ข๐จ๐ง๐ฌ ๐ข๐ง ๐ญ๐ก๐ ๐ฌ๐๐๐ฎ๐ซ๐ข๐ญ๐ข๐๐ฌ ๐๐ข๐ฌ๐๐ฎ๐ฌ๐ฌ๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ.
๐๐ก๐ ๐ข๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง ๐๐จ๐ง๐ญ๐๐ข๐ง๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ ๐ข๐ฌ ๐ข๐ง๐ญ๐๐ง๐๐๐ ๐๐จ๐ซ ๐ข๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง๐๐ฅ ๐ฉ๐ฎ๐ซ๐ฉ๐จ๐ฌ๐๐ฌ ๐จ๐ง๐ฅ๐ฒ ๐๐ง๐ ๐ฌ๐ก๐จ๐ฎ๐ฅ๐ ๐ง๐จ๐ญ ๐๐ ๐๐จ๐ง๐ฌ๐ญ๐ซ๐ฎ๐๐ ๐๐ฌ ๐ข๐ง๐ฏ๐๐ฌ๐ญ๐ฆ๐๐ง๐ญ ๐๐๐ฏ๐ข๐๐ ๐ญ๐จ ๐ฆ๐๐๐ญ ๐ญ๐ก๐ ๐ฌ๐ฉ๐๐๐ข๐๐ข๐ ๐ง๐๐๐๐ฌ ๐จ๐ ๐๐ง๐ฒ ๐ข๐ง๐๐ข๐ฏ๐ข๐๐ฎ๐๐ฅ ๐จ๐ซ ๐ฌ๐ข๐ญ๐ฎ๐๐ญ๐ข๐จ๐ง. ๐๐๐ฌ๐ญ ๐ฉ๐๐ซ๐๐จ๐ซ๐ฆ๐๐ง๐๐ ๐ข๐ฌ ๐ง๐จ ๐ ๐ฎ๐๐ซ๐๐ง๐ญ๐๐ ๐จ๐ ๐๐ฎ๐ญ๐ฎ๐ซ๐ ๐ซ๐๐ฌ๐ฎ๐ฅ๐ญ๐ฌ.
๐๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง ๐๐จ๐ง๐ญ๐๐ข๐ง๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ ๐ก๐๐ฌ ๐๐๐๐ง ๐จ๐๐ญ๐๐ข๐ง๐๐ ๐๐ซ๐จ๐ฆ ๐ฌ๐จ๐ฎ๐ซ๐๐๐ฌ ๐๐๐ฅ๐ข๐๐ฏ๐๐ ๐ญ๐จ ๐๐ ๐ซ๐๐ฅ๐ข๐๐๐ฅ๐, ๐๐ฎ๐ญ ๐ข๐ฌ ๐ง๐จ๐ญ ๐ ๐ฎ๐๐ซ๐๐ง๐ญ๐๐๐ ๐๐ฌ ๐ญ๐จ ๐๐๐๐ฎ๐ซ๐๐๐ฒ.
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Offshore
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โ Dimitry Nakhla | Babylon Capitalยฎ
A sober valuation analysis on $ADP ๐ง๐ฝโโ๏ธ
โขNTM P/E Ratio: 24.41x
โข10-Year Mean: 27.28x
โขNTM FCF Yield: 5.83%
โข10-Year Mean: 4.49%
As you can see, $ADP appears to be trading below fair value
Going forward, investors can receive ~12% MORE in earnings per share & ~29% MORE in FCF per share ๐ง ***
Before we get into valuation, letโs take a look at why $ADP is a great business
BALANCE SHEETโ
โขCash & Short-Term Inv: $3.29B
โขLong-Term Debt: $2.99B
$ADP has a strong balance sheet, an AA- S&P Credit Rating & 11x FFO Interest Coverage
RETURN ON CAPITALโ
โข2019: 36.4%
โข2020: 36.0%
โข2021: 35.2%
โข2022: 55.8%
โข2023: 64.0%
โขLTM: 60.9%
RETURN ON EQUITYโ
โข2019: 45.2%
โข2020: 44.2%
โข2021: 45.5%
โข2022: 66.3%
โข2023: 101.3%
โขLTM: 88.9%
$ADP has strong return metrics, highlighting the financial efficiency of the business
REVENUESโ
โข2014: $12.21B
โข2024E: $51.65B
โขCAGR: 6.39
FREE CASH FLOWโ
โข2014: $1.66B
โข2024E: $4.66B
โขCAGR: 10.87%
NORMALIZED EPSโ
โข2014: $3.14
โข2024E: $9.15
โขCAGR: 11.28%
SHARE BUYBACKSโ
โข2014 Shares Outstanding: 483.10M
โขLTM Shares Outstanding: 413.75M
By reducing its shares outstanding ~14.3%, $ADP increased its EPS by ~16.7% (assuming 0 growth)
MARGINSโ
โขLTM Gross Margins: 47.9%
โขLTM Operating Margins: 26.0%
โขLTM Net Income Margins: 19.6%
***NOW TO VALUATION ๐ง
As stated above, investors can expect to receive ~12% MORE in EPS & ~29% more in FCF per share
Using Benjamin Grahamโs 2G rule of thumb, $ADP has to grow earnings at a 12.21% 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 (12.21%) required growth rate:
2024E: $9.15 (11.2% YoY) *FY Jun
2025E: $10.00 (9.3% YoY)
2026E: $10.85 (8.5% YoY)
$ADP has a good track record of meeting analyst estimates ~2 years out, so letโs assume $ADP ends 2026 with $10.85 in EPS & see its CAGR potential assuming different multiples:
27x P/E: $292.95๐ต โฆ ~12.6% CAGR
26x P/E: $282.10๐ต โฆ ~10.6% CAGR
25x P/E: $271.25๐ต โฆ ~8.6% CAGR
24x P/E: $260.40๐ต โฆ ~6.6% CAGR
As you can see, $ADP appears to have attractive return potential if we assume at least 26x earnings (a multiple below its 10-year mean & on the lower end of its range)
Sure, $ADP growth alone may not necessarily support a 26x multiple, however $ADP is a quality business with over 80% recurring revenues, more than 25 years of annual dividend increases making it a dividend aristocrat, high margins, historical linearity in earnings, historical outperformance during down markets, & is the leader of its space with minimal competition
All these reasons, among other things, make me believe that $ADP deserves a premium multiple
Today at $239๐ต $ADP appears to be a decent consideration for investment
Sure, there may not be a great margin of safety, so it may be wise to piece into the position, e.g. add 1/3 of the position at $239, 1/3 at $210, & 1/3 at $190
#stocks #investing
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๐๐๐๐๐๐๐๐๐๐โผ๏ธ: ๐๐ก๐ข๐ฌ ๐ข๐ฌ ๐๐๐ ๐๐ง๐ฏ๐๐ฌ๐ญ๐ฆ๐๐ง๐ญ ๐๐๐ฏ๐ข๐๐. ๐๐๐๐ฒ๐ฅ๐จ๐ง ๐๐๐ฉ๐ข๐ญ๐๐ฅยฎ ๐๐ง๐ ๐ข๐ญ๐ฌ ๐ซ๐๐ฉ๐ซ๐๐ฌ๐๐ง๐ญ๐๐ญ๐ข๐ฏ๐๐ฌ ๐ฆ๐๐ฒ ๐ก๐๐ฏ๐ ๐ฉ๐จ๐ฌ๐ข๐ญ๐ข๐จ๐ง๐ฌ ๐ข๐ง ๐ญ๐ก๐ ๐ฌ๐๐๐ฎ๐ซ๐ข๐ญ๐ข๐๐ฌ ๐๐ข๐ฌ๐๐ฎ๐ฌ๐ฌ๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ.
๐๐ก๐ ๐ข๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง ๐๐จ๐ง๐ญ๐๐ข๐ง๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ ๐ข๐ฌ ๐ข๐ง๐ญ๐๐ง๐๐๐ ๐๐จ๐ซ ๐ข๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง๐๐ฅ ๐ฉ๐ฎ๐ซ๐ฉ๐จ๐ฌ๐๐ฌ ๐จ๐ง๐ฅ๐ฒ ๐๐ง๐ ๐ฌ๐ก๐จ๐ฎ๐ฅ๐ ๐ง๐จ๐ญ ๐๐ ๐๐จ๐ง๐ฌ๐ญ๐ซ๐ฎ๐๐ ๐๐ฌ ๐ข๐ง๐ฏ๐๐ฌ๐ญ๐ฆ๐๐ง๐ญ ๐๐๐ฏ๐ข๐๐ ๐ญ๐จ ๐ฆ๐๐๐ญ ๐ญ๐ก๐ ๐ฌ๐ฉ๐๐๐ข๐๐ข๐ ๐ง๐๐๐๐ฌ ๐จ๐ ๐๐ง๐ฒ ๐ข๐ง๐๐ข๐ฏ๐ข๐๐ฎ๐๐ฅ ๐จ๐ซ ๐ฌ๐ข๐ญ๐ฎ๐๐ญ๐ข๐จ๐ง. ๐๐๐ฌ๐ญ ๐ฉ๐๐ซ๐๐จ๐ซ๐ฆ๐๐ง๐๐ ๐ข๐ฌ ๐ง๐จ ๐ ๐ฎ๐๐ซ๐๐ง๐ญ๐๐ ๐จ๐ ๐๐ฎ๐ญ๐ฎ๐ซ๐ ๐ซ๐๐ฌ๐ฎ๐ฅ๐ญ๐ฌ.
๐๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง ๐๐จ๐ง๐ญ๐๐ข๐ง๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ ๐ก๐๐ฌ ๐๐๐๐ง ๐จ๐๐ญ๐๐ข๐ง๐๐ ๐๐ซ๐จ๐ฆ ๐ฌ๐จ๐ฎ๐ซ๐๐๐ฌ ๐๐๐ฅ๐ข๐๐ฏ๐๐ ๐ญ๐จ ๐๐ ๐ซ๐๐ฅ๐ข๐๐๐ฅ๐, ๐๐ฎ๐ญ ๐ข๐ฌ ๐ง๐จ๐ญ ๐ ๐ฎ๐๐ซ๐๐ง๐ญ๐๐๐ ๐๐ฌ ๐ญ๐จ ๐๐จ๐ฆ๐ฉ๐ฅ๐๐ญ๐๐ง๐๐ฌ๐ฌ ๐จ๐ซ ๐๐๐๐ฎ๐ซ๐๐๐ฒ.
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A sober valuation analysis on $ADP ๐ง๐ฝโโ๏ธ
โขNTM P/E Ratio: 24.41x
โข10-Year Mean: 27.28x
โขNTM FCF Yield: 5.83%
โข10-Year Mean: 4.49%
As you can see, $ADP appears to be trading below fair value
Going forward, investors can receive ~12% MORE in earnings per share & ~29% MORE in FCF per share ๐ง ***
Before we get into valuation, letโs take a look at why $ADP is a great business
BALANCE SHEETโ
โขCash & Short-Term Inv: $3.29B
โขLong-Term Debt: $2.99B
$ADP has a strong balance sheet, an AA- S&P Credit Rating & 11x FFO Interest Coverage
RETURN ON CAPITALโ
โข2019: 36.4%
โข2020: 36.0%
โข2021: 35.2%
โข2022: 55.8%
โข2023: 64.0%
โขLTM: 60.9%
RETURN ON EQUITYโ
โข2019: 45.2%
โข2020: 44.2%
โข2021: 45.5%
โข2022: 66.3%
โข2023: 101.3%
โขLTM: 88.9%
$ADP has strong return metrics, highlighting the financial efficiency of the business
REVENUESโ
โข2014: $12.21B
โข2024E: $51.65B
โขCAGR: 6.39
FREE CASH FLOWโ
โข2014: $1.66B
โข2024E: $4.66B
โขCAGR: 10.87%
NORMALIZED EPSโ
โข2014: $3.14
โข2024E: $9.15
โขCAGR: 11.28%
SHARE BUYBACKSโ
โข2014 Shares Outstanding: 483.10M
โขLTM Shares Outstanding: 413.75M
By reducing its shares outstanding ~14.3%, $ADP increased its EPS by ~16.7% (assuming 0 growth)
MARGINSโ
โขLTM Gross Margins: 47.9%
โขLTM Operating Margins: 26.0%
โขLTM Net Income Margins: 19.6%
***NOW TO VALUATION ๐ง
As stated above, investors can expect to receive ~12% MORE in EPS & ~29% more in FCF per share
Using Benjamin Grahamโs 2G rule of thumb, $ADP has to grow earnings at a 12.21% 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 (12.21%) required growth rate:
2024E: $9.15 (11.2% YoY) *FY Jun
2025E: $10.00 (9.3% YoY)
2026E: $10.85 (8.5% YoY)
$ADP has a good track record of meeting analyst estimates ~2 years out, so letโs assume $ADP ends 2026 with $10.85 in EPS & see its CAGR potential assuming different multiples:
27x P/E: $292.95๐ต โฆ ~12.6% CAGR
26x P/E: $282.10๐ต โฆ ~10.6% CAGR
25x P/E: $271.25๐ต โฆ ~8.6% CAGR
24x P/E: $260.40๐ต โฆ ~6.6% CAGR
As you can see, $ADP appears to have attractive return potential if we assume at least 26x earnings (a multiple below its 10-year mean & on the lower end of its range)
Sure, $ADP growth alone may not necessarily support a 26x multiple, however $ADP is a quality business with over 80% recurring revenues, more than 25 years of annual dividend increases making it a dividend aristocrat, high margins, historical linearity in earnings, historical outperformance during down markets, & is the leader of its space with minimal competition
All these reasons, among other things, make me believe that $ADP deserves a premium multiple
Today at $239๐ต $ADP appears to be a decent consideration for investment
Sure, there may not be a great margin of safety, so it may be wise to piece into the position, e.g. add 1/3 of the position at $239, 1/3 at $210, & 1/3 at $190
#stocks #investing
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๐๐๐๐๐๐๐๐๐๐โผ๏ธ: ๐๐ก๐ข๐ฌ ๐ข๐ฌ ๐๐๐ ๐๐ง๐ฏ๐๐ฌ๐ญ๐ฆ๐๐ง๐ญ ๐๐๐ฏ๐ข๐๐. ๐๐๐๐ฒ๐ฅ๐จ๐ง ๐๐๐ฉ๐ข๐ญ๐๐ฅยฎ ๐๐ง๐ ๐ข๐ญ๐ฌ ๐ซ๐๐ฉ๐ซ๐๐ฌ๐๐ง๐ญ๐๐ญ๐ข๐ฏ๐๐ฌ ๐ฆ๐๐ฒ ๐ก๐๐ฏ๐ ๐ฉ๐จ๐ฌ๐ข๐ญ๐ข๐จ๐ง๐ฌ ๐ข๐ง ๐ญ๐ก๐ ๐ฌ๐๐๐ฎ๐ซ๐ข๐ญ๐ข๐๐ฌ ๐๐ข๐ฌ๐๐ฎ๐ฌ๐ฌ๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ.
๐๐ก๐ ๐ข๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง ๐๐จ๐ง๐ญ๐๐ข๐ง๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ ๐ข๐ฌ ๐ข๐ง๐ญ๐๐ง๐๐๐ ๐๐จ๐ซ ๐ข๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง๐๐ฅ ๐ฉ๐ฎ๐ซ๐ฉ๐จ๐ฌ๐๐ฌ ๐จ๐ง๐ฅ๐ฒ ๐๐ง๐ ๐ฌ๐ก๐จ๐ฎ๐ฅ๐ ๐ง๐จ๐ญ ๐๐ ๐๐จ๐ง๐ฌ๐ญ๐ซ๐ฎ๐๐ ๐๐ฌ ๐ข๐ง๐ฏ๐๐ฌ๐ญ๐ฆ๐๐ง๐ญ ๐๐๐ฏ๐ข๐๐ ๐ญ๐จ ๐ฆ๐๐๐ญ ๐ญ๐ก๐ ๐ฌ๐ฉ๐๐๐ข๐๐ข๐ ๐ง๐๐๐๐ฌ ๐จ๐ ๐๐ง๐ฒ ๐ข๐ง๐๐ข๐ฏ๐ข๐๐ฎ๐๐ฅ ๐จ๐ซ ๐ฌ๐ข๐ญ๐ฎ๐๐ญ๐ข๐จ๐ง. ๐๐๐ฌ๐ญ ๐ฉ๐๐ซ๐๐จ๐ซ๐ฆ๐๐ง๐๐ ๐ข๐ฌ ๐ง๐จ ๐ ๐ฎ๐๐ซ๐๐ง๐ญ๐๐ ๐จ๐ ๐๐ฎ๐ญ๐ฎ๐ซ๐ ๐ซ๐๐ฌ๐ฎ๐ฅ๐ญ๐ฌ.
๐๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง ๐๐จ๐ง๐ญ๐๐ข๐ง๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ ๐ก๐๐ฌ ๐๐๐๐ง ๐จ๐๐ญ๐๐ข๐ง๐๐ ๐๐ซ๐จ๐ฆ ๐ฌ๐จ๐ฎ๐ซ๐๐๐ฌ ๐๐๐ฅ๐ข๐๐ฏ๐๐ ๐ญ๐จ ๐๐ ๐ซ๐๐ฅ๐ข๐๐๐ฅ๐, ๐๐ฎ๐ญ ๐ข๐ฌ ๐ง๐จ๐ญ ๐ ๐ฎ๐๐ซ๐๐ง๐ญ๐๐๐ ๐๐ฌ ๐ญ๐จ ๐๐จ๐ฆ๐ฉ๐ฅ๐๐ญ๐๐ง๐๐ฌ๐ฌ ๐จ๐ซ ๐๐๐๐ฎ๐ซ๐๐๐ฒ.
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โ Dimitry Nakhla | Babylon Capitalยฎ
RT @SShevda: @DimitryNakhla I should have listened to you rather than Barclay with target of 110 $ :))
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RT @SShevda: @DimitryNakhla I should have listened to you rather than Barclay with target of 110 $ :))
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Offshore
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AkhenOsiris
$GOOGL
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$GOOGL
ROSENBLATT cuts $GOOGL to neutral:
โ:. multiple areas of transitional risk that recommend stepping back for a little while to see how the company handles it. Areas of risk include the AI's impact on search .. nascent evidence of search share loss to Bing .. the transitioning of search ad revenue to retail media networks seems set to accelerate as other retailers such as $WMT follow $AMZN lead ..
โ.. We also see risk that competitive dynamics push Alphabet into a higher-than-anticipated capex spending cycle ..โ [Crockett] - Carl Quintanillatweet