⁠Dimitry Nakhla | Babylon Capital®
A quality valuation analysis on $ROP 🧘🏽‍♂️

•NTM P/E Ratio: 27.19x
•5-Year Mean: 28.82x

•NTM FCF Yield: 4.35%
•5-Year Mean: 4.45%

As you can see, $ROP appears to be trading near fair value

Going forward, investors can receive ~6% MORE in earnings per share & ~2% LESS in FCF per share 🧠***

Before we get into valuation, let’s take a look at why $ROP is a great business

BALANCE SHEET🆗
•Cash & Short-Term Inv: $270M
•Long-Term Debt: $7.67B

$ROP has an ok balance sheet, a BBB+ S&P Credit Rating, & a healthy 9.61x FFO Interest Coverage Ratio

RETURN ON CAPITAL🆗
•2019: 8.2%
•2020: 5.0%
•2021: 6.3%
•2022: 6.2%
•2023: 6.8%
•LTM: 6.8%

$ROP has lower ROIC, however this is mainly due to the acquisitive nature of the business

REVENUES✅
•2014: $3.55B
•2024E: $7.00B
•CAGR: 7.02%

FREE CASH FLOW✅
•2014: $802.80M
•2024: $2.18B
•CAGR: 10.54%

NORMALIZED EPS✅
•2014: $6.42
•2024E: $18.26
•CAGR: 11.01%

SHARE BUYBACKS🆗
•2014 Shares Outstanding: 100.88M
•LTM Shares Outstanding: 107.93M

MARGINS✅
•LTM Gross Margins: 69.7%
•LTM Operating Margins: 28.6%
•LTM Net Income Margins: 21.6%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~6% MORE in EPS & ~2% LESS in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $ROP has to grow earnings at a 13.60% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2025 - 2027 EPS growth over the next few years to be more than (13.60%) required growth rate:

2024E: $18.26 (9.3% YoY) *FY Dec

2025E: $20.10 (10.1% YoY)
2026E: $22.27 (10.8% YoY)
2027E: $28.31 (27.1% YoY)

$ROP has a decent track record of meeting analyst estimates ~2 years out, but let’s assume $ROP ends 2027 with $26.00 (8% below today’s estimates) in EPS & see its CAGR potential assuming different multiples

28x P/E: $728💵 … ~12.0% CAGR

27x P/E: $702💵 … ~10.6% CAGR

26x P/E: $676💵 … ~9.2% CAGR

25x P/E: 650💵 … ~7.8% CAGR

As you can see, $ROP appears to have attractive return potential if we assume >27x earnings, a valuation near what it’s trading for today

$ROP is an exceptional niche-focused sticky business with predictability & a history of strong FCF growth

Today at $531💵 $ROP appears to be fairly valued

I’d consider $ROP a great purchase closer to $495 (~25x NTM estimates) roughly 8% below today’s share price

This is where I can reasonably expect ~10.40% CAGR assuming a more conservative 25x 2027 earnings estimates (that has been lowered from $28.31 to $26.00), ensuring a substantial margin of safety

#stocks #investing
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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.
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⁠Startup Archive
RT @adb1146: This is an excellent post that we should all take to heart. It’s worth noting that he’s not necessarily advocating for always being a contrarian or attempting to reinvent the wheel. As Jony Ive says, sometimes it’s best to simply say, “Thank you very much,” and move on. However, there are certainly moments where fortune favors the brave, and bold action can make all the difference.

Jony Ive: “You have to reject reason to innovate”

“If it hasn’t been done and it’s of value, there’s really good reasons it’s not been done. And so when you’re confronted with those reasons, you’ve got two choices. You can say, ‘Oh, that’s a very good reason, I’m sorry for bothering you.’ Or you can say, ‘I don’t believe that. I’m going to find out more.’”

Jony Ive continues:

“George Bernard Shaw talked bout how you have to reject reason to innovate. You have to say, ‘We understand. This is all very reasonable. But I’m going to ignore you completely.’ And if you're a fairly sensitive person, ignoring very smart people is really difficult… [But] that decision to ignore expert option happens every single time we do something that’s new.” - Startup Archive
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⁠Startup Archive
RT @jeffreydmorelli: This is the single most difficult part of starting a company, a true product driven company. Every expert and logical reason will tell you what to think and which direction to go in. Your job is to ignore them even though by the very nature of building something new that didn’t exist before, you don’t know what you’re doing.

Jony Ive: “You have to reject reason to innovate”

“If it hasn’t been done and it’s of value, there’s really good reasons it’s not been done. And so when you’re confronted with those reasons, you’ve got two choices. You can say, ‘Oh, that’s a very good reason, I’m sorry for bothering you.’ Or you can say, ‘I don’t believe that. I’m going to find out more.’”

Jony Ive continues:

“George Bernard Shaw talked bout how you have to reject reason to innovate. You have to say, ‘We understand. This is all very reasonable. But I’m going to ignore you completely.’ And if you're a fairly sensitive person, ignoring very smart people is really difficult… [But] that decision to ignore expert option happens every single time we do something that’s new.” - Startup Archive
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⁠Hidden Value Gems
Unexpected trajectory if you zoom out - no real decline in alcohol consumption?

h/t Troy Asset Management

https://t.co/EwBq94Vh2D https://t.co/DO70EjTag6

Missed this news on $DGE.L - apparently considering the sale / IPO of Guinness (est. $10bn) and its 34% interest in Moet Hennessy (JV with LVMH).

With so much pessimism over this sector, looks like it is worth doing more work on the name/sector... https://t.co/4do6oLWiYR - Hidden Value Gems
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⁠Quiver Quantitative
Representative Tim Burchett just said:

"Congress shouldn’t own individual stocks."

Burchett is one of the few members of Congress without any individual stocks in his portfolio.

His page on Quiver is pretty empty: https://t.co/NK8UYwD4KE
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⁠InsideArbitrage
Barnes Group Inc. $B announced the completion of it's acquisition by funds managed by affiliates of Apollo Global Management $APO. It took 111 days for this deal to complete. https://t.co/AYdCWzAxrD
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