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โ Dimitry Nakhla | Babylon Capitalยฎ
A sober valuation analysis on $HD ๐ง๐ฝโโ๏ธ
โขNTM P/E Ratio: 22.57x
โข10-Year Mean: 20.72x
โขNTM FCF Yield: 4.74%
โข10-Year Mean: 5.12%
As you can see, $HD appears to be trading slightly above fair value
Going forward, investors can expect to receive ~8% LESS in earnings per share & ~7% LESS in FCF per share๐ง ***
Before we get into valuation, letโs take a look at why $HD is a quality business
BALANCE SHEET๐
โขCash & Equivalents: $3.76B
โขLong-Term Debt: $40.60B
$HD has an ok balance sheet, an A S&P Credit Rating & 10.90x FFO Interest Coverage Ratio
RETURN ON CAPITALโ
โข2019: 56.7%
โข2020: 45.3%
โข2021: 38.2%
โข2022: 50.7%
โข2023: 44.7%
โข2024: 39.4%
RETURN ON EQUITY๐
โขIn the thousands & negative in some years (due to heavy use of debt)
$HD has decent return metrics, highlighting the financial efficiency of the business
REVENUESโ
โข2014: $78.81B
โข2024: $152.67B
โขCAGR: 6.83%
FREE CASH FLOWโ
โข2014: $6.24B
โข2024: $17.95B
โขCAGR: 11.14%
LONG TERM DEBT๐ค
โข2014: $14.69B
โข2024: $40.60B
โขCAGR: 10.70%
NORMALIZED EPSโ
โข2014: $3.76
โข2024: $15.11
โขCAGR: 14.92%
SHARE BUYBACKSโ
โข2014 Shares Outstanding: 1.43B
โขLTM Shares Outstanding: 1.00B
By reducing its shares outstanding ~30%, $HD increased its EPS by ~43% (assuming 0 growth)
PAID DIVIDENDSโ
โข2014: $1.64
โข2024: $8.52
โขCAGR: 17.91%
MARGINS๐
โขLTM Gross Margins: 33.4%
โขLTM Operating Margins: 14.2%
โขLTM Net Income Margins: 9.9%
***NOW TO VALUATION ๐ง
As stated above, investors can expect to receive ~8% LESS in EPS & ~7% LESS FCF per share
Using Benjamin Grahamโs 2G rule of thumb, $HD has to grow earnings at an 11.29% CAGR over the next several years to justify its valuation
Today, analysts anticipate 2025 - 2027 EPS growth over the next few years to be less than the (11.29%) required growth rate:
2025E: $15.35 (1.6% YoY) *FY January
2026E: $16.37 (6.6% YoY)
2027E: $17.56 (7.3% YoY)
$HD has an excellent track record of meeting analyst estimates ~2 years out, but letโs assume $HD ends 2027 with $17.56 in EPS & see its CAGR potential assuming different multiples
23x P/E: $403.88๐ต โฆ ~8.7% CAGR
21x P/E: $368.76๐ต โฆ ~5.0% CAGR
20x P/E: $351.20๐ต โฆ ~3.1% CAGR
As you can see, EVEN when we assume 23x earnings โ a multiple WELL above $HD mean (20.72x) & near the highest end of its range, $HD has subpar return potential
$HD also has some cyclicality to it & relying on estimates ~3 years from now adds a layer of risk (the further you extrapolate, the greater chance of error)
Given all this, and its hefty rising debt levels, $HD certainly doesnโt appear attractive today at $346.43๐ต
Iโd reconsider $HD closer to $284๐ต or at ~18.50x forward estimates (~18% below todayโs price) where I can possibly expect near double digit return potential assuming a 20x end multiple in 2027
#stocks #investing
$HD reports Q1 2024 Earnings on Tuesday 05/14/2024 Before the Open
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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 $HD ๐ง๐ฝโโ๏ธ
โขNTM P/E Ratio: 22.57x
โข10-Year Mean: 20.72x
โขNTM FCF Yield: 4.74%
โข10-Year Mean: 5.12%
As you can see, $HD appears to be trading slightly above fair value
Going forward, investors can expect to receive ~8% LESS in earnings per share & ~7% LESS in FCF per share๐ง ***
Before we get into valuation, letโs take a look at why $HD is a quality business
BALANCE SHEET๐
โขCash & Equivalents: $3.76B
โขLong-Term Debt: $40.60B
$HD has an ok balance sheet, an A S&P Credit Rating & 10.90x FFO Interest Coverage Ratio
RETURN ON CAPITALโ
โข2019: 56.7%
โข2020: 45.3%
โข2021: 38.2%
โข2022: 50.7%
โข2023: 44.7%
โข2024: 39.4%
RETURN ON EQUITY๐
โขIn the thousands & negative in some years (due to heavy use of debt)
$HD has decent return metrics, highlighting the financial efficiency of the business
REVENUESโ
โข2014: $78.81B
โข2024: $152.67B
โขCAGR: 6.83%
FREE CASH FLOWโ
โข2014: $6.24B
โข2024: $17.95B
โขCAGR: 11.14%
LONG TERM DEBT๐ค
โข2014: $14.69B
โข2024: $40.60B
โขCAGR: 10.70%
NORMALIZED EPSโ
โข2014: $3.76
โข2024: $15.11
โขCAGR: 14.92%
SHARE BUYBACKSโ
โข2014 Shares Outstanding: 1.43B
โขLTM Shares Outstanding: 1.00B
By reducing its shares outstanding ~30%, $HD increased its EPS by ~43% (assuming 0 growth)
PAID DIVIDENDSโ
โข2014: $1.64
โข2024: $8.52
โขCAGR: 17.91%
MARGINS๐
โขLTM Gross Margins: 33.4%
โขLTM Operating Margins: 14.2%
โขLTM Net Income Margins: 9.9%
***NOW TO VALUATION ๐ง
As stated above, investors can expect to receive ~8% LESS in EPS & ~7% LESS FCF per share
Using Benjamin Grahamโs 2G rule of thumb, $HD has to grow earnings at an 11.29% CAGR over the next several years to justify its valuation
Today, analysts anticipate 2025 - 2027 EPS growth over the next few years to be less than the (11.29%) required growth rate:
2025E: $15.35 (1.6% YoY) *FY January
2026E: $16.37 (6.6% YoY)
2027E: $17.56 (7.3% YoY)
$HD has an excellent track record of meeting analyst estimates ~2 years out, but letโs assume $HD ends 2027 with $17.56 in EPS & see its CAGR potential assuming different multiples
23x P/E: $403.88๐ต โฆ ~8.7% CAGR
21x P/E: $368.76๐ต โฆ ~5.0% CAGR
20x P/E: $351.20๐ต โฆ ~3.1% CAGR
As you can see, EVEN when we assume 23x earnings โ a multiple WELL above $HD mean (20.72x) & near the highest end of its range, $HD has subpar return potential
$HD also has some cyclicality to it & relying on estimates ~3 years from now adds a layer of risk (the further you extrapolate, the greater chance of error)
Given all this, and its hefty rising debt levels, $HD certainly doesnโt appear attractive today at $346.43๐ต
Iโd reconsider $HD closer to $284๐ต or at ~18.50x forward estimates (~18% below todayโs price) where I can possibly expect near double digit return potential assuming a 20x end multiple in 2027
#stocks #investing
$HD reports Q1 2024 Earnings on Tuesday 05/14/2024 Before the Open
___
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 The Long Investor
$DAL HSBC PT of $72.80
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$DAL HSBC PT of $72.80
DELTA AIRLINES $DAL initiated at 'Buy' with $72.80 price-target at HSBC:
"We initiate on Delta Air Lines with a Buy rating and a target price of USD72.80. This is our preferred play among the US airlines under our coverage. We like its strong network mix and competitive positioning at all of its key hubs, which offers a rich mix of traffic, evident from management commentary, but also from the rising revenue from premium cabins, which has risen to 43% in 2023, from only 18% in 2015.
The company maintains a focus on the premium segment, which should result in healthy operating margins for the company. Moreover, Delta is the only player with non-unionized labor. Yet, Delta pays its employees very well and shares profit, which helps management to maintain good employee relationships and significantly lowers the risk of strikes. On the financial KPIs, the company has a strong balance sheet, with net debt/EBITDA of only 2.7x, a strong FCF yield (we forecast a post capex FCF yield of 11.4% per annum over the next four years) and healthy profit margins." tweet
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Offshore
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โ Brandon Beylo
RT @minenergybiz: The case for #tin - major demand tailwinds. The tin theme is absolutely undervalued in the commodity complex and gets little media attention. Good overview from Brandon @marketplunger1
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RT @minenergybiz: The case for #tin - major demand tailwinds. The tin theme is absolutely undervalued in the commodity complex and gets little media attention. Good overview from Brandon @marketplunger1
Tin is benefiting from three major demand tailwinds:
โข Solar
โข AI/data centers
โข EVs and Electrification
Yet these drivers only account for ~30% of total demand.
What happens to demand/price when they reach 50%?
New mine supply can't come online fast enough.
#Tin tweet
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โ Brandon Beylo
RT @Rory_Johnston: Treatment Charges (TC) are the most compelling datapoint re: copper bull market (to counteract weird copper contango)
If refiners weren't themselves concerned about future cathode why would they be voluntarily losing money by continuing to fight for & refine concentrates?
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RT @Rory_Johnston: Treatment Charges (TC) are the most compelling datapoint re: copper bull market (to counteract weird copper contango)
If refiners weren't themselves concerned about future cathode why would they be voluntarily losing money by continuing to fight for & refine concentrates?
Looks like copper TC rates just went negative ๐
Absolutely wild.
#copper
H/t @GoldForecast https://t.co/3dFx52QFhH tweet