⁠Dimitry Nakhla | Babylon Capital®
RT @DimitryNakhla: A sober valuation analysis on $ADBE 🧘🏽‍♂️

•NTM P/E Ratio: 26.77x
•10-Year Mean: 34.54x

•NTM FCF Yield: 4.06%
•10-Year Mean: 3.54%

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

Going forward, investors can receive ~29% MORE in earnings per share & ~14% MORE in FCF per share 🧠***

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

BALANCE SHEET✅
•Cash & Short-Term Inv: $6.82B
•Long-Term Debt: $2.14B

$ADBE has a strong balance sheet, an A+ S&P Credit Rating, & 62.81x FFO Interest Coverage

RETURN ON CAPITAL✅
•2018: 21.0%
•2019: 22.1%
•2020: 23.6%
•2021: 29.8%
•2022: 32.6%
•2023: 32.3%

RETURN ON EQUITY✅
•2018: 29.1%
•2019: 29.7%
•2020: 44.2%
•2021: 34.4%
•2022: 33.0%
•2023: 35.5%

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

REVENUES✅
•2013: $4.06B
•2023: $19.41B
•CAGR: 16.93%

FREE CASH FLOW✅
•2013: $963.33M
•2023: $6.94B
•CAGR: 21.83%

NORMALIZED EPS✅
•2013: $1.34
•2023: $16.07
•CAGR: 28.20%

SHARE BUYBACKS✅
•2013 Shares Outstanding: 513.48M
•LTM Shares Outstanding: 458.10M

By reducing its shares outstanding ~10.7%, $ADBE increased its EPS by ~11.9% (assuming 0 growth)

MARGINS✅
•LTM Gross Margins: 88.1%
•LTM Operating Margins: 35.0%
•LTM Net Income Margins: 24.1%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~29% MORE in EPS & ~14% MORE in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $ADBE has to grow earnings at a 13.39% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2024 - 2026 EPS growth over the next few years to be close to the (13.39%) required growth rate:

2024E: $18.02 (12.1% YoY) *FY Nov
2025E: $20.36 (13.0% YoY)
2026E: $23.46 (15.2% YoY)

$ADBE has a good track record of meeting analyst estimates ~2 years out, so let’s assume $ADBE ends 2026 with $23.46 in EPS & see its CAGR potential assuming different multiples

30x P/E: $703.80💵 … ~13.9% CAGR

29x P/E: $680.34💵 … ~12.5% CAGR

28x P/E: $656.88💵 … 11.1% CAGR

27x P/E: $633.42💵 … 9.6% CAGR

As you can see, IF $ADBE meets estimates, it has attractive return potential at 28x earnings — a level of strong fundamental support over last 10 years

I believe $ADBE is attractively valued today at $492💵 (after the recent sell-off) HOWEVER we must be aware of what we don’t know

Many investors have plenty to say when it comes to generative AI & $ADBE — some argue it can be a tailwind while others argue it can be a competitive risk

Yet, nobody really knows what the future holds

What we do know is that there is more uncertainty surrounding $ADBE now & these potential risks could hamper its valuation

Therefore, to mitigate risk, I think it’s wise to piece in to $ADBE & allocate a smaller %

E.g. allocating ~3% in $ADBE at $492💵 and leaving room to increase the position to ~4% - ~5% allocation if $ADBE trades for ~21x earnings ($390💵 given today’s estimates)

#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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AkhenOsiris
$SHOP Upgrade

Evercore ISI raised Shopify to Outperform from In Line, with a $75 per share price target in a note Friday following the recent pullback in the stock.

SHOP shares are down 15% for the year to date. However, Evercore believes this "has created an attractive entry point to own a best-in-class e-commerce platform business."

"We believe there is a very resilient Long Thesis to SHOP shares," said Evercore. Analysts cited the company's very large total addressable market (~$850 billion), its very strong competitive position and up-market opportunity, its clear track record of successful product innovation, and the potential for materially ramping profitability.

Furthermore, Evercore believes that disappointing Operating Margin outlooks over the last two EPS reports – and the resulting material share price and estimates corrections – have largely de-risked SHOP shares.

"As keen observers of 'Net advertising trends, we also believe that SHOP's decision to lean into Social Media marketing to accelerate its International growth makes tactical and strategic sense," the firm concluded.
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AkhenOsiris
$ZS Upgrade

JPMorgan analyst Brian Essex upgraded Zscaler from Neutral to Overweight, price target $230 (from $205)
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AkhenOsiris
RT @MikeZaccardi: BofA: Total card spending per HH was up 1.6% y/y in the week ending Jun 8

Retail ex auto spending per HH came in at 0.4% y/y in the week ending Jun 8, Card spending appears to be off to a solid start in June.
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⁠Dimitry Nakhla | Babylon Capital®
A sober valuation analysis on $SHW 🧘🏽‍♂️

•NTM P/E Ratio: 25.74x
•10-Year Mean: 24.36x

•NTM FCF Yield: 4.12%
•10-Year Mean: 4.24%

As you can see, $SHW appears to be trading slightly above fair value

Going forward, investors can receive ~5% LESS in earnings per share & ~3% LESS in FCF per share 🧠***

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

BALANCE SHEET🆗
•Cash & Short-Term Inv: $276.80M
•Long-Term Debt: $8.37B

$SHW has an ok balance sheet, a BBB S&P Credit Rating, & 8.44x FFO Interest Coverage Ratio

RETURN ON CAPITAL✅
•2019: 15.4%
•2020: 19.6%
•2021: 18.1%
•2022: 18.4%
•2023: 22.4%

RETURN ON EQUITY✅
•2019: 39.2%
•2020: 52.5%
•2021: 61.7%
•2022: 72.9%
•2023: 70.1%

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

REVENUES✅
•2013: $10.19B
•2023: $23.05B
•CAGR: 8.50%

FREE CASH FLOW✅
•2013: $917.09M
•2023: $2.63B
•CAGR: 11.12%

NORMALIZED EPS✅
•2013: $2.54
•2023: $10.35
•CAGR: 15.08%

SHARE BUYBACKS✅
•2013 Shares Outstanding: 302.69M
•LTM Shares Outstanding: 255.40M

By reducing its shares outstanding 15.6%, $SHW increased its EPS by 18.5% (assuming 0 growth)

MARGINS✅
•LTM Gross Margins: 46.7%
•LTM Operating Margins: 15.7%
•LTM Net Income Margins: 10.4%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~5% LESS in EPS & ~3% LESS in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $SHW has to grow earnings at a 12.87% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2024 - 2026 EPS growth over the next few years to be slightly less than the (12.87%) required growth rate:

2024E: $11.39 (10.1% YoY) *FY Dec
2025E: $12.71 (11.6% YoY)
2026E: $14.24 (12.0% YoY)

$SHW has an excellent track record of meeting analyst estimates ~2 years out, so let’s assume $SHW ends 2026 with $14.24 in EPS & see its CAGR potential assuming different multiples

26x P/E: $370.24💵 … ~10.1% CAGR

25x P/E: $356.00💵 … ~8.5% CAGR

24x P/E: $341.76💵 … ~6.8% CAGR

23x P/E: $327.52💵 … ~5.0% CAGR

As you can see, $SHW appears to have attractive return potential if we assume >26x earnings, a multiple greater than its 10-year mean & more importantly doesn’t leave us with a margin of safety

Today at $296💵 $SHW trades at a fair valuation

Instead, I’d consider $SHW a worthwhile consideration for investment closer to $270💵 (roughly 9% below today’s price) or at ~23.42x NTM earnings estimates

At $270💵 I can reasonably expect double-digit return potential when assuming a 24x multiple (assuming today’s estimates)

#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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⁠iinvested
1Q'24 Third Point Offshore Fund on $AAP

https://t.co/zgQTg2WqAh

More fund letters here:
https://t.co/HhAAZQRRKy https://t.co/1sr3C8DuvX
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