⁠Dimitry Nakhla | Babylon Capital®
RT @DividendDynasty: $MA deep dive into the numbers!

Excellent break down Dimitry as always 👏🏻

I’ve recently added to $V but am not looking past $MA as another potential addition to the portfolio.

Higher valuation but higher anticipated growth. Something to consider for sure.

A sober valuation analysis on $MA 🧘🏽‍♂️

•NTM P/E Ratio: 29.16x
•10-Year Mean: 31.32x

•NTM FCF Yield: 3.48%
•10-Year Mean: 3.41%

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

Going forward, investors can receive ~7% MORE in earnings per share & ~2% MORE in FCF per share 🧠***

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

BALANCE SHEET✅
•Cash & Short Term Inv: $7.66B
•Long-Term Debt: $13.54B

$MA has a strong balance sheet, an A+ S&P Credit Rating & 19.79x FFO Interest Coverage

RETURN ON CAPITAL✅
•2019: 62.9%
•2020: 40.6%
•2021: 45.7%
•2022: 58.5%
•2023: 61.1%
•LTM: 64.1%

RETURN ON EQUITY✅
•2019: 141.4%
•2020: 102.5%
•2021: 124.7%
•2022: 144.0%
•2023: 167.4%
•LTM: 186.3%

$MA has excellent return metrics, highlighting the financial efficiency of the business

REVENUES✅
•2013: $8.31B
•2023: $25.10B
•CAGR: 11.68%

FREE CASH FLOW✅
•2013: $3.98B
•2023: $11.61B
•CAGR: 11.30%

NORMALIZED EPS✅
•2013: $2.61
•2023: $12.26
•CAGR: 16.73%

PAID DIVIDENDS✅
•2013: $0.29
•2023: $2.37
•CAGR: 23.37%

SHARE BUYBACKS✅
•2013 Shares Outstanding: 1.21B
•LTM Shares Outstanding: 939M

By reducing its shares outstanding ~22.4%, $MA increased its EPS by ~28.8% (assuming 0 growth)

MARGINS✅
•LTM Gross Margins: 100.0%
•LTM Operating Margins: 58.1%
•LTM Net Income Margins: 46.1%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~7% MORE in EPS & ~2% MORE in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $MA has to grow earnings at a 14.58% 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 more than the (14.58%) required growth rate:

2024E: $14.27 (16.4% YoY) *FY Dec
2025E: $16.57 (16.1% YoY)
2026E: $19.33 (16.7% YoY)

$MA has a good track record of meeting analyst estimates ~2 years out, but let’s assume $MA ends 2026 with $19.33 in EPS & see its CAGR potential assuming different multiples

31x P/E: $599.23💵 … ~14.9% CAGR

30x P/E: $579.90💵 … ~13.4% CAGR

29x P/E: $560.57💵 … ~11.9% CAGR

28x P/E: $541.24💵 … ~10.6% CAGR

As you can see, $MA appears to have attractive return potential EVEN if we assume greater or equal to 28x earnings (well-below the 10-year mean & more than justified given its quality & growth rate)

$MA is such a high-quality business & has the potential to compound in the mid teens for the next 5 years & companies with strong & consistent earnings growth tend to look cheap years later (even if investors thought they were “expensive” or even better, slightly undervalued, at the time)

Today at $429💵 $MA appears to be a strong consideration for investment

Given that $MA has historically bottomed near 26x earnings, I'd also leave some room to purchase additional shares if the stock were to trade at that multiple, which would be about 10% lower, or around $386💵

#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. - Dimitry Nakhla | Babylon Capital®
tweet

⁠Brandon Beylo
RT @marketplunger1: Reading this book this weekend and it got me thinking.

What is your favorite Distressed Idea currently?

And why will it work? https://t.co/QTXu2KvsjU
tweet

⁠Brandon Beylo
Imagine the returns in International Stocks if this rotation mean reverts to +1 St. Dev. https://t.co/4DYmJGUgOt
tweet

⁠Brandon Beylo
Three Primary Sources of Competitive Advantage

1. Supply Advantages
2. Demand Advantages
3. Economies of Scale

Source: Competition Demystified
tweet

⁠Dimitry Nakhla | Babylon Capital®
RT @DimitryNakhla: Amazon ($AMZN) currently trades at 19x Operating Cash Flow (OCF)

Interestingly, this is the 4th time since 2012 that $AMZN has reached this valuation, with previous instances in 2015, 2016, 2022, & 2023 (see photos below)

What's notable is the CAGR (Compound Annual Growth Rate) that $AMZN achieved during each of these periods. Let's take a closer look:

Jan 2015: 30.92% ✅
Jul 2016: 26.91% ✅
Dec 2022: 61.55% ✅
Feb 2023: 59.48% ✅

I've previously suggested that market participants are underestimating Amazon's ($AMZN) FCF growth potential, & I still believe that's the case

With its strong fundamentals, $AMZN appears to be a worthwhile investment consideration at today's levels, offering a compelling opportunity for long-term growth

#stocks #investing

Charts / Source: FAST Graphs
___

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

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

•NTM P/E Ratio: 22.55x
•10-Year Mean: 34.54x

•NTM FCF Yield: 4.59%
•10-Year Mean: 2.68%

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

Going forward, investors can receive ~53% MORE in earnings per share & ~71% MORE in FCF per share 🧠***

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

BALANCE SHEET✅
•Cash & Short-Term Inv: $1.99B
•Long-Term Debt: $597.30M

$EW has a strong balance sheet, a BBB S&P Credit Rating, & 50x FFO Interest Coverage Ratio

RETURN ON CAPITAL✅
•2019: 25.7%
•2020: 25.0%
•2021: 24.3%
•2022: 27.6%
•2023: 23.3%
•LTM: 22.9%

RETURN ON EQUITY✅
•2019: 28.7%
•2020: 18.9%
•2021: 28.9%
•2022: 26.1%
•2023: 22.3%
•LTM: 22.0%

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

REVENUES✅
•2013: $2.05B
•2023: $6.00B
•CAGR: 11.33%

FREE CASH FLOW🆗
•2013: $363.70M
•2023: $642.80M
•CAGR: 5.86%

NORMALIZED EPS✅
•2013: $0.52
•2023: $2.51
•CAGR: 17.04%

SHARE BUYBACKS✅
•2013 Shares Outstanding: 682.80M
•LTM Shares Outstanding: 606.20M

By reducing its shares outstanding 11.2%, $EW increased its EPS by 12.6% (assuming 0 growth)

MARGINS✅
•LTM Gross Margins: 76.4%
•LTM Operating Margins: 30.2%
•LTM Net Income Margins: 24.8%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~53% MORE in EPS & ~71% MORE in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $EW has to grow earnings at an 11.28% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2024 - 2026 EPS growth over the next few years to be less than the (11.28%) required growth rate:

2024E: $2.69 (7.3% YoY) *FY Dec
2025E: $2.87 (6.5% YoY)
2026E: $3.20 (11.4% YoY)

$EW has an excellent track record of meeting analyst estimates ~2 years out, so let’s assume $EW ends 2026 with $3.20 in EPS & see its CAGR potential assuming different multiples

26x P/E: 83.20💵 … ~12.4% CAGR

25x P/E: $80.00💵 … ~10.7% CAGR

24x P/E: $76.80💵 … ~9.0% CAGR

23x P/E: $73.60💵 … ~7.2% CAGR

As you can see, $EW appears to have attractive return potential IF we assume >25x earnings, a multiple well-below its 10-year mean & a multiple that $EW has a history of bottoming at

Although my research leads me to believe that $EW is undervalued & that investors buying $EW at $62.00💵 will likely do well, I am less inclined to buy at $62.00💵 today given that its EPS growth estimates may not justify a multiple >25x & the company’s inconsistencies in FCF growth

I’d get more interested in $EW closer to $56.50💵 where I can reasonably expect ~11% CAGR while anticipating a 23x multiple (leaving myself some margin of safety)

#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