⁠Dimitry Nakhla | Babylon Capital®
RT @DimitryNakhla: 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
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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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⁠Brandon Beylo
RT @marketplunger1: One of my favorite Stanley Druckenmiller quotes.

“People always forget that 50% of a stock’s move is the overall market, 30% is the industry, and maybe 20% from stock picking.” https://t.co/A9NdU1Wsd2
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⁠Finding Compounders
How much luxury brands have spent on advertising from 2010 to 2023.

Not surprised that LVMH topped the list , but pretty surprised that Richemont came second . https://t.co/kfmbHYdy6i
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⁠Librarian Capital
An extreme example of how some people don't open company filings but rely on 3rd-party databases

Someone published an entire article on British American Tobacco "Q2 earnings" on a financial blogger website (which employs editors)

$BATS reports half-yearly and have no Q2 figures
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⁠Librarian Capital
Both British American Tobacco $BATS and Altria $MO now admit e-vapor is cannibalizing US cigarette sales

And, for 24H1, BAT's estimate of volume impact from "polyusage" is ~4%, compared to ~3% in 2023

FDA enforcement against illicits is a key dependency of both investment cases https://t.co/AnlbJjQk40
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⁠Hidden Value Gems
Enjoyed 36 tips by @sama on life & business. Here is point 3 on How to succeed:

“pick the right thing to do (this is critical and usually ignored), focus, believe in yourself (especially when others tell you it’s not going to work), develop personal connections with people that will help you, learn to identify talented people, and work hard.  It’s hard to identify what to work on because original thought is hard.”

h/t @joincolossus for highlighting it.

https://t.co/U8sAi31xOF
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⁠Finding Compounders
Warren Buffett writes on what we can learn from his real estate investments https://t.co/yQPuPCBA6O
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⁠Finding Compounders
This is John Elkann

He is the chairman of Stellantis and CEO of Exor, which is a holding company , with controlling stakes in companies such as Ferrari, Iveco Group and Juventus FC

He gave a talk Bocconi University on why family businesses out perform the market.

Here are his reasons

1. Conservative Capital Structure

Family owned businesses tend to have little to no debt .

This is because family owners view themselves as custodians of the business who are taking care of the company for future generations.

They thus refrain from risky borrowing which can possibly destroy the company in tough economic climates

2. Diversification

Family businesses spend their time thinking on how to mitigate risk. They thus diversify their portfolios both geographically and through business interests.

This further allows them to not get wiped out during tough economic climates
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