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Between the Sheets With Analog Devices, Inc.

What They Do
Analog Devices designs, manufactures, and markets high-performance analog, mixed-signal and digital signal processing integrated circuits (ICs) used in all types of electronic equipment. The company’s products are embedded inside industrial process control systems, medical imaging equipment, factory automation systems, patient monitoring devices, instrumentation and measurement systems, wireless infrastructure equipment, energy management systems, networking equipment, aerospace and defense electronics, optical systems, automobiles, digital cameras, and digital televisions. Industry peers include Texas Instruments Incorporated, STMicroelectronics SA, and NXP Semiconductors NV.

Short-Term Target
My short-term target for the stock is $96.48, with an initial trailing stop set at $90.54. With a current price of $91.62, upward price movement will find resistance at $94.25 and again at $95.86 with final resistance found at $98.01. Downward price movement will find support at $88.97 and again at $84.78, with final support found at $82.49.

Momentum Target
My momentum target for the stock is $80. Momentum targets are determined by overlaying a company’s most recent annual EPS, its year-over-year earnings growth, and the current yield of a 10-year treasury. As a value investor, the central issue that I have using momentum targets is that they require investors to trade in stocks that have already enjoyed significant gains and make no allowances for the sustainability of a company’s earnings.

Growth Target
My growth target for the stock is $119. Growth targets are determined by using a company’s year-over-year earnings growth, year-over-year PE growth, and year-over-year price growth.

Fair Value Investing
Fair value investing requires investors to consider a company’s overall finincial condition including past and future earnings growth, free cash flow, both book and tangible book values, net current asset value, and many other valuation metrics. For many fair value investor the minimum required hold is five (5) years. What follow are some of the metrics I use to determine a fair value estimate. They are presented only to assist investors considering an investment in Analog Devices.

Average Volume
The average volume number is simply an average of the number of shares traded over a specific period of time, in this case the prior 50 days. The lower the number the greater the volatility the markets can impact on the stock price. For Analog Devices the most recent ADV number is 3.679 million shares.

Days to Cover
The most recent days to cover number is 4. The days to cover number is a measure of the company’s outstanding shares that are currently shorted, expressed as the number of days required to close out all the short positions. The number is determined by dividing the number of outstanding shares currently shorted by the average daily volume. The days to cover number is updated twice per month and is sometimes used along with the beta ratio as a volatility precursor for a stock.

Beta Ratio
The beta ratio is a measure of the systemic risk of ownership of a particular stock as compared to the systemic risk of ownership of the market as a whole. The higher the beta ratio, the more volatile the stock. For Analog Devices the current beta ratio is 1.23.

Unrelated Income
Income unrelated to a company’s day to day operation, such as income tax benefits or income from other sources can signifcantly distort a company’s earnings and consequently its fair value. Investors should always explore the sources of a company’s earnings to better understand potential valuation impacts. For Analog Devices 0% of the company’s net income came from income tax benefits and 0% of net income came from “other” sources.

Insider Transactions
The SEC classifies insiders as the “management, officers or any beneficial owners with more than 10% class of a company’s security.” Insiders are required to abide by certain rules and fill out SEC forms every time they buy or sell company shares. In addition, to prevent insider trading, or benefiting illegally from material non-public information that their positions give them access to, the law prevents insiders from deposing of shares within six months of their purchase. This effectively bars insiders from profiting from quick trades based on their “insider” knowledge. In the past 12 months, the company has reported 180 insider trades involving 980,510 shares of stock. Of those 180 insider trades, 107 were Buys involving 464,100 shares of stock, and 73 were Sells involving 516,410 shares of stock, creating an insider buy to sell ratio of 0.9:1.

Year-Over-Year Metrics
Several year-over-year metrics that are of interest to many investors are revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and price growth. For Analog Devices, revenue increased by 21%, earnings increased by 83%, free cash flow increased by 70%, debt decreased by 19%, and the stock price decreased by 9%. Year to date the stock price is up 10% and the S&P 500 is up 3.24%.

Anticipated Rate of Return
I calculate the anticipated rate of return for any equity investment by multiplying the a company’s stock specific beta by the yield for a 10-year treasury and then adding my equity risk premium to that result. The equity risk premium is the excess return I want to receive for investing in an equity as opposed to a risk free investment such as a treasury. My calculated rate of return for Analog Devices is 6.69%.

Other Value Considerations
Other value considerations that many investors like to consider include the PE Ratio, the PEG Ratio, Return on Assets, Return on Equity, Return on Capital Employed, Return on Invested Capital, Cash Flow From Invested Capital, and Tangible Book Value. For Analog Devices, the PE Ratio is 17, the PEG Ratio is 0.9, Return on Assets is 9.7%, Return on Equity is 18.1%, Return on Capital Employed is 11.5%, Return on Invested Capital is 107.6%, Cash Flow From Invested Capital is 14.2%, Book Value is $29.69, and Tangible Book Value is $(16.32).

Baseline and Fair Value
As an on-going concern, my current baseline valuation for the company is $48. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value estimate for the stock is $72. The fair value estimate is my current valuation for a stock based on earnings, earnings growth, and the current 5-year yield of a AAA rated corporate bond. Value investing initiate, reduce, and terminate targets are derivatives of fair value.

Future Value
My future (5 year hold) target price for the stock is $175, which is an average annual return of 18%. A prior five year hold of the stock (FY2014- FY2018) would have returned an average of 15% per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

My Investment Summary
My investment summary was determined utilizing that the financial information taken directly from the company’s latest SEC 10-K filing and is based on a value investing philosophy which considers that price determines return.
Analog Devices, Inc. (NYSE: ADI) – FYE 10/2018 – SELL HALF The stock is currently trading at levels above my most recent $72 fair value estimate, but below my most recent $114 terminate target. Please See Linked PDF Worksheet

Disclosure
I am not a licensed or registered investment professional, nor am I qualified to provide investment advice. I also hold no shares in the stock mentioned in this post.
Posted on 12/03/18

Between the Sheets With Post Holdings, Inc.

What They Do
Post Holdings is manufacturer, marketer and distributor of branded ready-to-eat cereals in the United States and Canada, marketing products under the brand names, Honey Bunches of Oats®, Pebbles™, Post Selects®, Great Grains®, Spoon Size® Shredded Wheat, Post® Raisin Bran, Grape-Nuts®, Good Mornings® and Honeycomb®. Industry peers include General Mills, Inc, Kellogg Company, and Pepsico, Inc..

Short-Term Target
My short-term target for the stock is $98.19, with an initial trailing stop set at $95.30. With a current price of $96.75, upward price movement will find resistance at $98.06 with final resistance at $100.36. Downward price movement will find support at $95.41 and again at $93.00, with final support found at $88.36.

Momentum Target
My momentum target for the stock is $160. Momentum targets are determined by overlaying a company’s most recent annual EPS, its year-over-year earnings growth, and the current yield of a 10-year treasury. As a value investor, the central issue that I have using momentum targets is that they require investors to trade in stocks that have already enjoyed significant gains and make no allowances for the sustainability of a company’s earnings.

Growth Target
My growth target for the stock is $205. Growth targets are determined by using a company’s year-over-year earnings growth, year-over-year PE growth, and year-over-year price growth.

Fair Value Investing
Fair value investing requires investors to consider a company’s overall finincial condition including past and future earnings growth, free cash flow, both book and tangible book values, net current asset value, and many other valuation metrics. For many fair value investor the minimum required hold is five (5) years. What follow are some of the metrics I use to determine a fair value estimate. They are presented only to assist investors considering an investment in Post Holdings.

Average Volume
The average volume number is simply an average of the number of shares traded over a specific period of time, in this case the prior 50 days. The lower the number the greater the volatility the markets can impact on the stock price. For Post Holdings the most recent ADV number is 0.735 million shares.

Days to Cover
The most recent days to cover number is 6. The days to cover number is a measure of the company’s outstanding shares that are currently shorted, expressed as the number of days required to close out all the short positions. The number is determined by dividing the number of outstanding shares currently shorted by the average daily volume. The days to cover number is updated twice per month and is sometimes used along with the beta ratio as a volatility precursor for a stock.

Beta Ratio
The beta ratio is a measure of the systemic risk of ownership of a particular stock as compared to the systemic risk of ownership of the market as a whole. The higher the beta ratio, the more volatile the stock. For Post Holdings the current beta ratio is 1.0.

Unrelated Income
Income unrelated to a company’s day to day operation, such as income tax benefits or income from other sources can signifcantly distort a company’s earnings and consequently its fair value. Investors should always explore the sources of a company’s earnings to better understand potential valuation impacts. For Post Holdings 29% of the company’s net income came from income tax benefits and 8% of net income came from “other” sources.

Insider Transactions
The SEC classifies insiders as the “management, officers or any beneficial owners with more than 10% class of a company’s security.” Insiders are required to abide by certain rules and fill out SEC forms every time they buy or sell company shares. In addition, to prevent insider trading, or benefiting illegally from material non-public information that their positions give them access to, the law prevents insiders from deposing of shares within six months of their purchase. This effectively bars insiders from profiting from quick trades based on their “insider” knowledge. In the past 12 months, the company has reported 40 insider trades involving 368,460 shares of stock. Of those 40 insider trades, 20 were Buys involving 236,051 shares of stock, and 20 were Sells involving 132,409 shares of stock, creating an insider buy to sell ratio of 1.8:1.

Year-Over-Year Metrics
Several year-over-year metrics that are of interest to many investors are revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and price growth. For Post Holdings, revenue increased by 20%, earnings increased by 96%, free cash flow increased by 55%, debt increased by 1%, and the stock price increased by 10%. Year to date the stock price is down 1% and the S&P 500 is up 3.24%.

Anticipated Rate of Return
I calculate the anticipated rate of return for any equity investment by multiplying the a company’s stock specific beta by the yield for a 10-year treasury and then adding my equity risk premium to that result. The equity risk premium is the excess return I want to receive for investing in an equity as opposed to a risk free investment such as a treasury. My calculated rate of return for Post Holdings is 6.0%.

Other Value Considerations
Other value considerations that many investors like to consider include the PE Ratio, the PEG Ratio, Return on Assets, Return on Equity, Return on Capital Employed, Return on Invested Capital, Cash Flow From Invested Capital, and Tangible Book Value. For Post Holdings, the PE Ratio is 9, the PEG Ratio is 0.4, Return on Assets is 5.3%, Return on Equity is 22.7%, Return on Capital Employed is 6.7%, Cash Flow From Invested Capital is 14.5%, Book Value is $45.97, and Tangible Book Value is $(74.78).

Baseline and Fair Value
As an on-going concern, my current baseline valuation for the company is $68. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value estimate for the stock is $143. The fair value estimate is my current valuation for a stock based on earnings, earnings growth, and the current 5-year yield of a AAA rated corporate bond. Value investing initiate, reduce, and terminate targets are derivatives of fair value.

Future Value
My future (5 year hold) target price for the stock is $215, which is an average annual return of 24%. A prior five year hold of the stock (FY2014- FY2018) would have returned an average of 29% per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

My Investment Summary
My investment summary was determined utilizing that the financial information taken directly from the company’s latest SEC 10-K filing and is based on a value investing philosophy which considers that price determines return.
Post Holdings, Inc. (NYSE: POST) – FYE 10/2018 – FAIRLY VALUED The stock is currently trading at levels in line with my most recent $143 fair value estimate. Please See Linked PDF Worksheet

Disclosure
I am not a licensed or registered investment professional, nor am I qualified to provide investment advice. I also hold no shares in the stock mentioned in this post.
Posted on 12/02/18