ISSUE 4 Part 3 THE VALUE LINE Ratings Pages 700-850 File in the binder in order of ® & issue number, removing Investment Survey previous issue bearing Reports the same number. www.valueline.com December 6, 2019

PAGE PAGE ESPECIALLY NOTEWORTHY: AEROSPACE/DEFENSE Erie Indemnity Co...... 763 INDUSTRY ...... 701 ★ First American Fin’l ...... 764 Our subscribers should be aware that, AAR Corp...... 702 ★ Hanover Insurance Group, Inc...... 765 in this week’s Issue of The Value Line AeroVironment, Inc...... 703 Markel Corp...... 766 Investment Survey, we replaced the In- Astronics Corporation ...... 704 Mercury General Corp...... 767 sider Decisions box with the 18-Month Axon Enterprise ...... 705 ★ NMI Holdings ...... 768 Boeing Co...... 706 Old Republic International ...... 769 Target Price Range, which seeks to pre- Bombardier Inc. ‘B’ ...... 707 ★ Progressive Corp...... 770 dict a stock’s price range over an 18- ★ CAE Inc...... 708 ★★ RLI Corp...... 771 month period. In addition to the high Elbit Systems Ltd...... 709 Selective Insurance Group ...... 772 and low values of the range, the per- Embraer SA (ADR) ...... 710 Travelers (The) Cos., Inc...... 773 ★ General Dynamics ...... 711 centage difference between the recent ★ HEICO Corporation ...... 712 BANK (MIDWEST) stock price and the midpoint of the range Huntington Ingalls Industries ...... 713 INDUSTRY ...... 774 is provided. The quantitative formula Kratos Defense & Security ...... 714 Associated Banc-Corp ...... 775 behind the 18-month range includes a ★ Lockheed Martin Corp...... 715 BOK Financial Corp...... 776 Maxar Technologies ...... 716 Comerica Inc...... 777 number of variables, such as our ana- Moog Inc. ‘A’...... 717 Commerce Bancshares, Inc...... 778 lyst estimates and historical figures. Northrop Grumman Corp...... 718 Fifth Third Bancorp ...... 779 Parsons Corp...... 719 First Horizon Nat’l ...... 780 Meanwhile, Lockheed Martin (page Raytheon Co...... 720 First Midwest Bancorp ...... 781 715) continues to post impressive earn- Spirit AeroSystems Holdings, Inc..... 721 Hancock Whitney Corp...... 782 ings. The stock is an appealing choice ★★ Teledyne Technologies ...... 722 Huntington Bancshares ...... 783 ★ TransDigm Group ...... 723 Northern Trust Corp...... 784 for various types of investors. Triumph Group, Inc...... 724 Old National Bancorp ...... 785 Wesco Aircraft ...... 725 Park National Corporation ...... 786 First Horizon National plans to TCF Financial Corp...... 787 merge with IBERIABANK. See page METAL FABRICATING INDUSTRY .. 726 ★ U.S. Bancorp ...... 788 780 for the details. Chart Industries, Inc...... 727 Wintrust Financial Corporation ...... 789 DMC Global ...... 728 Shares of both Commercial Metals Haynes International, Inc...... 729 MEDICAL SERVICES Illinois Tool Works ...... 730 INDUSTRY ...... 790 (page 741) and Progressive Corp. Kennametal Inc...... 731 ★ Amedisys, Inc...... 791 (page 770) are timely and offer appeal- Mueller Industries, Inc...... 732 Anthem, Inc...... 792 ing potential returns over the 18-month NN, Inc...... 733 Brookdale Senior Living Inc...... 793 span and to 2022-2024. Tenaris S.A...... 734 Centene Corp...... 794 The Timken Co...... 735 ★ Cigna Corporation...... 795 Community Health Systems, Inc. .... 796 Premier, Inc...... 824 STEEL INDUSTRY ...... 736 ★ DaVita Inc...... 797 Teladoc Health, Inc...... 825 AK Steel Holdings...... 737 ★ Encompass Health ...... 798 Veeva Systems Inc...... 826 ArcelorMittal ...... 738 ★ Exact Sciences Corp...... 799 ★ Carpenter Technology Corp...... 739 Fresenius Medical Care (ADR)...... 800 BIOTECHNOLOGY INDUSTRY ...... 827 Cleveland-Cliffs ...... 740 HCA Healthcare ...... 801 Alkermes plc ...... 828 ★ Commercial Metals ...... 741 ★ Humana Inc...... 802 Alnylam Pharmaceuticals, Inc...... 829 ★ Gibraltar Industries ...... 742 ★ ICON plc ...... 803 Amgen Inc...... 830 Insteel Industries ...... 743 ★ IQVIA Holdings ...... 804 Bio-Techne Corp...... 831 Nucor Corp...... 744 ★ Laboratory Corp. of America ...... 805 BioMarin Pharmaceutical Inc...... 832 POSCO (ADR) ...... 745 MEDNAX, Inc...... 806 Cambrex Corp...... 833 Reliance Steel & Aluminum...... 746 ★ Medpace Holdings...... 807 Exelixis, Inc...... 834 Russel Metals ...... 747 Molina Healthcare ...... 808 Incyte Corporation ...... 835 Schnitzer Steel Industries, Inc...... 748 ★ PRA Health Sciences ...... 809 Intercept Pharmaceuticals ...... 836 Steel Dynamics, Inc...... 749 ★ Quest Diagnostics...... 810 Ionis Pharmaceuticals ...... 837 TimkenSteel Corp...... 750 Select Medical Holdings Corp...... 811 Jazz Pharmaceuticals PLC...... 838 U.S. Steel Corp...... 751 ★ Syneos Health ...... 812 Moderna ...... 839 Worthington Industries ...... 752 Tenet Healthcare Corp...... 813 Myriad Genetics ...... 840 Tivity Health ...... 814 QIAGEN N.V...... 841 INSURANCE (PROPERTY/ ★ UnitedHealth Group ...... 815 Regeneron Pharmaceuticals, Inc...... 842 CASUALTY) INDUSTRY ...... 753 ★ Universal Health Services, Inc...... 816 Seattle Genetics, Inc...... 843 ★ Alleghany Corp...... 754 WellCare Health Plans ...... 817 United Therapeutics Corp...... 844 ★ Allstate Corp...... 755 Vertex Pharmaceuticals Inc...... 845 ★ American Financial Group ...... 756 HEALTHCARE INFORMATION ★★ Arch Capital Group Ltd...... 757 SERVICES INDUSTRY ...... 818 SUPPLEMENTARY REPORTS ...... 850 ★★ Berkley (W.R.) ...... 758 Allscripts Healthcare Solutions, Inc. 819 ★ Berkshire Hathaway ‘B’ ...... 759 ★ Cerner Corp...... 820 CNA Financial Corp...... 760 Computer Programs & Sys., Inc...... 821 ★★★★★★ Rank 1 (Highest) for Timeliness. ★ Chubb Ltd...... 761 HealthEquity, Inc...... 822 ★★★ Rank 2 (Above Average). ★★ Cincinnati Financial ...... 762 NextGen Healthcare ...... 823

In three parts: Part 1 is the Summary & Index. Part 2 is Selection & Opinion. This is Part 3, Ratings & Reports. Volume LXXV, No. 17 Published weekly by VALUE LINE PUBLISHING LLC, 551 Fifth Avenue, New York, NY 10176.

© 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for each subscriber’s own, non-commercial, internal use. No part of this publication may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. See back cover for important disclosures. December 6, 2019 ECONOMIC SERIES 700

Value Line’s estimates of sales and earnings growth for individual based GDP deflator will advance by 2.5% per year, on average. Long- companies are derived by correlating sales, earnings, and dividends term interest rates on AAA corporate bonds are projected to average to appropriate components or subcomponents of the Gross Domestic just under 4% in the years 2022-2024. We expect the Federal Reserve to Product, presented below. A more detailed forecast appears periodi- pursue stable monetary policies except in years in which the economy cally in Selection & Opinion. is slowing or there is a recession. Based on these assumptions, the Gross Domestic Product will average nearly $25,300 billion in the years 2022- HYPOTHESIZED ECONOMIC 2024, a level that is roughly 23% above the estimated 2018 total of just ENVIRONMENT 3 TO 5 YEARS HENCE over $20,500 billion. The hypothesized 2022-2024 economic environment into which earn- ings are forecast is as follows: Unemployment will average about Things may turn out differently. But in the absence of knowledge of the 4% of the national labor force. There will be no major wars in progress future, we use the above assumptions, which appear to be most plau- at that time. Industrial production will be expanding slowly. Inflation sible. Thus we are able to apply a common economic environment to all will continue to be relatively low. Prices as measured by the broad- stocks for the purpose of measuring relative growth potential.

THESE ARE THE NATIONAL INCOME SERIES TO WHICH VALUE LINE SALES, EARNINGS, AND DIVIDEND ESTIMATES ARE CORRELATED

ANNUAL STATISTICS 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019* 2020* 2022-24* Gross Domestic Product ($Bill.) 14713 14449 14992 15543 16197 16785 17522 18219 18707 19485 20525 21437 22335 25278 Real GDP (2012 Chained $Bill.) 15605 15209 15599 15841 16197 16495 16900 17387 17659 18051 18571 18956 19335 20360 Total Consumption ($Bill.) 10593 10460 10643 10844 11007 11167 11497 11922 12248 12567 12945 13283 13636 14597 Nonresidential Fixed Investment ($Bill.) 1994 1704 1781 1935 2119 2206 2365 2408 2425 2531 2692 2753 2796 3027

Industrial Prod. (% Change, Annualized) -3.5 -11.5 5.5 3.1 3.0 2.0 3.1 -1.0 -2.0 2.3 3.9 -1.0 0.8 1.0 Housing Starts (Mill. Units) 0.90 0.55 0.59 0.61 0.78 0.93 1.00 1.11 1.18 1.21 1.25 1.26 1.28 1.25 Total Light Vehicle Sales (Mill. Units) 13.2 10.4 11.6 12.7 14.4 15.5 16.4 17.4 17.5 17.1 17.2 16.9 16.7 16.5 Personal Savings Rate (%) 5.0 6.1 6.6 7.2 8.9 6.4 7.4 7.6 6.8 7.0 7.7 8.1 7.6 7.0 National Unemployment Rate (%) 5.8 9.3 9.6 8.9 8.1 7.4 6.2 5.3 4.9 4.4 3.9 3.7 3.4 4.0

AAA Corp Bond Rate (%) 5.6 5.3 4.9 4.6 3.7 4.2 4.2 3.9 3.7 3.8 3.9 3.4 3.2 3.8 10-Year Treasury Note Rate (%) 3.7 3.3 3.2 2.8 1.8 2.4 2.5 2.2 1.9 2.3 2.9 2.1 2.1 3.0 3-Month Treasury Bill Rate (%) 1.4 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.3 0.9 1.9 2.1 1.6 2.3

ANNUAL RATES OF CHANGE Real GDP -0.1 -2.5 2.6 1.6 2.2 1.8 2.5 2.9 1.6 2.4 2.9 2.1 2.0 1.6 GDP Deflator 1.9 0.8 1.2 2.1 1.9 1.8 1.8 1.0 1.0 1.9 2.4 1.9 2.2 2.5 Consumer Price Index 3.8 -0.3 1.6 3.1 2.1 1.5 1.6 0.1 1.3 2.1 2.4 2.0 1.9 2.5

QUARTERLY ANNUALIZED RATES 2018 2019 2020 1st 2nd 3rd 4th 1st 2nd 3rd* 4th* 1st* 2nd* 3rd* 4th* Gross Domestic Product ($Bill.) 20041 20412 20658 20865 21115 21346 21537 21751 21984 22219 22451 22685 Real GDP (2012 Chained $Bill.) 18324 18512 18665 18765 18821 18915 19004 19084 19188 19288 19384 19480 Total Consumption ($Bill.) 12783 12909 13020 13066 13102 13250 13345 13434 13517 13598 13675 13753 Nonresidential Fixed Investment ($Bill.) 2640 2690 2704 2736 2766 2759 2738 2751 2772 2785 2803 2824

Industrial Production (% Change, Annualized) 2.3 4.6 5.2 3.9 -1.9 -2.2 1.2 -1.0 0.5 0.5 1.0 1.3 Housing Starts (Mill. Units) 1.32 1.26 1.23 1.19 1.21 1.26 1.28 1.30 1.30 1.28 1.28 1.26 Total Light Vehicle Sales (Mill. Units) 17.1 17.3 17.0 17.4 16.8 17.0 17.0 16.8 16.8 16.7 16.7 16.6

*Estimated

Arnold Bernhard, Founder (1901-1987) Harvey S. Katz, Managing Editor Ian Gendler, Executive Director of Research

Theresa Brophy, Assoc. Director of Research Richard Gallagher, Assoc. Director of Research George Gu, Director, Quantitative Research Charles Clark, Assoc. Director of Research Robert Mitkowski, Assoc. Director of Research Harold Levine, Director, Statistical Services William G. Ferguson, Assoc. Director of Research Matthew E. Spencer, Assoc. Director of Research Mario Ferro, Assoc. Director of Research

Editorial Analysts Analysts Data Administration Information Technology Sharif Abdou Adam Rosner Emma Jalees Curtis R. Clarke, Manager, Equity Data Div. Hassan Davis, Executive Director, Jeremy J. Butler Orly Seidman Glenn Pierr Johnson Dana Jones, Senior Database Analyst Administration Michael Collins Simon R. Shoucair Kevin O’Sullivan Marizol Polanco, Database Analyst Donna Webb, Supervisor of Production Control Andre J. Costanza Nils C. Van Liew Craig Sirois Patrick G. O’Connor, Supervisor, Quality Ctrl. Iason Dalavagas Frantz Goodridge, Research Assistant Paul E. Debbas Senior Analysts Junior Analysts Clive Russell, Research Assistant Kenneth J. DeFranco, Jr. Oriatal J. Haiby Gabriel A. Muenzer Kevin Downing Daniel Henigson Production J. Susan Ferrara Christopher Joseph LeShane W. Lilly, Production Manager James A. Flood Michael Lavery Michael Manchess, Production Coordinator Bryan J. Fong Nira Maharaj Warren Tabachnick, Production Editor Robert M. Greene Michael F. Napoli Robert L. Harrington III Nicholas P. Patrikis Frederick L. Harris, III Adam J. Platt Justin Hellman Robert J. Scrudato Jeffrey Hirt John E. Seibert III Alan G. House Dominic B. Silva Michelle Jensen Erik M. Manning Wayne C. Nef Kenneth A. Nugent Michael Ratty

Howard Brecher, President & Publisher

© 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber's own, non-commercial, internal use. No part of it To subscribe call 1-800-VALUELINE may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. December 6, 2019 AEROSPACE/DEFENSE INDUSTRY 701

The various components of the INDUSTRY TIMELINESS: 45 (of 95) Aerospace/Defense Industry face a range of chal- lenges in the coming years. Those with deep gov- Forward-Looking Assets ernment relationships tend to boast brighter pros- pects, given the current focus on building out the Many components are focused on diversifying their nation’s military to better compete with other operations and bolstering their exposure to the space countries abroad. On the commercial side, many services and cybersecurity sectors. Aforementioned contractors have reported solid results in spite of Northrop Grumman has seen its prospects further the ongoing struggles facing the sector’s leading brighten since the integration of Orbital ATK into its company. innovation systems business. The commercial satellite There is also a shift in preference toward more market boasts a lot of potential and, coupled with the cutting-edge, technologically capable solutions companies cozy ties to key government entities, that has compelled many in this industry to in- Northrop is likely to be a major player in that market crease forward-looking offerings to better align going ahead. their respective businesses with the changing Mid-cap digital solutions provider Parsons Corpora- tides of the industry. tion joined Northrop’s team vying for the Air Force’s international ballistic missile system contract. Addition- Aerospace ally, it netted over $1 billion in new orders during the most recent quarter. These include a cyber mission Since March, Boeing has struggled to regain its foot- support deal with the General Services Administration. ing. A pair of tragic crashes involving its 737 MAX have indefinitely grounded that fleet and shrouded the pro- Combined Efforts gram’s future in investigation and skepticism. Most recently, the company plan to relaunch the planes in Raytheon’s merger with United Technologies received January has been called into doubt. shareholder approval in October and is poised to become Other aerospace components have fared notably bet- official during the first half of 2020. The company’s ter in recent months. General Dynamics, driven by business will be combined with the former Pratt & resurgent strength in the Gulfstream business, is oper- Whitney and Rockwell Collins, creating a titan in the ating at a high level. Demand for the G600 is expected to missile defense sector. The resulting company will need remain impressive, supporting the significant near-term to satisfy certain antitrust considerations in the next few profit growth estimates. Components maker Moog con- months before it begins trading as Raytheon Technolo- tinues to experience high volumes in its aircraft control gies. business, thanks to strong demand in the commercial TransDigm Group, an aggressive player on the merger sector. and acquisition market, is currently right-sizing its But overall, the aerospace side of the coin has been a business through some divestitures and redundancy mixed operational bag. CAE has reported strong quar- eliminations. The company’s presence in the aftermar- terly growth behind the outperformance of its civil ket space, as well as its ties to the F-35 program, ought aviation pilot training operations. Similarly, HEICO’s to help the top line thrive. flight support group remained a silver lining in the third quarter. Astronics, meanwhile, has slipped in recent Conclusion quarters, but management hopes new product innova- tions can help rejuvenate earnings growth in 2020. The specific outlooks vary greatly depending on each company’s products and services and their respective Defense diversification and financial position. We believe those in close proximity to lucrative government projects are Operationally speaking, defense bellwether Lockheed best positioned to succeed. Still, we recommend sub- Martin is on track to deliver rosy results for the foresee- scribers consults the company pages before investing. able future. It is the primary contractor on the F-35 Joint Strike Fighter program, which is to be the back- Robert L. Harrington bone of aerial defense for the United States and its allies for years to come. Most recently, the company and the Aerospace/Defense Pentagon finalized a $34 billion deal to cover the next RELATIVE STRENGTH (Ratio of Industry to Value Line Comp.) three phases of development (478 F-35s). Accordingly, those companies with close ties to the 1800 program also stand to benefit. Northrop Grumman is a key partner on Lockheed’s F-35 and the primary con- 1500 tractor on the E-2 Hawkeye aircraft. These high-profile programs ought to help revenues stoke higher for years to come. 1200 Elsewhere, other companies with exposure to big- ticket military projects boast solid prospects. Hunting- ton Ingalls has implemented a number of efficiency 900 measures on the production line and has seen several ships hit key milestone markets in recent months. With the nation’s defense focus prioritizing a boosted naval presence, Huntington is poised to see sales expand steadily well into the next decade. 600 2013 2014 2015 2016 2017 2018 2019 Index: June, 1967 = 100

© 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 19.1 RELATIVE DIV’D VALUE AAR CORP. NYSE-AIR PRICE 44.77RATIO 17.6()Median: 18.0 P/E RATIO 0.99YLD 0.7% LINE 702 TIMELINESS 3 Raised 2/1/19 High: 38.5 25.0 28.6 31.7 23.7 31.5 31.4 34.2 38.8 44.0 51.5 47.6 Target Price Range Low: 9.7 10.5 14.9 15.0 10.0 16.0 22.4 18.4 18.4 31.2 33.9 29.8 2022 2023 2024 SAFETY 3 Raised 9/18/09 LEGENDS 9.0 x ″Cash Flow″ psh TECHNICAL Lowered 11/15/19 .... Relative Price Strength 80 3 Options: Yes BETA 1.20 (1.00 = Market) Shaded area indicates recession 60 50 18-Month Target Price Range 40 Low-High Midpoint (% to Mid) 30 25 $31-$56 $44 (-5%) 20 2022-24 PROJECTIONS 15 Ann’l Total Price Gain Return 10 High 60 (+35%) 8% Low 40 (-10%) -2% 7.5 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 30 to Buy 85 111 95 1 yr. -11.6 4.9 shares 20 3 yr. 32.8 30.2 to Sell 107 80 96 traded 10 Hld’s(000) 31626 31382 31630 5 yr. 65.0 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 19.04 20.22 22.95 24.47 28.08 35.75 36.65 34.25 44.64 51.28 54.27 51.44 45.01 48.17 51.45 50.36 58.98 62.85 Sales per sh A 69.45 .58 .97 1.43 1.76 2.42 2.99 3.12 2.12 3.33 3.68 3.42 3.88 .41 2.62 3.00 3.32 4.04 4.30 ‘‘Cash Flow’’ per sh 5.15 d.27 .14 .49 .94 1.42 1.77 1.92 1.16 1.81 1.65 1.38 1.83 d1.40 1.16 1.45 1.70 2.40 2.55 Earnings per sh AB 3.20 .03 ------.08 .30 .30 .30 .30 .30 .30 .30 .30 .30 Div’ds Decl’d per sh D .40 .31 .32 .40 .44 .79 .78 .71 .73 3.14 2.27 .95 .67 1.31 2.56 .98 .63 .50 .55 Cap’l Spending per sh 1.15 9.26 9.36 9.66 11.53 13.08 15.11 16.91 18.90 21.00 21.47 23.33 25.27 23.86 25.08 26.61 26.97 26.04 28.15 Book Value per sh E 36.80 31.85 32.25 32.59 36.66 37.80 38.74 38.85 39.48 39.78 40.27 39.38 39.56 35.42 34.52 34.35 34.72 34.79 35.00 Common Shs Outst’g F 36.00 - - 74.5 24.7 22.5 18.8 16.7 8.0 18.1 12.6 12.6 11.8 14.6 - - 21.0 21.4 23.4 17.1 Avg Ann’l P/E Ratio 16.0 - - 3.94 1.32 1.21 1.00 1.01 .53 1.15 .79 .80 .66 .77 - - 1.10 1.08 1.27 .95 Relative P/E Ratio .90 .4% ------.3% 1.4% 1.8% 1.1% 1.1% 1.2% 1.0% .8% .7% Avg Ann’l Div’d Yield .8% CAPITAL STRUCTURE as of 8/31/19 1424.0 1352.2 1775.8 2065.0 2137.3 2035.0 1594.3 1662.6 1767.6 1748.3 2051.8 2200 Sales ($mill) A 2500 Total Debt$202.2 mill. Due in 5 Yrs $120.0 mill. 9.5% 9.6% 10.6% 10.1% 9.1% 11.0% 3.6% 7.0% 7.5% 8.1% 7.5% 8.0% Operating Margin 9.0% LT Debt $202.2 mill. LT Interest $8.5 mill. 40.6 38.9 59.3 80.3 79.7 80.4 69.1 50.0 52.9 55.8 56.3 60.0 Depreciation ($mill) 70.0 (Total interest coverage: 10.4x) (18% of Cap’l) 80.6 44.6 73.1 67.7 55.0 72.9 d54.7 40.5 50.2 59.6 84.1 90.0 Net Profit ($mill) 115 Leases, Uncapitalized Annual rentals $17.5 mill. 32.8% 32.7% 32.6% 27.2% 32.5% 30.5% - - 31.7% 32.4% 22.8% 5.5% 24.0% Income Tax Rate 24.0% Pension Assets-5/198 $129.9 mill. 5.7% 3.3% 4.1% 3.3% 2.6% 3.6% NMF 2.4% 2.8% 3.4% 4.1% 4.1% Net Profit Margin 4.6% Oblig. $149.2 mill. 596.9 537.8 498.0 590.1 644.7 714.8 542.1 544.1 553.4 609.4 595.0 675 Working Cap’l ($mill) 720 367.6 317.6 314.0 669.5 622.2 564.3 85.0 136.1 155.3 177.2 141.7 200 Long-Term Debt ($mill) 300 Preferred Stk None 656.9 746.4 835.3 864.6 918.6 999.5 845.1 865.8 914.2 936.3 905.9 985 Shr. Equity ($mill) 1325 Common Stock 34,700,000 shares 8.6% 5.3% 7.4% 5.5% 4.9% 5.9% NMF 4.3% 4.9% 5.7% 8.5% 8.0% Return on Total Cap’l 7.5% 12.3% 6.0% 8.8% 7.8% 6.0% 7.3% NMF 4.7% 5.5% 6.4% 9.3% 9.0% Return on Shr. Equity 8.5% MARKET CAP: $1.6 billion (Mid Cap) 12.3% 6.0% 8.4% 6.4% 4.6% 6.1% NMF 3.5% 4.4% 5.3% 8.1% 8.0% Retained to Com Eq 7.5% CURRENT POSITION 2018 2019 8/31/19 - - - - 4% 18% 23% 16% NMF 26% 20% 17% 12% 12% All Div’ds to Net Prof 13% ($MILL.) Cash Assets 41.6 41.1 58.0 BUSINESS: AAR Corporation has two business segments. Aviation 6,650 empl. Officers & directors own 8.0% of common stock; Black- Receivables 202.0 197.8 197.3 Services (94% of ’19 sales) supplies aftermarket services (including Rock, 17.6%; Vanguard Group, 10.0%; Dimensional Fund Ad- Inventory (FIFO) 460.7 523.7 553.6 Other 238.4 189.9 212.7 maintenance, repair, and overhaul services) and airframe parts to visors, 8.4% (8/19 Proxy). Chairman: David P. Storch; CEO & Pres- Current Assets 942.7 952.5 1021.6 the aviation market. Expeditionary Services (6% of ’19 sales) pro- ident: John Holmes. Inc.: Delaware. Address: One AAR Place, Accts Payable 170.0 187.8 341.5 vides products and services that support the movement of equip- 1100 North Wood Dale Road, Wood Dale, Illinois 60191. Tele- Debt Due ------ment and personnel by government and other entities. On 5/31/19, phone: 630-227-2000. Internet: www.aarcorp.com. Other 163.3 169.7 54.9 Current Liab. 333.3 357.5 396.4 AAR’s Aviation Services sales ad- share net in the period. vanced 17% in the opening quarter of Over the remainder of fiscal 2020, ANNUAL RATES Past Past Est’d ’17-’19 fiscal 2020. (The fiscal year began on work under the new contracts ought of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Sales 5.0% .5% 5.5% June 1, 2019.) The aftermarket parts sup- to ramp up. In addition to the award re- ‘‘Cash Flow’’ 2.0% -1.0% 8.5% ply business experienced strong demand. lated to the C-40 aircraft, AAR was recent- Earnings 1.0% 2.5% 11.5% Measures taken last year to address labor ly selected as a distributor of switch gears Dividends - - - - 6.0% Book Value 6.0% 2.5% 7.0% shortages enabled AAR to retain mechan- for Leach International Corporation, and a ics during the slow summer months this supplier of engine parts to Mitsubishi Fiscal QUARTERLY SALES ($ mill.) A Full Year Fiscal year, supporting a better performance by Heavy Industries Aero Engines. The com- Ends Aug.31 Nov.30 Feb.28 May.31 Year the maintenance, repair, and overhaul op- pany says it has a full pipeline of new 2016 377.8 423.8 402.8 458.2 1662.6 eration. And new contract awards contrib- business opportunities. Too, management 2017 404.8 423.8 446.7 492.3 1767.6 uted to the higher Aviation Services sales, expects Expeditionary Services margins to 2018 397.9 420.6 456.3 473.5 1748.3 including $19 million from a contract re- improve. We assume the one-time invest- 2019 466.3 493.3 529.5 562.7 2051.8 2020 541.5 525 555 578.5 2200 lated to C-40 aircraft. Government pro- igation charge won’t repeat. In all, we look grams generated 38% of sales, up from for fiscal 2020 sales at the high end of Fiscal EARNINGS PER SHARE ABC Full Year Fiscal 32% in the year-earlier period. Meanwhile, AAR’s target range of $2.1 billion-$2.2 bil- Ends Aug.31 Nov.30 Feb.28 May.31 Year Expeditionary Services (mobility systems lion, and share net at the midpoint of its 2016 .23 .30 .31 .32 1.16 and command centers) sales increased 6%, forecast of $2.45-$2.65, including the 2017 .29 .35 .38 .44 1.45 also reflecting new business wins. aforementioned investigation charge. 2018 .32 .38 .49 .52 1.70 2019 .54 .32 .78 .76 2.40 However, AAR’s margins contracted The company plans to increase its in- 2020 .49 .55 .70 .81 2.55 in the August term. The compression in ternational presence. During the next D the Expeditionary Services segment was 10 years, the aviation services market Cal-QUARTERLY DIVIDENDS PAID Full attributable to an unfavorable shipment overseas is expected to expand much endarMar.31 Jun.30 Sep.30 Dec.31 Year mix and higher materials costs. Too, a one- faster than in North America. But the 2015 .075 .075 .075 .075 .30 time charge related to an investigation of stock is ranked only 3 (Average) for 2016 .075 .075 .075 .075 .30 AAR’s Airlift operation’s performance on Timeliness, and has lackluster appreci- 2017 .075 .075 .075 .075 .30 2018 .075 .075 .075 .075 .30 several contracts boosted selling and ad- ation potential to 2022-2024. 2019 .075 .075 .075 ministrative expenses, clipping $0.07 from Theresa Brophy December 6, 2019 (A) Fiscal years end May 31st. (B) Diluted ($0.01); ’09, ($0.05); ’11, ($0.08); ’15, ($1.64); late Jan., April, July, and Oct. (E) Incl. intang. Company’s Financial Strength B earnings. Excl. nonrecurring gains/(losses): ’16, $0.22; ’17, $0.19; ’18, ($1.70); ’19, ($2.19). (5/31/19) $138.4 mill., $3.98/sh. (F) In millions. Stock’s Price Stability 50 ’03, ($0.12); ’04, ($0.03); ’18, $0.41; ’19. $0.04 Next earnings report due late Dec. (C) May not Price Growth Persistence 60 and disc. gains/losses: ’07, ($0.02); ’08, sum to total due to rounding. (D) Div’ds paid Earnings Predictability 10 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 36.9 RELATIVE DIV’D VALUE AEROVIRONMENT NDQ-AVAV PRICE 60.44RATIO 37.5()Median: 46.0 P/E RATIO 2.12YLD Nil LINE 703 TIMELINESS 4 Raised 11/15/19 High: 38.7 41.2 35.4 36.5 32.0 31.5 41.7 30.7 32.4 59.0 121.3 95.4 Target Price Range Low: 18.4 18.5 20.7 24.0 19.3 17.0 26.0 19.1 22.2 24.7 41.6 48.6 2022 2023 2024 SAFETY 3 New 12/19/08 LEGENDS 30.0 x ″Cash Flow″ psh TECHNICAL Raised 12/6/19 .... Relative Price Strength 160 3 Options: Yes BETA 1.10 (1.00 = Market) Shaded area indicates recession 120 100 18-Month Target Price Range 80 Low-High Midpoint (% to Mid) 60 50 $43-$120 $82 (35%) 40 2022-24 PROJECTIONS 30 Ann’l Total Price Gain Return 20 High 110 (+80%) 16% Low 70 (+15%) 4% 15 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 45 to Buy 94 127 94 1 yr. -35.6 4.9 shares 30 3 yr. 141.7 30.2 to Sell 107 73 106 traded 15 Hld’s(000) 20772 20290 20078 5 yr. 89.2 36.8 2003 2004 2005 2006D 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 ------9.20 10.47 11.54 11.48 13.33 14.61 10.62 10.86 11.13 11.31 11.21 11.34 13.28 15.00 16.65 Revenues per sh A 20.85 ------1.25 1.22 1.38 1.37 1.66 1.77 .94 .99 .48 .64 .83 1.19 2.33 2.00 2.15 ‘‘Cash Flow’’ per sh 2.50 ------1.22 1.00 1.11 .94 1.17 1.36 .47 .60 .13 .39 .54 .95 1.74 1.65 1.80 Earnings per sh B 2.00 ------Nil Nil Div’ds Decl’d per sh Nil ------.16 .38 .62 .50 .46 .67 .52 .31 .23 .29 .42 .40 .38 .50 .60 Cap’l Spending per sh .65 ------7.23 8.23 9.66 10.74 12.00 13.45 13.94 14.78 14.97 15.48 16.16 17.15 19.55 19.40 20.00 Book Value per sh 23.95 ------18.88 20.61 21.47 21.73 21.95 22.24 22.61 23.18 23.31 23.36 23.63 23.91 23.95 24.00 24.00 Common Shs Outst’g C 24.00 ------18.7 22.3 27.1 29.8 22.0 21.7 47.3 44.7 NMF 65.1 50.2 47.4 48.4 Bold figures are Avg Ann’l P/E Ratio 45.0 ------1.01 1.18 1.63 1.98 1.40 1.36 3.01 2.51 NMF 3.28 2.63 2.38 2.89 Value Line Relative P/E Ratio 2.50 ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 7/27/19 249.5 292.5 325.0 240.2 251.7 259.4 264.1 264.9 271.1 314.3 360 400 Revenues ($mill) A 500 Total Debt None 15.6% 15.2% 16.0% 6.1% 8.6% 4.0% 6.0% 7.4% 13.9% 13.2% 14.0% 14.5% Operating Margin 14.5% 9.0 10.6 9.0 10.9 9.2 8.4 6.1 7.1 6.0 7.7 8.0 9.0 Depreciation ($mill) 12.0 Leases, Uncapitalized: Annual Rentals $5.3 mill. 20.7 25.9 30.5 10.4 13.7 2.9 9.0 12.5 22.6 47.4 39.5 43.0 Net Profit ($mill) 50.0 31.1% 24.3% 30.1% 3.2% 7.9% - - - - 12.2% 30.1% 9.2% 27.0% 27.0% Income Tax Rate 30.0% No Defined Benefit Pension Plan 8.3% 8.9% 9.4% 4.3% 5.5% 1.1% 3.4% 4.7% 8.3% 15.1% 11.0% 10.8% Net Profit Margin 10.0% 201.5 235.9 218.1 221.3 269.2 282.3 303.3 306.0 338.6 424.7 425 450 Working Cap’l ($mill) 525 Pfd Stock None ------.2 .2 - - Nil Nil Long-Term Debt ($mill) Nil Common Stock 23,980,491 shs. 233.4 263.5 299.2 315.2 342.5 348.9 361.7 382.0 410.1 462.2 465 480 Shr. Equity ($mill) 575 as of 8/28/19 8.9% 9.8% 10.2% 3.3% 4.0% .8% 2.5% 3.3% 5.5% 9.7% 8.5% 9.0% Return on Total Cap’l 8.5% MARKET CAP: $1.4 billion (Mid Cap) 8.9% 9.8% 10.2% 3.3% 4.0% .8% 2.5% 3.3% 5.5% 10.2% 8.5% 9.0% Return on Shr. Equity 8.5% CURRENT POSITION 2016 2017 7/27/19 8.9% 9.8% 10.2% 3.3% 4.0% .8% 2.5% 3.3% 5.5% 10.2% 8.5% 9.0% Retained to Com Eq 8.5% ($MILL.) ------Nil Nil All Div’ds to Net Prof Nil Cash Assets 199.9 257.2 300.7 Receivables 88.5 56.8 42.7 BUSINESS: AeroVironment, Inc. engages in the design, develop- provides weapons capable of rapid deployment and precision Inventory (Avg Cst) 60.1 38.6 47.9 ment, and production of small unmanned aircraft systems and mis- strike. Sold Efficient Energy Systems unit 7/18. International sales Other 5.6 46.5 64.0 sile technologies for various industries and governmental agencies. 46% of total. Has about 700 empls. BlackRock owns 16.1% of c.s.; Current Assets 354.1 399.1 455.3 The Unmanned Aircraft Systems (UAS) unit sells drones primarily Vanguard Group, 12.2%; officers and directors,11.7% (8/19 proxy). Accts Payable 20.3 21.3 11.5 Debt Due ------to the U.S. D.O.D. and foriegn militaries. Products provide tactical Pres. & CEO: Wahid Nawabi. Inc.: DE. Addr.: 900 Innovators Way Other 27.8 39.2 31.6 reconnaissance, tracking, and data. Tactical Missile Systems (TMS) Simi Valley, CA 93065. Tel.: 626-357-9983. Web: www.avinc.com. Current Liab. 48.1 60.5 43.1 AeroVironment is poised to deliver a spend upward of $5.25 million on the ANNUAL RATES Past Past Est’d ’15-’17 mixed showing in the current fiscal Puma 3 AE system. International demand of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 year ending April 30, 2020. (The compa- has shown signs of life, too, with an un- Revenues 1.5% -2.5% 10.0% ‘‘Cash Flow’’ -3.5% -9.5% 10.5% ny reported second-quarter results after disclosed Southeast Asian nation ordering Earnings -5.5% -9.0% 11.0% this Issue went to press.) The maker of a tactical Raven system, committing $6.4 Dividends - - - - Nil small drones for military, agricultural, and million on a follow-on contract. As of mid- Book Value 7.5% 4.5% 5.5% security applications has seen its revenues November, the company will also offer Fiscal A Full Year QUARTERLY REVENUES ($ mill.) Fiscal outperform consensus estimates. Other support to an allied nation in the Middle Begins Jul.Per Oct.Per Jan.Per Apr.Per Year than a tough year-to-year comparison in East. 2016 36.2 50.1 53.2 125.4 264.9 the current quarter, this trend ought to New product launches should help 2017 36.3 64.0 53.4 117.4 271.1 persist in the foreseeable future. But costs ensure steady revenue growth in the 2018 78.0 73.0 75.3 88.0 314.3 related to new product development and a coming years. The electric-powered 2019 86.9 86.0 72.0 115.1 360 widened customer base, as well as an ex- VAPOR systems boast helicopter-like 2020 97.0 95.0 80.0 128 400 pected increase in tax obligation, will like- bodies that will allow enhanced mission Fiscal AB Full Year EARNINGS PER SHARE Fiscal ly stifle earnings growth in fiscal 2019. We and landing capabilities for clients. The Begins Jul.Per Oct.Per Jan.Per Apr.Per Year do, however, project a bounce back on the upgraded Puma LE, announced in mid- 2016 d.51 d.18 d.09 1.32 .54 bottom line next year. October, offers increased range, 2017 d.14 .28 d.05 .86 .95 The company has secured a number endurance, and payload capacity. 2018 .85 .29 .35 .26 1.74 of new contracts in recent months. A Most investors will want to look else- 2019 .74 .29 .35 .27 1.65 number of deals at home and abroad ought where, for now. Not only is AVAV 2020 .70 .33 .44 .33 1.80 to help support our top-line growth projec- ranked to lag the broader market averages Cal-QUARTERLY DIVIDENDS PAID Full tion in the near term. In August, the U.S. in the year ahead (Timeliness: 4), it offers endarMar.31 Jun.30 Sep.30 Dec.31 Year Army ordered $45 million worth of Raven only middling appreciation potential out 2015 B drones to supplement its security force three to five years. Interested subscribers 2016 NO CASH DIVIDENDS operations. AeroVironment will provide will want to wait for a pullback in share 2017 BEING PAID radio frequency modifications for the price before committing funds to the drone 2018 Army’s unmanned aerial system ($55 mil- maker. 2019 lion fixed cost). U.S. Border Patrol plans to Robert L. Harrington December 6, 2019 (A) Fiscal year ends near April 30th of following outstanding. Excludes discontinued operations: (C) In millions. Company’s Financial Strength B+ calendar year. ’17, d$0.11.; ’18, d$0.12. (D) Information for 2006 is pro forma. Stock’s Price Stability 20 (B) Diluted earnings. Quarterlies may not sum Next earnings report due in early March. Price Growth Persistence 45 due to rounding or change in average shares Earnings Predictability 15 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 27.2 RELATIVE DIV’D VALUE ASTRONICS CORP. NDQ-ATRO PRICE 29.60RATIO 33.3()Median: 21.0 P/E RATIO 1.88YLD Nil LINE 704 TIMELINESS 4 Lowered 9/20/19 High: 32.4 8.8 17.8 28.7 27.9 41.1 55.2 58.5 35.7 38.4 43.9 44.3 Target Price Range Low: 5.4 4.8 5.4 14.9 14.6 16.8 31.2 26.2 18.7 20.8 27.6 25.8 2022 2023 2024 SAFETY 3 New 6/14/13 LEGENDS 11.0 x ″Cash Flow″ psh D 128 TECHNICAL 3 Raised 11/8/19 .... Relative Price Strength 15% Div 10/16 96 BETA 1.35 (1.00 = Market) 15% Div 10/18 80 Options: No 18-Month Target Price Range Shaded area indicates recession 64 Low-High Midpoint (% to Mid) 48 40 $21-$55 $38 (30%) 32 2022-24 PROJECTIONS 24 Ann’l Total Price Gain Return 16 High 75 (+155%) 26% Low 50 (+70%) 14% 12 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 30 to Buy 75 71 104 1 yr. -0.8 4.9 shares 20 3 yr. -7.7 30.2 to Sell 42 49 59 traded 10 Hld’s(000) 21667 21189 21712 5 yr. -11.0 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 3.24 3.36 7.12 10.44 14.68 12.80 13.42 13.52 13.97 13.93 14.39 22.79 20.45 18.92 19.37 24.65 24.20 26.00 Sales per sh 35.70 .19 .05 .44 .82 1.75 1.40 1.09 1.37 1.63 1.50 1.62 2.88 2.73 2.22 1.46 2.51 2.15 2.90 ‘‘Cash Flow’’ per sh 5.30 .08 d.07 .21 .52 1.36 1.06 .57 1.00 1.26 1.10 1.13 1.88 1.93 1.40 .60 1.41 .90 1.55 Earnings per sh A 3.50 ------Nil Nil Div’ds Decl’d per sh Nil .04 .11 .24 .51 .89 .32 .17 .25 .87 .87 .29 1.41 .55 .39 .42 .50 .55 .65 Cap’l Spending per sh .85 2.24 2.20 2.43 2.95 4.57 4.29 4.22 5.33 6.30 6.54 7.26 7.87 8.87 10.08 10.23 11.86 12.50 14.15 Book Value per sh B 18.75 10.24 10.32 10.45 10.61 10.78 13.58 14.25 14.48 16.33 19.12 23.62 29.00 33.86 33.46 32.24 32.59 32.00 30.00 Common Shs Outst’g C 28.00 44.8 - - 29.5 20.8 17.2 13.3 12.3 11.6 16.7 19.8 25.7 22.5 22.3 20.5 46.8 24.0 Bold figures are Avg Ann’l P/E Ratio 18.0 2.55 - - 1.57 1.12 .91 .80 .82 .74 1.05 1.26 1.44 1.18 1.12 1.08 2.35 1.30 Value Line Relative P/E Ratio 1.00 ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/28/19 191.2 195.8 228.2 266.4 339.9 661.0 692.3 633.1 624.5 803.3 775 780 Sales ($mill) 1000 Total Debt $180.3 mill. Due in 5 Yrs $115.0 mill. 10.7% 14.9% 16.8% 14.8% 15.7% 17.3% 17.9% 15.6% 9.2% 12.3% 10.0% 12.5% Operating Margin 16.0% LT Debt $180.1 mill. LT Interest $9.7 mill. 7.3 4.9 4.9 6.9 11.1 27.3 25.3 25.8 27.1 35.0 40.0 40.0 Depreciation ($mill) 50.0 (Total interest coverage: 5.4x) (43% of Cap’l) 8.1 14.9 21.6 21.9 27.3 56.2 67.0 48.4 20.1 46.8 30.0 45.0 Net Profit ($mill) 100 Leases, Uncapitalized Annual rentals $4.7 mill. 23.4% 31.5% 25.6% 30.7% 28.6% 29.0% 28.8% 29.6% 19.7% 10.5% 17.0% 12.5% Income Tax Rate 11.0% 4.3% 7.6% 9.5% 8.2% 8.0% 8.5% 9.7% 7.6% 3.2% 5.8% 3.7% 5.9% Net Profit Margin 9.8% Pension Assets 12/18 $26.0 mill. 52.9 65.8 58.8 60.0 126.0 136.6 145.8 168.5 212.4 246.1 225 250 Working Cap’l ($mill) 350 Oblig $25.1 mill. 38.5 33.3 28.0 20.7 188.0 180.2 167.2 145.5 269.1 232.1 180 175 Long-Term Debt ($mill) 150 Common Stock 30,873,090 shares 60.1 77.2 102.9 125.1 171.5 228.2 300.2 337.4 329.9 386.6 400 425 Shr. Equity ($mill) 525 9.5% 14.7% 17.2% 15.4% 8.2% 14.8% 14.8% 10.5% 3.8% 8.3% 5.5% 8.0% Return on Total Cap’l 15.0% MARKET CAP: $925 million (Mid Cap) 13.6% 19.4% 21.0% 17.5% 15.9% 24.6% 22.3% 14.4% 6.1% 12.1% 11.0% 11.0% Return on Shr. Equity 18.5% CURRENT POSITION 2017 2018 9/28/19 13.6% 19.4% 21.0% 17.5% 15.9% 24.6% 22.3% 14.4% 6.1% 12.1% 11.0% 11.0% Retained to Com Eq 18.5% ($MILL.) ------Nil Nil All Div’ds to Net Prof Nil Cash Assets 17.9 16.6 22.8 Receivables 113.5 149.3 159.7 BUSINESS: Astronics Corporation engages in the design and man- segment offers communications and weapons test systems, train- Inventory 150.2 138.7 149.6 ufacture of lighting components and subsystems, electrical power ing, equipment, and more, to the military. Has about 2,500 employ- Other 33.7 69.6 20.8 generation, in-flight control, and power distribution systems for air- ees. Off./dir. own 3.3% of stock; BlackRock, 11.5%; FMR, 10.4% Current Assets 315.3 374.2 352.9 craft. There are two main segments, Aerospace (84% of ’18 sales) (4/19 Proxy). Chairman: Kevin T. Keane. President/CEO: Peter J. Accts Payable 41.8 50.7 95.4 Debt Due 2.7 1.9 .2 and Test Systems (16%). The Aerospace segment provides aircraft Gundermann. Inc.: NY. Address: 130 Commerce Way, East Aurora, Other 58.4 75.5 23.5 lighting, electronics, power, and airfield lighting. The Test Systems NY 14052. Tel.: 716-805-1599. Internet: www.astronics.com. Current Liab. 102.9 128.1 119.1 This is shaping up to be an off year solutions for its customers since our early- ANNUAL RATES Past Past Est’d ’16-’18 for Astronics Corporation. Lower September report. A wireless charging of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 volumes in the Aerospace segment due to module for the business aviation market is Sales 5.0% 8.5% 9.5% ‘‘Cash Flow’’ 4.5% 5.5% 17.0% decreased demand for in-flight entertain- one such item stoking some cautious op- Earnings 1.5% -0.5% 20.5% ment and connectivity services (IEC), as timism for a turnaround in that sector. Dividends - - - - Nil well as lower antenna sales, contributed to Elsewhere, a retrofit application for air- Book Value 10.5% 10.0% 10.0% the paltry $0.04 share net in the Septem- craft customers will allow for the installa- Fiscal QUARTERLY SALES ($ mill.)A Full Year Fiscal ber period. It is worth noting that some of tion of an updated USB power outlet. Ends Mar.Per Jun.Per Sep.Per Dec.Per Year the softness also stems from the absence of A recent acquisition suggests the com- 2016 159.5 164.4 155.1 154.1 633.1 the Text Systems’ semiconductor business, pany is looking to diversify the Test 2017 152.4 151.1 149.6 171.4 624.5 which Astronics divested in February. Solutions business. The purchase of 2018 179.1 208.6 212.7 202.9 803.3 That market was the main driver in seg- Diagnosys’ mass transit products (for an 2019 208.2 189.1 177.0 200.7 775 ment profit growth, but elevated costs and undisclosed sum), which follows the July 2020 185 190 200 205 780 a lower long-term growth outlook com- addition of Freedom Communications Fiscal EARNINGS PER SHARE A Full Year Fiscal pelled management to sell the unit. Technologies, underscores the need for less Ends Mar.Per Jun.Per Sep.Per Dec.Per Year Noting the murky outlook, we have cyclical performance in the niche segment. 2016 .38 .43 .36 .29 1.40 reduced our near-term estimates. The Subscribers seeking near-term op- 2017 .33 .23 .18 d.16 .60 current year will likely see the company portunity will want to look elsewhere. 2018 .10 .43 .51 .43 1.41 deliver $0.90 in per-share profit off of $775 Astronics shares are ranked to lag the 2019 .48 .20 .04 .18 .90 million in sales, down $0.75 and $20 mil- broader market averages for the next six 2020 .35 .32 .62 .26 1.55 lion, respectively, from our previous es- to 12 months (Timeliness: 4). Cal-QUARTERLY DIVIDENDS PAID Full timates. Given the surprising struggles in Further out, there is some speculative endarMar.31 Jun.30 Sep.30 Dec.31 Year the IEC category, we have pared $55 mil- appeal. Long-term-minded investors able 2015 lion and $0.30 from next year’s top- and to tolerate the volatility and middling 2016 NO CASH DIVIDENDS bottom-line estimates. ratings for Price Stability and Price 2017 BEING PAID The company is hoping new product Growth Persistence may want to consider 2018 innovations will help to rejuvenate buying in at the recent juncture. 2019 demand. Astronics introduced several Robert L. Harrington December 6, 2019 (A) Diluted earnings. May not sum due to ’12, (8¢). Fiscal year ends on last business day mill., $7.93 per share. Company’s Financial Strength B+ changes in shares outstanding. Excl. nonrec. of December. Next earnings report due in late (C) In millions. Stock’s Price Stability 25 gains/(losses): ’03, (4¢); ’06, (3¢); ’07, (10¢); February. (D) Adjusted for a 15% Class B stock distribu- Price Growth Persistence 45 ’08, (61¢); ’09, ($1.10); ’10, (6¢); ’11, (11¢); (B) Includes intangible assets. In 2018: $258.3 tion, 10/16. Earnings Predictability 35 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: NMF RELATIVE DIV’D VALUE AXON ENT. NDQ-AAXN PRICE 74.33RATIO NMF()Median: NMF P/E RATIO NMFYLD Nil LINE 705 TIMELINESS 4 Lowered 3/8/19 High: 14.7 5.9 7.9 6.5 9.3 18.5 27.7 35.9 30.2 28.2 76.5 74.9 Target Price Range Low: 2.5 3.1 3.5 3.6 4.0 6.7 10.5 16.1 13.6 20.6 24.5 42.4 2022 2023 2024 SAFETY 4 Lowered 6/20/08 LEGENDS 25.0 x ″Cash Flow″ psh TECHNICAL Lowered 11/22/19 .... Relative Price Strength 80 3 Options: Yes BETA 1.25 (1.00 = Market) Shaded area indicates recession 60 50 18-Month Target Price Range 40 Low-High Midpoint (% to Mid) 30 25 $44-$118 $81 (10%) 20 2022-24 PROJECTIONS 15 Ann’l Total Price Gain Return 10 High 55 (-25%) -7% Low 35 (-55%) -17% 7.5 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 75 to Buy 150 144 155 1 yr. -17.2 4.9 shares 50 3 yr. 128.5 30.2 to Sell 121 111 120 traded 25 Hld’s(000) 46559 47390 50178 5 yr. 171.4 36.8 Axon Enterprise, formerly TASER Interna- 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 tional, Inc. was founded in September 1993 1.68 1.39 1.62 2.17 2.61 3.10 3.69 5.13 6.49 7.14 8.40 9.45 Revenues per sh 11.75 and incorporated in Delaware. An initial pub- .06 .05 .02 .40 .44 .46 .43 .40 .40 .68 .60 .90 ‘‘Cash Flow’’ per sh 1.75 lic offering of 800,000 (9.6 million, adjusted - - d.07 d.12 .27 .34 .37 .36 .32 .27 .50 .40 .70 Earnings per sh A 1.50 for splits) shares was made in May, 2001, at ------Nil Nil Div’ds Decl’d per sh Nil $13 a share ($1.08 after adjusting for splits) .22 .06 .03 .03 .03 .05 .11 .09 .20 .19 .30 .35 Cap’l Spending per sh .30 on the NASDAQ stock exchange. The lead 1.89 1.88 1.48 1.65 2.06 2.44 2.92 2.88 3.16 7.95 9.40 11.85 Book Value per sh 19.85 underwriter of the deal was Paulson Invest- 62.12 62.62 55.70 52.77 52.73 53.00 53.69 52.33 52.97 58.81 60.00 62.00 Common Shs Outst’g B 68.00 ment Company. ------21.1 32.7 NMF NMF NMF NMF NMF Bold figures are Avg Ann’l P/E Ratio 30.0 ------1.34 1.84 NMF NMF NMF NMF NMF Value Line Relative P/E Ratio 1.65 estimates CAPITAL STRUCTURE as of 9/30/19 ------Avg Ann’l Div’d Yield Nil Total Debt None 104.3 86.9 90.0 114.8 137.8 164.5 197.9 268.2 343.8 420.1 505 585 Revenues ($mill) 800 3.4% 2.5% 1.0% 25.3% 24.0% 22.4% 19.6% 13.2% 6.1% 8.4% 8.0% 12.0% Operating Margin 16.0% Leases, Uncapitalized Annual rentals $12.8 mill. 3.6 7.3 8.1 6.5 5.1 4.3 3.3 3.7 8.0 10.6 11.0 12.0 Depreciation ($mill) 18.0 No Defined Benefit Pension Plan - - d4.4 d7.0 14.7 18.2 19.9 19.9 17.3 13.2 29.2 24.0 43.0 Net Profit ($mill) 100 NMF - - - - 34.8% 34.9% 38.4% 43.8% 45.1% 16.2% NMF 20.0% 20.0% Income Tax Rate 20.0% Preferred Stock None - - NMF NMF 12.8% 13.2% 12.1% 10.1% 6.4% 3.8% 7.0% 4.8% 7.4% Net Profit Margin 12.5% 72.1 70.3 45.8 61.0 74.4 107.8 123.3 99.2 97.2 392.2 350 400 Working Cap’l ($mill) 600 Common Stock 59,278,000 shs. ------.1 ------Nil Nil Long-Term Debt ($mill) Nil 117.7 117.6 82.5 87.3 108.3 129.1 157.0 150.9 167.4 467.3 565 735 Shr. Equity ($mill) 1350 MARKET CAP: $4.4 billion (Mid Cap) - - NMF NMF 16.9% 16.8% 15.4% 12.7% 11.5% 7.9% 6.2% 4.0% 6.0% Return on Total Cap’l 7.5% - - NMF NMF 16.9% 16.8% 15.4% 12.7% 11.5% 7.9% 6.2% 4.0% 6.0% Return on Shr. Equity 7.5% CURRENT POSITION 2017 2018 9/30/19 - - NMF NMF 16.9% 16.8% 15.4% 12.7% 11.5% 7.9% 6.2% 4.0% 6.0% Retained to Com Eq 7.5% ($MILL.) Cash Assets 82.0 349.5 311.5 ------0% - - Nil Nil All Div’ds to Net Prof Nil Receivables 56.1 130.6 149.0 BUSINESS: Axon Enterprise Inc., previously TASER International, 1,115 full-time equivalent employes on 12/31/18. Officers & direc- Inventory (Avg Cst) 45.5 33.8 40.7 Other 21.6 44.3 74.8 engages in the development and manufacture of conducted electric tors own 2.3% of stock; BlackRock, 16.7%; Vanguard, 11.0%; Current Assets 205.2 558.2 576.0 weapons for use in law enforcement, corrections, private security, Janus Henderson Group, 6.7% (4/19 proxy). Chairman: Michael Accts Payable 8.6 15.2 14.6 and personal defense, including TASER weapons, on-officer Garnreiter. CEO: Patrick W. Smith. Inc.: Delaware. Address: 17800 Debt Due ------cameras, in-car video, and digital evidence management service. North 85th Street, Scottsdale, Arizona 85255. Telephone: 480-991- Other 99.4 150.8 169.2 Research expense accounted for 18.3% of ’18 revenues. Had 0797. Internet: www.axon.com. Current Liab. 108.0 166.0 183.8 Axon Enterprise turned in a better tered the December period with a fair ANNUAL RATES Past Past Est’d ’16-’18 earnings performance in the Septem- amount of revenue momentum. It is of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Revenues 16.0% 24.0% 11.0% ber quarter, after encountering a few making progress selling bundles of TASER ‘‘Cash Flow’’ 11.0% 11.5% 24.0% challenges in the June period. The weapons, body cameras, and cloud services Earnings 10.5% 17.5% 27.0% headwinds in the June term included a on a subscription basis. In the first nine Dividends - - - - Nil Book Value 10.0% 22.0% 27.0% disruption in the supply of battery com- months of 2019, about 70 law enforcement ponents; a shortage of TASER 7 agencies purchased Officer Safety Plan Cal-QUARTERLY REVENUES ($ mill.) Full cartridges; and ramp-up costs associated bundles. Axon expects to exceed 100 for endarMar.31 Jun.30 Sep.30 Dec.31 Year with Axon’s TASER 7 weapon. The compa- the year. Over time, as customers add 2016 55.5 58.8 71.9 82.1 268.2 ny resolved the battery issues in the Sep- more very profitable Axon services and 2017 79.0 79.6 90.6 94.6 343.8 tember term, and redesigned the software offerings to their bundles, mar- 2018 101.2 99.3 104.8 114.8 420.1 2019 115.8 112.4 130.8 146 505 cartridges, which are now in production. gins should improve. 2020 137 138 148 162 585 Unit shipments of the TASER 7 weapon Axon also has room to expand its ad- A rose, also contributing to the 16% dressable market to beyond police de- Cal-EARNINGS PER SHARE Full sequential-quarter revenue growth. Axon’s partments. The current market, es- endarMar.31 Jun.30 Sep.30 Dec.31 Year gross profits increased, more than offset- timated at $8.4 billion, doesn’t include 2016 .06 .07 .07 .12 .32 ting higher operating expenses. Note that U.S. federal law enforcement agencies, 2017 .09 .04 .01 .13 .27 Axon recorded $2.3 million of tax expense sales of Axon fleet (in-car cameras) over- 2018 .24 .15 .10 .03 .50 2019 .11 .01 .10 .18 .40 in the September term. In contrast, tax seas, and correctional facilities. Axon is be- 2020 .15 .15 .17 .23 .70 benefits boosted results in the like period ginning to make inroads into these ad- of 2018 and the 2019 June period. jacent arenas. Cal-QUARTERLY DIVIDENDS PAID Full We look for the company to end 2019 The long-term outlook for Axon looks endarMar.31 Jun.30 Sep.30 Dec.31 Year on an up note, and to make further bright, but the stock still discounts all 2015 earnings progress in 2020. Axon’s gross of the earnings growth we look for 2016 NO CASH DIVIDENDS margin in the final period of the year will over the pull to 2022-2024. Axon shares 2017 BEING PAID reflect a greater mix of cartridges, which are also ranked unfavorably for Timeli- 2018 2019 have lower margins than its Axon Cloud ness, and they are rather volatile. (software) offering. But the company en- Theresa Brophy December 6, 2019 (A) Diluted earnings. Next earnings report due (B) In millions. Company’s Financial Strength B mid-February. Quarterly earnings may not sum Stock’s Price Stability 15 due to change in shares. Price Growth Persistence 85 Earnings Predictability 40 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 57.2 RELATIVE DIV’D VALUE BOEING COMPANY NYSE-BA PRICE 373.13RATIO 28.7()Median: 17.0 P/E RATIO 1.62YLD 2.2% LINE 706 TIMELINESS 3 Lowered 5/3/19 High: 88.3 56.6 76.0 80.6 77.8 142.0 144.6 158.8 160.1 299.3 394.3 446.0 Target Price Range Low: 36.2 29.0 54.1 56.0 66.8 72.7 116.3 115.1 102.1 155.2 292.5 309.4 2022 2023 2024 SAFETY 2 Lowered 6/7/19 LEGENDS 13.0 x ″Cash Flow″ psh 640 TECHNICAL 3 Lowered 11/29/19 .... Relative Price Strength Options: Yes 480 BETA 1.15 (1.00 = Market) Shaded area indicates recession 400 18-Month Target Price Range 320 Low-High Midpoint (% to Mid) 240 200 $296-$602 $449 (20%) 160 2022-24 PROJECTIONS 120 Ann’l Total Price Gain Return 80 High 485 (+30%) 9% Low 355 (-5%) 2% 60 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 24 to Buy 938 980 982 1 yr. -2.1 4.9 shares 16 3 yr. 156.5 30.2 to Sell 923 1018 973 traded 8 Hld’s(000) 394695 383038 387650 5 yr. 209.5 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 63.08 66.13 72.11 81.19 90.12 87.24 94.01 87.46 92.30 108.12 115.90 128.43 144.18 153.24 158.01 178.15 144.65 209.00 Revenues per sh 227.25 2.82 3.57 4.50 5.78 7.53 5.94 4.13 6.85 7.08 7.56 8.60 10.40 10.51 14.36 15.59 22.15 6.80 25.25 ‘‘Cash Flow’’ per sh 31.80 1.00 1.63 2.39 3.62 5.26 3.63 1.87 4.46 4.82 5.11 5.96 7.38 7.44 10.84 11.71 17.86 2.80 21.00 Earnings per sh A 26.25 .68 .85 1.05 1.25 1.45 1.62 1.68 1.68 1.68 1.76 1.94 2.92 3.64 4.36 5.68 6.84 8.24 8.24 Div’ds Decl’d per sh B■ 10.50 .93 1.23 2.03 2.22 2.35 2.40 1.63 1.53 2.30 2.25 2.81 3.16 3.68 4.23 2.94 3.03 3.10 3.00 Cap’l Spending per sh 2.75 10.17 14.23 14.54 6.25 12.22 d1.85 2.93 3.76 4.72 7.76 19.90 12.26 9.50 1.32 .60 .60 d7.50 d1.80 Book Value per sh C 21.80 800.28 793.20 760.58 757.84 736.68 698.14 726.29 735.30 744.70 755.60 747.40 706.70 666.62 617.15 591.04 567.64 560.00 555.00 Common Shs Outst’g D 550.00 33.4 29.4 26.0 22.2 17.9 18.3 24.1 14.7 14.5 14.3 17.3 17.4 19.3 12.3 18.3 19.2 Bold figures are Avg Ann’l P/E Ratio 16.0 1.90 1.55 1.38 1.20 .95 1.10 1.61 .94 .91 .91 .97 .92 .97 .65 .92 1.04 Value Line Relative P/E Ratio .90 2.0% 1.8% 1.7% 1.6% 1.5% 2.4% 3.7% 2.6% 2.4% 2.4% 1.9% 2.3% 2.5% 3.3% 2.7% 2.0% estimates Avg Ann’l Div’d Yield 2.5% CAPITAL STRUCTURE as of 9/30/19 68281 64306 68735 81698 86623 90762 96114 94571 93392 101127 81000 116000 Revenues ($mill) 125000 Total Debt $24652 mill. Due in 5 Yrs $6500 mill. 5.4% 10.2% 10.7% 9.7% 9.4% 10.1% 9.4% 10.8% 13.0% 13.8% 6.0% 14.0% Operating Margin 16.0% LT Debt $20298 mill. LT Interest $800 mill. 1666.0 1727.0 1660.0 1811.0 1844.0 1906.0 1833.0 1910.0 2069.0 2114.0 2200 2275 Depreciation ($mill) E 2500 (Total interest coverage ’18: 23.0x) (More than 100% of Cap’l) 1335.0 3311.0 3614.0 3903.0 4586.0 5446.0 5176.0 6950.0 7146.0 10460 1600 11750 Net Profit ($mill) 15000 Leases, Uncapitalized Annual Rentals $307 mill. 22.9% 26.5% 33.0% 34.0% 26.4% 23.7% 27.7% 16.7% 28.9% 9.9% NMF 15.0% Income Tax Rate 15.0% Pension Assets-12/18 $56.1 bill. 2.0% 5.1% 5.3% 4.8% 5.3% 6.0% 5.4% 7.3% 7.7% 10.3% 2.0% 10.1% Net Profit Margin 12.0% Oblig. $71.4 bill. 2392.0 5177.0 8536.0 12327 13588 11068 17822 12354 8892.0 6240.0 1200 6000 Working Cap’l ($mill) 17500 Pfd Stock None 12217 11473 10018 8973.0 8072.0 8141.0 8730.0 9568.0 9782.0 10657 20000 20000 Long-Term Debt ($mill) 15000 Common Stock 562,791,233 shs. 2128.0 2766.0 3515.0 5867.0 14875 8665.0 6335.0 817.0 355.0 339.0 d4200 d1000 Shr. Equity ($mill) 12000 as of 10/16/19 11.3% 25.6% 29.0% 28.2% 20.8% 33.4% 35.3% 68.4% 72.3% 97.3% 12.5% 64.0% Return on Total Cap’l 56.5% 62.7% 119.7% 102.8% 66.5% 30.8% 62.9% 81.7% NMF NMF NMF NMF NMF Return on Shr. Equity NMF MARKET CAP: $210 billion (Large Cap) 5.4% 74.4% 67.4% 44.0% 21.0% 38.4% 42.4% NMF NMF NMF NMF NMF Retained to Com Eq 72.5% CURRENT POSITION 2017 2018 9/30/19 91% 38% 34% 34% 32% 39% 48% 40% 48% 38% NMF 39% All Div’ds to Net Prof 40% ($MILL.) Cash Assets 9992 8564 10913 BUSINESS: The Boeing Company is a leading manufacturer of 56% of total; R&D: 3.2% of sales. Has 153,000 employees. Of- Receivables 10516 13904 14642 commercial aircraft. Manufactures the 737, 747, 767, 777, and 787. ficers/directors control less than 1.0% of stock; The Vanguard Inventory (Avg Cst) 44344 62567 73279 Other 309 2795 2822 Also produces business jets, fighters (F-15, F/A-18), helicopters Group, 7.4%; BlackRock, 5.8%; Newport Trust Company, 5.9%; T. Current Assets 65161 87830 101656 (CH-47, AH-64, V-22); guided weapons (Harpoon, Joint Direct At- Rowe Price, 5.9% (3/19 proxy). Pres., CEO, and Chairman: Dennis Accts Payable 27494 27724 15101 tack Munition), satellites, space launch systems, and manages the A. Muilenburg. Inc.: DE. Addr.: 100 North Riverside Plaza, Chicago, Debt Due 1335 3190 4354 International Space Station. In 2018, foreign sales accounted for IL 60606-1596. Phone: 312-544-2000. Web: www.boeing.com. Other 27440 50676 72391 Current Liab. 56269 81590 91846 We have overhauled our financial will return to the skies shortly. That presentation and outlook for Boeing. said, on October 23rd, leadership es- ANNUAL RATES Past Past Est’d ’16-’18 The company continues to struggle with timated that the planes would receive reg- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Revenues 6.5% 9.0% 5.5% the grounding of all 737 Max 8 planes, fol- ulatory approval within the following few ‘‘Cash Flow’’ 10.5% 17.5% 10.5% lowing two crashes that claimed the lives weeks. More than a month has now passed Earnings 12.5% 20.5% 12.0% of 346 individuals. Expenses related to the and there still has not been any certifica- Dividends 14.5% 25.5% 11.0% Book Value -17.0% -40.0% NMF catastrophes, in addition to lost/delayed tion. In addition, even after approval has sales of new 737s, caused Boeing to been granted, Boeing, and the airlines that Cal-QUARTERLY REVENUES ($ mill.) Full sustain a huge share loss of $5.21 in the fly 737 Max 8s, will have to deal with cus- endarMar.31 Jun.30 Sep.30 Dec.31 Year June quarter. The bottom-line perform- tomer concerns in regard to safety. It is 2016 22632 24755 23898 23286 94571 ance for the September interim was better, certainly plausible that a meaningful per- 2017 20976 22739 24309 25368 93392 but still represented a hefty year-over-year centage of flyers will avoid these aircraft 2018 23382 24258 25146 28341 101127 decline. For full-year 2019, we now expect in favor of other planes. Furthermore, 2019 22917 15751 19980 22352 81000 2020 28000 28500 29500 30000 116000 profits of just $2.80, compared to our pre- Boeing announced that it has settled a viously depressed estimate of $5.05. Our number of wrongful death suits related to Cal-EARNINGS PER SHARE A Full new call works out to a near-85% drop the two crashes; financial terms were not endarMar.31 Jun.30 Sep.30 Dec.31 Year from 2018’s tally. We have also, once disclosed. It is likely that additional settle- 2016 1.83 2.86 3.60 2.59 10.84 again, lowered our 2020 earnings-per- ments and/or court cases will arise over 2017 2.34 2.89 3.06 3.44 11.71 share estimate, which now stands at the months/years ahead. Boeing will also 2018 4.15 3.73 4.07 5.93 17.86 2019 3.75 d5.21 2.05 2.21 2.80 $21.00 (previously it was $23.00). To deal have to absorb the hit to its reputation, 2020 3.75 5.00 5.75 6.50 21.00 with the 737 fallout, Boeing recently potential government fines, and possible slowed its share repurchases and in- delivery delays (or order cancelations) for B ■ Cal-QUARTERLY DIVIDENDS PAID Full creased its long-term debt commitments new 737s. All told, getting the Max 8s endarMar.31 Jun.30 Sep.30 Dec.31 Year by about $6 billion. A higher-than- back in the air is only part of the solution. 2015 .91 .91 .91 .91 3.64 expected share count coupled with in- We continue to recommend that inves- 2016 1.09 1.09 1.09 1.09 4.36 creased interest payments were also cata- tors avoid this stock. There are just too 2017 1.42 1.42 1.42 1.42 5.68 lysts for our reduced profit outlook. many unknowns at this time. 2018 1.71 1.71 1.71 1.71 6.84 2019 2.06 2.06 2.06 2.06 Management expects that the 737s Ian Gendler December 6, 2019 (A) Diluted egs. Excl. nonrecur. gns./losses: total due to round’g. Next egs. rpt. due late Depr. on accelerated basis. Company’s Financial Strength A++ ’03, d11¢; ’04, 67¢; ’05, 72¢; ’06, d54¢; ’07, 2¢; Jan. (B) Div’ds paid in early Mar., Jun., Sept., Stock’s Price Stability 65 ’08, 2¢; ’09, d3¢; ’10, 45¢; ’11, 52¢; ’15, d77¢; Dec. ■ Div’d rein. plan avail. (C) Incl intang. In Price Growth Persistence 90 ’16, d$3.23; ’17, $1.72. EPS may not sum to 2018: $11.3 bill., $19.91/sh. (D) In millions. (E) Earnings Predictability 50 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 51.0 RELATIVE DIV’D VALUE BOMBARDIER INC. ‘B’ TSE-BBDB.TO E PRICE 2.04RATIO NMF()Median: 15.0 P/E RATIO NMFYLD Nil LINE 707 TIMELINESS 5 Lowered 4/5/19 High: 9.0 5.4 6.2 7.3 4.9 5.4 4.7 4.2 2.3 3.2 5.6 3.0 Target Price Range Low: 3.2 2.2 4.3 3.3 3.0 3.8 3.4 1.0 0.7 1.9 1.6 1.5 2022 2023 2024 SAFETY 5 Lowered 3/11/16 LEGENDS 6.5 x ″Cash Flow″ psh TECHNICAL 3 Lowered 11/15/19 .... Relative Price Strength 20 Options: Yes 16 BETA 1.10 (1.00 = Market) Shaded area indicates recession 12 18-Month Target Price Range Low-High Midpoint (% to Mid) 8 6 $1-$6 $4 (80%) 5 2022-24 PROJECTIONS 4 Ann’l Total Price Gain Return 3 High 10 (+390%) 50% Low 6 (+195%) 32% 2 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 24 to Buy 032 1 yr. -48.0 4.9 shares 16 3 yr. -6.7 30.2 to Sell 301traded 8 Hld’s(000) 2337 3614 000 5 yr. -55.0 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 .77 .83 .87 .85 1.00 .81 .93 1.00 .98 1.01 .94 .86 .75 .74 .79 .78 .78 .78 Trans. Rate (Cdn.$/US$) .78 12.19 10.90 9.70 10.05 10.12 14.02 12.04 10.26 10.86 9.66 11.10 13.41 10.91 9.87 9.33 8.40 8.65 9.05 Sales per sh AE 9.65 .32 .31 .43 .50 .56 1.09 .74 .67 .68 .54 .57 .70 .33 d.40 d.15 .30 .40 .45 ‘‘Cash Flow’’ per sh .95 d.13 d.07 .09 .12 .26 .70 .42 .42 .48 .32 .33 .41 .10 d.64 d.31 .10 .01 .05 Earnings per sh AB .70 .09 .09 ------.05 .11 .10 .10 .10 .10 .12 ------Nil Nil Div’ds Decl’d per sh C Nil .24 .21 .22 .21 .25 .44 .50 .63 .89 1.23 1.44 1.32 1.13 .77 .80 .65 .70 .75 Cap’l Spending per sh .75 1.55 1.35 1.37 1.62 1.60 1.56 2.13 2.32 .19 .57 1.27 d.22 d2.62 d3.38 d3.53 d2.10 d2.05 d2.00 Book Value per sh d.45 1749.6 1750.4 1745.0 1740.0 1730.0 1730.4 1730.0 1726.0 1723.9 1730.4 1739.3 1739.7 2220.2 2193.0 2193.7 2475.5 2495.5 2495.5 Common Shs Outst’g F 2650.0 - - - - 30.1 29.8 21.1 8.5 9.6 12.1 11.2 12.2 13.7 9.6 20.8 - - NMF 38.2 Bold figures are Avg Ann’l P/E Ratio 11.5 - - - - 1.60 1.61 1.12 .51 .64 .77 .70 .78 .77 .51 1.05 - - NMF 2.07 Value Line Relative P/E Ratio .65 1.9% 2.2% ------.8% 2.7% 2.0% 1.9% 2.6% 2.2% 3.0% ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 20824 17712 18714 16715 19299 23327 24229 21644 20477 20815 21155 22565 Sales ($mill) A 25610 Total Debt $11950 mill. Due in 5 Yrs $5756 mill. 8.1% 8.4% 8.3% 6.7% 6.5% 6.9% 4.6% 4.1% 5.1% 7.8% 7.5% 6.9% Operating Margin 11.3% LT Debt $11950 mill. LT Interest $748.0 mill. 535.5 410.0 339.7 369.8 415.7 483.7 584.0 491.0 396.0 350 550 575 Depreciation ($mill) 640 (Interest not covered) 760.2 769.0 853.7 596.1 608.2 751.6 166.0 d1354 d698.0 405 495 530 Net Profit ($mill) 1890 22.7% 17.4% 19.5% 14.3% 25.8% 16.3% 39.4% - - 39.4% 14.5% 22.5% 22.5% Income Tax Rate 22.5% Pfd Stock $445.0 mill. Div’d $32.0 mill. 3.7% 4.3% 4.6% 3.6% 3.2% 3.2% .7% NMF NMF 1.9% 1.6% 2.0% Net Profit Margin 7.4% 21.4 mill. cum. redeemable variable-rate shs. d1389 d1066 1334.2 899.1 909.0 d366.6 372.0 1805.0 2319.0 d44.0 1750 1850 Working Cap’l ($mill) 2150 4475.4 4635.0 4843.0 5343.0 7429.8 8846.6 11877 11575 11616 11655 11950 11950 Long-Term Debt ($mill) 15245 Common Stock 2,396,488,944 shs. 4052.8 4352.0 684.4 1326.8 2579.4 48.7 d5423 d6945 d7199 d5146 d5100 d4955 Shr. Equity ($mill) G d1190 Incl. 308.7 million Class A 10-Vote Shares 10.7% 10.0% 16.9% 9.5% 7.5% 10.1% 6.9% NMF NMF NMF NMF NMF Return on Total Cap’l NMF MARKET CAP: $4.9 bill. (Large Cap) 18.8% 17.7% NMF 44.9% 23.6% NMF - - - - NMF NMF NMF NMF Return on Shr. Equity NMF CURRENT POSITION 2017 2018 9/30/19 15.5% 14.3% NMF 35.5% 18.1% NMF - - - - NMF NMF NMF NMF Retained to Com Eq NMF ($MILL.) 25% 26% 19% 42% 34% 28% 15% NMF NMF NMF Nil Nil All Div’ds to Net Prof Nil Cash Assets 2988 3187 2891 Receivables 1231 1575 2277 BUSINESS: Bombardier Inc. operates two business segments: region: Canada, 7%; U.S., 31%; Europe, 40%; Other, 22%. Has ap- Inventory D 5890 4402 6669 Aviation (49% of companywide revenues in 2018) makes or sells proximately 70,900 employees. Beaudoin family owns about 81% Other 5004 3184 5153 business jets (57% of segment total, with Lear, Challenger and of Class A shares and has voting control (4/19 proxy). Chairman: Current Assets 15113 12348 16990 Global); Transportation (51%) produces rail cars and related prod- Pierre Beaudoin. CEO: Alain Bellemare. Inc.: Que´bec. Address: Accts Payable 4194 4634 5694 ucts/systems. Sold C-Series commercial airliner to Airbus mid- 800 Rene´-Le´vesque Boulevard West, Montre´al, H3B 1Y8, PQ, Debt Due ------Other 9082 7758 11587 2018. Sold CRJ regional airliners to Mitsubishi mid-2019. Sales by Canada. Telephone: 514-861-9481. Internet: www.bombardier.com. Current Liab. 13276 12392 17281 Bombardier posted mixed results for business jet available in the market and ANNUAL RATES Past Past Est’d ’16-’18 the third quarter. Revenue grew 2.2% to proved its range with a flight from Sydney, of change (per share) 10 Yrs. 5 Yrs. to ’22-’24 $3.7 billion as reported in U.S. dollars. Australia to Detroit. Sales - - -.5% 2.0% (Because the shares trade in Canadian Bombardier Transportation has over- ‘‘Cash Flow’’ - - - - 7.0% Earnings - - - - 8.5% dollars, we translate results.) However, come software issues with recently Dividends - - - - Nil adjusting for currency effects and divesti- delivered fleets of trains. The problems Book ValueG -- -- Nil tures, the company achieved organic arose with a number of complex legacy Cal-QUARTERLY SALES ($ mill.) AE Full growth of 8%. Profitability was down, how- projects and have since been resolved. This endarMar.31 Jun.30 Sep.30 Dec.31 Year ever, as EBITDA of $255 million decreased has enabled the company to move towards 2016 5185 5708 4949 5802 21644 23% year to year, creating a margin of winding up deliveries on projects in New 2017 4514 5167 4842 5954 20477 6.9% versus the previous-year 7.4%. Ac- York, the United Kingdom, and other 2018 5164 5540 4670 4811 20815 counting for the weaker showing were countries. Management expects increasing 2019 4507 5565 4772 6311 21155 pending product launches in both seg- free cash flow in coming quarters. 2020 5640 5640 5645 5640 22565 ments (discussed below). In many respects, The company has announced a defini- Cal-EARNINGS PER SHARE AB Full it was a transitional quarter as the compa- tive agreement to sell the Aerostruc- endarMar.31 Jun.30 Sep.30 Dec.31 Year ny prepares to release working capital tures arm to Spirit Aerosystems. Con- 2016 d.09 d.32 d.05 d.16 d.64 built in advance of these launches. Con- sideration includes $500 million in cash 2017 d.03 d.16 d.06 d.06 d.31 verting inventory to free cash flow remains and the assumption of $700 million in 2018 .01 .03 .04 .02 .10 a key focus of management. liabilities. Spirit will continue to provide 2019 .10 d.04 d.06 .01 .01 Bombardier Aviation plans major Bombardier components and spare parts 2020 .01 .01 .01 .02 .05 launches in its Global family of large for the Global, Challenger, and Learjet Cal-QUARTERLY DIVIDENDS PAID C Full business jets. The company this quarter families of business jets. endarMar.31 Jun.30 Sep.30 Dec.31 Year received certification of its Global 5500 Bombardier shares are ranked 5 2015 ------and 6500 jets from the European Aviation (Lowest) for both Timeliness and 2016 ------Safety Agency. It also confirmed both the Safety. Appreciation potential to 2022- 2017 ------Global 5500 and the Global 7500 achieved 2024 is indeed wide, though the issue is 2018 ------the greatest range of any aircraft in their unsuitable for most investors. 2019 ------respective classes. The latter is the largest Glenn Pierr Johnson December 6, 2019 (A) Fisc. years end 1/31 through fiscal 2011, EPS may not sum to total due to rounding or (D) Net realizable value. Company’s Financial Strength C and calendar yearend thereafter. translation effects. Next EPS report due early (E) All data in Canadian dollars. Toronto Tick- Stock’s Price Stability 5 (B) Based on dil. egs. Excl. nonrec. February. er: BBD-B. (F) In millions. (G) Shr. equity Price Growth Persistence 10 gains/(losses): ’03, 6¢; ’07, (10¢); ’15, ($3.54). (C) Suspended dividend as of 2/15. declined materially in ’11 due to IFRS adoption. Earnings Predictability 20 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 27.5 RELATIVE DIV’D VALUE CAE INC. TSE-CAE.TO D PRICE 35.50RATIO 24.0()Median: 17.0 P/E RATIO 1.36YLD 1.2% LINE 708 TIMELINESS 2 Raised 11/22/19 High: 14.0 9.5 11.7 13.4 11.2 13.8 15.5 16.5 20.0 23.6 28.2 36.9 Target Price Range Low: 5.6 6.1 8.5 9.0 9.3 9.8 13.1 13.3 13.1 18.3 21.1 24.6 2022 2023 2024 SAFETY 3 Raised 6/27/03 LEGENDS 14.5 x ″Cash Flow″ psh TECHNICAL Lowered 10/4/19 .... Relative Price Strength 80 3 Options: No BETA .70 (1.00 = Market) Shaded area indicates recession 60 50 18-Month Target Price Range 40 Low-High Midpoint (% to Mid) 30 25 $30-$53 $42 (15%) 20 2022-24 PROJECTIONS 15 Ann’l Total Price Gain Return 10 High 60 (+70%) 15% Low 40 (+15%) 4% 7.5 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 9 to Buy 81 92 96 1 yr. 44.2 4.9 shares 6 3 yr. 83.4 30.2 to Sell 90 77 90 traded 3 Hld’s(000) 134974 125281 137603 5 yr. 148.6 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 4.43 4.11 4.42 4.97 5.61 6.51 5.95 6.35 7.05 8.11 8.02 8.42 9.32 10.08 10.57 12.45 14.10 14.85 Sales per sh A 17.35 .61 .54 .66 .80 .96 1.15 1.02 1.04 1.20 1.36 1.36 1.48 1.70 1.75 1.89 2.12 2.30 2.45 ‘‘Cash Flow’’ per sh 3.25 .32 .19 .35 .52 .65 .79 .66 .66 .70 .74 .73 .76 .89 .94 1.11 1.25 1.40 1.55 Earnings per sh AB 2.35 .12 .12 .04 .04 .04 .10 .12 .15 .16 .19 .22 .26 .29 .31 .34 .38 .42 .43 Div’ds Decl’d per sh C■ .50 .38 .49 .52 .63 .75 .80 .51 .45 .64 .60 .60 .53 .44 .83 .65 .95 1.05 1.05 Cap’l Spending per sh 1.10 3.73 2.71 2.69 3.30 3.73 4.72 4.51 4.95 3.96 4.25 5.47 6.04 7.20 7.75 8.84 8.78 9.70 10.45 Book Value per sh 14.30 246.65 240.07 250.70 251.86 253.97 255.15 256.52 256.52 258.27 259.40 263.77 266.90 269.63 268.40 267.74 265.45 266.00 266.00 Common Shs Outst’g E 268.00 17.1 28.5 22.2 19.4 19.9 11.8 12.6 16.4 15.8 13.8 16.6 19.1 16.7 19.0 19.9 21.0 Bold figures are Avg Ann’l P/E Ratio 21.5 .97 1.51 1.18 1.05 1.06 .71 .84 1.04 .99 .88 .93 1.01 .84 1.00 1.00 1.14 Value Line Relative P/E Ratio 1.20 2.2% 2.2% .5% .4% .3% 1.1% 1.4% 1.4% 1.4% 1.9% 1.8% 1.8% 2.0% 1.7% 1.5% 1.4% estimates Avg Ann’l Div’d Yield 1.1% CAPITAL STRUCTURE as of 9/30/19 1526.3 1629.0 1821.2 2104.5 2114.9 2246.3 2512.6 2704.5 2830.0 3304.1 3750 3950 Sales ($mill) A 4650 Total Debt $2665.3 mill. Due in 5 Yrs $615.0 mill. 23.5% 21.9% 25.9% 21.3% 19.3% 20.7% 20.5% 20.3% 20.5% 19.4% 21.0% 21.5% Operating Margin 24.5% LT Debt $2434.0 mill. Total Interest $125.0 mill. 94.0 97.9 127.4 157.3 167.1 190.5 217.8 211.9 199.6 217.2 235 235 Depreciation ($mill) 245 (Total interest coverage: 5.0x) (51% of Cap’l) 168.6 169.8 182.0 194.3 191.1 204.1 239.9 257.1 306.1 345.3 370 410 Net Profit ($mill) 625 Leases, Uncapitalized Annual rentals $50.7 mill. 29.2% 25.7% 24.0% 21.1% 13.6% 22.1% 7.8% 12.0% 5.8% 16.0% 17.0% 17.0% Income Tax Rate 18.0% Pension Assets-3/19 $543.7 mill. 11.0% 10.4% 10.0% 9.2% 9.0% 9.1% 9.5% 9.5% 10.8% 10.5% 9.9% 10.4% Net Profit Margin 13.5% Oblig. $664.4 mill. 221.4 259.3 264.7 331.0 386.3 523.4 556.7 645.8 740.2 223.4 450 450 Working Cap’l ($mill) 925 Pfd Stock None 441.6 443.8 685.6 1097.0 1117.9 1224.3 1153.6 1203.5 1208.7 2064.2 2425 2375 Long-Term Debt ($mill) 2225 1155.8 1269.4 1021.9 1102.7 1441.6 1612.7 1940.3 2081.0 2366.6 2331.3 2575 2775 Shr. Equity ($mill) 3825 Common Stock 265,897,286 shs. 11.4% 10.8% 11.8% 10.0% 8.5% 8.3% 8.8% 8.8% 9.3% 8.6% 8.5% 9.0% Return on Total Cap’l 11.5% 14.6% 13.4% 17.8% 17.6% 13.3% 12.7% 12.4% 12.4% 12.9% 14.8% 14.5% 15.0% Return on Shr. Equity 16.5% MARKET CAP: $9.4 billion (Large Cap) 12.0% 10.4% 14.5% 14.3% 10.5% 9.8% 9.4% 8.5% 9.2% 10.5% 10.0% 10.5% Retained to Com Eq 12.5% CURRENT POSITION 2017 2018 9/30/19 18% 22% 18% 19% 21% 23% 24% 31% 29% 29% 30% 30% All Div’ds to Net Prof 24% ($MILL.) Cash Assets 611.5 446.1 222.5 BUSINESS: CAE Inc. is a leading global provider of simulation and Security, 40%; Healthcare, 3%. Acquired Oxford Aviation Receivables 568.4 496.0 520.7 technologies as well as training services to commercial airlines, Academy, 5/12. About 92% of revenues come from worldwide ex- Inventory (Avg Cst) 375.3 537.0 577.5 Other 505.6 633.8 692.8 manufacturers, and military forces. Has 160 sites and training loca- ports and international activities. Has over 10,000 employees. Current Assets 2060.8 2112.9 2013.5 tions in over 35 countries. Each year, it trains over 220,000 civil and Chairman: John Manley. President & CEO: Marc Parent. Inc.: Can- Accts Payable 669.6 872.2 741.5 defense crew members worldwide. Civil Aviation Training Solutions ada. Address: 8585 Cote-de-Liesse, Saint-Laurent, Quebec, Cana- Debt Due 52.2 201.3 231.3 segment accounted for about 57% of fiscal 2018 sales; Defense da H4T 1G6. Telephone: 866-999-6223. Internet: www.cae.com. Other 598.8 816.0 731.3 Current Liab. 1320.6 1889.5 1704.1 CAE reported solid fiscal second- half. Operating income in the September quarter results (period ended Septem- interim was down 24% year over year, to ANNUAL RATES Past Past Est’d ’16-’18 ber 30th). Share net increased 22% year $26 million. This was due to order delays of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Sales 7.0% 7.5% 8.0% over year, off of a similar advance in reve- on higher-margin products and the timing ‘‘Cash Flow’’ 7.0% 8.0% 9.0% nues. Performance was driven by the Civil of contracts in backlog. On the plus side, Earnings 5.5% 8.5% 13.5% Aviation segment (more below), while the the bidding pipeline remains strong, with Dividends 19.0% 12.5% 8.5% Book Value 8.0% 13.0% 9.0% $995 million in orders booked in the $4.1 billion in proposals in the hands of quarter helped lift the companywide back- customers awaiting decisions. Based on Fiscal A Full Year QUARTERLY SALES ($ mill.) Fiscal log 7%, to over $9.2 billion. the expected timing of new contract Begins Jun.30 Sep.30 Dec.31 Mar.31 Year The Civil Aviation segment continues awards, management looks for the division 2016 651.6 635.5 682.7 734.7 2704.5 to perform well. Operating income for to generate modest operating income 2017 698.9 646.0 704.4 780.7 2830.0 the division catapulted 58% higher versus growth in fiscal 2019. 2018 722.0 743.8 816.3 1022.0 3304.1 the year-ago period, to $100 million. The These shares should appeal to long- 2019 825.6 896.8 940 1087.6 3750 2020 875 950 975 1150 3950 company booked $603 million in new con- term, conservative accounts. tracts, including long-term pilot training Altogether, the company appears on Fiscal AB Full Year EARNINGS PER SHARE Fiscal agreements with Sunwing Airlines, course for double-digit earnings advances Begins Jun.30 Sep.30 Dec.31 Mar.31 Year Loganair, and Flightworks. After the end this year and next. Looking further out, 2016 .26 .21 .25 .31 1.03 of the quarter, CAE inked a long-term ex- prospects for continued growth in the out- 2017 .24 .22 .28 .37 1.11 clusive deal to train more than 1,000 cadet sourcing of civil and military flight train- 2018 .26 .23 .29 .48 1.25 2019 .24 .28 .37 .51 1.40 pilots for easyJet. Additionally, it signed ing appear solid. Our 3- to 5-year projec- 2020 .32 .36 .40 .47 1.55 an exclusive 15-year training center opera- tions suggest the shares have about- tions agreement with Saudi National Com- average price appreciation potential over C■ Cal-QUARTERLY DIVIDENDS PAID Full pany of Aviation. Based on the strong that span. However, the investment case endarMar.31 Jun.30 Sep.30 Dec.31 Year first-half performance, management now is more compelling when considering the 2015 .07 .07 .075 .075 .29 expects operating income in the segment high scores for Stock Price Stability and 2016 .075 .075 .08 .08 .31 to grow close to 30% this fiscal year. Earnings Predictability, as well as the 2017 .08 .08 .09 .09 .34 Meanwhile, the Defense segment ap- modest dividend yield. 2018 .09 .09 .10 .10 .38 2019 .10 .10 .11 pears set to have a stronger second Mario Ferro December 6, 2019 (A) Fiscal year ends 3/31 of following calendar ’16, (10¢); ’17, 18¢; ’18, (2¢); ’19, (1¢). Discon- subject to 15% tax. Div’ds. paid late March, Company’s Financial Strength B+ year. (B) Primary egs. Excl.: extraord. loss: ’05, tinued operations: ’03, (2¢); ’04, ($1.42); ’05, June, Sept., and Dec. ■Div’d reinv. plan avail. Stock’s Price Stability 95 (7¢); nonrec. gains/(losses): ’04, $1.44; ’09, (2¢); ’07, (5¢); ’13, 1¢; ’15, (4¢). Next earnings (D) All data in Can. dollars. Also trades on Price Growth Persistence 70 (10¢); ’11, (1¢); ’12, (20¢); ’13, 3¢; ’15, (3¢); report due early February. (C) Non-residents NYSE under ticker CAE. (E) In millions. Earnings Predictability 95 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 25.1 RELATIVE DIV’D VALUE ELBIT SYSTEMS NDQ-ESLT PRICE 164.00RATIO 27.8()Median: 15.0 P/E RATIO 1.57YLD 1.2% LINE 709 TIMELINESS 3 Lowered 12/6/19 High: 64.2 70.7 66.7 57.3 42.8 61.4 64.7 90.4 105.5 153.1 151.9 166.8 Target Price Range Low: 35.6 40.2 46.7 34.6 29.6 37.0 54.6 59.6 79.7 101.4 109.8 113.6 2022 2023 2024 SAFETY 3 Lowered 12/13/13 LEGENDS 9.0 x ″Cash Flow″ psh 320 TECHNICAL Lowered 12/6/19 .... Relative Price Strength 2 Options: No BETA .85 (1.00 = Market) Shaded area indicates recession 200 18-Month Target Price Range 160 Low-High Midpoint (% to Mid) 120 100 $136-$217 $177 (10%) 80 2022-24 PROJECTIONS 60 Ann’l Total Price Gain Return 40 High 165 (Nil) 2% Low 110 (-35%) -8% % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 18 4Q2018 1Q2019 2Q2019 Percent 3 to Buy 69 54 48 1 yr. 38.9 4.9 shares 2 3 yr. 72.9 30.2 to Sell 53 57 54 traded 1 Hld’s(000) 3385 3398 3569 5 yr. 192.1 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 22.83 23.17 26.12 36.25 47.12 62.70 66.60 62.54 66.13 68.97 68.69 69.30 72.73 76.27 79.01 86.16 98.10 105.95 Revenues per sh 126.65 2.13 2.35 2.07 3.11 4.19 7.93 7.96 7.39 5.88 7.34 7.33 6.87 7.60 8.42 8.26 8.94 8.65 9.65 ‘‘Cash Flow’’ per sh 13.00 1.14 1.29 .78 1.72 1.81 4.78 5.00 4.25 2.31 3.98 4.33 4.01 4.74 5.54 5.59 6.18 5.80 6.20 Earnings per sh A 8.50 .38 .35 .53 .59 .65 .80 1.58 1.44 1.44 1.20 1.20 1.26 1.44 1.60 1.76 1.76 1.84 2.00 Div’ds Decl’d per sh B 2.20 1.56 1.31 1.43 1.54 2.48 3.07 2.54 3.25 2.86 1.95 1.48 1.67 2.32 2.91 2.52 2.39 2.50 2.50 Cap’l Spending per sh 2.75 11.49 10.72 11.00 11.75 12.77 17.20 19.58 22.64 21.08 24.29 27.64 28.74 32.63 36.49 39.96 42.86 49.35 53.25 Book Value per sh D 76.10 39.34 40.56 40.97 42.02 42.06 42.08 42.53 42.69 42.61 41.88 42.59 42.69 42.73 42.75 42.75 42.75 44.60 44.60 Common Shs Outst’g C 45.00 15.1 15.7 30.4 16.0 24.3 11.2 11.4 13.1 20.5 9.1 10.6 15.0 16.1 17.1 22.7 20.3 Bold figures are Avg Ann’l P/E Ratio 16.0 .86 .83 1.62 .86 1.29 .67 .76 .83 1.29 .58 .60 .79 .81 .90 1.14 1.09 Value Line Relative P/E Ratio .90 2.2% 1.7% 2.2% 2.1% 1.5% 1.5% 2.8% 2.6% 3.0% 3.3% 2.6% 2.1% 1.9% 1.7% 1.4% 1.4% estimates Avg Ann’l Div’d Yield 1.6% CAPITAL STRUCTURE as of 9/30/19 2832.4 2670.1 2817.5 2888.6 2925.2 2958.2 3107.6 3260.2 3377.8 3683.7 4375 4725 Revenues ($mill) 5700 Total Debt $834.6 mill. Due in 5 Yrs $445.0 mill. 13.6% 12.7% 9.5% 11.8% 12.6% 12.5% 12.6% 12.4% 12.8% 12.5% 8.0% 9.0% Operating Margin 13.0% LT Debt $475.5 mill. LT Interest $42.0 mill. 123.5 132.1 150.6 138.8 129.3 122.4 122.4 122.9 114.0 118.2 135 155 Depreciation ($mill) 200 (LT int. earned: 7.6x; total int. coverage: 4.8x) (18% of Cap’l) 214.9 183.5 99.8 168.5 182.7 171.0 202.5 236.9 239.1 264.1 250 275 Net Profit ($mill) 385 Leases, Uncapitalized: Annual rentals $65.5 mill. 15.4% 12.1% 19.3% 9.7% 12.5% 12.8% 18.6% 16.3% 19.5% 9.0% 17.0% 17.0% Income Tax Rate 17.0% 7.6% 6.9% 3.5% 5.8% 6.2% 5.8% 6.5% 7.3% 7.1% 7.2% 5.7% 5.8% Net Profit Margin 6.8% Pension Assets-12/18 $164.3 mill. 403.7 381.5 237.1 375.3 560.9 606.8 645.0 527.2 522.1 368.5 450 500 Working Cap’l ($mill) 800 Oblig. $628.4 mill. 386.5 565.4 537.6 582.4 602.0 514.6 392.7 171.5 244.4 524.0 475 475 Long-Term Debt ($mill) 700 Pfd Stock None 832.9 966.7 898.3 1017.1 1177.0 1226.7 1394.3 1559.8 1708.3 1832.5 2200 2375 Shr. Equity ($mill) 3425 Common Stock 43,600,000 shs. 18.0% 12.3% 7.4% 11.1% 10.7% 10.1% 11.5% 14.3% 12.7% 11.6% 10.0% 10.5% Return on Total Cap’l 11.0% 25.8% 19.0% 11.1% 16.6% 15.5% 13.9% 14.5% 15.2% 14.0% 14.4% 11.5% 11.5% Return on Shr. Equity 11.0% MARKET CAP: $7.1 billion (Large Cap) 16.7% 12.5% 4.2% 11.6% 9.1% 8.4% 9.5% 10.8% 9.6% 10.3% 7.5% 8.0% Retained to Com Eq 8.5% CURRENT POSITION 2017 2018 9/30/19 35% 34% 62% 30% 41% 40% 34% 29% 31% 29% 32% 32% All Div’ds to Net Prof 26% ($MILL.) Cash Assets 172.6 244.9 169.8 BUSINESS: Elbit Systems Ltd. develops, manufactures, and in- platforms and provides avionic and aerostructure products for the Receivables 1406.6 1712.9 1882.5 tegrates advanced defense electronics and electro-optic systems. It commercial market. About 12,780 empl. Off. & dir., incl. Federmann Inventory (Avg Cst) 902.9 1141.9 1375.9 Other 128.9 179.2 172.0 focuses on command, control, communication, computer, in- Enterprises, owns 45.8% of stk.; Heris Aktiengesellschaft, 8.97% Current Assets 2611.0 3278.9 3600.2 telligence, surveillance & reconnaissance network centric systems, (3/19, 20-F). Chairman: M. Federmann. Pres. & CEO: B. Machlis. Accts Payable 633.7 776.1 793.3 incl. unmanned vehicles for defense and homeland security. Also Inc.: Israel. Addr.: Advanced Technology Center, Haifa 3100401, Is- Debt Due 201.3 271.4 359.1 performs upgrade programs for airborne, land, and naval defense rael. Tel.: 974-4-831-6404. Internet: www.elbitsystems.com. Other 1253.9 1863.0 1941.2 Current Liab. 2088.9 2910.5 3093.6 In the year ahead, Elbit Systems prob- Too, management indicated it is exploring ably will continue to focus on realiz- additional opportunities to realize revenue ANNUAL RATES Past Past Est’d ’16-’18 ing the expected synergies from the and expense synergies beyond those al- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Revenues 5.0% 3.5% 8.0% company’s November, 2018 acquisi- ready identified. ‘‘Cash Flow’’ 5.5% 4.5% 7.5% tion of Israel-based IMI Systems. IMI The company won a number of new Earnings 7.5% 10.5% 6.5% designs and manufactures precision muni- contracts in recent months. These in- Dividends 9.5% 6.0% 4.5% Book Value 11.0% 10.5% 11.5% tions and armored vehicles. The purchase clude one valued at $153 million to supply accounted for much of the increase in El- the army of a Southeast Asian nation with Cal-QUARTERLY REVENUES ($ mill.) Full bit’s revenues in the September quarter. unmanned aircraft systems, as well as a endarMar.31 Jun.30 Sep.30 Dec.31 Year But both gross and operating margins $50 million contract to supply the 2016 721.2 804.5 780.8 953.7 3260.2 contracted, no doubt reflecting the recently Portuguese Air Force with a suite of elec- 2017 749.2 818.3 800.7 1009.6 3377.8 acquired operations. Too, Elbit’s fiancial tronic warfare products, including radar 2018 818.5 892.2 895.2 1077.8 3683.7 expenses were boosted by exchange rate and laser warning systems, for KC-390 2019 1021.7 1063.9 1101.2 1188.2 4375 2020 1110 1165 1150 1300 4725 differences related to the recognition of multimission aircraft. In recent years, lease liabilities denominated in foreign budgetary pressures have created the need Cal-EARNINGS PER SHARE A Full currencies, mainly in Israeli Shekels. Elbit for leaner, but more technologically ad- endarMar.31 Jun.30 Sep.30 Dec.31 Year may end 2019 on a weak note. Our earn- vanced, defense forces worldwide, boosting 2016 1.22 1.27 1.48 1.57 5.54 ings presentation excludes acquisition- demand for Elbit’s high-tech defense and 2017 1.07 1.46 1.44 1.62 5.59 related and other one-time items, notably homeland security offerings. 2018 1.28 1.35 1.63 1.91 6.18 2019 1.54 1.46 1.33 1.47 5.80 a gain on the sale and leaseback of build- Most investors may want to wait for a 2020 1.50 1.60 1.50 1.60 6.20 ings in Israel, that added $0.30 to reported better entry point before considering B share net in the September term. For the Elbit shares. The issue’s Timeliness rank Cal-QUARTERLY DIVIDENDS PAID Full first nine months of 2019, however, one- has slipped a notch, to 3 (Average). The endarMar.31 Jun.30 Sep.30 Dec.31 Year time items reduced share net by $0.28. dividend yield falls short of the Value Line 2015 - - .70 .37 .37 1.44 The outlook for 2020 is better. Elbit’s median. And the stock’s strength has left 2016 - - .80 .40 .40 1.60 backlog of orders was up 21% at the end of it with little total return potential to the 2017 - - .88 .44 .44 1.76 2018 - - .88 .44 .44 1.76 September, which suggests revenue 2022-2024 time frame. 2019 - - .88 .44 .44 growth will remain strong in the new year. Theresa Brophy December 6, 2019 (A) Based on diluted shares. Next earnings (B) Dividends historically paid in mid-April, (D) Includes intangibles. On 9/30/19: $1.628 Company’s Financial Strength B++ report due mid-Feb. Excludes nonoperating June, September, and December. billion, $37.35/sh. Stock’s Price Stability 80 loss: ’18, $0.68; ’19, $0.60. (C) In millions. Price Growth Persistence 70 Earnings Predictability 70 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: NMF RELATIVE DIV’D VALUE EMBRAER SA (ADR) NYSE-ERJ PRICE 17.05RATIO NMF()Median: 19.0 P/E RATIO NMFYLD Nil LINE 710 TIMELINESS – Suspended 12/29/17 High: 48.5 25.3 31.4 35.4 35.6 39.5 40.5 37.8 30.7 26.3 28.5 23.7 Target Price Range Low: 12.2 9.3 19.9 21.0 22.6 26.5 29.8 23.2 17.1 17.6 18.0 15.9 2022 2023 2024 SAFETY 3 New 12/9/16 LEGENDS 10.0 x ″Cash Flow″p ADR 64 TECHNICAL – Suspended 12/29/17 .... Relative Price Strength Options: Yes 48 BETA .90 (1.00 = Market) Shaded area indicates recession 40 18-Month Target Price Range 32 Low-High Midpoint (% to Mid) 24 20 $16-$44 $30 (75%) 16 2022-24 PROJECTIONS 12 Ann’l Total Price Gain Return 8 High 35 (+105%) 20% Low 25 (+45%) 11% 6 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 18 to Buy 75 71 69 1 yr. -22.0 4.9 shares 12 3 yr. -17.2 30.2 to Sell 86 78 71 traded 6 Hld’s(000) 80611 82315 81033 5 yr. -53.3 36.8 With the support of the Brazilian Govern- 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 ment, Embraer was founded on August 19, 30.21 28.98 31.35 33.37 33.68 34.23 32.18 33.86 31.86 27.58 28.75 33.40 Revenues per ADR 34.60 1969 as Empresa Brasiliera de Aeronautica 1.85 2.34 1.19 2.63 2.64 2.74 1.25 1.96 2.42 d.10 .45 1.75 ‘‘Cash Flow’’ per ADR 2.80 S.A. and it has since grown into one of the 1.36 1.82 .62 1.92 1.88 1.84 .36 .90 1.36 d.96 d.60 .65 Earnings per ADR A 1.65 major players in the global aeronautical in- .55 .82 .61 .41 .46 .56 .21 .16 .28 .21 .01 Nil Div’ds Decl’d per ADR B .36 dustry. The company’s shares trade on the .57 .81 1.81 1.77 2.36 1.54 1.85 2.14 1.30 .84 1.10 2.05 Cap’l Spending per ADR 2.05 Sao Paulo, Brazil and New York stock ex- 12.92 16.36 16.25 17.60 19.09 20.49 20.31 20.96 22.20 20.92 21.95 22.55 Book Value per ADR C 25.70 changes. 180.92 185.12 185.12 185.12 185.12 183.74 184.24 183.64 183.26 183.87 183.50 184.00 Equiv ADRs Outst’g 185.00 CAPITAL STRUCTURE as of 12/31/18 13.7 13.7 47.4 14.7 17.9 19.6 NMF 24.7 15.5 NMF Bold figures are Avg Ann’l P/E Ratio 18.0 .91 .87 2.97 .94 1.01 1.03 NMF 1.30 .78 NMF Value Line Relative P/E Ratio 1.00 Total Debt $3884.7 mill. Due in 5 Yrs $3468 mill. 3.0% 3.3% 2.1% 1.5% 1.4% 1.6% .7% .7% 1.3% .9% estimates Avg Ann’l Div’d Yield 1.2%

LT Debt $3468.4 mill. LT Interest $175.0 mill. 5466.3 5364.1 5803.0 6177.9 6235.0 6288.8 5928.1 6217.5 5839.3 5071.1 5275 6150 Revenues ($mill) 6400 (Total interest coverage: .5x) (47% of Cap’l) 7.7% 9.0% 7.4% 12.9% 13.2% 11.8% 11.6% 13.7% 12.5% 7.8% 7.0% 8.0% Operating Margin 12.5% 86.7 103.0 109.3 139.9 145.8 168.9 161.9 194.5 196.5 159.2 190 200 Depreciation ($mill) 210 248.5 330.2 111.6 347.8 342.0 334.7 69.2 166.1 246.8 d178.2 d110.0 120 Net Profit ($mill) 305 5.2% 15.4% 51.4% 43.2% 42.6% 31.0% NMF - - 8.8% 12.0% 20.0% 20.% Income Tax Rate 30.0% Preferred Stock None 4.5% 6.2% 1.9% 5.6% 5.5% 5.3% 1.2% 2.7% 4.2% NMF NMF 2.0% Net Profit Margin 4.8% 2872.1 2594.1 2327.7 2573.5 2875.1 3257.8 3331.2 3600.8 4269.1 4042.4 3550 3500 Working Cap’l ($mill) 3600 1469.4 1720.7 1556.1 2118.5 2503.1 2808.1 3685.8 3600.6 4156.1 3485.8 3250 3250 Long-Term Debt ($mill) 3250 2338.3 3028.4 3007.3 3258.3 3533.3 3764.8 3741.8 3848.8 4068.6 3845.7 4030 4150 Shr. Equity ($mill) C 4750 Common Stock 183,870,526 shs. 8.0% 7.9% 3.5% 7.5% 6.7% 6.1% 2.0% 3.5% 4.3% NMF NMF 2.5% Return on Total Cap’l 5.0% MARKET CAP: $3.1 billion (Mid Cap) 10.6% 10.9% 3.7% 10.7% 9.7% 8.9% 1.8% 4.3% 6.1% NMF NMF 3.0% Return on Shr. Equity 6.5% 5.0% 5.6% NMF 8.8% 7.7% 6.3% .2% 3.6% 4.7% NMF NMF 3.0% Retained to Com Eq 5.0% CURRENT POSITION 2016 2017 12/31/18 ($MILL.) 53% 49% NMF 17% 21% 30% 88% 17% 22% NMF NMF Nil All Div’ds to Net Prof 22% Cash Assets 3025.5 3636.4 1280.9 Receivables 665.4 717.1 318.0 BUSINESS: Embraer SA produces and sells jet and turboprop air- spare parts), Defense & Security, and Other (sells and leases used Inventory 2496.4 2148.7 2507.0 craft for civil and defense aviation, and aircraft for agricultural use. aircraft; structural parts, and mechanical and hydraulic systems for Other 594.4 549.5 2965.1 Chief markets include Brazil, North America, Latin America, Asia helicopter production.) Has about 20,530 employees. CEO: Paulo Current Assets 6781.7 7051.7 7071.0 Pacific, and Europe. Segments include Commercial Aviation (in- Cesar de Souza e Silva. Address: Av Brigadeiro Faria Lima 2170, Accts Payable 952.1 824.7 892.1 cludes the ERJ 145, EMBRAER 170/190, and E-Jets aircraft Sao Jose Dos Campos, Sao Paulo 12227-901., Brazil Telephone: Debt Due 533.2 406.5 416.3 Other 1695.6 1551.4 1720.2 groups), Executive Aviation, Aviation Services (customer support; 55 1239274404. Internet: www.embraer.com. Current Liab. 3180.9 2782.6 3028.6 Embraer’s plans for a strategic part- Meanwhile, the company reported ANNUAL RATES Past Past Est’d ’16-’18 nership with Boeing continue to move further improvement in the Septem- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 forward. To recap, the two aircraft manu- ber quarter. It delivered 44 jets in the Sales 1.0% -1.0% 2.0% facturers agreed to form a joint venture period, up from 39 the year before, and ‘‘Cash Flow’’ -6.0% -8.0% 12.0% Earnings -15.5% -21.5% 25.0% comprising the commercial aircraft and revenues increased 1.4%. However, the net Dividends -16.0% -15.0% 9.0% services operations of Embraer. Boeing loss per ADR more than tripled, reflecting Book Value 6.5% 4.0% 3.0% will be paying $4.2 billion for an 80% separation costs related to the Boeing Fiscal Full stake in the new entity, to be named deal. The adjusted loss would have been Year QUARTERLY REVENUES ($ mill.) Fiscal Begins Mar.31 Jun.30 Sep.30 Dec.31 Year Boeing Brazil-Commercial, with Embraer $0.26, versus a deficit of $0.09. Manage- 2016 1309 1366 1514 2027 6217.5 controlling the remaining 20%. The two ment reiterated its guidance for 85-95 2017 1026 1769 1310 1733 5839.3 companies are actively engaged with commercial jet deliveries and 90-110 exec- 2018 1042 1256 1151 1620 5071.1 authorities in the relevant jurisdictions, utive jet deliveries for the year. We have 2019 823 1379 1176 1897 5275 and have obtained a number of regulatory increased our 2019 ADR-net loss estimate 2020 1125 1450 1450 2125 6150 approvals. The U.S. Federal Trade com- by $0.30, to a deficit of $0.60. Fiscal A Full mission has given the go-ahead in the As the company is currently con- Year EARNINGS PER SHARE Fiscal Begins Mar.31 Jun.30 Sep.30 Dec.31 Year United States. Meanwhile, the European figured, earnings could feasibly 2016 .57 d.54 d.19 1.06 .90 Commission said it will open a Phase II bounce back some next year. As much 2017 .23 .32 .60 .21 1.36 assessment as it continues to review the as the deal is probably going to go 2018 d.07 d.67 d.12 d.10 d.96 transaction. Accordingly, the companies through, please note that it is excluded 2019 d.23 .04 d.42 .01 d.60 now look for the deal to close in early from our presentation, per Value Line con- 2020 .05 .15 .20 .25 .65 2020, rather than this year. vention. On point, management expects Cal-QUARTERLY DIVIDENDS PAID B Full The two are also working on a joint post-deal revenues to come in around endarMar.31 Jun.30 Sep.30 Dec.31 Year venture to promote and develop mar- $2.65 billion in 2020. Also, the company 2015 .232 .029 .050 .041 .35 kets for the multimission medium air- plans to pay a special dividend of around 2016 .04 .046 .049 .025 .16 lift KC-390. Under the terms of the deal, $1.45 billion after the close, or about $7.90 2017 .051 .129 .050 .050 .28 Embraer will own a 51% stake in that en- per ADR, and the issue’s price will likely 2018 .097 .088 .013 .010 .21 terprise, and Boeing will own the remain- show a commensurate drop. 2019 .011 ------ing 49% Mario Ferro December 6, 2019 (A) Diluted earnings. Each ADR equals four or- (B) Dividends historically paid in January, April, (C) Includes intangible assets. In fiscal 2018: Company’s Financial Strength B+ dinary shares. Next earnings report due early July, and October. $1.9 billion, $10.33 per share. (D) Ranks Stock’s Price Stability 40 March. suspended 12/29/17 due to pending deal with Price Growth Persistence 10 Boeing. Earnings Predictability 15 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 15.8 RELATIVE DIV’D VALUE GEN’L. DYNAMICS NYSE-GD PRICE 182.66RATIO 15.1()Median: 13.0 P/E RATIO 0.85YLD 2.2% LINE 711 TIMELINESS 2 Raised 9/20/19 High: 95.1 70.8 79.0 78.3 74.5 95.8 146.1 153.8 180.1 214.8 230.0 193.8 Target Price Range Low: 47.8 35.3 55.5 53.9 61.1 64.5 93.9 130.9 121.6 172.4 143.9 152.4 2022 2023 2024 SAFETY 1 Raised 3/30/01 LEGENDS 11.0 x ″Cash Flow″ psh TECHNICAL 4 Lowered 11/22/19 .... Relative Price Strength 400 2-for-1 split 3/06 320 BETA .95 (1.00 = Market) Options: Yes Shaded area indicates recession 18-Month Target Price Range 200 Low-High Midpoint (% to Mid) 160 120 $157-$245 $201 (10%) 100 2022-24 PROJECTIONS 80 Ann’l Total Price Gain Return 60 High 240 (+30%) 9% Low 195 (+5%) 4% 40 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 21 to Buy 439 481 490 1 yr. 4.8 4.9 shares 14 3 yr. 24.2 30.2 to Sell 582 484 464 traded 7 Hld’s(000) 250933 249901 250510 5 yr. 39.6 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 41.97 48.73 53.06 59.30 67.43 75.77 82.92 87.26 91.68 89.58 88.34 93.01 101.13 103.67 104.32 125.37 136.70 141.00 Revenues per sh 158.20 3.22 3.83 4.52 5.16 6.20 7.47 7.70 8.59 8.82 8.27 8.61 9.55 11.08 11.63 11.29 14.27 14.40 15.40 ‘‘Cash Flow’’ per sh 17.95 2.50 3.02 3.63 4.20 5.10 6.13 6.20 6.82 6.94 6.48 7.03 7.83 9.08 9.87 9.56 11.22 11.65 12.50 Earnings per sh A 14.50 .64 .72 .78 .89 1.10 1.40 1.52 1.68 1.88 2.04 2.24 2.48 2.76 3.04 3.36 3.72 3.99 4.32 Div’ds Decl’d per sh B 4.75 .57 .66 .65 .82 1.17 1.27 1.00 .99 1.29 1.27 1.25 1.57 1.83 1.30 1.44 2.39 2.55 2.70 Cap’l Spending per sh 3.00 14.95 17.96 20.34 24.22 29.13 26.00 32.21 35.79 37.12 32.20 41.03 35.66 34.51 36.29 38.52 40.64 45.60 46.45 Book Value per sh C 50.90 395.93 400.26 400.40 405.79 403.98 386.71 385.70 372.05 356.44 353.67 353.40 331.70 311.16 302.42 296.90 288.70 285.00 283.00 Common Shs Outst’g D 275.00 14.7 16.2 15.3 16.0 16.0 12.9 9.2 9.9 9.9 10.4 11.3 15.2 15.5 14.8 20.5 17.7 Bold figures are Avg Ann’l P/E Ratio 15.0 .84 .86 .81 .86 .85 .78 .61 .63 .62 .66 .63 .80 .78 .78 1.03 .96 Value Line Relative P/E Ratio .85 1.7% 1.5% 1.4% 1.3% 1.3% 1.8% 2.7% 2.5% 2.7% 3.0% 2.8% 2.1% 2.0% 2.1% 1.7% 1.9% estimates Avg Ann’l Div’d Yield 1.9% CAPITAL STRUCTURE as of 9/29/19 31981 32466 32677 31682 31218 30852 31469 31353 30973 36193 38965 39900 Revenues ($mill) 43500 13.2% 13.9% 13.5% 13.3% 13.6% 14.2% 14.8% 15.2% 14.9% 14.4% 14.5% 15.0% Operating Margin 15.5% Total Debt $13650 mill. Due in 5 Yrs $8730 mill. 562.0 569.0 592.0 620.0 556.0 496.0 482.0 454.0 441.0 763.0 775 825 Depreciation ($mill) E 950 LT Debt $8989 mill. LT Interest $356.0 mill. (LT int. earned: 11.5x) 2407.0 2628.0 2552.0 2305.0 2486.0 2673.0 2965.0 3062.0 2912.0 3358.0 3325 3535 Net Profit ($mill) 3990 (49% of Cap’l) 31.5% 30.7% 31.4% 32.7% 31.1% 29.7% 27.7% 27.6% 28.6% 17.8% 19.5% 20.0% Income Tax Rate 20.0% 7.5% 8.1% 7.8% 7.3% 8.0% 8.7% 9.4% 9.8% 9.4% 9.3% 8.5% 8.9% Net Profit Margin 9.2% Leases, Uncapitalized Annual rentals $297 mill. 2878.0 3009.0 4223.0 4124.0 5692.0 3656.0 2126.0 2601.0 5229.0 3450.0 1500 2000 Working Cap’l ($mill) 3000 Pension Assets-12/18 $11.5 bill. Oblig. $15.7 bill. 3159.0 2430.0 3907.0 3908.0 3908.0 3410.0 2898.0 2988.0 3980.0 11444 8800 8000 Long-Term Debt ($mill) 7000 Pfd Stock None C Common Stock 289,306,108 shs. 12423 13316 13232 11390 14501 11829 10738 10976 11435 11732 13000 13150 Shr. Equity ($mill) 14000 15.9% 17.2% 15.3% 15.6% 13.7% 17.8% 22.0% 22.3% 19.2% 15.3% 16.0% 17.5% Return on Total Cap’l 19.5% MARKET CAP: $52.8 billion (Large Cap) 19.4% 19.7% 19.3% 20.2% 17.1% 22.6% 27.6% 27.9% 25.5% 28.6% 25.5% 27.0% Return on Shr. Equity 28.5% CURRENT POSITION 2017 2018 9/29/19 14.7% 15.0% 14.2% 12.4% 13.1% 15.6% 19.5% 19.6% 16.8% 19.5% 17.0% 18.0% Retained to Com Eq 19.0% ($MILL.) 24% 24% 26% 39% 24% 31% 29% 30% 34% 32% 34% 35% All Div’ds to Net Prof 33% Cash Assets 2983 963 974 Receivables 3617 3759 3489 BUSINESS: General Dynamics Corporation has five segments: 105,600 employees. Officers & directors own 6.9% of common; Inventory 5303 5977 6573 Aerospace (23% of 2018 companywide sales); Combat Systems Longview Asset Management, 11.4%; Capital Research Global, Other 6425 7490 9115 (17%); Marine Systems (23%); Mission Systems (14%); Information 7.8%; The Vanguard Group, 7.5%; Newport Trust Company, 7.2% Current Assets 18328 18189 20151 Systems & Technology (23%). The U.S. Government accounts for (3/19 Proxy). Chairwoman and CEO: Phebe Novakovic. Inc.: DE. Accts Payable 3207 3179 2999 Debt Due 2 973 4661 65% of total revenues; foreign sales, 19%. Acq’d 7 businesses for Address: 2941 Fairview Park Drive, Suite 100, Falls Church, VA Other 9890 10587 10567 $444 million in 2012; CSRA for $9.7 billion, 4/18. Has approx. 22042. Telephone: 703-876-3000. Int.: www.generaldynamics.com. Current Liab. 13099 14739 18227 General Dynamics continues to per- IDIQ installation service project for the ANNUAL RATES Past Past Est’d ’16-’18 form at a high level. The more-than-7% U.S. Navy. of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 revenue gain in the third quarter was Operationally speaking, the company Revenues 5.0% 4.5% 6.0% ‘‘Cash Flow’’ 7.0% 7.5% 6.5% propelled by sturdy volumes in the defense seems poised for steady growth well Earnings 7.0% 8.5% 6.0% business and stronger-than-anticipated into the next decade. General Dynamics’ Dividends 11.5% 10.5% 6.0% demand for Gulfstream’s newer aircraft diversification ought to insulate it from in- Book Value 4.0% 1.0% 5.0% models. Deliveries of the Gulfstream G600 termittent softness in some of its seg- Cal-QUARTERLY REVENUES ($ mill.) Full began in August, which has helped to lift ments. New orders increased over 7% in endarMar.Per Jun.Per Sep.Per Dec.Per Year the quarterly profit margin. A leap in seg- the September interim, underscoring the 2016 7724 7665 7731 8233 31353 ment profits at Marine Systems also con- healthy outlook for the company. Recent 2017 7441 7675 7580 8277 30973 tributed to the quarterly earnings ad- deals include a $1.3 billion agreement to 2018 7535 9186 9094 10378 36193 vance. These factors helped offset softness produce armored combat vehicles for Can- 2019 9261 9555 9761 10388 38965 in the Information Systems & Technology ada, a support ship order from the U.S. 2020 9450 9700 9950 10800 39900 (IST) group and stagnant top-line growth Navy that could total over $1.6 billion, and Cal-EARNINGS PER SHARE A Full at Combat Systems. $155 million from a government cyber- endarMar.Per Jun.Per Sep.Per Dec.Per Year Accordingly, we have raised our full- security agency. 2016 2.33 2.44 2.48 2.62 9.87 year revenues and earnings projec- The rock-solid contractor’s shares 2017 2.48 2.45 2.53 2.10 9.56 tions. We estimate annual revenues to stand out for their near-term poten- 2018 2.65 2.62 2.89 3.07 11.22 come in just shy of $40 billion and have tial. Now boasting an Above Average (2) 2019 2.56 2.77 3.14 3.18 11.65 added a nickel to the current year’s share- rank for Timeliness, GD ought to appeal to 2020 2.80 2.95 3.20 3.55 12.50 net call. Aforementioned deliveries of the momentum-tilted investment strategies. Cal-QUARTERLY DIVIDENDS PAID B Full large-cabin aircraft from Gulfstream are But looking further out, subscribers endarMar.31 Jun.30 Sep.30 Dec.31 Year expected to be the primary driver. Further can find more-appealing issues else- 2015 .69 .69 .69 .69 2.76 upside exists if the IST segment can turn where. As has been the case for some 2016 .69 .76 .76 .76 3.04 things around; the group, which is largely time, General Dynamics stock offers 2017 .84 .84 .84 .84 3.36 comprised of the recently acquired CSRA, below-average capital appreciation poten- 2018 .84 .93 .93 .93 3.72 2019 .93 1.02 1.02 1.02 has inked several new contracts in recent tial out to 2022-2024. months, such as a share of the $2.5 billion Robert L. Harrington December 6, 2019 (A) Diluted earnings. May not sum due to ’12, d$7.42; ’18, d19¢. Next egs. rpt. late Feb- (C) Incl. intangibles. In 2018: $22.2 bill., Company’s Financial Strength A++ changes in share count. Excl. disc. ops.: ’07, ruary. $76.82/sh. Stock’s Price Stability 90 d2¢; ’09, d3¢; ’10, d1¢; ’11, d7¢; ’13, d36¢. (B) Dividends historically paid in early Feb., (D) In mill., adjusted for stock split. Price Growth Persistence 65 Excl. nonrec. items; ’03, 2¢; ’04, 6¢; ’08, 4¢; May, Aug., Nov. (E) Accelerated depreciation. Earnings Predictability 95 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: NMF RELATIVE DIV’D VALUE HEICO CORP. NYSE-HEI PRICE 128.67RATIO NMF()Median: 27.0 P/E RATIO NMFYLD 0.1% LINE 712 TIMELINESS 2 Lowered 9/27/19 High: 11.8 9.5 15.5 20.3 19.7 31.9 33.3 32.6 42.2 64.9 94.1 147.9 Target Price Range Low: 5.1 4.5 8.6 12.9 13.9 16.7 23.6 24.2 26.0 38.4 58.4 72.8 2022 2023 2024 SAFETY 3 New 9/19/08 LEGENDS 35.0 x ″Cash Flow″ psh 320 TECHNICAL Lowered 11/29/19 .... Relative Price Strength 3 5-for-4 split 4/10 BETA .90 (1.00 = Market) 5-for-4 split 4/11 200 5-for-4 split 4/12 5-for-4 18-Month Target Price Range 5-for-4 split 10/13 160 5-for-4 split 4/17 Low-High Midpoint (% to Mid) 5-for-4 split 1/18 5-for-4 120 5-for-4 split 6/18 100 $100-$198 $149 (15%) Options: Yes 80 Shaded area indicates recession 5-for-4 2022-24 PROJECTIONS 60 Ann’l Total 5-for-4 Price Gain Return 5-for-4 40 High 205 (+60%) 12% Low 135 (+5%) 2% % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 18 4Q2018 1Q2019 2Q2019 Percent 45 to Buy 156 160 226 1 yr. 47.3 4.9 shares 30 3 yr. 258.5 30.2 to Sell 171 155 164 traded 15 Hld’s(000) 34362 33359 35411 5 yr. 348.8 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 1.57 1.87 2.30 3.24 4.07 4.63 4.32 4.90 5.96 6.95 7.78 8.87 9.10 10.47 11.55 13.37 15.05 16.00 Sales per sh A 18.55 .15 .21 .26 .35 .41 .50 .48 .58 .71 .90 1.07 1.30 1.39 1.65 1.90 2.53 3.15 3.35 ‘‘Cash Flow’’ per sh 4.30 .10 .14 .18 .25 .30 .37 .35 .42 .56 .66 .78 .92 1.01 1.17 1.37 1.90 2.35 2.55 Earnings per sh AB 3.35 .01 .01 .01 .02 .02 .02 .03 .03 .04 .04 .06 .06 .07 .08 .10 .12 .13 .14 Div’ds Decl’d per sh C .24 .03 .05 .07 .08 .10 .11 .08 .07 .07 .12 .14 .13 .14 .23 .20 .32 .40 .40 Cap’l Spending per sh .45 1.97 2.14 2.33 2.62 2.98 3.32 3.68 3.73 4.12 4.78 4.68 5.38 6.20 7.33 8.80 10.52 12.65 15.10 Book Value per sh 23.85 112.38 115.51 117.18 120.99 124.70 125.90 124.56 125.84 128.41 129.06 129.64 129.92 130.61 131.42 132.00 132.93 136.00 137.00 Common Shs Outst’g D 140.00 19.9 24.6 25.0 24.7 28.2 24.2 21.1 23.8 28.1 25.8 26.5 30.3 28.6 26.7 33.9 38.1 Bold figures are Avg Ann’l P/E Ratio 50.5 1.13 1.30 1.33 1.33 1.50 1.46 1.41 1.51 1.76 1.64 1.49 1.59 1.44 1.40 1.70 2.06 Value Line Relative P/E Ratio 2.80 .5% .3% .2% .3% .2% .2% .3% .3% .3% .3% .3% .2% .2% .3% .2% .2% estimates Avg Ann’l Div’d Yield .1% CAPITAL STRUCTURE as of 7/31/19 538.3 617.0 764.9 897.3 1008.8 1152.3 1188.6 1376.3 1524.8 1777.7 2045 2190 Sales ($mill) A 2595 Total Debt $640.2 mill. Due in 5 Yrs. $640.2 mill. 19.2% 20.5% 20.5% 21.6% 21.8% 23.5% 23.3% 23.7% 24.4% 25.5% 26.0% 26.5% Operating Margin 28.0% LT Debt $639.3 mill. LT Interest $9.9 mill. 15.0 17.6 18.5 30.7 36.8 47.8 47.9 60.3 64.8 77.2 90.0 100 Depreciation ($mill) 115 (31% of Cap’l) Leases, Uncapitalized Annual rentals $15.0 mill. 44.6 54.9 72.8 85.1 102.4 121.3 133.4 156.2 186.0 259.2 335 365 Net Profit ($mill) 485 31.9% 33.7% 31.0% 33.8% 31.1% 30.1% 31.7% 31.5% 30.3% 19.8% 22.0% 22.0% Income Tax Rate 20.0% Pension Assets-10/18 $10.4 mill. 8.3% 8.9% 9.5% 9.5% 10.2% 10.5% 11.2% 11.3% 12.2% 14.6% 16.4% 16.6% Net Profit Margin 18.7% Oblig. $2.5 mill. 178.1 177.5 193.2 236.4 280.2 279.1 335.2 369.8 382.5 451.4 595 630 Working Cap’l ($mill) 700 Pfd Stock None 55.2 14.1 39.8 131.2 376.8 328.7 367.2 457.8 673.5 531.6 600 600 Long-Term Debt ($mill) 475 Common Stock 134,453,065 shs. includes 80,340,878 Class A shares D 457.9 469.1 529.1 616.7 606.3 699.5 809.9 963.4 1161.1 1398.3 1720 2065 Shr. Equity ($mill) 3340 8.8% 11.4% 12.8% 11.5% 10.6% 12.1% 11.5% 11.3% 10.4% 13.9% 19.5% 17.5% Return on Total Cap’l 14.5% MARKET CAP: $17.3 billion (Large Cap) 9.7% 11.7% 13.8% 13.8% 16.9% 17.3% 16.5% 16.2% 16.0% 18.5% 19.5% 17.5% Return on Shr. Equity 14.5% 9.1% 11.0% 12.9% 12.9% 15.7% 16.2% 15.3% 15.1% 14.9% 17.4% 19.5% 17.5% Retained to Com Eq 14.5% CURRENT POSITION 2017 2018 7/31/19 7% 6% 6% 7% 7% 7% 7% 7% 7% 6% 5% 5% All Div’ds to Net Prof 7% ($MILL.) Cash Assets 52.1 59.6 59.0 BUSINESS: HEICO Corp. engages in the design, manufacture, and electro-optical products. Sales by industry: commercial aviation, Receivables 222.5 251.5 259.3 sale of aerospace, defense, and electronics-related products and 53%; defense and space, 35%; medical, electronics, and other, Inventory (FIFO) 343.6 401.5 416.3 Other 13.7 21.2 68.0 services. It operates in two segments: The Flight Support Group 12%. Has 5,400 employees. Off./dir. own 3.2% of Class A stock Current Assets 631.9 733.8 802.6 (62% of 2018 sales) designs and manufactures jet engine and air- and 17.4% of common stock (2/19 proxy). Chairman and CEO.: Accts Payable 89.7 107.2 97.9 craft component replacement parts. The Electronic Technologies Laurans A. Mendelson. Inc.: FL. Address: 3000 Taft Street, Holly- Debt Due .5 .9 .9 Group (38%) manufactures various electronic, microwave, and wood, FL 33021. Tel.: (954) 987-4000. Internet: www.heico.com. Other 159.2 174.3 170.3 Current Liab. 249.4 282.4 269.1 HEICO probably continued to experi- suing bolt-on acquisitions in fiscal ence improving demand in the fiscal 2020. Through the first nine months of ANNUAL RATES Past Past Est’d ’16-’18 fourth quarter (ended October 31st). this year, HEICO has increased operating of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Sales 11.5% 11.5% 8.0% The company is not due to report results cash flow 46%, to $313.4 million. This has ‘‘Cash Flow’’ 17.0% 18.0% 13.5% for the period until mid-December, but we led the company to boost its full-year es- Earnings 17.0% 17.5% 14.5% believe that the strong momentum it has timate for cash from operations from $380 Dividends 18.5% 16.0% 16.0% Book Value 11.5% 14.5% 18.0% experienced for the sale of jet engine and million to $405 million. Better financial other aircraft components will have strength is being generated during a time Fiscal QUARTERLY SALES ($ mill.) A Full Year Fiscal remained persistent during the term. In- when the company has little debt set to Ends Jan.31 Apr.30 Jul.31 Oct.31 Year deed, over the first nine months of the mature. Moreover, its current level of fi- 2016 306.2 350.5 356.1 363.3 1376.3 fiscal year, sales across the Flight Support nancial leverage is manageable, in our 2017 343.4 368.7 391.5 421.2 1524.8 Group (FSG) and Electronic Technologies view. 2018 404.4 430.6 465.8 476.9 1777.7 Group (ETG) rose 12% and 20%, to $915.5 Timely HEICO stock fails to offer 2019 466.1 515.6 532.3 531 2045 2020 510 550 560 570 2190 million and $615 million, respectively. long-term investors worthwhile capi- Within the former, gains were driven by tal appreciation potential. Shares of Fiscal EARNINGS PER SHARE AB Full Year Fiscal demand for specialty products and after- the company fell victim to some profit tak- Ends Jan.31 Apr.30 Jul.31 Oct.31 Year market replacement parts. Meanwhile, at ing in the immediate aftermath of its 2016 .23 .29 .32 .34 1.17 the ETG, demand for certain aerospace, third-quarter earnings release. However, 2017 .30 .34 .34 .40 1.37 defense, and space products was combined they have since recovered to once again 2018 .48 .44 .49 .49 1.90 2019 .58 .60 .59 .58 2.35 with acquisition-related business to boost trade at a fairly lofty valuation. Improved 2020 .60 .65 .60 .70 2.55 the top line. With some 2018 acquisitions free cash flow generation, potential margin C still weighing on HEICO’s margin profile, expansion in the ETG, and the likelihood Cal-QUARTERLY DIVIDENDS PAID Full we look for the company to generate rela- of acquisition activity fuels our stance on endarMar.31 Jun.30 Sept.30 Dec.31 Year tively flat sequential share earnings in the high single-digit earnings accretion for the 2015 .04 - - .04 - - .08 fiscal fourth quarter. However, a growing company over the coming 3 to 5 years. 2016 .04 - - .04 - - .08 top line ought to keep net profits on the However, we would advise most investors 2017 .05 - - .05 - - .10 2018 .05 - - .06 - - .11 rise next fiscal year. to consider a more attractive entry point. 2019 .07 - - .07 The company may well continue pur- Robert J. Scrudato December 6, 2019 (A) Fiscal years end Oct. 31st. earnings report late December. per-share dividends of $1.71 and $0.35 were Company’s Financial Strength B++ (B) Diluted earnings, may not sum to total due (C) Dividends will likely be paid in late January paid in 1/13 and 1/14, resp. (D) In millions, ad- Stock’s Price Stability 75 to rounding and changes in shares outstand- and July. A dividend of $0.05 a share normally justed for splits and dividends. Class A com- Price Growth Persistence 100 ing. Excl. nonrecurr. gain: ‘14, $0.10. Next paid in January was paid on 12/21/12. Special mon stock receives 1/10 vote per share. Earnings Predictability 95 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 17.1 RELATIVE DIV’D VALUE HUNTINGTON INGALLS NYSE-HII PRICE 249.16RATIO 16.3()Median: NMF P/E RATIO 0.92YLD 1.7% LINE 713 TIMELINESS 3 Lowered 11/23/18 High: 42.4 48.9 93.0 116.3 144.0 189.2 253.4 276.7 260.8 Target Price Range Low: 22.6 31.3 43.0 87.4 102.8 118.2 183.4 173.8 186.7 2022 2023 2024 SAFETY 3 New 9/16/11 LEGENDS 9.0 x ″Cash Flow″ psh 640 TECHNICAL 4 Raised 12/6/19 .... Relative Price Strength Options: Yes 480 BETA 1.10 (1.00 = Market) Shaded area indicates recession 400 18-Month Target Price Range 320 Low-High Midpoint (% to Mid) 240 200 $203-$342 $273 (10%) 160 2022-24 PROJECTIONS 120 Ann’l Total Price Gain Return 80 High 350 (+40%) 10% Low 235 (-5%) 1% 60 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 45 to Buy 178 234 200 1 yr. 5.0 4.9 shares 30 3 yr. 45.6 30.2 to Sell 273 208 254 traded 15 Hld’s(000) 35690 35541 36564 5 yr. 128.1 36.8 On March 31, 2011, in a tax-free transac- 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 tion to its shareholders, defense contractor - - - - 133.11 135.23 139.98 144.03 149.95 152.99 164.99 195.13 208.75 211.25 Sales per sh 254.30 Northrop Grumman spunoff its shipbuilding - - - - 1.94 6.83 10.18 11.24 12.65 16.54 15.30 25.85 22.25 24.00 ‘‘Cash Flow’’ per sh 32.35 division Huntington Ingalls. Stockholders - - - - d1.93 2.91 5.18 6.85 8.36 12.14 10.46 19.11 15.25 16.50 Earnings per sh A 20.90 recieved one Huntington share for every six ------.10 .50 1.00 1.70 2.10 2.52 3.02 3.58 3.94 Div’ds Decl’d per sh D 5.02 shares of Northrop owned. At that time, - - - - 3.99 3.27 2.85 3.42 4.02 6.17 8.00 11.05 12.00 12.90 Cap’l Spending per sh 16.15 Huntington began trading on the NYSE un- - - - - 17.65 13.45 31.22 28.26 31.83 35.78 38.98 36.18 43.75 53.75 Book Value per sh B 71.45 der the ticker HII. - - - - 49.40 49.61 48.72 48.30 46.81 46.20 45.10 41.90 40.00 40.00 Common Shs Outst’g C 35.00 ------13.4 11.8 14.6 14.7 12.7 20.1 12.2 Bold figures are Avg Ann’l P/E Ratio 14.0 ------.85 .66 .77 .74 .67 1.01 .66 Value Line Relative P/E Ratio .80 estimates CAPITAL STRUCTURE as of 9/30/19 ------.3% .8% 1.0% 1.4% 1.4% 1.2% 1.3% Avg Ann’l Div’d Yield 1.7% Total Debt $1549 mill. Due in 5 Yrs Nil - - - - 6575.0 6708.0 6820.0 6957.0 7020.0 7068.0 7441.0 8176.0 8350 8450 Sales ($mill) 8900 LT Debt $1549 mill. LT Interest $58.0 mill. - - - - 6.1% 7.9% 10.7% 12.9% 14.6% 14.5% 14.3% 14.3% 14.5% 14.0% Operating Margin 16.5% (46% of Cap’l) - - - - 190.0 193.0 235.0 205.0 188.0 191.0 211.0 247.0 280 300 Depreciation ($mill) 400 Leases, Uncapitalized Annual rentals $41.0 mill. - - - - d94.0 146.0 261.0 338.0 404.0 573.0 479.0 836.0 610 660 Net Profit ($mill) 730 - - - - NMF 39.4% 33.8% 33.3% 36.1% 26.9% 38.0% 13.9% 15.5% 15.0% Income Tax Rate 16.0% No Defined Benefit Pension Plan - - - - NMF 2.2% 3.8% 4.9% 5.8% 8.1% 6.4% 10.2% 7.3% 7.8% Net Profit Margin 8.2% - - - - 896.0 1100.0 1284.0 1234.0 1010.0 799.0 804.0 d84.0 300 550 Working Cap’l ($mill) 1000 Common Stock 40,900,357 shares - - - - 1830.0 1779.0 1700.0 1592.0 1273.0 1278.0 1279.0 1283.0 1490 1475 Long-Term Debt ($mill) 1275 as of 11/1/19 - - - - 872.0 667.0 1521.0 1365.0 1490.0 1653.0 1758.0 1516.0 1750 2150 Shr. Equity ($mill) B 2500 - - - - NMF 8.4% 9.9% 14.0% 17.1% 20.8% 17.3% 30.9% 20.5% 19.5% Return on Total Cap’l 21.5% MARKET CAP: $10.2 billion (Large Cap) - - - - NMF 21.9% 17.2% 24.8% 27.1% 34.7% 27.2% 55.1% 35.0% 30.5% Return on Shr. Equity 29.5% CURRENT POSITION 2017 2018 9/30/19 - - - - NMF 21.1% 15.5% 21.2% 21.7% 28.7% 20.7% 46.4% 21.5% 19.0% Retained to Com Eq 18.0% ($MILL.) Cash Assets 701 240 32 ------3% 10% 14% 20% 17% 24% 16% 23% 24% All Div’ds to Net Prof 24% Receivables 1188 252 489 BUSINESS: Huntington Ingalls Industries designs, manufactures, powered aircraft carriers. Officers & directors own 2.3% of common Inventory (Avg Cst) 183 128 139 Other 123 1125 1365 and maintains nuclear and non-nuclear ships for the U.S. govern- stock; Vanguard Group, 12.0%; FMR LLC, 9.1%; BlackRock, 8.7% Current Assets 2195 1745 2025 ment, which accounts for almost all of revenues. Operates in two (3/19 Proxy). Backlog at 12/31/18: $23.0 billion. Has about 40,000 Accts Payable 375 562 616 segments: Ingalls and Newport News. Ingalls is the sole builder of employees. CEO and Pres.: Mike Petters. Chrmn.: Thomas B. Debt Due ------amphibious assault and expeditionary ships for the U.S. Navy. Fargo. Inc.: DE. Address: 4101 Washington Ave., Newport News, Other 1016 1267 1334 Newport News is the sole domestic manufacturer of nuclear- VA 23607. Tele.: (757) 380-2000. Web: www.huntingtoningalls.com Current Liab. 1391 1829 1950 After a decent performance in the able future. Though we believe it is un- ANNUAL RATES Past Past Est’d ’16-’18 first half of the year, Huntington In- likely the Navy will get to its 355 ship of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Sales - - 4.5% 7.0% galls reported mixed third-quarter re- preference, the U.S. is likely to spend ‘‘Cash Flow’’ - - 25.0% 9.5% sults. The military shipbuilder beat con- heavily to fortify its marine defense in Earnings - - 46.5% 7.0% sensus sales estimates by roughly 10%, Asia and the Middle East. Barring a stark Dividends - - 66.5% 12.0% Book Value - - 12.0% 11.5% due in large part to strong volumes at the change in policy, Huntington Ingalls Newport News facility and acquisition- should see solid demand from the U.S. Cal-QUARTERLY SALES ($ mill.) A Full related strength in the Technical Solutions Navy. endarMar.31 Jun.30 Sep.30 Dec.31 Year segment. Higher labor and pension costs The Technical Solutions segment of- 2016 1763 1700 1683 1922 7068 in both shipyards, plus lower risk retire- fers further upside. While it contributed 2017 1724 1858 1863 1996 7441 ment in the National Security Cutter pro- only 11% to consolidated operating income 2018 1874 2020 2083 2199 8176 2019 2080 2188 2219 1863 8350 gram at Newport News, led to a decrease in the third quarter, the cyber and IT serv- 2020 2000 2180 2130 2140 8450 in earnings. ices provider offers Huntington a forward- A Still, we think the company will finish looking presence in the technological Cal-EARNINGS PER SHARE Full the year on a high note. Several pro- aspects of the U.S. Navy. This com- endarMar.31 Jun.30 Sep.30 Dec.31 Year grams will hit lucrative milestones in the plementary business has won several 2016 2.87 2.80 2.27 4.20 12.14 current quarter, including the completion awards in recent months, including an in- 2017 2.56 3.21 3.28 1.41 10.46 of acceptance trials for the LHA 7 Tripoli, stallation and support order for the Navy’s 2018 3.48 5.40 5.29 4.94 19.11 2019 2.85 3.07 3.74 5.59 15.25 an amphibious assault vessel. Recent im- Information Warfare Systems Command. 2020 3.45 3.50 3.90 5.65 16.50 provements in the production line can be Given the recent rise in share price, D seen in the timely undocking of the USS the long-term outlook here is limited. Cal-QUARTERLY DIVIDENDS PAID Full George Washington and its forthcoming Subscribers seeking long-term gains will endarMar.31 Jun.30 Sep.30 Dec.31 Year launch of the USS John F Kennedy. Wall want to look elsewhere, as HII trades firm- 2015 .40 .40 .40 .50 1.70 Street seems to share the optimistic out- ly within the projected three-to-five year 2016 .50 .50 .50 .60 2.10 2017 .60 .60 .60 .72 2.52 look; the stock price has increased over range. The neutrally ranked shares are 2018 .72 .72 .72 .86 3.02 25% since early September. poised to perform in line with the broader 2019 .86 .86 .86 1.03 Looking ahead, the company ought to market averages in the year ahead. deliver steady growth for the foresee- Robert L. Harrington December 6, 2019 (A) Fully diluted earnings. Next earnings report (C) In millions. Company’s Financial Strength B++ due in late February. (D) Dividend initiated 12/12. Paid in February, Stock’s Price Stability 65 (B) Includes intangibles. In 2018, $1.76 billion May, August, and December. Price Growth Persistence 95 ($41.89/sh). Earnings Predictability 25 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 74.1 RELATIVE DIV’D VALUE KRATOS DEF. & SEC. NYSE-KTOS PRICE 17.79RATIO 43.4()Median: NMF P/E RATIO 2.45YLD Nil LINE 714 TIMELINESS 3 Lowered 11/22/19 High: 23.5 13.9 15.6 14.8 7.8 9.2 9.2 7.1 8.2 13.9 16.1 23.1 Target Price Range Low: 9.0 5.8 9.3 4.6 4.1 4.1 4.2 3.6 2.8 6.8 8.9 13.0 2022 2023 2024 SAFETY 4 New 12/8/17 LEGENDS 1.0 x ″Cash Flow″ psh 64 TECHNICAL 2 Raised 11/29/19 .... Relative Price Strength 1-for-10 Rev split 9/09 48 BETA 1.55 (1.00 = Market) Options: Yes 40 Shaded area indicates recession 18-Month Target Price Range 32 Low-High Midpoint (% to Mid) 24 20 $13-$34 $24 (30%) 16 2022-24 PROJECTIONS 12 Ann’l Total Price Gain Return 8 High 45 (+155%) 26% Low 30 (+70%) 14% 6 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 45 to Buy 79 123 104 1 yr. 50.7 4.9 shares 30 3 yr. 235.9 30.2 to Sell 100 74 108 traded 15 Hld’s(000) 90947 88498 89803 5 yr. 170.9 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 41.73 55.83 51.99 44.37 24.51 23.20 21.19 21.94 22.02 17.12 16.66 15.02 11.11 9.04 7.28 5.96 6.85 8.00 Revenues per sh 11.55 3.05 3.61 2.52 d3.46 d1.32 .62 d.20 1.59 .76 .14 .38 d.23 d.13 d.51 .33 .32 .55 .70 ‘‘Cash Flow’’ per sh 1.50 1.30 2.60 1.34 d4.50 d1.98 .10 d.83 .99 d.86 d1.07 d.56 d.91 d.56 d.99 .12 .15 .35 .45 Earnings per sh A 1.15 ------Nil Nil Div’ds Decl’d per sh Nil 1.18 1.10 1.11 .96 .11 .07 .03 .12 .23 .29 .29 .25 .19 .12 .26 .13 .20 .20 Cap’l Spending per sh .25 32.82 31.04 30.14 25.32 21.16 11.46 7.60 9.13 9.64 5.72 5.18 3.88 4.30 3.74 4.95 5.00 5.20 5.65 Book Value per sh B 8.75 6.26 7.11 7.22 7.39 7.90 12.82 15.78 18.62 32.42 56.61 57.06 57.80 59.14 73.95 103.30 103.77 106.20 106.40 Common Shs Outst’g C 106.50 NMF 37.3 47.2 - - - - NMF - - 11.7 ------NMF NMF Bold figures are Avg Ann’l P/E Ratio 30.0 NMF 1.97 2.51 - - - - NMF - - .74 ------NMF NMF Value Line Relative P/E Ratio 1.65 ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 334.5 408.5 713.9 969.2 950.6 868.0 657.1 668.7 751.9 618.0 730 850 Revenues ($mill) 1230 Total Debt $294.8 mill. Due in 5 Yrs None 6.9% 9.6% 12.6% 10.5% 8.3% 7.0% 3.1% 2.4% 5.5% 7.8% 10.0% 12.5% Operating Margin 10.5% LT Debt $294.8 mill. Total Interest $19.5 mill. 8.3 12.9 48.0 58.0 53.4 39.1 25.5 22.8 22.5 17.9 25.0 28.5 Depreciation ($mill) 34.0 (Total Interest coverage: 3.0x) (34% of Cap’l) d11.5 16.6 d23.5 d50.1 d31.9 d52.6 d33.2 d60.4 11.3 15.5 35.0 47.0 Net Profit ($mill) 125 Leases, Uncapitalized $19.0 mill. NMF ------28.7% 52.9% 24.5% 24.5% Income Tax Rate 22.5% No Defined Benefit Pension Plan NMF 4.1% NMF NMF NMF NMF NMF NMF 1.5% 2.5% 4.8% 5.5% Net Profit Margin 10.2% 37.1 65.8 207.2 176.4 179.3 148.8 148.0 176.6 282.4 330.0 330 340 Working Cap’l ($mill) 400 Pfd Stock None 51.6 226.1 654.3 648.8 643.4 663.0 444.1 431.0 293.5 294.2 295 295 Long-Term Debt ($mill) 295 Common Stock 106,269,609 shs. 124.9 169.9 312.6 324.1 295.8 224.3 254.2 276.4 511.5 519.3 550 600 Shr. Equity ($mill) 930 as of 11/1/19 - - 7.0% .2% NMF .0% NMF NMF NMF 2.6% .5% 3.5% 5.0% Return on Total Cap’l 10.0% NMF 9.8% NMF NMF NMF NMF NMF NMF 2.2% .6% 6.5% 8.0% Return on Shr. Equity 13.5% MARKET CAP: $1.9 billion (Mid Cap) NMF 9.8% NMF NMF NMF NMF NMF NMF 2.2% .6% 6.5% 8.0% Retained to Com Eq 13.5% CURRENT POSITION 2017 2018 9/30/19 ------Nil Nil All Div’ds to Net Prof Nil ($MILL) Cash Assets 130.0 182.7 181.0 BUSINESS: Kratos Defense & Security Solutions, Inc. is a mid-tier sile target systems, and other such systems. Divested Public Safety Receivables 268.4 237.4 241.9 defense contractor that operates through two business segments: & Security Solutions on June 11, 2018. Has 2,900 employees. Oak Inventory 50.4 46.8 68.2 Other 22.5 27.8 24.6 Kratos Government Solutions (KGS, 64% of ’18 sales) offers satel- Investment Partners owns 13.1% of shares; BlackRock, 9.2%; Current Assets 471.3 494.7 515.7 lite management services, communications management, and mi- Directors and Officers, 13.1%; (4/19 Proxy). CEO: Eric M. Accts Payable 48.8 46.6 42.4 crowave products, rocket support services, aircraft training. Un- DeMarco. Inc.: DE Addr: 10680 Treena Street, 6th Fl, San Diego, Debt Due ------manned Systems (KUS, 36%) offers unmanned aerial drones, mis- CA 92131. Tel.: 858-812-7300. Internet: www.kratosdefense.com. Other 140.1 118.1 139.1 Current Liab. 188.9 164.7 181.5 Kratos Defense & Security Solutions a nickel, to $0.35. We have pulled in our posted solid third-quarter results. call for next year by the same amount, to ANNUAL RATES Past Past Est’d ’16-’18 Revenues grew 15.5% year to year to $0.45, due to uncertainty over the timing of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Revenues -14.0% -15.0% 4.5% $184.1 million, boosted by the acquisition of government appropriations. ‘‘Cash Flow’’ - - - - 7.5% earlier in the year of Florida Turbine KUSD is making significant progress Earnings - - - - 8.0% Technologies (FTT). Excluding the impact with multiple programs. The Valkyrie Dividends - - - - 8.5% Book Value -16.5% -12.0% 6.0% of this purchase, revenues were up 5.3%. XQ-58A tactical drone completed its third Adjusted EBITDA of $20.4 million (11.1% test flight, scoring 100% of the available Cal-QUARTERLY REVENUES ($ mill.) Full of revenues) increased 22.2% over the pre- points. The new system generated consid- endarMar.31 Jun.30 Sep.30 Dec.31 Year vious year, while adjusted share net was erable interest at the Air Force Associa- 2016 153.0 168.2 165.4 182.1 668.7 up 12.5%, to $0.09. tion conference and was featured by both 2017 167.8 185.7 196.2 202.2 751.9 Revenues increased in both segments. Kratos and the Air Force Research 2018 143.0 151.2 159.4 164.4 618.0 Kratos Unmanned Systems Division Laboratory. Funds for its purchase are al- 2019 160.4 187.9 184.1 197.6 730 2020 205 210 215 220 850 (KUSD) increased revenues 37.2% to $45.7 located in the 2020 defense budget, and million as adjusted EBITDA was up 88.5% the company expects orders within 90 days Cal-EARNINGS PER SHARE A Full to $4.9 million. Kratos’ drone business con- of budget approval. Kratos has received endarMar.31 Jun.30 Sep.30 Dec.31 Year tinues to do well. Government Solutions funding for additional drone programs, 2016 d.36 d.17 d.39 d.07 d.99 (KGS), in turn, grew 9.8% to $138.4 mil- most notably Gremlin and Mako. 2017 d.01 .01 .03 .09 .12 lion, though excluding the impact of FTT, With KGS, the satellite and rocket sys- 2018 .01 .02 .08 .04 .15 2019 .08 .08 .09 .10 .35 the top line decreased 3.2%, as the compa- tems businesses are doing well. Kratos 2020 .11 .11 .11 .12 .45 ny avoids lower-value legacy government is the industry leader in ground communi- services business. Adjusted EBITDA in- cation and control of satellites and its Cal-QUARTERLY DIVIDENDS PAID Full creased 9.9%, to $15.5 million. Third- equipment is in use with most low, middle, endarMar.31 Jun.30 Sep.30 Dec.31 Year quarter bookings were a solid $172.5 mil- and geostationary earth orbit systems. 2015 lion, though a bit short of billings. That Ranked 3 for Timeliness, Kratos 2016 NO CASH DIVIDENDS said, backlog at quarter-end was $608.7 shares offer above-average appreci- 2017 BEING PAID million. Given these trends, we have in- ation potential to 2022-2024. 2018 2019 creased our share-net estimate for 2019 by Glenn Pierr Johnson December 6, 2019 (A) Diluted earnings. Excl. nonrecur. (losses) (B) Incl. intang. assets. In 2018: $483.2 mill., Company’s Financial Strength C++ gains.: ’03, 23¢; ’04, (2¢); ’05, (1.34); ’12, 22¢; $4.68/sh. Stock’s Price Stability 10 ’13, (9¢); ’14, (1.35); ’15, 90¢. Next earnings (C) In mill., adj. for stk. split. Price Growth Persistence 75 report due in late January. Earnings Predictability 25 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 18.5 RELATIVE DIV’D VALUE LOCKHEED MARTIN NYSE-LMT PRICE 389.98RATIO 17.5()Median: 14.0 P/E RATIO 0.99YLD 2.5% LINE 715 TIMELINESS 2 Lowered 11/15/19 High: 120.3 87.1 87.2 82.4 95.9 150.0 198.7 227.9 269.9 323.9 363.0 400.0 Target Price Range Low: 67.4 57.4 67.7 66.4 79.1 85.9 144.7 181.9 200.5 248.0 241.2 256.8 2022 2023 2024 SAFETY 1 Raised 3/24/06 LEGENDS 12.0 x ″Cash Flow″ psh 640 TECHNICAL 2 Lowered 11/22/19 .... Relative Price Strength Options: Yes 480 BETA .80 (1.00 = Market) Shaded area indicates recession 400 18-Month Target Price Range 320 Low-High Midpoint (% to Mid) 240 200 $330-$545 $438 (10%) 160 2022-24 PROJECTIONS 120 Ann’l Total Price Gain Return 80 High 480 (+25%) 8% Low 390 (Nil) 3% 60 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 30 to Buy 707 764 801 1 yr. 31.6 4.9 shares 20 3 yr. 65.1 30.2 to Sell 697 633 654 traded 10 Hld’s(000) 222459 220881 225121 5 yr. 126.5 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 71.35 81.11 86.14 94.11 102.35 108.81 121.18 132.38 143.80 146.98 142.19 145.22 152.25 163.49 179.75 191.32 211.45 228.35 Sales per sh 258.50 3.73 4.39 5.60 7.36 9.10 10.34 10.41 10.08 11.36 11.63 12.35 14.68 15.28 17.19 17.85 22.09 25.85 29.55 ‘‘Cash Flow’’ per sh 34.35 2.34 2.83 3.85 5.36 6.86 7.86 7.78 7.23 7.82 8.36 9.57 11.21 11.46 12.38 13.33 17.59 21.60 24.85 Earnings per sh A 29.00 .58 .91 1.05 1.25 1.47 1.83 2.34 2.64 3.25 4.15 4.78 5.49 6.15 6.77 7.46 8.20 9.00 9.80 Div’ds Decl’d per sh B■ 12.50 1.54 1.76 2.00 2.12 2.30 2.36 2.28 2.37 2.52 2.93 2.62 2.69 3.10 3.68 4.14 4.55 3.85 4.00 Cap’l Spending per sh 4.00 15.15 16.03 18.21 16.35 23.97 7.30 11.07 10.72 3.10 .12 15.42 10.83 10.22 5.23 d2.41 4.96 15.50 24.20 Book Value per sh C 49.05 446.00 438.00 432.00 421.00 409.00 392.70 372.90 346.00 323.37 321.00 319.00 314.00 303.00 289.00 284.00 281.00 280.00 275.00 Common Shs Outst’g D 265.00 20.7 18.4 15.9 14.7 14.7 12.7 9.8 10.5 9.9 10.6 11.8 15.1 17.7 19.2 21.5 18.2 Bold figures are Avg Ann’l P/E Ratio 15.0 1.18 .97 .85 .79 .78 .76 .65 .67 .62 .67 .66 .79 .89 1.01 1.08 .98 Value Line Relative P/E Ratio .85 1.2% 1.8% 1.7% 1.6% 1.5% 1.8% 3.1% 3.5% 4.2% 4.7% 4.2% 3.2% 3.0% 2.8% 2.6% 2.6% estimates Avg Ann’l Div’d Yield 2.9% CAPITAL STRUCTURE as of 9/29/19 45189 45803 46499 47182 45358 45600 46132 47248 51048 53762 59200 62800 Sales ($mill) 68500 Total Debt $13552 mill. Due in 5 Yrs $1500 mill. 11.2% 12.3% 10.1% 11.0% 14.1% 13.7% 13.5% 13.3% 13.2% 12.8% 13.5% 14.0% Operating Margin 15.0% LT Debt $12652 mill. LT Interest $670 mill. 859.0 841.0 1008.0 988.0 990.0 994.0 1026.0 1215.0 1195.0 1161.0 1100 1100 Depreciation ($mill) 1200 (Total interest coverage ’18: 9.7x) (76% of Cap’l) 3024.0 2645.0 2667.0 2745.0 2950.0 3614.0 3605.0 3753.0 3873.0 5046.0 6135 7025 Net Profit ($mill) 7900 Leases, Uncapitalized Annual rentals $247 million 29.4% 30.9% 26.5% 32.6% 29.0% 31.3% 28.2% 23.2% 26.5% 13.6% 15.0% 15.0% Income Tax Rate 15.0% 6.7% 5.8% 5.7% 5.8% 6.5% 7.9% 7.8% 7.9% 7.6% 9.4% 10.4% 11.2% Net Profit Margin 11.5% Pension Assets-12/18 $32.0 bill. 1774.0 1694.0 1964.0 1700.0 2209.0 1217.0 2141.0 2566.0 4824.0 1705.0 4815 6800 Working Cap’l ($mill) 14000 Oblig. $43.3 bill. 5052.0 5019.0 6460.0 6158.0 6152.0 6169.0 14305 14282 13513 12604 12625 12600 Long-Term Debt ($mill) 11000 Preferred Stock None 4129.0 3708.0 1001.0 39.0 4918.0 3400.0 3097.0 1511.0 d683.0 1394.0 4340 6650 Shr. Equity ($mill) 13000 Common Stock 282,071,418 shares out. 34.5% 32.3% 38.1% 47.4% 28.2% 39.5% 22.0% 25.9% 32.7% 38.4% 38.0% 38.0% Return on Total Cap’l 34.0% 73.2% 71.3% 266.4% NMF 60.0% 106.3% 116.4% 248.4% NMF NMF NMF NMF Return on Shr. Equity 60.5% MARKET CAP: $110 billion (Large Cap) 51.2% 45.2% 157.0% NMF 28.7% 54.5% 54.0% 112.8% NMF NMF 81.5% 62.0 Retained to Com Eq 33.5% CURRENT POSITION 2017 2018 9/29/19 30% 37% 41% 49% 52% 49% 54% 55% 56% 47% 42% 39% All Div’ds to Net Prof 43% ($MILL.) Cash Assets 2861 772 2539 BUSINESS: Lockheed Martin provides a broad range of products 2018, 70% of sales were to the U.S. Government. Has 105,000 Receivables 8603 11916 13388 and services to the world’s governments and commercial custom- empl. Off./dir. own less than 1% of the common stock; State Street, Inventory (FIFO) 4487 2997 3474 Other 1510 418 402 ers. Areas of concentration include space and missile systems, 15.7%; Capital World, 6.2%; BlackRock, 6.6%; Vanguard Group, Current Assets 17461 16103 19803 electronics, and aeronautics. Program base includes F-16, F-22, F- 7.6% (3/19 Proxy). Chrmn., Pres. & CEO: Marillyn A. Hewson. Inc.: Accts Payable 1467 2402 2904 35 aircraft, ballistic and other missile systems, C-130 transport, and MD. Addr.: 6801 Rockledge Drive, Bethesda, MD 20817-1877. Tel.: Debt Due 750 1500 900 Titan launch vehicles. Sold its IS&GS business to Leidos 8/16. In (301) 897-6000. Internet: www.lockheedmartin.com. Other 10420 10496 11711 Current Liab. 12637 14398 15515 Lockheed Martin has been firing on counts for roughly 30% of the company’s all cylinders. Although its stock price has total sales. When it is all said and done, ANNUAL RATES Past Past Est’d ’16-’18 advanced only modestly since our Septem- the F-35 will be the largest military plat- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Sales 6.0% 4.5% 6.5% ber report, it is up roughly 50%, year to form in history, in terms of total dollars ‘‘Cash Flow’’ 8.0% 10.0% 10.5% date. Recent financial results have been spent. For full-year 2019, management Earnings 8.0% 11.0% 12.5% excellent, highlighted by LMT’s consistent now expects the top and bottom lines to Dividends 17.5% 13.0% 9.0% Book Value -16.5% -16.0% NMF ability to exceed consensus Wall Street reach $59.1 billion and $21.55 per share, sales and earnings estimates. Manage- respectively. Our estimates are just slight- Cal-QUARTERLY SALES ($ mill.) Full ment’s commitment to aggressively return- ly higher. For 2020, we are reconfirming endarMar.Per Jun.Per Sep.Per Dec.Per Year ing cash to shareholders has also been a our profit expectation of $24.85 a share, 2016 10368 11577 11551 13752 47248 positive (discussed below). which would be 15% better than this 2017 11057 12685 12169 15137 51048 We remain quite bullish in regard to year’s probable tally. 2018 11635 13398 14318 14411 53762 Lockheed’s operations. As has been the The equity still holds some appeal. Al- 2019 14336 14427 15171 15266 59200 2020 15000 15500 15600 16700 62800 case for some time, the company is the though the recent stock price advance has lead contractor for several military plat- reduced the issue’s upside, there is still a Cal-EARNINGS PER SHARE A Full forms that we deem essential to the lot to like here. It is ranked favorably for endarMar.Per Jun.Per Sep.Per Dec.Per Year defense of the United States and its allies; Timeliness and offers worthwhile 18- 2016 2.61 2.93 3.61 3.25 12.38 none more important that the F-35. Al- month appreciation potential. In addition, 2017 2.61 3.23 3.24 4.30 13.33 though this fifth-generation fighter has management recently announced that the 2018 4.02 4.05 5.14 4.39 17.59 2019 5.99 5.00 5.66 4.95 21.60 been hampered by cost overruns and prod- quarterly dividend, beginning with the 2020 5.55 6.10 6.40 6.80 24.85 uction delays, it will form the backbone of payment expected later this month, will U.S. air superiority. The Pentagon expand 9%, to $2.40. Additional increases B■ Cal-QUARTERLY DIVIDENDS PAID Full remains committed to procuring more to the payout, and continued share repur- endarMar.31 Jun.30 Sep.30 Dec.31 Year than 2,450 of these planes. As of Septem- chases, ought to persist. All told, we think 2015 1.50 1.50 1.50 1.65 6.15 ber 29th, Lockheed delivered 440 F-35s, that Lockheed would make a fine addition 2016 1.65 1.65 1.65 1.82 6.77 and 313 were in production backlog. Man- to most portfolios, particularly those with 2017 1.82 1.82 1.82 2.00 7.46 ufacturing and sales of this aircraft will a conservative strategy. 2018 2.00 2.00 2.00 2.20 8.20 2019 2.20 2.20 2.20 2.40 continue for many years, and now ac- Ian Gendler December 6, 2019 (A) Diluted egs. Excl. nonrecur. gains/(losses): total due to rounding. Next egs. rpt. due late ■ Div’d reinvestment plan available. Company’s Financial Strength A++ ’05, 25¢; ’06, 44¢; ’07, 25¢; ’10, 76¢; ’11, (4¢); Jan. (C) Incl. intang. In 2018: $14.3 bill., $50.89/sh. Stock’s Price Stability 90 ’13, ($0.44); ’17, ($6.69). Excludes discontin- (B) Dividends historically paid in late March, (D) In millions. Price Growth Persistence 95 ued ops.: ’16, $5.11. Earnings may not sum to June, September, and December. Earnings Predictability 90 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: NMF RELATIVE DIV’D VALUE MAXAR TECH. NYSE-MAXR PRICE 10.79RATIO NMF()Median: NMF P/E RATIO NMFYLD 0.4% LINE 716 TIMELINESS 3 New 12/6/19 High: 67.3 64.5 12.9 Target Price Range Low: 56.6 9.5 3.8 2022 2023 2024 SAFETY 4 Lowered 1/18/19 LEGENDS .... Relative Price Strength 32 TECHNICAL 3 New 12/6/19 Options: Yes Shaded area indicates recession 24 BETA .50 (1.00 = Market) 20 18-Month Target Price Range 16 Low-High Midpoint (% to Mid) 12 10 $4-$17 $11 (-5%) 8 2022-24 PROJECTIONS 6 Ann’l Total Price Gain Return 4 High 16 (+50%) 10% Low 9 (-15%) -4% 3 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 30 to Buy 67 51 62 1 yr. -41.1 4.9 shares 20 3 yr. -83.7 30.2 to Sell 76 70 50 traded 10 Hld’s(000) 45574 43995 47040 5 yr. -87.5 36.8 Maxar Technologies Ltd. is result of the 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 2017 merger between commercial satellite ------29.02 36.04 32.30 31.30 Revenues per sh E 41.90 operator MDA Corp. and DigitalGlobe (DGI), ------4.76 4.66 7.35 5.35 ‘‘Cash Flow’’ per sh 7.35 a provider of geospatial imagery content. ------1.79 d2.90 .60 d1.20 Earnings per sh A 1.20 Under the terms of the agreement, each ------.30 1.12 .04 .04 Div’ds Decl’d per sh B ■ .04 share of DGI was exchanged for US$17.50 ------.88 2.69 6.25 2.05 Cap’l Spending per sh 2.60 in cash and 0.3132 MDA shares, for a total ------35.82 10.84 11.65 10.95 Book Value per sh C 30.40 purchase consideration of US$2.9 billion. ------56.21 59.40 59.75 59.75 Common Shs Outst’g D 60.00 The company was officially renamed Maxar ------35.2 - - Bold figures are Avg Ann’l P/E Ratio 10.0 on October 5, 2017. ------1.77 - - Value Line Relative P/E Ratio .55 estimates CAPITAL STRUCTURE as of 9/30/19 ------.5% 2.7% Avg Ann’l Div’d Yield .3% Total Debt $3131 mill. Due in 5 Yrs $595 mill. ------1631.2 2141.0 1930 1910 Revenues ($mill) 2515 LT Debt $3114 mill. Total Interest $202 mill. ------23.1% 16.5% 23.0% 24.0% Operating Margin 28.5% (Total interest not covered) (82% of Cap’l) ------167.1 449.0 405 390 Depreciation ($mill) 440 Leases, Uncapitalized: $38.0 million ------100.4 d172.0 35.0 d75.0 Net Profit ($mill) 73.0 ------NMF 1.8% NMF Income Tax Rate 16.5% Pension Assets-12/18 $429 million ------6.2% NMF NMF NMF Net Profit Margin 2.9% Oblig. $595 million ------d134.0 d212.0 210 225 Working Cap’l ($mill) 650 Common Stock 59,744,715 shares ------2942.9 3030.0 3060 2960 Long-Term Debt ($mill) 2460 as of 10/31/19 ------2013.6 644.0 695 655 Shr. Equity ($mill) 1825 ------2.8% NMF 1.0% NMF Return on Total Cap’l 1.5% MARKET CAP: $650 million (Small Cap) ------5.0% NMF 4.5% NMF Return on Shr. Equity 4.0% CURRENT POSITION 2017 2018 9/30/19 ------4.2% NMF 4.5% NMF Retained to Com Eq 4.0% ($MILL) Cash Assets 19.1 35.0 52.0 ------17% NMF 7% NMF All Div’ds to Net Prof 3% Receivables 348.2 464.0 484.0 BUSINESS: Maxar Technologies Ltd. is an integrated global com- changed name from MacDonald, Dettwiler and Associates (MDA Inventory 96.5 31.0 20.0 Other 341.5 107.0 72.0 munications and information company that serves commercial and Corp.), 10/17; acquired Space Systems/Loral (SS/L), 6/12. Has ap- Current Assets 805.3 637.0 628.0 government organizations. Operates a fleet of satellites for commu- proximately 6,500 employees. Backlog at 12/31/18: $2.4 billion. Of- Accts Payable 236.9 248.0 177.0 nications, surveillance, and intelligence purposes; manufactures ficers & directors own less than 1% (4/19 Proxy). Pres./CEO: Dan- Debt Due 18.1 17.0 17.0 satellites; collects and provides earth imagery for defense and envi- iel Jablonsky. Inc.: Delaware. Address: 1300 W. 120th Ave., West- Other 684.3 584.0 526.0 ronmental applications. Completed DigitalGlobe acquisition and minster, CO 80234. Tel.: 604-231-2750. Internet: www.maxar.com. Current Liab. 939.3 849.0 720.0 Maxar Technologies’ new business $479 million, while adjusted EBITDA was ANNUAL RATES Past Past Est’d ’16-’18 model has clearly jelled. The company, up 21.9%, to $128 million, or 26.7% of rev- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Revenues - - - - NMF through the acquisition of Space Systems enues. Results were uneven from segment ‘‘Cash Flow’’ - - - - NMF Loral (SSL), was long a leader in its core to segment. Space Systems revenue Earnings - - - - NMF business, the design, development, and decreased 16.4%, to $220 million, while Dividends - - - - NMF Book Value - - - - NMF manufacture of geostationary earth orbit Imagery revenues (also $220 million) grew communications satellites. Demand for 4.8%. Services revenues of $73 million Cal-QUARTERLY REVENUES ($ mill.) Full these expensive systems has collapsed as were up 17.7%. Profitability varied, as endarMar.31 Jun.30 Sep.30 Dec.31 Year the market moved to low earth orbit (LEO) well. Space Systems and Services genera- 2016 ------satellites. The company has succeeded in ted EBITDA of $11 million and $9 million 2017 373.5 375.2 337.5 545.0 1631.2 adapting to this change. It had already (with margins of 50% and 12.3%), respec- 2018 557.9 578.9 508.2 496.0 2141.0 2019 504.0 490.0 479.0 457 1930 diversified through the acquisitions of tively, while Imagery contributed $140 2020 462 467 475 506 1910 DigitalGlobe and Radiant Solutions in million (at a rich margin of 63.6%). The A 2017. With SSL, Maxar has expanded into Imagery segment, which collects earth im- Cal-EARNINGS PER SHARE Full the LEO market, as well. Across all ages from Maxar’s fleet of satellites, clear- endarMar.31 Jun.30 Sep.30 Dec.31 Year businesses, the company has announced ly is now the core business. Its image ar- 2016 ------numerous program wins, and investors chive is now 100 petabytes. To reflect this 2017 .08 .34 .22 1.15 1.79 have taken note. Key events include the performance, we have increased our reve- 2018 1.47 1.22 .75 d6.34 d2.90 2019 d.99 2.45 d.44 d.42 .60 delivery of a robotic arm for NASA’s Mars nue estimates for this year and next by 2020 d.33 d.31 d.29 d.27 d1.20 2020 Rover and the opening of a new facil- $20 million and $5 million, respectively, to ity to support its work with the U.S. Na- $1.93 billion and $1.91 billion. B ■ Cal-QUARTERLY DIVIDENDS PAID Full tional Geospatial Intelligence Agency, both Maxar shares are now ranked 3 for endarMar.31 Jun.30 Sep.30 Dec.31 Year of which prompted stock price rallies. In Timeliness, at last having sufficient 2015 ------fact, Maxar shares are up over 70% in trading history. Moreover, due to the 2016 ------price since our September report. stock’s recent strong performance, appreci- 2017 ------.295 .295 The company posted better-than- ation potential is below average over both 2018 .28 .28 .28 .28 1.12 2019 .01 .01 .01 .01 expected third-quarter results. Total the 18-month and 3- to 5-year horizons. revenues increased 5.9% year to year to Glenn Pierr Johnson December 6, 2019 (A) Diluted earnings. Next earnings report due available. (E) Target Price Range is .3 times revenues Company’s Financial Strength C++ in early February. (C) Incl. intang. assets. In 2018: $3.0 billion, or per share. Stock’s Price Stability 5 (B) Div’d to be paid in Canadian dollars in late $50.22/share. Price Growth Persistence NMF March, June, Sept., Dec. ■ Div’d reinvest. plan (D) In millions. Earnings Predictability NMF © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 17.0 RELATIVE DIV’D VALUE MOOG INC. NYSE-MOGA PRICE 87.05RATIO 16.9()Median: 17.0 P/E RATIO 0.95YLD 1.1% LINE 717 TIMELINESS 3 Lowered 8/10/18 High: 49.2 39.6 40.7 46.5 45.5 70.0 79.2 77.3 73.1 90.0 93.9 98.5 Target Price Range Low: 24.0 17.9 29.2 30.5 33.5 41.0 57.1 52.3 38.1 60.3 68.4 74.0 2022 2023 2024 SAFETY 3 Raised 7/5/96 LEGENDS 9.0 x ″Cash Flow″ psh TECHNICAL Lowered 9/20/19 .... Relative Price Strength 160 3 Options: Yes BETA 1.25 (1.00 = Market) Shaded area indicates recession 120 100 18-Month Target Price Range 80 Low-High Midpoint (% to Mid) 60 50 $65-$141 $103 (20%) 40 2022-24 PROJECTIONS 30 Ann’l Total Price Gain Return 20 High 120 (+40%) 10% Low 80 (-10%) Nil 15 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 12 to Buy 113 119 97 1 yr. 18.4 4.9 shares 8 3 yr. 46.8 30.2 to Sell 102 107 120 traded 4 Hld’s(000) 30532 30303 31066 5 yr. 11.4 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 19.47 24.35 26.62 30.89 36.64 44.58 40.84 46.59 50.61 54.58 57.54 65.15 68.82 67.26 69.80 77.86 83.34 90.90 Sales per sh A 116.65 1.80 2.31 2.45 3.04 3.60 4.27 3.57 4.39 4.36 4.85 4.31 5.81 5.74 5.69 5.94 4.82 7.20 8.40 ‘‘Cash Flow’’ per sh 11.55 1.23 1.45 1.64 1.97 2.34 2.75 1.98 2.37 2.95 3.33 2.63 3.52 3.35 3.47 3.90 2.68 5.11 5.35 Earnings per sh AB 7.20 ------.50 1.00 1.00 Div’ds Decl’d per sh F 1.40 .71 .79 1.04 1.98 2.28 2.15 1.80 1.45 1.82 2.37 2.05 1.94 2.20 1.87 2.12 2.72 3.40 3.20 Cap’l Spending per sh 3.80 10.93 12.23 13.19 18.04 20.63 23.30 23.53 24.70 25.88 28.84 33.85 33.15 27.10 27.56 33.94 35.20 37.94 41.50 Book Value per sh D 48.35 38.80 38.56 39.50 42.30 42.53 42.68 45.27 45.38 46.05 45.25 45.37 40.65 36.70 35.86 35.78 34.80 34.85 33.00 Common Shs Outst’g CE 30.00 11.7 15.4 18.1 16.6 17.2 15.9 14.3 13.7 13.8 12.0 17.7 18.8 21.0 15.6 17.6 31.1 16.6 Avg Ann’l P/E Ratio 14.0 .67 .81 .96 .90 .91 .96 .95 .87 .87 .76 .99 .99 1.06 .82 .89 1.66 1.00 Relative P/E Ratio .80 ------.6% 1.2% Avg Ann’l Div’d Yield 1.4% CAPITAL STRUCTURE as of 9/28/19 1848.9 2114.3 2330.7 2469.5 2610.3 2648.4 2525.5 2411.9 2497.5 2709.5 2904.7 3000 Sales ($mill) A 3500 Total Debt $833.2 mill. Due in 5 Yrs $437.2 mill. 12.6% 13.6% 12.2% 12.6% 12.5% 12.6% 12.3% 12.5% 12.1% 11.8% 12.3% 13.0% Operating Margin 13.0% LT Debt $833.0 mill. Total Interest $36.2 mill. 76.4 91.2 65.0 67.1 75.0 78.1 78.6 77.4 71.4 71.2 71.3 100 Depreciation ($mill) 130 (Total int. coverage: 6.0x) (37% of Cap’l) Leases, Uncapitalized Annual rentals $25.5 mill. 85.0 108.1 136.0 152.5 120.5 158.2 131.9 126.7 141.3 96.5 179.7 175 Net Profit ($mill) 215 Pension Assets-9/19 $117.0 mill. 23.1% 27.7% 26.0% 27.0% 27.0% 27.7% 28.3% 28.5% 22.7% 47.4% 23.1% 28.0% Income Tax Rate 21.0% Oblig. $160.0 mill. 4.6% 5.1% 5.8% 6.2% 4.6% 6.0% 5.2% 5.3% 5.7% 3.6% 6.2% 5.9% Net Profit Margin 6.2% Pfd Stock None 764.1 812.8 834.1 885.0 924.2 941.3 1022.0 1031.0 997.0 795.8 901.3 1050 Working Cap’l ($mill) 1200 Common Stock 34,652,623 shs. C 814.6 757.3 714.8 670.7 600.7 765.1 1075.1 1010.3 956.7 858.8 833.0 725 Long-Term Debt ($mill) 550 Incl. 2,416,828 Class B shares D as of 11/5/19 1065.0 1121.0 1191.9 1304.8 1535.8 1347.4 994.5 988.4 1214.3 1225.0 1322.5 1370 Shr. Equity ($mill) 1450 5.6% 6.8% 8.1% 8.6% 6.3% 7.8% 7.1% 7.2% 7.3% 5.5% 9.3% 9.5% Return on Total Cap’l 12.0% MARKET CAP: $3.0 billion (Mid Cap) 8.0% 9.6% 11.4% 11.7% 7.8% 11.7% 13.3% 12.8% 11.6% 7.9% 13.6% 12.0% Return on Shr. Equity 15.0% CURRENT POSITION 2017 2018 9/28/19 8.0% 9.6% 11.4% 11.7% 7.8% 11.7% 13.3% 12.8% 11.6% 6.4% 13.2% 15.5% Retained to Com Eq 18.0% ($MILL.) ------19% 19% 19% All Div’ds to Net Prof 19% Cash Assets 368.1 125.6 92.5 Receivables 727.7 793.9 957.3 BUSINESS: Moog Inc. makes precision components and systems 17.1% of class A stock; FMR LLC, 9.9%; Vanguard Group, 9.5%. Inventory 489.1 512.5 535.0 for commercial, industrial, and defense markets. Business mix: Air- Moog family, employee savings and retirement plans, plus officers Other 41.5 44.4 44.2 craft Controls (45% of 2018 sales), Space and Defense Controls and directors own 1.3% of Class A and 2.8% of Class B (1/19 Current Assets 1626.4 1476.4 1629.0 (24%), Industrial Systems (31%). The U.S. Government accounts Proxy statement). Chief Executive Officer: John Scannell. In- Accts Payable 170.9 214.0 257.7 Debt Due .4 4.0 .2 for roughly 35% of sales. Has completed dozens of acquisitions corporated: New York. Address: Jamison Road, East Aurora, NY Other 458.1 462.6 469.7 over the last several years. Has 12,809 emplys. BlackRock owns 14052. Telephone: 716-652-2000. Internet: www.moog.com. Current Liab. 629.4 680.6 727.7 Moog Inc. wrapped up fiscal 2019 gains in the current fiscal year. Our ANNUAL RATES Past Past Est’d ’17-’19 (ended September 28th) on a high 2020 estimates are in line with company of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 note. In the fourth quarter, both sales and guidance and represent top- and bottom- Sales 6.5% 5.5% 8.5% ‘‘Cash Flow’’ 4.0% 4.0% 14.0% earnings trounced consensus estimates. line gains of roughly 3% and 5%, respec- Earnings 3.5% 2.5% 13.0% Even without the final frame, it was a tively. Further upside exists if the Indus- Dividends - - - - 23.0% strong year for the diversified aircraft and trial Systems group is able to rebound. Book Value 4.5% 2.0% 6.5% industrial components maker. Aircraft Last year, sales in the segment declined Fiscal QUARTERLY SALES ($ mill.) A Full Year Fiscal Control sales increased 9% over fiscal 4%. A double-digit gain in the medical Ends Dec.Per Mar.Per Jun.Per Sep.Per Year 2018, reflecting particularly encouraging product category did little to offset 3% 2016 568.4 611.1 613.3 619.1 2411.9 trends in the commercial sector (OEM losses in the automation and simulation 2017 589.7 632.4 626.2 649.2 2497.5 sales to Boeing and Airbus advanced 11% markets. But looking ahead, solid funda- 2018 627.5 689.1 692.0 700.9 2709.5 and 14%, respectively). But the military mentals in the medical market and a 2019 679.7 718.8 741.0 765.2 2904.7 side was no slouch. OEM sales came in turnaround in the energy sector ought to 2020 700 720 750 830 3000 11% higher than the year before (more help brighten prospects here. We continue Fiscal EARNINGS PER SHARE AB Full Year Fiscal work on the V-22 and other funded devel- to expect the Aircraft Controls group and Ends Dec.Per Mar.Per Jun.Per Sep.Per Year opment work were the main drivers), the increasingly important Space and 2016 .71 .85 .99 .92 3.47 which helped to offset some softness on the Defense unit to support our modest op- 2017 .84 .88 1.11 1.07 3.90 aftermarket. Elsewhere, Space and timism for the year ahead. 2018 .04 .39 1.12 1.13 2.68 Defense segment sales rose 18% in fiscal At this juncture, almost all types of 2019 1.25 1.20 1.35 1.31 5.11 2019, thanks in large part to impressive subscribers will want to look else- 2020 1.33 1.15 1.35 1.52 5.35 demand for missile controls, a new turret where, for now. The shares do not stand Cal-QUARTERLY DIVIDENDS PAID F Full platform, and multiplatform power and out over the coming six to 12 months, endarMar.31 Jun.30 Sep.30 Dec.31 Year data components. Wall Street appears to while the 3- to 5-year outlook is limited, 2015 ------have taken notice of the broad-based given the aforementioned ramp up in trad- 2016 ------strength; the shares have rebounded con- ing price. Our 18-month Target Price 2017 ------siderably since reporting the full-year re- Range, however, suggests investors could 2018 - - - - .25 .25 .50 2019 .25 .25 .25 .25 sults. stand to gain over that time period. We expect strong, if less impressive, Robert L. Harrington December 6, 2019 (A) Fiscal years end Saturday nearest Sept. (C) Class A shares have dividend priority and (E) In millions, adjusted for splits. Company’s Financial Strength B++ 30th. 1/10 vote. Class B shares have 1 vote each. (F) Dividend initiated Q1 2018. Paid in June, Stock’s Price Stability 50 (B) Diluted earnings. May not sum due to (D) Incl. intangibles. In 2019: $863.9 mill., September, December, and March. Price Growth Persistence 80 rounding. Next earnings report due early Feb. $24.79/sh. Earnings Predictability 55 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 19.8 RELATIVE DIV’D VALUE NORTHROP GRUMMAN NYSE-NOC PRICE 349.75RATIO 17.8()Median: 12.0 P/E RATIO 1.01YLD 1.5% LINE 718 TIMELINESS 3 Lowered 11/1/19 High: 83.4 57.3 69.8 72.5 71.3 116.2 153.2 194.0 253.8 311.2 360.9 383.9 Target Price Range Low: 34.0 33.8 53.5 49.2 56.6 64.2 109.2 141.6 175.0 223.9 223.6 237.1 2022 2023 2024 SAFETY 1 Raised 9/21/07 LEGENDS 14.0 x ″Cash Flow″ psh 640 TECHNICAL 2 Lowered 11/29/19 .... Relative Price Strength Options: Yes 480 BETA .85 (1.00 = Market) Shaded area indicates recession 400 18-Month Target Price Range 320 Low-High Midpoint (% to Mid) 240 200 $282-$488 $385 (10%) 160 2022-24 PROJECTIONS 120 Ann’l Total Price Gain Return 80 High 475 (+35%) 9% Low 390 (+10%) 4% 60 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 30 to Buy 371 464 420 1 yr. 36.8 4.9 shares 20 3 yr. 61.1 30.2 to Sell 537 423 500 traded 10 Hld’s(000) 142861 141069 140579 5 yr. 177.2 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 72.35 81.92 88.44 87.15 94.77 103.63 110.00 119.46 104.03 106.35 113.78 120.86 129.76 139.99 148.22 176.33 201.20 212.55 Revenues per sh 225.25 3.97 4.95 5.83 6.50 7.30 7.77 7.52 8.52 10.36 10.49 11.29 12.76 13.55 15.17 14.30 23.61 24.50 26.25 ‘‘Cash Flow’’ per sh 30.05 2.09 2.99 3.52 4.44 5.04 5.32 4.87 5.80 7.41 7.81 8.35 9.75 10.39 12.19 11.47 18.49 19.40 21.00 Earnings per sh A 24.00 .80 .89 1.01 1.16 1.48 1.57 1.69 1.84 1.97 2.15 2.38 2.71 3.10 3.50 3.90 4.70 5.16 5.52 Div’ds Decl’d per sh B■ 6.40 1.75 1.84 2.37 2.13 2.03 2.08 2.13 2.65 1.92 1.40 1.68 2.83 2.60 5.26 5.33 7.30 8.10 8.40 Cap’l Spending per sh 9.60 43.58 45.83 48.45 48.03 52.35 36.45 41.34 46.59 40.71 40.12 49.00 36.47 30.46 30.04 40.49 47.95 49.70 51.20 Book Value per sh C 56.05 362.22 364.43 347.36 345.92 337.83 327.01 306.87 290.96 253.89 237.13 216.74 198.41 181.30 175.07 174.09 170.67 167.00 167.00 Common Shs Outst’g D 165.00 21.4 17.4 15.6 14.9 15.2 12.4 9.9 10.5 8.3 8.2 10.4 12.9 16.1 17.4 23.0 16.8 Bold figures are Avg Ann’l P/E Ratio 18.0 1.22 .92 .83 .80 .81 .75 .66 .67 .52 .52 .58 .68 .81 .91 1.16 .89 Value Line Relative P/E Ratio 1.00 1.8% 1.7% 1.8% 1.8% 1.9% 2.4% 3.5% 3.0% 3.2% 3.4% 2.7% 2.1% 1.9% 1.6% 1.5% 1.5% estimates Avg Ann’l Div’d Yield 1.5% CAPITAL STRUCTURE as of 9/30/19 33755 34757 26412 25218 24661 23979 23526 24508 25803 30095 33600 35500 Revenues ($mill) 37500 Total Debt $13826 mill. Due in 5 Yrs $4426 mill. 9.5% 11.0% 14.5% 14.4% 14.7% 15.3% 15.1% 14.9% 14.6% 15.2% 15.5% 16.0% Operating Margin 17.5% LT Debt $13826 mill. Total Interest $562 mill. 736.0 738.0 544.0 510.0 495.0 462.0 467.0 456.0 475.0 800.0 850 875 Depreciation ($mill) E 1000 (Total interest coverage: 6.7x) (59% of Cap’l) 1573.0 1742.0 2086.0 1978.0 1952.0 2069.0 1990.0 2200.0 2015.0 3229.0 3240 3505 Net Profit ($mill) 3960 Leases, Uncapitalized $312 mill. 30.6% 24.2% 32.3% 33.3% 31.8% 29.6% 28.7% 24.7% 33.9% 13.7% 17.0% 17.0% Income Tax Rate 18.5% Pension Assets-12/18 $27.2 bill. Oblig. $32.2 bill. 4.7% 5.0% 7.9% 7.8% 7.9% 8.6% 8.5% 9.0% 7.8% 10.7% 9.6% 9.9% Net Profit Margin 10.6% 1650.0 1518.0 1611.0 2336.0 3673.0 2292.0 877.0 1226.0 9384.0 1406.0 1200 1500 Working Cap’l ($mill) 1800 Pfd Stock None 4191.0 4045.0 3935.0 3930.0 5928.0 5925.0 6416.0 7058.0 14399 13883 13880 12750 Long-Term Debt ($mill) 10000 Common Stock 168,352,761 shs. 12687 13557 10336 9514.0 10620 7235.0 5522.0 5259.0 7048.0 8187.0 8300 8550 Shr. Equity ($mill) 9250 as of 10/21/19 10.1% 10.7% 15.4% 15.5% 12.6% 16.8% 17.9% 19.1% 10.2% 15.9% 16.0% 17.5% Return on Total Cap’l 21.5% 12.4% 12.8% 20.2% 20.8% 18.4% 28.6% 36.0% 41.8% 28.6% 39.4% 39.0% 41.0% Return on Shr. Equity 43.0% MARKET CAP: $58.9 billion (Large Cap) 8.2% 8.8% 14.9% 15.2% 13.2% 20.8% 25.1% 29.7% 18.8% 19.2% 18.5% 20.5% Retained to Com Eq 21.5% CURRENT POSITION 2017 2018 9/30/19 34% 31% 26% 27% 28% 27% 30% 29% 34% 25% 27% 26% All Div’ds to Net Prof 27% ($MILL) Cash Assets 11225 1579 1127 BUSINESS: Northrop Grumman Corporation operates in several 12/31/18: $53.5 billion. U.S. Government accounted for 82% of total Receivables 3695 1448 2111 main sectors. It is a leading maker of manned and unmanned air- revenues in ’18. Officers & directors control about .2% of stock.; Inventory (Avg Cst) 780 654 810 Other 649 5999 6788 borne systems; a designer of electronic warfare items; makes State Street Corp., 10.2%; Vanguard Group, 8.0%; BlackRock, Current Assets 16349 9680 10836 space systems and provides advanced information systems. Ac- 6.7% (4/19 Proxy). CEO & Pres.: Kathy Warden. Incorporated: DE. Accts Payable 1661 2182 2021 quired satellite and missile systems maker Orbital ATK in 2018. Address: 2980 Fairview Park Drive, Falls Church, VA 22042. Tele.: Debt Due ------Has approximately 85,000 employees. Consolidated backlog at 703-280-2900. Internet: www.northropgrumman.com. Other 5304 6092 6395 Current Liab. 6965 8274 8416 Northrop Grumman remains on track coming years. Specifically, we envision for impressive top- and bottom-line the Technology Services and Innovation ANNUAL RATES Past Past Est’d ’16-’18 growth in 2019. The third quarter saw Systems segments becoming more promi- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Revenues 4.5% 5.0% 6.5% the diversified aerospace and military con- nent contributors over the long term. The ‘‘Cash Flow’’ 8.0% 8.0% 9.0% tractor deliver revenue growth in each of former is Northrop’s smallest by revenues, Earnings 10.0% 10.0% 9.5% its four main operating segments. While but has delivered rapid income growth in Dividends 11.0% 12.0% 8.0% Book Value -4.0% -4.5% 6.0% operating income was underwhelming at recent periods thanks to its Global both Aerospace and Mission Systems, Logistics and Modernizations programs. Cal-QUARTERLY REVENUES ($ mill.) Full better-than-expected volumes in the In- The Innovation business, largely endarMar.31 Jun.30 Sep.30 Dec.31 Year novation Systems unit and a 23% year- representing the assets of Orbital ATK, is 2016 5956 6000 6155 6397 24508 over-year leap in segment profits at Tech- likely to be a larger slice of the compa- 2017 6267 6375 6527 6634 25803 nology Services helped to negate the soft- nywide pie down the road as demand for 2018 6735 7119 8085 8156 30095 ness. For the full year, we continue to national security satellites and advanced 2019 8189 8456 8475 8480 33600 2020 8775 8950 8950 8825 35500 project $33.6 billion in revenues and missile systems increases. $19.40 in per-share earnings, which as- The shares do not offer much appeal Cal-EARNINGS PER SHARE A Full sumes a bounce back in margins at the over the near-term window. They are endarMar.31 Jun.30 Sep.30 Dec.31 Year aforementioned Aerospace group. neutrally ranked for Timeliness and the 2016 3.03 2.85 3.35 2.96 12.19 Next year’s outlook is similarly recent price possesses underwhelming ap- 2017 3.63 3.15 3.68 1.01 11.47 bright. We expect Northrop’s ties to the preciation prospects in the next 18 2018 4.79 4.52 7.11 2.07 18.49 2019 5.06 5.06 5.49 3.79 19.40 F-35 and E-2 aircraft programs will drive months. 2020 5.10 5.25 6.15 4.50 21.00 a rebound in the Aerospace Systems busi- Long-term accounts can also find bet- ness. Strong order activity in the in the ter investment options elsewhere. B■ Cal-QUARTERLY DIVIDENDS PAID Full Mission Systems and Technology Services Northrop Grumman stock trades too close endarMar.31 Jun.30 Sep.30 Dec.31 Year group (both of which were up 17%, year to to the Target Price Range to warrant any 2015 .70 .80 .80 .80 3.10 year, in the third quarter) also augurs well consideration three to five years out. Inter- 2016 .80 .90 .90 .90 3.50 for 2020. ested subscribers are advised to wait for a 2017 .90 1.00 1.00 1.00 3.90 The company’s recent diversification pullback in price before committing funds. 2018 1.10 1.20 1.20 1.20 4.70 2019 1.20 1.32 1.32 1.32 efforts ought to continue paying off in Robert L. Harrington December 6, 2019 (A) Diluted earnings. Excl. nonrecur. (losses) (B) Div’d historically paid mid-March, June, (D) In millions. Company’s Financial Strength A++ gains.: ’03, 23¢; ’04, (2¢); ’05, 33¢; ’06, (7¢); Sept., and Dec. ■ Div’d reinvest. plan available. (E) Depr. on accel. basis. Stock’s Price Stability 80 ’07, 11¢; ’08, ($9.09); ’09, 34¢; ’10, $1.02. Next (C) Incl. intang. assets. In 2018: $20.0 bill., Price Growth Persistence 95 earnings report due late February. $117.21/sh. Earnings Predictability 80 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: NMF RELATIVE DIV’D VALUE PARSONS CORP. NDQ-PSN PRICE 39.83RATIO 25.5()Median: NMF P/E RATIO 1.44YLD Nil LINE 719 TIMELINESS – D High: 39.9 Target Price Range Low: 29.0 2022 2023 2024 SAFETY 3 New 9/6/19 LEGENDS .... Relative Price Strength TECHNICAL D Options: Yes 80 – Shaded area indicates recession BETA NMF (1.00 = Market) 60 50 18-Month Target Price Range 40 Low-High Midpoint (% to Mid) 30 25 $N/A-$N/A $N/A (N/A%) 20 2022-24 PROJECTIONS 15 Ann’l Total Price Gain Return 10 High 55 (+40%) 9% Low 40 (Nil) Nil 7.5 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 30 to Buy 0098 1 yr. — 4.9 shares 20 3 yr. — 30.2 to Sell 000traded 10 Hld’s(000) 000 000 98863 5 yr. — 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 ------39.00 40.50 Revenues per sh 45.00 ------2.20 2.35 ‘‘Cash Flow’’ per sh 3.80 ------1.55 1.65 Earnings per sh A 2.95 ------Nil Nil Div’ds Decl’d per sh Nil ------.35 .40 Cap’l Spending per sh .50 ------9.50 10.00 Book Value per sh B 11.00 ------100.00 100.00 Common Shs Outst’g C 100.00 ------Bold figures are Avg Ann’l P/E Ratio 16.0 ------Value Line Relative P/E Ratio 1.00 ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 ------3560.5 3900 4050 Revenues ($mill) 4500 Total Debt $487.0 mill. Due in 5 Yrs $55.0 mill. ------6.5% 8.5% 15.5% Operating Margin 9.0% LT Debt $437.9 mill. LT Interest $4.5 mill. ------63.3 65.0 70.0 Depreciation ($mill) 85.0 (Total interest coverage: 32.9x) (32% of Cap’l) ------222.3 155.0 165.0 Net Profit ($mill) 295 Leases, Uncapitalized Annual rentals $67.9 mill. ------7.8% 14.0% 15.5% Income Tax Rate 14.5% ------6.2% 4.0% 4.1% Net Profit Margin 6.6% No Defined Pension Plan Available ------482.6 500 550 Working Cap’l ($mill) 700 ------430.1 425 400 Long-Term Debt ($mill) 350 Common Stock 99,262,334 shares as of 11/4/19 ------908.8 950 1000 Shr. Equity ($mill) 1100 ------17.4% 12.0% 12.5% Return on Total Cap’l 21.0% MARKET CAP: $4.0 billion (Mid Cap) ------24.5% 16.5% 16.5% Return on Shr. Equity 27.0% CURRENT POSITION 2017 2018 9/30/19 ------24.5% 16.5% 16.5% Retained to Com Eq 27.0% ($MILL.) ------Nil Nil All Div’ds to Net Prof Nil Cash Assets - - 280.2 146.5 Receivables - - 623.3 673.7 BUSINESS: Parsons Corporation engages in the design and manu- digital projects around the globe. The FS segment supplies high- Inventory ------facture of digitally enabled solutions for the defense, intelligence, end services to the U.S. government, including cybersecurity, mis- Other - - 585.3 654.1 and critical infrastructure markets. There are two main segments, sile defense, and subsurface munitions detection. Has over 15,600 Current Assets - - 1488.8 1474.3 Critical Infrastructure (CI; 54.5% of revenues through nine months employees. No proxy data available yet. Chair. & CEO: Chuck Har- Accts Payable - - 226.4 226.6 Debt Due - - - - 49.1 of 2019) and Federal Solutions (FS; 45.5%). The CI business pro- rington. Inc.: DE. Address: 5875 Trinity Parkway #300, Centreville, Other - - 779.8 880.6 vides engineering and design services for complex physical and Virginia 20120. Tel.: 703-988-8500. Internet: parsons.com. Current Liab. - - 1006.2 1156.3 Parsons Corporation impressed in the solid cash position will allow it to make ANNUAL RATES Past Past Est’d ’16-’18 third quarter. The diversified, further investments in the business, in- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 technology-centric government contractor cluding adding bolt-on businesses to com- Revenues - - - - NMF ‘‘Cash Flow’’ - - - - NMF outperformed both top- and bottom-line es- plement its two segments. Earnings - - - - NMF timates, driven in no small part by strong New order activity indicates the long- Dividends - - - - Nil performance in the Federal Solutions seg- term outlook is bright. In the third Book Value - - - - NMF ment. That group delivered 29% and 25% quarter alone, Parsons netted contracts Fiscal QUARTERLY REVENUES ($ mill.)A Full Year Fiscal revenue and operating profit gains, respec- with the U.S. Army Corps of Engineers, Ends Mar.Per Jun.Per Sep.Per Dec.Per Year tively, in the first nine months of the year and Air Force. A $590 million cyber mis- 2016 ------(compared to pro forma data) and is ex- sion support order from the General Serv- 2017 ------pected to remain a catalyst for growth well ices Administration and a share of the 2018 ------into the future. This more than offset $968 million award from the Warfare Sys- 2019 904.4 989.7 1023.3 982.6 3900 recent softness in the Critical Infrastruc- tems Command team highlight the scope 2020 915 1010 1080 1045 4050 ture business’ bottom line, due to an ad- of Parsons’ offerings. It also recently Fiscal EARNINGS PER SHARE A Full Year Fiscal verse mixture in the joint venture pay- joined the Northrop Grumman-led team Ends Mar.Per Jun.Per Sep.Per Dec.Per Year ment equity structure. The full-year out- that is in line to replace the Air Force’s in- 2016 ------look remains bright, with Parsons tercontinental ballistic missile system. 2017 ------projected to post a $1.55 share profit off of At this juncture, we believe investors 2018 ------$3.9 billion in revenues. with a long-term focus will want to 2019 .48 .20 .57 .30 1.55 Looking ahead, the company is ex- look elsewhere. Interested subscribers 2020 .45 .24 .45 .51 1.65 pected to deliver modest growth in are advised to wait for a pullback in the Cal-QUARTERLY DIVIDENDS PAID Full 2020. At the end of September, consolidat- stock price (PSN has traded between the endarMar.31 Jun.30 Sep.30 Dec.31 Year ed backlog had grown 4% over the prior high-$20 and high-$30 range since debut- 2015 year’s same-period level. This underscores ing in May) before committing funds. For 2016 NO CASH DIVIDENDS the solid outlook over the next few years the near term, the shares remain un- 2017 BEING PAID that will likely see Parsons report steady ranked for Timeliness due to their short 2018 year-to-year growth. The recent spate of trading history. 2019 contract wins supports the optimism. A Robert L. Harrington December 6, 2019 (A) Diluted earnings. May not sum due to mill., $11.62 per share. Company’s Financial Strength B+ changes in shares outstanding. Next earnings (C) In millions. Stock’s Price Stability NMF report due in late February. (D) Unranked due to short trading history. Price Growth Persistence NMF (B) Includes intangible assets. In 2018: $916.5 Earnings Predictability NMF © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 18.5 RELATIVE DIV’D VALUE RAYTHEON NYSE-RTN PRICE 216.29RATIO 18.3()Median: 13.0 P/E RATIO 1.03YLD 1.7% LINE 720 TIMELINESS – Suspended 6/21/19 High: 67.5 53.8 60.1 53.1 59.3 91.4 111.5 130.0 152.6 192.4 229.8 220.0 Target Price Range Low: 41.8 33.2 42.7 38.3 47.5 52.2 87.6 95.3 115.7 141.3 144.3 149.3 2022 2023 2024 SAFETY 1 Raised 12/21/07 LEGENDS 13.0 x ″Cash Flow″ psh 320 TECHNICAL Suspended 6/21/19 .... Relative Price Strength – Options: Yes BETA .85 (1.00 = Market) Shaded area indicates recession 200 18-Month Target Price Range 160 Low-High Midpoint (% to Mid) 120 100 $181-$281 $231 (5%) 80 2022-24 PROJECTIONS 60 Ann’l Total Price Gain Return 40 High 255 (+20%) 6% Low 210 (-5%) 1% % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 18 4Q2018 1Q2019 2Q2019 Percent 18 to Buy 556 725 606 1 yr. 23.8 4.9 shares 12 3 yr. 64.6 30.2 to Sell 683 516 606 traded 6 Hld’s(000) 212490 208279 205220 5 yr. 126.8 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 43.31 44.68 49.05 45.51 49.98 57.92 64.93 70.15 73.32 74.43 75.38 74.28 77.75 82.15 88.01 95.95 103.65 100.45 Sales per sh 132.00 2.22 2.42 3.11 3.43 4.33 5.16 6.10 6.20 6.83 7.15 7.56 8.52 8.53 9.30 8.93 12.33 13.60 14.65 ‘‘Cash Flow’’ per sh 17.10 1.29 1.49 2.08 2.56 3.31 3.95 4.89 4.79 5.28 5.65 5.96 6.97 6.75 7.44 6.94 10.15 11.50 12.50 Earnings per sh A 14.50 .80 .80 .88 .96 1.02 1.12 1.24 1.50 1.72 2.00 2.20 2.42 2.68 2.93 3.19 3.47 3.70 4.00 Div’ds Decl’d per sh B ■ 4.55 1.02 .80 .76 .66 .73 .76 .73 .89 1.00 1.03 .89 1.06 1.36 1.91 1.89 2.71 2.10 2.10 Cap’l Spending per sh 2.40 21.90 23.29 23.99 24.90 29.43 22.71 25.64 27.17 24.13 24.47 35.09 31.00 33.87 34.36 34.59 40.68 42.00 38.75 Book Value per sh C 43.20 418.14 453.10 446.37 445.87 426.20 400.10 383.20 359.00 339.00 328.00 314.50 307.30 299.00 293.00 288.00 282.00 275.00 275.00 Common Shs Outst’g D 250.00 23.1 23.0 18.5 18.1 17.3 14.8 9.4 10.6 8.9 9.5 11.7 14.0 16.2 18.0 24.2 19.5 Bold figures are Avg Ann’l P/E Ratio 16.0 1.32 1.22 .99 .98 .92 .89 .63 .67 .56 .60 .66 .74 .82 .94 1.22 1.05 Value Line Relative P/E Ratio .90 2.7% 2.3% 2.3% 2.1% 1.8% 1.9% 2.7% 3.0% 3.7% 3.7% 3.2% 2.5% 2.5% 2.2% 1.9% 1.8% estimates Avg Ann’l Div’d Yield 2.0% CAPITAL STRUCTURE as of 9/29/19 24881 25183 24857 24414 23706 22826 23247 24069 25348 27058 28500 30100 Sales ($mill) 33000 Total Debt $4.758 bill. Due in 5 years $2.6 bill. 13.8% 12.0% 13.3% 12.2% 14.3% 15.9% 15.1% 15.8% 15.3% 18.9% 19.5% 19.5% Operating Margin 20.0% LT Debt $4.258 bill. LT Interest $153 mill. 402.0 420.0 447.0 455.0 445.0 439.0 489.0 515.0 550.0 568.0 575 590 Depreciation ($mill) E 650 (Total interest coverage: 20.6x) (29% of Cap’l) 1936.0 1804.0 1867.0 1889.0 1932.0 2179.0 2061.0 2210.0 2022.0 2910.0 3160 3430 Net Profit ($mill) 3620 Leases, Uncapitalized Annual rentals $215 mill. 32.5% 24.2% 29.5% 31.6% 29.3% 26.5% 26.3% 28.3% 35.8% 8.4% 16.0% 16.0% Income Tax Rate 19.5% 7.8% 7.2% 7.5% 7.7% 8.1% 9.5% 8.9% 9.2% 8.0% 10.8% 11.1% 11.4% Net Profit Margin 11.0% Pension Assets-12/18 $19.3 bill Oblig. $24.7 bill. 2345.0 2862.0 3179.0 3344.0 4006.0 4362.0 3686.0 3728.0 3978.0 3848.0 4000 4400 Working Cap’l ($mill) 4750 Pfd Stock None 2329.0 3610.0 4605.0 4731.0 4734.0 5330.0 5330.0 5335.0 4750.0 4755.0 4250 3650 Long-Term Debt ($mill) 4000 Common Stock 278,479,000 shs. 9827.0 9754.0 8181.0 8026.0 11035 9525.0 10128 10066 9963.0 11472 11550 10650 Shr. Equity ($mill) 10800 as of 10/21/19 16.4% 14.0% 15.3% 15.6% 12.9% 15.4% 14.1% 15.1% 14.4% 18.4% 20.5% 24.5% Return on Total Cap’l 25.0% 19.7% 18.5% 22.8% 23.5% 17.5% 22.9% 20.3% 22.0% 20.3% 25.4% 27.5% 32.0% Return on Shr. Equity 33.5% MARKET CAP: $60.2 billion (Large Cap) 14.9% 13.0% 15.6% 15.5% 11.2% 15.2% 12.5% 13.5% 11.2% 16.9% 18.0% 21.0% Retained to Com Eq 21.5% CURRENT POSITION 2017 2018 9/29/19 24% 30% 31% 34% 36% 34% 39% 38% 45% 34% 32% 32% All Div’ds to Net Prof 29% ($MILL.) Cash Assets 3400 3608 2648 BUSINESS: Raytheon Company is a defense electronics and mis- Government accounted for roughly 68% of total. Officers & direc- Receivables 1324 527 1473 sile systems conglomerate. It is a global provider of ground-based tors control less than 1% of common stock; The Vanguard Group, Inventory (FIFO) 594 758 802 Other 5460 7243 7106 air defense systems, air intercept missiles, airborne and ground- 8.2%; BlackRock, 8/0%. (4/19 proxy). Has about 64,000 employ- Current Assets 10778 12136 12029 based radar systems, communication, cybersecurity, and other mili- ees. Chairman and C.E.O.: Dr. Thomas A. Kennedy. Incorporated: Accts Payable 1519 1964 1470 tary systems, and is a producer of electronics-based aerospace and Delaware. Address: 870 Winter Street, Waltham, Massachusetts Debt Due - - - - 500 defense products & sophisticated systems. 2018 sales to the U.S. 02451. Telephone: 781-522-3000. Internet: www.raytheon.com. Other 5829 6324 5845 Current Liab. 7348 8288 7815 Raytheon’s merger with United Tech- come. The Space and Airborne Systems nologies is on track to be finalized in segment has been surprisingly sturdy in ANNUAL RATES Past Past Est’d ’16-’18 the first half of next year. On October 2019, underscored by the ramped-up of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Sales 5.5% 3.5% 7.0% 11th, shareholders of both companies over- volumes experiences in the Next Gen ‘‘Cash Flow’’ 9.0% 7.5% 9.0% whelmingly approved the merger of OPIR and several classified programs. The Earnings 9.5% 7.5% 10.0% equals. Under the terms of the deal, Intelligence, Information, and Services Dividends 12.0% 10.0% 6.0% Book Value 3.5% 5.5% 3.0% Raytheon stockholders will receive 2.3348 business, though income growth slowed in shares of the new company, Raytheon the September interim, is likely to thrive Cal-QUARTERLY SALES ($ mill.) Full Technologies, for each unit already owned. in 2020. The segment recorded roughly $1 endarMar.Per Jun.Per Sep.Per Dec.Per Year UTX’s CEO Gregory Hayes will assume billion in new orders last quarter. 2016 5763 6035 6033 6238 24069 the same role with the new company, with The share price continues to tick 2017 6000 6281 6284 6783 25348 Raytheon head Thomas Kennedy working higher. In January, Raytheon stock fell to 2018 6267 6625 6806 7360 27058 as the executive chairman. Raytheon will its lowest price since 2017. But in the 11 2019 6729 7159 7446 7166 28500 2020 7000 7550 7600 7950 30100 join the former Pratt & Whitney and Rock- months that followed, the shares have well Collins operations. There are rebounded and have recently approached Cal-EARNINGS PER SHARE A Full customary closing conditions attached to their all-time high quotation level. The im- endarMar.Per Jun.Per Sep.Per Dec.Per Year the deal, including a slew of regulatory pressive run-up has been driven by both 2016 1.43 2.38 1.79 1.84 7.44 concerns and required spinoffs of United operational strength and optimism related 2017 1.73 1.89 1.97 1.35 6.94 Technologies’ Otis and Carrier businesses. to the UTX merger. We believe that exist- 2018 2.20 2.78 2.25 2.93 10.15 2019 2.77 2.92 3.08 2.73 11.50 Operationally speaking, the company ing investors would be wise to stay on 2020 2.90 3.10 2.90 3.60 12.50 is firing on all cylinders. The third board, as Raytheon Technologies will boast quarter saw Raytheon deliver an 18% improved scale and exposure to some of B ■ Cal-QUARTERLY DIVIDENDS PAID Full year-to-year earnings advance off of over the higher-margined growth arenas of the endarMar.31 Jun.30 Sep.30 Dec.31 Year 8% consolidated sales growth. Overseas, defense sector, including in the missile 2015 .67 .67 .67 .67 2.68 the Patriot missile system remains the systems, space services, and cybersecurity 2016 .7325 .7325 .7325 .7325 2.93 driver for long-term optimism. New orders markets. The stock is unranked for Timeli- 2017 .796 .798 .798 .798 3.19 from Saudi Arabia and Germany ought to ness due to the pending merger. 2018 .868 .868 .868 .868 3.47 2019 .868 .943 .943 keep that pipeline robust for years to Robert L. Harrington December 6, 2019 (A) Diluted earnings. May not sum due to 45¢; ’13, 20¢; ’18, (1¢). (C) Incl. intang. In ’18: $15.6 billion, $54.91/sh. Company’s Financial Strength A++ rounding and changes in share count. Excl. Next egs. rpt. due in late February. (D) In millions. Stock’s Price Stability 90 nonrecur. gains/(losses): ’03, (41¢); ’04, (55¢); (B) Dividends historically paid in January, April, (E) Accelerated depreciation. Price Growth Persistence 90 ’05, (16¢); ’06, 29¢; ’07, $2.48; ’08, (1¢); ’10, July, and October. ■ Div’d reinv. plan avail. Earnings Predictability 80 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 13.6 RELATIVE DIV’D VALUE SPIRIT AEROSYSTEMS NYSE-SPR PRICE 90.19RATIO 13.2()Median: 13.0 P/E RATIO 0.75YLD 0.5% LINE 721 TIMELINESS 4 Lowered 10/4/19 High: 34.4 20.5 24.0 26.5 26.0 34.5 45.4 58.0 61.6 87.9 105.2 100.3 Target Price Range Low: 7.1 8.0 16.2 14.3 14.0 15.8 25.2 41.3 40.0 51.8 64.5 70.0 2022 2023 2024 SAFETY 3 New 3/21/08 LEGENDS 10.0 x ″Cash Flow″ psh TECHNICAL 4 Lowered 11/29/19 .... Relative Price Strength 200 Options: Yes 160 BETA 1.15 (1.00 = Market) Shaded area indicates recession 18-Month Target Price Range 100 Low-High Midpoint (% to Mid) 80 60 $65-$129 $97 (10%) 50 2022-24 PROJECTIONS 40 Ann’l Total Price Gain Return 30 High 165 (+85%) 17% Low 110 (+20%) 6% 20 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 30 to Buy 150 224 185 1 yr. -2.0 4.9 shares 20 3 yr. 65.3 30.2 to Sell 222 161 218 traded 10 Hld’s(000) 100219 100118 101502 5 yr. 111.6 36.8 Spirit AeroSystems was established in 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 2005 after Onex Corporation acquired what 28.98 29.36 34.04 37.78 41.17 49.60 52.76 55.84 61.01 68.48 75.50 78.65 Revenues per sh 95.00 is now known as Spirit from Boeing Com- 2.31 2.44 2.29 .63 d3.13 5.14 5.83 6.48 7.34 8.66 9.15 9.90 ‘‘Cash Flow’’ per sh 12.70 mercial Airplanes. The company completed 1.37 1.55 1.35 d.47 d4.40 3.57 3.92 4.56 5.35 6.26 6.70 7.40 Earnings per sh A 9.70 its initial public offering of 31.52 million ------.40 .44 .48 .50 Div’ds Decl’d per sh B .70 shares for $26.00 a piece on November 21, 1.62 2.03 1.75 1.74 1.88 1.61 2.86 2.09 2.39 2.57 2.15 2.65 Cap’l Spending per sh 3.25 2006. A secondary offering of 55.08 million 11.18 12.74 13.75 13.97 10.22 11.83 16.83 15.85 15.74 11.74 16.85 21.85 Book Value per sh 37.00 shares for $33.50 each was made in May, 140.73 142.10 142.87 142.87 144.80 137.09 125.93 121.64 114.45 105.46 104.00 103.00 Common Shs Outst’g C 100.00 2007. Multiple underwriters were used in 10.6 13.1 15.4 - - - - 9.8 13.1 10.4 12.4 13.7 Bold figures are Avg Ann’l P/E Ratio 14.0 both transactions. .71 .83 .97 - - - - .52 .66 .55 .62 .74 Value Line Relative P/E Ratio .80 estimates CAPITAL STRUCTURE as of 9/26/19 ------.6% .5% Avg Ann’l Div’d Yield .5% Total Debt $2169.8 mill. Due in 5 Yrs $1100 mill. 4078.5 4172.4 4863.8 5397.7 5961.0 6799.2 6643.9 6792.9 6983.0 7222.0 7850 8100 Revenues ($mill) 9500 LT Debt $2132.2 mill. LT Interest $55.0 mill. 10.7% 11.6% 10.1% 1.9% NMF 15.1% 15.8% 16.0% 16.3% 14.8% 15.0% 16.0% Operating Margin 16.5% Includes $35.3 mill. in capital leases (Total interest coverage: 11.5x) (57% of Cap’l) 133.8 128.0 134.1 156.2 168.0 199.3 188.0 208.8 214.1 230.6 248 250 Depreciation ($mill) 270 191.7 218.9 192.4 d66.1 d621.4 505.5 546.4 579.1 625.9 682.2 705 770 Net Profit ($mill) 1000 Leases, Uncapitalized Annual rentals $8.9 mill. 29.7% 26.3% 31.0% ------2.5% 29.3% 29.5% 17.0% 21.0% 22.0% Income Tax Rate 22.0% 4.7% 5.2% 4.0% NMF NMF 7.4% 8.2% 8.5% 9.0% 9.4% 9.0% 9.5% Net Profit Margin 10.5% Pension Assets-12/18 $1.4 bill. Oblig. $1.1 bill. 1870.7 2129.9 2242.3 2288.4 1608.6 1793.3 1840.1 1366.2 1030.1 1267.2 1300 1400 Working Cap’l ($mill) 1500 Pfd Stock None 884.7 1187.3 1152.0 1165.9 1150.5 1144.1 1097.6 1060.0 1119.9 1864.0 2200 2200 Long-Term Debt ($mill) 2200 1573.8 1810.4 1964.2 1996.4 1480.5 1621.5 2119.5 1928.3 1801.0 1237.6 1750 2250 Shr. Equity ($mill) 3700 Common Stock 103,517,451 shares 8.7% 8.3% 7.5% NMF NMF 19.9% 17.8% 20.1% 22.0% 22.9% 18.0% 17.5% Return on Total Cap’l 17.0% as of 10/24/19 12.2% 12.1% 9.8% NMF NMF 31.2% 25.8% 30.0% 34.8% 55.1% 40.0% 34.0% Return on Shr. Equity 27.0% MARKET CAP: $9.3 billion (Large Cap) 12.2% 12.1% 9.8% NMF NMF 31.2% 25.8% 30.0% 32.1% 51.2% 38.0% 32.0% Retained to Com Eq 25.0% CURRENT POSITION 2017 2018 9/26/19 ------8% 7% 7% 7% All Div’ds to Net Prof 7% ($MILL.) Cash Assets 423.3 773.6 1477.3 BUSINESS: Spirit AeroSystems Holdings, Inc. designs, engineers, accounted for 95% of ’18 revenue. Foreign revenue, 17%. Has Receivables 722.2 545.1 708.6 and manufactures commercial aerostructures, such as fuselages, 17,000 employees. Officers & directors own less than 1% of com- Inventory (Avg Cost) 1449.9 1012.6 1015.2 Other 55.7 518.0 637.6 nacelles, struts and pylons, wing structures, and flight control sur- mon stock; Vanguard, 9.9%; BlackRock, 7.0%; Darsana Capital, Current Assets 2651.1 2849.3 3838.7 faces. Also provides components for military aircraft. Operates in 6.4% (3/19 Proxy). Pres. & CEO: Thomas C. Gentile. Chairman: Accts Payable 693.1 902.6 1140.5 three segments: Fuselage Systems (55% of ’18 revenue), Propul- Robert Johnson. Inc.: DE. Address: 3801 South Oliver, Wichita, KS Debt Due 31.1 31.4 37.6 sion Systems (24%), and Wing Systems (21%). Boeing and Airbus 67210. Telephone: 316-526-9000. Internet: www.spiritaero.com. Other 896.8 648.1 687.6 Current Liab. 1621.0 1582.1 1865.7 Spirit is on track to acquire some of The near-term outlook seems chal- the assets in Bombardier’s airliner lenging. Management expects production ANNUAL RATES Past Past Est’d ’16-’18 of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 business. In late October, Spirit agreed to of the 737 MAX, which accounts for some Revenues 9.0% 10.5% 7.5% buy three Bombardier facilities in North- 40% of the top line, to remain at 52 air- ‘‘Cash Flow’’ 13.5% - - 9.0% ern Ireland, Morocco, and Dallas that pro- craft at least through 2020. The company Earnings 14.5% - - 10.5% Dividends - - - - 16.5% duce aerostructures and provide after- had expanded its capacity to meet a sched- Book Value 6.0% 2.5% 17.0% market services. The $1.09 billion price in- uled rate increase to 57 in June before cludes $500 million in cash and the as- Boeing announced its own production cuts. Cal-QUARTERLY REVENUES ($ mill.) Full sumption of $590 million in pension Too, margins in the fourth quarter are endarMar.Per Jun.Per Sep.Per Dec.Per Year liabilities and debt obligations. Supplying likely to come under pressure from expect- 2016 1682 1830 1711 1570 6793 components for the A220 and A320, the ed contractual price stepdowns on the 787 2017 1694 1826 1748 1715 6983 2018 1736 1837 1814 1835 7222 business should expand Spirit’s Airbus and A350 programs. We have lowered our 2019 1968 2016 1920 1946 7850 content. First-year revenue and EBITDA, revenue and earnings estimates for the 2020 2000 2025 2050 2025 8100 including cost synergies, are expected to fourth quarter from $2.0 billion and $1.76 be $1 billion and $130 million, or 10% to per share, to $1.9 billion and $1.69. In Cal-EARNINGS PER SHARE A Full endarMar.Per Jun.Per Sep.Per Dec.Per Year 13% of our 2019 revenue and EBITDA es- 2020, we look for Boeing’s recent decision timates for Spirit alone. The acquisition is to cut production on the 787 from 14 air- 2016 1.29 1.21 1.16 .89 4.56 2017 1.17 1.57 1.26 1.32 5.35 slated to close in the first half of 2020. Our craft to 12 per month beginning later in 2018 1.10 1.63 1.70 1.85 6.26 financial presentation reflects Spirit in its the year to provide a headwind to growth. 2019 1.68 1.71 1.62 1.69 6.70 current configuration. Meanwhile, the For 2020, we now look for revenue and 2020 1.70 1.80 1.90 2.00 7.40 company reported third-quarter revenue of earnings of $8.1 billion and $7.40 per $1.9 billion, up 6% on higher 777 and 787 share, representing increases of 3% and Cal-QUARTERLY DIVIDENDS PAID B Full endarMar.31 Jun.30 Sep.30 Dec.31 Year volumes. Operating profitability was rela- 10%, respectively. tively consistent with the previous year. This stock is unfavorably ranked for 2015 ------2016 ------However, on a higher tax rate, earnings year-ahead performance. Appreciation 2017 .10 .10 .10 .10 .40 per share declined 5% to $1.62. Results potential out to 2022-2024 is roughly in 2018 .10 .10 .12 .12 .44 were $0.08 short of our estimate, mostly line with the Value Line median. 2019 .12 .12 .12 .12 due to a top-line miss of $60 million. Christopher Joseph, CFA December 6, 2019 (A) Diluted earnings. Excludes nonrecurring earnings report due early February. (C) In millions. Company’s Financial Strength A items: ’12, $0.71; ’14, ($1.39); ’15, $1.74; ’16 (B) Dividends paid in early Jan., April, July, and Stock’s Price Stability 55 ($0.86), ’17, ($2.34); ’18, (61¢); ’19, (59¢). Qly Oct. Price Growth Persistence 80 figs. may not sum to total due to rounding. Next Earnings Predictability 10 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 33.7 RELATIVE DIV’D VALUE TELEDYNE TECH. NYSE-TDY PRICE 340.88RATIO 31.3()Median: 16.0 P/E RATIO 1.77YLD Nil LINE 722 TIMELINESS 1 Raised 10/4/19 High: 66.2 46.8 45.3 60.9 67.0 93.8 109.2 111.8 129.4 186.5 250.9 351.5 Target Price Range Low: 33.9 21.7 35.3 43.6 54.7 65.8 87.5 83.1 73.7 119.7 172.8 198.1 2022 2023 2024 SAFETY 3 New 9/19/08 LEGENDS 19.0 x ″Cash Flow″ psh 640 TECHNICAL 3 Raised 8/9/19 .... Relative Price Strength Options: Yes 480 BETA 1.10 (1.00 = Market) Shaded area indicates recession 400 18-Month Target Price Range 320 Low-High Midpoint (% to Mid) 240 200 $219-$355 $287 (-15%) 160 2022-24 PROJECTIONS 120 Ann’l Total Price Gain Return 80 High 445 (+30%) 7% Low 295 (-15%) -3% 60 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 30 to Buy 130 156 177 1 yr. 49.0 4.9 shares 20 3 yr. 206.1 30.2 to Sell 165 144 154 traded 10 Hld’s(000) 30536 30367 31296 5 yr. 218.1 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 26.05 30.89 35.82 41.28 46.15 52.69 48.93 45.22 53.28 57.24 62.24 65.31 66.58 61.23 73.26 80.41 86.60 91.10 Sales per sh 104.00 1.64 2.02 2.67 3.23 3.79 4.41 4.38 4.54 5.66 6.49 7.34 8.51 8.29 7.92 9.70 12.38 13.85 14.60 ‘‘Cash Flow’’ per sh 18.75 .91 1.24 1.85 2.26 2.72 3.05 3.10 3.25 3.81 4.33 4.87 5.75 5.44 5.37 6.39 9.01 10.40 11.25 Earnings per sh A 14.75 ------Nil Nil Div’ds Decl’d per sh Nil .63 .57 .59 .76 1.15 1.17 1.00 .85 1.14 1.76 1.93 1.19 1.36 2.49 1.65 2.41 1.75 1.75 Cap’l Spending per sh 1.75 6.85 7.96 9.68 12.44 15.08 14.75 18.50 21.64 27.00 32.38 40.42 40.06 38.94 44.27 54.79 61.79 73.30 85.15 Book Value per sh B 125.75 32.27 32.91 33.68 34.72 35.15 35.93 36.08 36.36 36.45 37.16 37.57 36.66 34.52 35.11 35.54 36.09 36.50 37.00 Common Shs Outst’g C 37.00 16.3 18.0 17.6 16.2 17.0 16.6 10.6 12.4 13.3 14.3 16.4 16.9 18.2 18.5 22.5 23.1 Bold figures are Avg Ann’l P/E Ratio 25.0 .93 .95 .94 .87 .90 1.00 .71 .79 .83 .91 .92 .89 .92 .97 1.13 1.25 Value Line Relative P/E Ratio 1.40 ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/29/19 1765.2 1644.2 1941.9 2127.3 2338.6 2394.0 2298.1 2149.9 2603.8 2901.8 3160 3370 Sales ($mill) 3850 Total Debt $925.4 mill. Due in 5 Yrs $925 mill. 11.9% 13.6% 15.0% 15.1% 14.2% 16.2% 16.2% 15.9% 17.2% 18.3% 19.3% 20.0% Operating Margin 22.5% LT Debt $719.3 mill. LT Interest $20.0 mill. 44.7 45.2 64.2 78.3 91.1 94.3 90.3 87.3 113.0 113.0 115 120 Depreciation ($mill) 140 (22% of Cap’l) 113.3 119.9 142.1 162.8 184.5 217.7 195.8 190.9 231.9 333.8 390 420 Net Profit ($mill) 550 Leases, Uncap Ann’l rentals $23.0 mill. 29.4% 30.9% 32.8% 28.7% 17.6% 23.6% 24.3% 20.9% 19.2% 15.3% 18.0% 22.0% Income Tax Rate 22.0% 6.4% 7.3% 7.3% 7.7% 7.9% 9.1% 8.5% 8.9% 8.9% 11.5% 12.3% 12.5% Net Profit Margin 14.3% Pension Assets-12/18 $824 mill. 250.6 306.8 268.5 337.5 381.0 402.7 434.6 344.4 471.3 393.6 450 500 Working Cap’l ($mill) 600 Oblig. $778 mill. 251.6 265.3 311.4 556.2 549.0 618.9 762.9 515.8 1069.3 612.3 850 1000 Long-Term Debt ($mill) 1250 Preferred Stock None 667.4 787.0 984.1 1203.4 1518.7 1468.5 1344.1 1554.4 1947.3 2229.7 2675 3150 Shr. Equity ($mill) 4650 Common Stock 36,470,156 shs. 12.6% 11.7% 11.6% 9.8% 9.4% 10.8% 9.9% 9.8% 8.2% 12.2% 11.5% 10.5% Return on Total Cap’l 9.5% as of 10/23/19 17.0% 15.2% 14.4% 13.5% 12.1% 14.8% 14.6% 12.3% 11.9% 15.0% 14.5% 13.5% Return on Shr. Equity 12.0% MARKET CAP: $12.4 billion (Large Cap) 17.0% 15.2% 14.4% 13.5% 12.1% 14.8% 14.6% 12.3% 11.9% 15.0% 14.5% 13.5% Retained to Com Eq 12.0% CURRENT POSITION 2017 2018 9/29/19 ------Nil Nil All Div’ds to Net Prof Nil ($MILL.) Cash Assets 70.9 142.5 128.5 BUSINESS: Teledyne Technologies, Inc. provides advanced tech- 35% of ’18 rev.; Aerospace & Defense, 24%; Digital Imaging, 31%; Receivables 478.1 561.8 643.7 nology products and services to the energy, oceanographic re- Engineered Systems 10%. Employed 10,850 (12/31/18). Stock Inventory (cur cost) 400.2 364.3 404.4 Other 62.7 45.8 61.5 search, environmental monitoring, electronic design and develop- owners: Five fin’l inst., 36.5%; Off. & dir., 3.2% (3/19 proxy). Exec. Current Assets 1011.9 1114.4 1238.1 ment, factory automation, and medical imaging markets. Customers Chrmn.: Robert Mehrabian; Pres. & CEO: Aldo Pichelli. Inc.: DE. Accts Payable 191.7 227.8 244.9 include U.S. Dept. of Defense, aerospace contractors, energy E&P Address: 1049 Camino Dos Rios, Thousand Oaks, CA 91360. Tele- Debt Due 3.6 138.4 206.1 companies, industrial companies, and airlines. Instrumentation, phone: (805) 373-4545. Internet: www.teledyne.com. Other 345.3 354.6 384.5 Current Liab. 540.6 720.8 835.5 Teledyne Technologies continues to get published in our September report. report good financial results. The mo- Meanwhile, overall profitability now looks ANNUAL RATES Past Past Est’d ’16-’18 mentum that has been established carried like it should improve more than previous- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Sales 4.5% 4.5% 6.5% over into the third quarter. Although the ly envisioned, with the operating margin ‘‘Cash Flow’’ 10.0% 9.0% 11.0% top line benefited from a couple of recent widening about 120 basis points, to 15.6% Earnings 10.0% 10.0% 13.5% acquisitions, sales grew some 5.0% on an (inclusive of depreciation). We are also Dividends - - - - Nil Book Value 14.5% 10.0% 15.5% organic basis in the September period, ex- taking a more optimistic view for 2020. ceeding the 4.0% we had penciled in. Teledyne’s marine instrumentation busi- Cal-QUARTERLY SALES ($ mill.) A Full Meanwhile, the company’s operating profit ness seems to be perking up, with orders endarMar.Per Jun.Per Sep.Per Dec.Per Year grew 22.0%, with margins expanding nice- continuing to exceed sales. The company 2016 530.5 539.7 526.8 552.9 2149.9 ly in the Instrumentation and Aerospace & has restructured these operations, and 2017 566.1 671.1 662.2 704.4 2603.8 Defense operating segments. Meanwhile, ought to benefit should the turnabout con- 2018 695.6 732.5 725.3 748.4 2901.8 top-line growth at the Digital Imaging tinue. In brief, the top line may advance 2019 745.2 782.0 802.2 830.6 3160 2020 825 840 840 865 3370 group slowed slightly from the first half, 4.0% on an organic basis next year, with with the segment’s operating margin tak- operating profits advancing some 12.5%. Cal-EARNINGS PER SHARE A Full ing a step back, largely reflecting product Teledyne stock continues to receive endarMar.Per Jun.Per Sep.Per Dec.Per Year mix. Finally, the Engineering Systems seg- strong market support. The company 2016 1.12 1.34 1.46 1.48 5.37 ment posted respectable results. Teledyne enjoys an adept management team, and 2017 .84 1.66 1.90 1.97 6.39 expects this group’s contribution to contin- operates in markets where it has ad- 2018 1.81 2.32 2.43 2.45 9.01 2019 2.02 2.80 2.84 2.74 10.40 ue making progress, with Engineering vantages and can excel. It has a history of 2020 2.40 2.90 2.95 3.00 11.25 Systems being capable of operating at enhancing its prospects via acquisition, around an 11% margin when at full stride. though it follows a conservative path in Cal-QUARTERLY DIVIDENDS PAID Full We have made some adjustments to this regard, maintaining a good financial endarMar.31 Jun.30 Sep.30 Dec.31 Year our estimates for 2019. We still think position. The success has not escaped in- 2015 sales will advance about 4.0% on an vestors, though, and those considering 2016 NO CASH DIVIDENDS organic basis. Including recent acquisi- making a new commitment to TDY shares 2017 BEING PAID tions, then, the top line should reach $3.16 will have to shoulder a premium. 2018 2019 billion, up $60 million from the sales tar- Charles Clark December 6, 2019 (A) Fiscal year ends Sunday nearest Decem- ing. (C) In millions. Company’s Financial Strength B++ ber 31st. Diluted earnings. Excluding tax item: (B) Incl. intangibles. In 2018: $1,735.2 mill., Stock’s Price Stability 80 ’17, ($0.13). Next earnings report due late Jan. $48.08 per share. Price Growth Persistence 100 Quarterly earnings may not sum due to round- Earnings Predictability 75 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 44.1 RELATIVE DIV’D VALUE TRANSDIGM GROUP NYSE-TDG PRICE 571.01RATIO 32.9()Median: 26.0 P/E RATIO 1.86YLD Nil LINE 723 TIMELINESS 2 Raised 11/29/19 High: 46.5 50.9 72.9 102.7 152.6 164.6 201.0 244.9 294.4 295.0 377.7 581.1 Target Price Range Low: 23.0 29.7 46.5 72.5 92.0 133.0 158.9 194.3 180.8 203.7 265.3 324.9 2022 2023 2024 SAFETY 3 New 12/16/11 LEGENDS 16.0 x ″Cash Flow″ psh TECHNICAL Lowered 11/15/19 .... Relative Price Strength 800 3 Options: Yes BETA .95 (1.00 = Market) Shaded area indicates recession 600 500 18-Month Target Price Range 400 Low-High Midpoint (% to Mid) 300 250 $407-$730 $569 (0%) 200 2022-24 PROJECTIONS 150 Ann’l Total Price Gain Return 100 High 550 (-5%) -1% Low 370 (-35%) -10% 75 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 30 to Buy 215 279 217 1 yr. 59.4 4.9 shares 20 3 yr. 109.5 30.2 to Sell 255 223 264 traded 10 Hld’s(000) 54513 53355 54269 5 yr. 233.3 36.8 TransDigm Group completed its initial public 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 offering in March, 2006. At that time, 10.95 15.56 16.74 23.96 32.92 36.54 45.27 50.42 59.46 67.48 72.27 92.83 127.90 Revenues per sh A 145.00 million shares were sold to the public at an 3.89 3.92 4.22 7.61 7.15 7.69 10.07 13.28 15.33 20.70 18.93 24.00 ‘‘Cash Flow’’ per sh 31.00 average price of $21.00 per share. A follow- 3.23 2.52 2.80 5.97 2.39 3.16 7.84 10.39 10.64 16.28 12.94 19.20 Earnings per sh AB 23.00 on offering occurred in May, 2007, when 10 - - 7.65 ------Nil Div’ds Decl’d per sh D Nil million shares were sold at $35.25 per .27 .26 .36 .49 .67 .65 1.02 .82 1.37 1.39 1.81 2.35 Cap’l Spending per sh 3.10 share. On both occasions, the underwriting 16.73 12.00 16.11 23.60 d6.39 d29.69 d19.34 d12.22 d56.83 d34.29 d51.45 d17.30 Book Value per sh E d10.00 syndicate included Credit Suisse and Leh- 48.95 49.43 50.34 51.65 52.67 52.42 53.69 53.34 51.93 52.73 56.27 52.00 Common Shs Outst’g C 50.00 man Brothers. 11.1 20.3 28.4 19.2 59.8 53.9 27.1 23.3 24.1 19.2 33.3 Avg Ann’l P/E Ratio 20.0 .74 1.29 1.78 1.22 3.36 2.84 1.36 1.22 1.21 1.04 1.87 Relative P/E Ratio 1.10 CAPITAL STRUCTURE as of 9/30/19 - - 14.9% ------Avg Ann’l Div’d Yield Nil Total Debt $16898.9 mill. Due 5 Yrs $5462 mill. 761.6 827.7 1206.0 1700.2 1924.4 2372.9 2707.1 3171.4 3504.3 3811.1 5223.2 6650 Revenues ($mill) A 7250 LT Debt $16469.2 mill. LT Interest $860 mill. 47.7% 47.5% 45.4% 45.2% 42.8% 43.2% 43.1% 43.8% 48.0% 48.7% 43.8% 49.5% Operating Margin 53.5% (Total Interest Coverage: 1.2x) 27.5 30.2 60.4 68.2 73.5 96.4 93.7 121.7 141.0 129.8 225.7 250 Depreciation ($mill) 400 Leases, Uncapitalized Annual rentals $22.3 mill. 162.9 163.4 152.2 325.0 302.8 306.9 447.2 586.4 654.9 961.5 839.3 1000 Net Profit ($mill) 1150 Pension Assets-9/19 $551.5 mill. Oblig. $678.8 35.1% 34.8% 33.6% 33.4% 32.5% 31.6% 29.8% 23.7% 27.9% 2.4% 20.9% 27.5% Income Tax Rate 29.5% mill. 21.4% 19.7% 12.6% 19.1% 15.7% 12.9% 16.5% 18.5% 18.7% 25.2% 16.1% 15.0% Net Profit Margin 15.9% 395.0 470.5 663.4 816.6 998.0 1103.7 1173.8 2178.1 1262.6 2756.9 3326.5 3750 Working Cap’l ($mill) 4200 Pfd Stock None 1356.8 1771.6 3122.9 3598.6 5700.2 7233.8 8183.5 9943.2 11394 12502 16469 16350 Long-Term Debt ($mill) 15500 Common Stock 53,548,349 shs. 819.2 593.0 810.9 1218.8 d336.4 d1556 d1038 d651.5 d2951 d1808 d2895 d900 Shr. Equity ($mill) d500 as of 11/17/19 9.4% 9.3% 6.2% 8.9% 8.2% 8.5% 9.2% 8.9% 11.3% 12.1% 9.4% 9.0% Return on Total Cap’l 11.0% 19.9% 27.6% 18.8% 26.7% ------NMF Return on Shr. Equity NMF MARKET CAP: $30.6 billion (Large Cap) 19.9% 27.6% 18.8% 26.7% ------NMF Retained to Com Eq NMF CURRENT POSITION 2017 2018 9/30/19 ------Nil All Div’ds to Net Prof Nil ($MILL.) Cash Assets 650.6 2073.0 1467.5 BUSINESS: TransDigm Group engages in the design, production, 11% of companywide sales; Boeing, 10%. Backlog at 9/30/18: $1.7 Receivables 636.1 704.3 1067.6 and supply of highly-engineered proprietary components for use in billion. Has approximately 10,100 employees. Offs./dirs. own 11.0% Inventory 730.7 805.3 1232.6 Other 116.2 74.7 1097.5 commercial and military aircraft worldwide. Its products include me- of common stock; Vanguard Group, 9.2%; Capital Investors, 8.4% Current Assets 2133.6 3657.3 4865.2 chanical/electro-mechanical actuators and controls, ignition sys- (1/19 proxy). Chairman: W. Nicholas Howley; CEO & Pres.: Kevin Accts Payable 148.8 173.7 276.6 tems and engine technology, and specialized pumps and valves. Stein. Inc.: DE. Addr.: 1301 East 9th Street, Suite 3000, Cleveland, Debt Due 369.0 375.3 429.7 Has made many acquistions. In fiscal 2018, Airbus accounted for OH 44114. Tele.: 216-706-2960. Internet: www.transdigm.com. Other 353.2 351.4 832.4 Current Liab. 871.0 900.4 1538.7 We expect TransDigm Group to line, acquired in March) to KPS Capital for deliver substantial earnings growth $190 million. Additionally, it also plans to ANNUAL RATES Past Past Est’d ’17-’19 of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 in fiscal 2020 (ended September 30th). sell the Souriau-Sunbank business in the Revenues 18.5% 15.0% 13.5% Earnings came in higher than consensus coming months. Both are classified as dis- ‘‘Cash Flow’’ 19.0% 19.5% 11.0% estimates in the fourth quarter, thanks in continued operations in the fourth quarter. Earnings 18.0% 28.0% 11.5% Dividends - - - - Nil large part to contributions from recent ac- There are some concerns here. Trans- Book Value - - - - NMF quisitions. But even outside the new as- Digm is facing higher interest and tax ex- sets, organic sales grew over 10% last penses related to the new debt used to Fiscal QUARTERLY REVENUES ($ mill.) AB Full Year Dec.Per Mar.Per Jun.Per Sep.30 Fiscal year. What’s more, TransDigm’s work on fund the aggressive acquisition strategy. Ends Year Lockheed Martin’s F-35 also augurs well Also, an investigation early in 2019 found 2016 701.7 796.8 797.7 875.2 3171.4 for the component supplier’s prospects. the company had marked up some parts 2017 814.0 868.7 897.7 923.9 3504.3 2018 847.9 933.1 980.7 1049.4 3811.1 That aircraft is to be the backbone of U.S. included in its Pentagon contracts. While 2019 993.3 1167.5 1521.1 1541.3 5223.2 air presence, underscored by last month’s the company agreed to pay back the dif- 2020 1350 1575 1825 1900 6650 $7 billion contract for an additional 114 ference, the scrutiny places added pres- stealth fighters. With an eye on creating sure on the aftermarket titan to sustain Fiscal EARNINGS PER SHARE AB Full Year Dec.Per Mar.Per Jun.Per Sep.30 Fiscal additional value for its shareholders, the strong earnings growth. Ends Year company is focused also on right-sizing its This stock is now ranked 2 (Above 2016 2.22 2.52 2.88 2.77 10.39 2017 2.57 2.78 3.08 2.21 10.64 scale and eliminating redundancies to Average) for Timeliness and is expect- 2018 4.60 3.63 3.91 4.14 16.28 maintain the growth rate. ed to deliver market-beating returns 2019 3.05 3.60 2.57 3.73 12.94 The company is in the process of over the next six to 12 months. How- 2020 3.90 4.55 5.20 5.55 19.20 divesting several businesses. Trans- ever, the long-term picture isn’t as bright, Digm has spent several years aggressively with the shares already trading above the Cal-QUARTERLY DIVIDENDS PAID D Full endarMar.31 Jun.30 Sep.30 Dec.31 Year pursuing bolt-on acquisitions to bolster its high end of our three- to five-year Target position in the commercial aerospace Price Range. The company has been 2015 2016 NO CASH DIVIDENDS aftermarket. Accordingly, it is currently known to pay out hefty special dividends 2017 BEING PAID focused on reducing redundancies from from time to time, but there is no certainty 2018 recent additions. It recently sold Interface that it will continue to do so. 2019 Technologies group (a subsidiary of Ester- Robert L. Harrington December 6, 2019 (A) Fiscal years end September 30th. report due mid-February. (C) In millions. and $30.00/share, 8/19. Company’s Financial Strength B+ (B) Diluted earnings. May not sum due to (D) Paid special dividends of $7.65/share, (E) Includes intangibles. In 2019, $10.2 bill., Stock’s Price Stability 70 rounding and/or acquisitions. Excludes discon- 10/09; $12.85/share, 11/12; $22.00/share, $192.12 a share. Price Growth Persistence 95 tinued operating earnings of $0.90. Next egs. 7/13; $25.00/share, 6/14; $22.00/share, 9/17; Earnings Predictability 40 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 10.9 RELATIVE DIV’D VALUE TRIUMPH GROUP, INC. NYSE-TGI PRICE 29.20RATIO 10.9()Median: 10.0 P/E RATIO 0.62YLD 0.5% LINE 724 TIMELINESS 4 Raised 3/29/19 High: 41.4 25.5 46.3 60.9 67.5 85.5 79.9 70.7 40.4 34.8 30.0 29.3 Target Price Range Low: 13.4 15.6 23.8 39.8 53.5 65.7 59.5 32.8 22.4 19.7 11.4 11.2 2022 2023 2024 SAFETY 4 Lowered 9/7/18 LEGENDS 5.0 x ″Cash Flow″ psh 128 TECHNICAL 4 Lowered 12/6/19 .... Relative Price Strength 2-for-1 split 7/11 96 BETA 1.45 (1.00 = Market) Options: Yes 2-for-1 80 Shaded area indicates recession 18-Month Target Price Range 64 Low-High Midpoint (% to Mid) 48 40 $7-$29 $18 (-40%) 32 2022-24 PROJECTIONS 24 Ann’l Total Price Gain Return 16 High 45 (+55%) 12% Low 30 (+5%) 2% 12 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 45 to Buy 92 99 86 1 yr. 14.7 4.9 shares 30 3 yr. -10.6 30.2 to Sell 89 85 85 traded 15 Hld’s(000) 53225 51615 52582 5 yr. -69.3 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 19.18 21.64 23.75 28.98 35.30 37.38 38.83 59.89 68.80 73.87 71.74 78.92 78.78 71.26 64.41 67.45 57.75 57.05 Sales per sh A 63.45 1.50 1.46 2.08 2.65 3.65 4.41 4.19 5.46 7.71 8.98 7.70 9.01 8.40 10.09 5.71 5.33 5.40 6.00 ‘‘Cash Flow’’ per sh 7.00 .61 .50 1.08 1.54 2.16 2.95 2.56 3.48 4.93 6.11 4.80 5.74 5.34 6.54 2.53 2.32 2.55 3.15 Earnings per sh AB 3.75 ------.06 .08 .08 .08 .08 .12 .16 .16 .16 .16 .16 .16 .16 .16 .16 Div’ds Decl’d per sh C .20 .80 .58 .90 1.81 1.91 1.37 .95 1.86 1.90 2.53 3.93 2.03 1.62 1.05 .85 .94 1.00 1.10 Cap’l Spending per sh 1.25 16.24 16.56 17.61 19.05 21.24 23.50 25.81 33.64 36.21 40.80 43.54 43.35 18.95 17.08 9.07 d11.49 d9.95 d6.85 Book Value per sh D 3.85 31.72 31.81 32.02 32.94 32.61 33.18 33.35 48.51 49.53 50.12 52.46 49.27 49.33 49.57 49.67 49.89 50.20 51.00 Common Shs Outst’g E 52.00 25.7 35.3 17.6 15.9 16.0 7.9 9.2 11.3 10.8 10.5 15.5 11.3 8.8 4.6 11.2 8.6 Bold figures are Avg Ann’l P/E Ratio 10.0 1.47 1.86 .94 .86 .85 .48 .61 .72 .68 .67 .87 .59 .44 .24 .56 .47 Value Line Relative P/E Ratio .55 ------.2% .2% .3% .3% .2% .2% .2% .2% .2% .3% .5% .6% .8% estimates Avg Ann’l Div’d Yield .5% CAPITAL STRUCTURE as of 9/30/19 1294.8 2905.3 3407.9 3702.7 3763.3 3888.7 3886.1 3532.8 3199.0 3364.9 2900 2910 Sales ($mill) A 3300 16.2% 15.0% 17.6% 18.8% 16.5% 17.2% 15.5% 17.2% 11.9% 11.4% 15.0% 16.0% Operating Margin 16.0% Total Debt $1468.5 mill. Due in 5 Yrs $994.3 mill. 54.4 99.6 126.1 129.5 150.6 151.2 177.8 176.9 158.4 149.9 140 145 Depreciation ($mill) 165 LT Debt $1460.8 mill. LT Interest $55.0 mill. Includes $31.3 mill. in capital leases 85.3 165.3 255.7 320.5 253.2 292.8 236.7 323.2 125.1 116.1 130 160 Net Profit ($mill) 200 (Total interest coverage: 2.5x) (Deficit Cap’l) 32.6% 35.3% 35.6% 35.9% 34.2% 32.2% 17.8% 7.9% 7.9% 2.6% 21.0% 21.0% Income Tax Rate 21.0% 6.6% 5.7% 7.5% 8.7% 6.7% 7.5% 6.1% 9.1% 3.9% 3.5% 4.5% 5.5% Net Profit Margin 6.1% Leases, Uncapitalized Annual rentals $21.5 mill. 487.7 277.4 698.4 889.9 1140.5 1147.2 606.7 438.6 930.5 265.8 300 400 Working Cap’l ($mill) 500 Pension Assets-3/19 $1.8 bill. Oblig. $2.2 bill. 413.9 1011.8 1016.6 1195.9 1500.8 1337.1 1374.9 1035.7 1421.8 1480.6 1450 1450 Long-Term Debt ($mill) 1450 Pfd Stock None 860.7 1632.2 1793.4 2045.2 2283.9 2135.8 934.9 846.5 450.5 d573.3 d500 d350 Shr. Equity ($mill) D 200 Common Stock 50,085,440 shs. 7.8% 7.7% 10.2% 10.9% 7.8% 9.6% 11.7% 19.3% 9.0% 18.3% 20.5% 20.5% Return on Total Cap’l 16.0% as of 11/6/19 9.9% 10.1% 14.3% 15.7% 11.1% 13.7% 25.3% 38.2% 27.8% NMF NMF NMF Return on Shr. Equity NMF MARKET CAP: $1.5 billion (Mid Cap) 9.6% 9.9% 13.9% 15.3% 10.7% 13.3% 24.5% 37.2% 26.0% NMF NMF NMF Retained to Com Eq NMF CURRENT POSITION 2017 2018 9/30/19 3% 2% 3% 2% 3% 3% 3% 2% 6% 7% 6% 5% All Div’ds to Net Prof 5% ($MILL.) Cash Assets 35.8 92.8 24.9 BUSINESS: Triumph Group, Inc. designs, manufactures, repairs, 31% of ’18 sales; Gulfstream, 11%. Foreign sales were 29% of ’18 Receivables 414.1 392.9 342.3 and distributes aircraft components, accessories, subassemblies, total. Backlog at 3/31/19: $3.8 billion. Has about 10,800 employees. Inventory (Avg Cst) 1427.2 413.6 454.4 Other 45.8 361.1 321.5 and systems. Customers include original equipment manufacturers Officers & directors own 1.6% of stock; BlackRock, 18.1% (6/19 Current Assets 1922.9 1260.4 1143.1 of commercial, regional, business, and military aircraft. Operates in proxy). Chairman: Ralph E. Eberhart. President & CEO: Daniel Accts Payable 418.4 433.8 418.7 three segments: Integrated Systems (31% of ’18 sales), Aerospace Crowley. Inc.: DE. Address: 899 Cassatt Road, Suite 210, Berwyn, Debt Due 16.5 8.2 7.7 Structures (61%), and Product Support (8%). Boeing accounted for PA 19312. Tel.: 610-251-1000. Internet: www.triumphgroup.com. Other 557.5 552.6 499.0 Current Liab. 992.4 994.6 925.4 Shares of Triumph traded up 15% in tinues to look for earnings in a range of price on the release of better-than- $2.35 to $2.95 per share, a 14% gain at the ANNUAL RATES Past Past Est’d ’16-’18 expected fiscal second-quarter results midpoint. To adjust for the second-quarter of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Sales 7.0% -1.0% -1.0% (ended September 30th). Sales of $772 beat, we have raised our 2019 revenue and ‘‘Cash Flow’’ 7.0% -3.0% Nil million were about $60 million ahead of earnings forecasts from $2.87 billion and Earnings 5.5% -6.5% Nil our estimate. On an as-reported basis, the $2.50 per share, to $2.90 billion and $2.55. Dividends 8.0% 2.0% 4.0% Book Value -13.5% -34.5% -4.0% top line fell 10%, but rose 13% adjusted for We think margins can continue to improve divestitures. Organic sales in the core In- this year, as a result of the sale of un- Fiscal A Full Year QUARTERLY SALES ($ mill.) Fiscal tegrated Systems and Product Support profitable lines, reduced headcount, and Begins Jun.30 Sep.30 Dec.31 Mar.31 Year segments were up 10% and 4%, helped by cost-cutting measures. Finally, we note the 2016 893.2 874.8 844.9 919.9 3532.8 higher volumes on engine components and company has finished the strategic review, 2017 781.7 745.2 775.2 896.9 3199.0 military rotorcraft and better demand for started in April, of its Aerospace Struc- 2018 832.9 855.1 807.9 869.0 3364.9 accessory component repairs in the U.S. tures business. A plan to close, sell, 2019 730.2 772.1 685 712.7 2900 2020 700 735 725 750 2910 and Asia. The adjusted operating margin restructure, or keep has been identified for rose from 4% to 8%, primarily as a result each of the remaining sites, which ac- Fiscal AB Full Year EARNINGS PER SHARE Fiscal of exiting some loss-making programs, counted for $1.2 billion in sales last year. Begins Jun.30 Sep.30 Dec.31 Mar.31 Year cost-reduction efforts, and a mix shift The plans are expected to be announced 2016 1.04 1.00 1.01 3.09 6.54 toward higher-margin repair revenue. On over the next four months. A slimmed- 2017 .24 .52 .76 1.01 2.53 the stronger margin, earnings per share down Aerospace Structures should allow 2018 .34 .40 .42 1.15 2.32 2019 .46 .64 .65 .80 2.55 surged 60% to $0.64. Results were $0.04 the company to focus on and to expand its 2020 .60 .80 .80 .95 3.15 ahead of our estimate and the Wall Street core Integrated Systems and Product Sup- C consensus. The top-line beat accounted for port segments. Cal-QUARTERLY DIVIDENDS PAID Full most of the variance with our call. This stock is unfavorably ranked for endarMar.31 Jun.30 Sep.30 Dec.31 Year Management reaffirmed its fiscal 2019 year-ahead performance. At the recent 2015 .04 .04 .04 .04 .16 financial outlook. Revenue is on track to price, up 40% in the last three months, ap- 2016 .04 .04 .04 .04 .16 reach $2.8 billion to $2.9 billion, implying preciation potential out to 2022-2024 falls 2017 .04 .04 .04 .04 .16 2018 .04 .04 .04 .04 .16 a rise of about 2% on 2018 pro forma sales short of the Value Line median. 2019 .04 .04 .04 of $2.8 billion. Similarly, the company con- Christopher Joseph, CFA December 6, 2019 (A) Fiscal year ends March 31st of the follow- ($1.04); ’15, ($26.63); ’16, ($7.41), ’17, February. Company’s Financial Strength C++ ing calendar year. ($11.13); ’18, ($8.79); ’19, 11¢. Excl. disc. ops.: (C) Div’ds paid in Mar., Jun., Sept., and Dec. Stock’s Price Stability 10 (B) Diluted earnings. Excl. nonrecurring items: ’07, 48¢; ’08, (29¢); ’09, ($1.06), ’10, (4¢), ’11, (D) Incl. intangibles. In ’18: $1.0 bn., $20.35/sh. Price Growth Persistence 15 ’06, (21¢); ’10, (53¢); ’11, 50¢; ’13, (89¢); ’14, (1¢); ’12, (44¢). Next earnings report due early (E) In millions, adjusted for split. Earnings Predictability 50 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 15.7 RELATIVE DIV’D VALUE WESCO AIRCRAFT NYSE-WAIR PRICE 10.97RATIO 11.2()Median: NMF P/E RATIO 0.63YLD Nil LINE 725 TIMELINESS – Suspended 8/23/19 High: 15.3 16.9 22.3 23.1 16.7 15.8 15.5 14.2 11.3 Target Price Range Low: 8.8 12.1 12.0 13.3 11.2 9.9 6.1 6.1 7.4 2022 2023 2024 SAFETY 3 New 3/9/18 LEGENDS 10.0 x ″Cash Flow″ psh TECHNICAL – Suspended 8/23/19 .... Relative Price Strength 40 Options: Yes 32 BETA .95 (1.00 = Market) Shaded area indicates recession 24 18-Month Target Price Range Low-High Midpoint (% to Mid) 16 12 $8-$18 $13 (20%) 10 2022-24 PROJECTIONS 8 Ann’l Total Price Gain Return 6 High 25 (+130%) 23% Low 17 (+55%) 11% 4 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 30 to Buy 52 73 64 1 yr. 8.3 4.9 shares 20 3 yr. -14.2 30.2 to Sell 53 56 60 traded 10 Hld’s(000) 88948 87711 86444 5 yr. -37.9 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 ------8.29 8.34 9.58 14.07 15.35 14.98 14.37 15.77 16.95 17.70 Sales per sh A 19.95 ------1.05 1.10 1.23 1.28 1.07 1.21 d.01 1.05 1.25 1.45 ‘‘Cash Flow’’ per sh 1.70 ------.86 .96 1.09 1.05 .88 .93 d.35 .75 .85 1.05 Earnings per sh B 1.30 ------Nil Nil Div’ds Decl’d per sh Nil ------.06 .05 .08 .11 .10 .14 .09 .06 .15 .20 Cap’l Spending per sh .15 ------7.33 8.09 9.19 10.30 8.38 8.95 6.53 6.96 8.30 8.45 Book Value per sh C 12.90 ------85.72 93.09 94.15 96.38 97.54 98.62 99.45 99.56 99.75 100.50 Common Shs Outst’g D 100.60 ------14.5 14.2 14.5 19.3 17.0 14.1 14.1 13.2 Bold figures are Avg Ann’l P/E Ratio 16.0 ------.91 .90 .81 1.02 .86 .74 .74 .72 Value Line Relative P/E Ratio .90 ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 6/30/19 - - 656.0 710.9 776.2 901.6 1355.9 1497.6 1477.4 1429.4 1570.5 1690 1780 Sales ($mill) 2000 Total Debt $821.1 mill. Due in 5 Yrs $821.1 mill. - - 24.9% 24.1% 21.7% 21.3% 15.1% 11.8% 12.6% 9.6% 8.8% 11.5% 11.0% Operating Margin 12.5% LT Debt $761.2 mill. Total Interest $44.4 mill. - - 8.8 9.6 10.0 11.4 21.4 27.7 28.0 34.5 29.3 35.0 35.0 Depreciation ($mill) 40.0 (Total interest coverage: 2.7x) (52% of Cap’l) - - 73.7 80.2 92.2 104.8 102.1 76.7 91.4 d35.1 32.7 83.0 110 Net Profit ($mill) 130 Leases, Uncapitalized $5.2 mill. - - 37.3% 40.7% 31.0% 33.5% 34.9% 33.0% 27.2% NMF 46.1% 32.5% 29.5% Income Tax Rate 29.5% No Defined Benefit Pension Plan - - 11.2% 11.3% 11.9% 11.6% 7.5% 5.1% 6.2% NMF 2.1% 5.0% 6.3% Net Profit Margin 6.5% - - 565.2 601.9 732.5 808.8 1016.0 926.3 835.0 862.4 929.7 925 940 Working Cap’l ($mill) 1000 Pfd Stock None - - 622.0 556.7 626.2 569.4 1081.8 954.7 843.6 790.9 774.1 775 775 Long-Term Debt ($mill) 395 Common Stock 99,749,063 shs. - - 545.7 628.5 753.4 865.4 992.3 817.6 882.9 649.7 692.5 775 850 Shr. Equity ($mill) 1300 as of 8/1/19 - - 7.7% 7.4% 7.5% 8.2% 5.3% 5.4% 6.4% NMF .6% 5.5% 7.0% Return on Total Cap’l 8.5% - - 13.5% 12.8% 12.2% 12.1% 10.3% 9.4% 10.3% NMF 4.7% 10.5% 13.0% Return on Shr. Equity 10.0% MARKET CAP: $1.1 billion (Mid Cap) - - 13.5% 12.8% 12.2% 12.1% 10.3% 9.4% 10.3% NMF 4.7% 10.5% 13.0% Retained to Com Eq 10.0% CURRENT POSITION 2017 2018 6/30/19 ------Nil Nil All Div’ds to Net Prof Nil ($MILL.) Cash Assets 61.6 46.2 45.4 BUSINESS: Wesco Aircraft Holdings, Inc. is a distributor and pro- Rev.), EMEA (17%), and Asia (2%). Serves over 7,000 customers, Receivables 256.3 283.8 333.4 vider of supply chain management services to the aerospace indus- Founded in 1953. Has 2,978 employees. Offs/Dirs own 12% of Inventory 827.9 884.2 879.6 Other 17.4 17.3 20.7 try. It offers traditional distribution, as well as supplier relationship stock; the Carlyle Group, 23%; Snyder family trust, 11%; Makaira Current Assets 1163.2 1231.5 1279.1 management, kitting, just-in-time delivery. Supplies 565,000 stock- Partners, 11%; Blackrock 8% (12/18 proxy). Chmn: Randy Snyder. Accts Payable 184.3 180.5 216.4 keeping units (SKUs), including hardware, chemicals, and electron- CEO & Pres: Todd Renehan. Addr: 24911 Ave. Stanford, Valencia, Debt Due 78.0 74.0 59.9 ic components. Operates three segments: Americas (81% of ’18 CA 91355. Tel.: (661) 775-7200. www.wescoair.com. Other 38.5 47.3 56.7 Current Liab. 300.8 301.8 333.0 Wesco Aircraft shareholders have ap- 2,000 customers, offers Wesco greater proved the merger with Pattonair. scale and market access. ANNUAL RATES Past Past Est’d ’16-’18 The latter company, an affiliate of Wesco has yet to report fiscal fourth- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Revenues - - 11.5% 4.5% Platinum Equity, is a provider of supply quarter earnings. Now that the merger ‘‘Cash Flow’’ - - -11.0% 7.5% chain management services based in the is approved by shareholders, it is unlikely Earnings - - -20.5% 8.0% United Kingdom. Of outstanding shares, to do so. With our last report, we had es- Dividends - - - - 8.5% Book Value - - -2.0% 6.0% about 89.9% participated in the vote, ei- timated fourth-quarter revenues and ther in person or by proxy, of which 99.9% share net increased 4.6% and 13.3%, Cal-QUARTERLY REVENUES ($ mill.) Full voted in favor of the transaction. Several respectively. Although the company no endarDec.31 Mar.31 Jun.30 Sep.30 Year law firms had filed suit to prevent the vote longer reports results, we believe manage- 2016 359.9 376.7 375.2 365.6 1477.4 when a number of paragraphs of the ment continues to work on its Wesco 2020 2017 339.4 364.5 363.9 361.6 1429.4 merger proxy were omitted in subsequent initiatives. While KLX was still public, it 2018 363.1 390.2 410.4 406.8 1570.5 drafts, but the texts were supplied and the discussed its business practices at length 2019 395.3 426.5 442.4 425.8 1690 2020 435 440 445 460 1780 matter apparently resolved. The comple- and was seen by most observers as a user tion of the merger is expected by yearend. of best practices. When present CEO Todd Cal-EARNINGS PER SHARE A Full We favor the transaction. Under the Renehan joined the company, he acted endarDec.31 Mar.31 Jun.30 Sep.30 Year terms of the merger, holders will receive quickly to launch new initiatives to im- 2016 .21 .24 .24 .24 .93 $11.05 in cash for each share held, which prove both sales and logistics. These ef- 2017 .13 .18 d.28 d.38 d.35 represents a premium of more than 25%. forts will likely continue. 2018 .15 .22 .20 .18 .75 2019 .17 .23 .22 .23 .85 At this price, the transaction is valued at Wesco Aircraft shares are unranked 2020 .25 .25 .25 .30 1.05 $1.1 billion, with an enterprise value of for Timeliness because of the merger. $1.9 billion. In combining Wesco with Pat- The transaction valuation has most likely Cal-QUARTERLY DIVIDENDS PAID Full tonair, Platinum Equity will create a established the terminal value for Wesco endarMar.31 Jun.30 Sep.30 Dec.31 Year larger entity better able to compete as a public company, for now at least. On a 2015 against Boeing, which acquired its larger stand-alone basis, WAIR offers above- 2016 NO CASH DIVIDENDS competitor, KLX, in 2018 for $3.2 billion. average long-term appreciation potential 2017 BEING PAID Other competitors include AAR Corp. and over the 3- to 5-year horizon. 2018 2019 Triumph. Moreover, Pattonair, with over Glenn Pierr Johnson December 6, 2019 (A) Fiscal Years end September 30th. (C) Includes intangible assets. In 2018: $430.1 Company’s Financial Strength B (B) Diluted earnings. Excludes nonrecurring mill., $4.32/sh. Stock’s Price Stability 25 (losses) gains: ’15, ($2.48); ’17, ($2.05). Next (D) In millions Price Growth Persistence 10 earnings report uncertain as discussed in text. Earnings Predictability 15 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. December 6, 2019 METAL FABRICATING INDUSTRY 726

Despite some challenges, the Metal Fabricating INDUSTRY TIMELINESS: 76 (of 95) Industry continues to do well in the aggregate, and most companies in this group appear likely to ucts), also advanced sharply in price (+39%). Acquisi- show improved earnings this year. Moreover, our tions helped the company to continue to post positive estimates call for further gains in 2020. Although year-over-year comparisons in the third quarter. Despite still in contraction mode, the global manufactur- a slowdown in some of its key markets, Timken appears ing picture has improved over the past three on track to increase earnings more than 10% in 2019. months, largely thanks to stronger numbers from Haynes International rounds out the list of big movers China. (up 31%). The company, which makes technologically In a reversal from the time of our last review in advanced, high-performance nickel- and cobalt-based early September, the prices of most of these stocks alloys, closed out its fiscal year (ended September 30th) have made a strong run-up over the past three on a high note. Ongoing headwinds from falling cobalt months, well ahead of the broader market. The prices were more than offset by an 8.5% increase in Industry’s Timeliness rank for the year ahead September-quarter sales volumes, and we look for fur- remains in the bottom third of the Value Line ther bottom-line gains in 2020, driven by better volume, universe. Thus, near-term investors will find bet- pricing, and an improved product mix. ter choices elsewhere. However, more than half of On the negative side, shares of Chart Industries fell these issues hold better-than-average upside po- nearly 14% over the last three months. It appears that tential out to 2022-2024. the decline was largely related to fears over slowing global economic activity, rather than company specifics. Global Industry Showing Signs Of Improvement Chart makes engineered equipment used in the produc- The metal fabricators make a broad range of products tion, storage, and end-use of hydrocarbon and industrial that are used by other manufacturers. Key sectors gases. Lately, it has been benefiting from a buildout of served include energy, transportation, construction, the global infrastructure for liquefied natural gas aerospace, and chemicals, among numerous others. As a (LNG). In the latest quarter, it booked orders for 19 LNG result, performance will tend to vary according to a fueling stations, versus just three in last year’s like company’s end-market concentration. period. Earnings are on track to set a company record Investors can get a general sense of how metal fabri- this year, and further gains appear in store for 2020. cators are doing by looking at manufacturing conditions across the globe. On point, October marked the sixth- Conclusion straight month of contraction in total worldwide indus- Our estimates call for most of the companies repre- trial activity. On the plus side, the rate of deterioration sented here to show improved profits this year, with lessened for a third-consecutive period. additional advances likely on tap for 2020. Although the In the U.S., the Institute For Supply Management’s group has done well of late, none of the stocks are ranked Purchasing Managers Index (PMI) for October came in to do better than average in the year ahead. at 48.3%. Although this was the third negative report in However, investors with a view to the long term will a row (a number below 50 indicates contraction), the find several issues with appealing price upside potential latest reading was up half a percentage point from out to 2022-2024. Subscribers should note, however, that September. Meanwhile, the news was better in China this group of stocks tends to be more volatile than (the world’s second-largest economy). There, manufac- average. For conservative accounts, or those looking for turing activity reversed a two-month downturn, with a more diversified holding within the segment, we con- October marking a third-straight period of expansion. tinue to recommend taking a look at Illinois Tool Works. Moreover, the latest reading marked the biggest im- Although price appreciation prospects are not particu- provement in more than two and a half years. larly compelling, the issue earns our Highest Safety Meanwhile, business remained down in the euro zone, rank (1) which, combined with a decent yield, suggests with the rate of activity there at its lowest point since worthwhile 3- to 5-year total return potential on a 2012. Lastly, manufacturing in Japan fell further into risk-adjusted basis. the hole, with the latest reading hitting the lowest level Mario Ferro in more than three years.

Recent Price Action Metal Fabricating The metal fabricating stocks have made a nice rever- RELATIVE STRENGTH (Ratio of Industry to Value Line Comp.) sal since our last update in early September. At that 250 time, we reported that the group’s aggregate perfor- mance was down 14.7% over the previous three months. 200 Since then, an equally weighted position in all nine issues would have resulted in a gain of 19.3%. By way of comparison, the more broadly diversified S&P 500 Index 150 was up 5.8%. Shares of NN, Inc., a manufacturer of high-precision components and assemblies, made the biggest move to 100 the upside, rebounding 40% over the period. The com- pany reported a smaller loss in the September quarter, and management announced plans to cut costs, increase cash flow, and repay debt. We look for the company to make further progress reducing red ink in 2020. Mean- 50 while, shares of The Timken Company (which makes 2013 2014 2015 2016 2017 2018 2019 bearings, gear drives, belts, chains, and related prod- Index: June, 1967 = 100

© 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 22.6 RELATIVE DIV’D VALUE CHART INDUSTRIES NDQ-GTLS PRICE 54.17RATIO 14.1()Median: 30.0 P/E RATIO 0.80YLD Nil LINE 727 TIMELINESS 3 Lowered 7/26/19 High: 55.7 24.6 35.3 63.7 79.3 130.8 96.0 45.6 40.7 48.8 80.3 95.7 Target Price Range Low: 6.4 5.2 13.9 34.1 55.0 61.9 30.6 15.1 13.3 32.0 43.5 52.4 2022 2023 2024 SAFETY 3 New 6/18/10 LEGENDS 16.0 x ″Cash Flow″ psh TECHNICAL Lowered 9/20/19 .... Relative Price Strength 160 3 Options: Yes BETA 1.70 (1.00 = Market) Shaded area indicates recession 120 100 18-Month Target Price Range 80 Low-High Midpoint (% to Mid) 60 50 $55-$132 $94 (75%) 40 2022-24 PROJECTIONS 30 Ann’l Total Price Gain Return 20 High 115 (+110%) 21% Low 75 (+40%) 9% 15 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 45 to Buy 102 139 142 1 yr. -13.8 4.9 shares 30 3 yr. 111.4 30.2 to Sell 123 94 108 traded 15 Hld’s(000) 34004 64802 39851 5 yr. 26.0 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 ------21.00 23.62 26.21 20.77 19.27 26.81 33.72 38.73 39.07 34.05 28.07 32.10 34.32 37.15 47.15 Sales per sh 45.70 ------1.87 2.23 3.38 2.89 1.70 2.43 3.44 4.06 4.10 3.14 2.15 1.88 3.30 4.15 6.50 ‘‘Cash Flow’’ per sh 6.45 ------1.65 1.61 2.57 2.11 .87 1.47 2.36 2.60 2.67 1.02 .91 .50 1.67 2.70 5.00 Earnings per sh A 4.55 ------Nil Nil Div’ds Decl’d per sh Nil ------.87 .67 .49 .46 .59 .76 1.45 2.39 2.04 1.54 .58 1.14 1.13 1.40 1.50 Cap’l Spending per sh 2.00 ------8.59 11.63 14.23 16.70 17.31 20.62 23.16 24.83 28.82 21.95 22.78 26.04 27.99 34.30 37.15 Book Value per sh C 45.70 ------25.59 28.21 28.40 28.48 28.83 29.63 30.07 30.40 30.53 30.55 30.61 30.81 31.60 35.00 35.00 Common Shs Outst’g B 35.00 ------8.6 15.2 12.3 7.6 23.6 33.3 28.1 36.4 25.5 28.1 28.8 NMF 38.4 Bold figures are Avg Ann’l P/E Ratio 21.0 ------.46 .81 .74 .51 1.50 2.09 1.79 2.05 1.34 1.41 1.51 NMF 2.07 Value Line Relative P/E Ratio 1.15 ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 591.5 555.5 794.6 1014.2 1177.4 1193.0 1040.2 859.2 988.8 1084.3 1300 1650 Sales ($mill) 1600 Total Debt $808.4 mill. Due in 5 Yrs $309.2 mill. 19.8% 15.1% 16.7% 16.9% 16.6% 15.2% 12.8% 12.6% 10.0% 15.2% 19.0% 23.0% Operating Margin 22.0% LT Debt $792.5 mill. LT Int. $20.0 mill. 21.4 23.6 27.9 32.2 40.4 43.2 45.4 37.5 41.9 50.8 51.0 53.0 Depreciation ($mill) 65.0 (Total interest coverage: 4.2x) (38% of Cap’l) 61.0 25.4 44.1 71.3 83.2 81.9 50.6 28.2 15.9 53.6 95.0 175.0 Net Profit ($mill) 160.0 27.7% 23.7% 29.7% 29.9% 26.4% 30.3% 29.0% 35.7% 27.0% 19.4% 21.0% 21.0% Income Tax Rate 21.0% Leases, Uncapitalized: Annual rentals $7.9 mill. 10.3% 4.6% 5.5% 7.0% 7.1% 6.9% 4.9% 3.3% 1.6% 4.9% 7.3% 10.6% Net Profit Margin 10.0% No Defined Pension Benefits Plan 270.5 234.9 332.1 282.6 150.1 316.8 325.2 391.5 246.4 295.1 360 390 Working Cap’l ($mill) 480 243.2 218.4 223.2 252.0 64.7 204.1 215.6 233.7 439.2 533.2 800 750 Long-Term Debt ($mill) 300 Pfd Stock None Common Stock 35,798,979 shs. 475.6 499.2 611.0 696.5 754.8 879.9 670.6 697.3 802.2 884.5 1200 1300 Shr. Equity ($mill) 1600 as of 10/14/19 9.6% 4.7% 6.7% 8.3% 11.1% 8.3% 6.6% 3.9% 2.0% 4.5% 5.0% 8.5% Return on Total Cap’l 8.5% 12.8% 5.1% 7.2% 10.2% 11.0% 9.3% 7.5% 4.0% 2.0% 6.1% 8.0% 13.5% Return on Shr. Equity 10.0% MARKET CAP: $1.9 billion (Mid Cap) 12.8% 5.1% 7.2% 10.2% 11.0% 9.3% 7.5% 4.0% 2.0% 6.1% 8.0% 13.5% Retained to Com Eq 10.0% CURRENT POSITION 2017 2018 9/30/19 ------Nil Nil All Div’ds to Net Prof Nil ($MILL.) Cash Assets 122.6 118.1 80.7 BUSINESS: Chart Industries, Inc. manufactures and supplies bution & Storage East and West provide cryogenic equipment and Receivables 222.7 194.8 224.5 engineered equipment used in the production, storage, and end- services to industrial gas markets. Off./dir. own less than 1% of Inventory (FIFO) 208.9 233.1 234.9 Other 79.8 115.7 143.8 use of hydrocarbon and industrial gases. Four business segments: shares; BlackRock, 14.0%; T. Rowe Price, 12.3% (proxy 4/19). Has Current Assets 634.0 661.7 683.9 Energy & Chemicals Cryogenics offers products for the liquefaction 4,605 employees. Chairman: Steven Krablin, CEO & Pres.: Jillian Accts Payable 113.9 125.5 120.7 and separation of natural/industrial gas; Energy & Chemicals Fin- Evanko. Inc.: DE. Address: 3055 Torrington Drive, Ball Ground, GA Debt Due 58.9 11.2 15.9 Fans is focused on air cooled heat exchangers and fans; and Distri- 30107. Tel.: 440-753-1490. Internet: www.chart-ind.com. Other 214.8 229.9 237.8 Current Liab. 387.6 366.6 374.4 Chart Industries reported solid top- the total reaching a range of $1,615 mil- and bottom-line results for the third lion to $1,680 million, while adjusted ANNUAL RATES Past Past Est’d ’16-’18 quarter. Sales of $357.8 million exceeded share net is expected to be in the range of of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Sales 3.0% -1.0% 6.5% our $340 million call due to a broad-based $4.75 to $5.25. However, we do not expect ‘‘Cash Flow’’ - - -6.0% 17.5% global liquefied natural gas (LNG) infra- the company to be able to maintain this Earnings -6.0% -13.5% 28.0% structure buildout. Indeed, the company is momentum after next year, and thus we Dividends - - - - Nil Book Value 8.5% 2.5% 10.0% currently pursuing LNG infrastructure op- anticipate Chart’s sales and earnings will portunities in 71 countries, focused pri- recede slightly in the following years. Cal-QUARTERLY SALES ($ mill.) Full marily on small-scale LNG, transporta- Acquisitions have accelerated the endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year tion, and fueling stations. In the Septem- company’s sales and profit growth. 2016 193.8 247.1 203.9 214.4 859.2 ber period, Chart booked 19 LNG fueling Last December, Chart acquired VRV, a 2017 204.1 238.2 240.5 306.0 988.8 station orders compared to only three in maker of pressure equipment, for $147 2018 244.1 277.9 272.2 290.1 1084.3 the year-ago period. Meanwhile, the Dis- million. VRV has brought the company 2019 289.3 309.6 357.8 343.3 1300 2020 380 400 420 450 1650 tribution & Storage West segment saw a into India’s emerging economy, and it has surge in specialty market sales, with rec- signed a memorandum of understanding Cal-EARNINGS PER SHARE A Full ord order levels in lasers and hydrogen. with Indian Oil Corporation, agreeing to endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year All told, robust sales helped drive share build up the LNG market in India. Then, 2016 d.15 .68 .48 d.11 .91 net of $0.77, which beat our $0.70 estimate in July, Chart purchased Harsco Corpora- 2017 d.10 .09 .05 .46 .50 as well as the $0.65 earned per share in tion’s Air-X-Changers business for $592 2018 .14 .32 .65 .56 1.67 2019 .39 .68 .77 .86 2.70 the third quarter of 2018. million. The company has identified cost 2020 1.00 1.20 1.30 1.50 5.00 The Calcasieu Pass project should synergies worth $29 million annually aris- create a temporary surge in sales and ing from the integration of Air-X- Cal-QUARTERLY DIVIDENDS PAID Full earnings in 2020. Calcasieu Pass is a Changers. endarMar.31 Jun.30 Sep.30 Dec.31 Year planned LNG export facility in Louisiana. These shares hold appeal for patient 2015 Chart is providing equipment for the investors. Our 18-month and 2022-2024 2016 NO CASH DIVIDENDS project, and such orders should reach a Target Price Ranges both indicate strong 2017 BEING PAID peak next year. As a result, management appreciation potential. 2018 2019 expects to see strong sales growth, with Adam J. Platt December 6, 2019 (A) Diluted earnings per share. Excl. nonrecur- (B) In millions. (C) Includes intangibles. In 2018: $851.1 mil- Company’s Financial Strength B+ ring gains/(losses): ’17, 39¢, ’19, (62¢). Exclud- lion; $26.93/sh. Stock’s Price Stability 20 ing discontinued operations: ’18, $1.06. Next Price Growth Persistence 35 earnings report due in late February. Earnings Predictability 25 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 13.4 RELATIVE DIV’D VALUE DMC GLOBAL NDQ-BOOM PRICE 47.59RATIO 12.0()Median: 42.0 P/E RATIO 0.68YLD 1.1% LINE 728 TIMELINESS 3 New 6/8/18 High: 62.5 23.2 24.8 29.7 24.5 24.1 24.0 16.6 17.2 26.2 51.1 76.7 Target Price Range Low: 10.8 4.9 13.5 14.0 12.2 13.9 14.8 5.7 4.8 11.6 20.1 33.8 2022 2023 2024 SAFETY 3 Raised 9/7/18 LEGENDS 14.0 x ″Cash Flow″ psh 120 TECHNICAL 3 Lowered 12/6/19 .... Relative Price Strength 100 Options: Yes 80 BETA 1.25 (1.00 = Market) Shaded area indicates recession 64 18-Month Target Price Range 48 Low-High Midpoint (% to Mid) 32 $31-$102 $67 (40%) 24 2022-24 PROJECTIONS 20 Ann’l Total 16 Price Gain Return High 105 (+120%) 22% 12 Low 70 (+45%) 11% % TOT. RETURN 10/19 8 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 75 to Buy 48 66 125 1 yr. 16.5 4.9 shares 50 3 yr. 317.4 30.2 to Sell 63 55 57 traded 25 Hld’s(000) 13141 13383 16857 5 yr. 154.5 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 3.96 5.09 6.74 9.47 13.28 18.20 12.81 11.70 15.63 14.91 15.04 14.32 11.74 10.94 13.04 21.90 27.65 30.00 Sales per sh 32.65 .21 .54 1.01 1.72 2.15 2.24 1.06 .65 1.35 1.27 1.01 1.00 d1.25 .02 .59 2.50 4.45 5.20 ‘‘Cash Flow’’ per sh 5.60 .06 .41 .86 1.58 2.00 1.91 .66 .24 .93 .87 .54 .51 d1.72 d.46 .16 2.07 3.85 4.50 Earnings per sh A 4.80 - - - - .10 .15 .15 .15 .12 .16 .16 .16 .16 .16 .14 .08 .08 .08 .19 .50 Div’ds Decl’d per sh B .56 .10 .11 .24 .72 .72 .78 .30 .27 .58 1.16 1.26 1.51 .38 .39 .42 3.03 .85 .85 Cap’l Spending per sh .85 1.53 1.89 2.97 4.81 7.90 9.27 10.26 10.20 10.92 12.02 12.40 10.95 8.33 7.75 7.16 9.01 11.00 13.35 Book Value per sh 18.65 10.18 10.64 11.76 11.98 12.43 12.78 12.87 13.22 13.37 13.52 13.93 14.15 14.21 14.50 14.78 14.90 15.00 15.00 Common Shs Outst’g C 15.00 22.1 5.6 20.7 20.6 20.7 17.7 24.8 NMF 23.5 20.1 35.1 38.8 - - - - NMF 17.1 Bold figures are Avg Ann’l P/E Ratio 18.0 1.26 .30 1.10 1.11 1.10 1.07 1.65 NMF 1.47 1.28 1.97 2.04 - - - - NMF .92 Value Line Relative P/E Ratio 1.00 - - - - .6% .5% .4% .4% .7% 1.0% .7% .9% .8% .8% 1.2% .8% .5% .2% estimates Avg Ann’l Div’d Yield 1.0% CAPITAL STRUCTURE as of 9/30/19 164.9 154.7 208.9 201.6 209.6 202.6 166.9 158.6 192.8 326.4 415 450 Sales ($mill) 490 Total Debt $28.1 mill. Due in 5 Yrs $28.1 mill. 12.9% 7.9% 11.4% 11.4% 11.7% 10.1% 1.3% 4.2% 10.5% 17.2% 20.0% 20.0% Operating Margin 21.0% LT Debt $25.0 mill. LT Int. $1.6 mill. 5.0 5.4 5.5 5.5 6.5 7.1 6.2 6.8 6.5 6.6 9.0 10.0 Depreciation ($mill) 12.0 (Total interest coverage: 4.3x) (22% of Cap’l) Leases, Uncapitalized: Annual rentals $2.2 mill. 8.5 3.1 12.5 11.7 7.5 7.1 d24.0 d6.5 2.1 30.7 58.0 68.0 Net Profit ($mill) 72.0 33.9% 26.5% 26.0% 29.4% 27.9% 44.0% - - - - NMF NMF 20.0% 20.0% Income Tax Rate 20.0% No Defined Pension Benefits Plan 5.2% 2.0% 6.0% 5.8% 3.6% 3.5% NMF NMF 1.1% 9.4% 14.0% 15.1% Net Profit Margin 14.7% 45.9 34.3 61.9 76.3 67.6 62.6 53.6 42.6 54.4 67.6 125 140 Working Cap’l ($mill) 160 Pfd Stock None 34.6 14.7 26.6 37.9 26.4 22.8 27.5 15.7 18.0 38.2 30.0 20.0 Long-Term Debt ($mill) 20.0 Common Stock 14,645,752 shs. 132.1 134.9 146.0 162.5 172.8 154.9 118.4 112.4 105.8 134.3 165 200 Shr. Equity ($mill) 280 as of 10/23/19 6.2% 3.1% 7.8% 6.0% 3.9% 4.1% NMF NMF 2.4% 18.3% 30.0% 31.0% Return on Total Cap’l 24.0% MARKET CAP: $700 million (Small Cap) 6.5% 2.3% 8.6% 7.2% 4.3% 4.6% NMF NMF 2.0% 22.9% 35.0% 34.0% Return on Shr. Equity 25.5% CURRENT POSITION 2017 2018 9/30/19 5.7% .8% 7.1% 5.9% 3.1% 3.1% NMF NMF .9% 22.0% 33.5% 30.0% Retained to Com Eq 22.5% ($MILL.) 12% 66% 17% 18% 29% 32% NMF NMF 55% 4% 5% 11% All Div’ds to Net Prof 12% Cash Assets 9.0 13.4 12.2 Receivables 49.5 59.7 71.7 BUSINESS: DMC Global Inc. is an industrial manufacturer focusing and aircraft engine manufacturing industries. Has 665 employees. Inventory (FIFO) 35.7 51.1 58.9 on niche markets related to the building of equipment and mate- Officers and directors own 4.4% of common stock; Brown Capital Other 5.8 8.1 9.2 rials, to support the infrastructure of the process and energy in- Management, 14.8% (4/19 Proxy). Chairman: Gerard Munera. Current Assets 100.0 132.2 152.0 dustries. Three business segments: DMC Global, makes explosion- President & CEO: Kevin T. Longe. Inc.: Delaware. Address: 11800 Accts Payable 19.8 24.2 24.3 Debt Due - - 3.1 3.1 welded metal plates; DynaEnergetics, supports the oil and gas in- Ridge Parkway, Suite 300, Broomfield, CO 80021. Telephone: Other 25.8 37.3 36.6 dustries; and AMK Welding, welding services to the power turbine (303) 665-5700. Internet: www.dmcglobal.com. Current Liab. 45.6 64.6 64.0 DMC Global delivered solid top- and ing systems. As of the end of the Septem- ANNUAL RATES Past Past Est’d ’16-’18 bottom-line growth in the third ber period, sales of DynaStage DS systems of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 quarter. Sales of $100.1 million were had exceeded one million total units. The Sales 1.0% - - 13.5% ‘‘Cash Flow’’ -6.5% -3.0% 32.5% right in line with our $100 million es- milestone was reached due to a Earnings -10.5% -5.5% 42.0% timate, and exceeded the $87.9 million fig- widespread transition by operators to new Dividends -6.0% -13.0% 38.5% ure for the previous-year period. Mean- perforating systems, including two new Book Value 1.0% -7.5% 15.0% while, share net of $0.90 beat our $0.80 es- DynaStage DS models, DS Trinity 3.5 and Cal-QUARTERLY SALES ($ mill.) Full timate, as well as the $0.68 earned in the DS NLine. In addition to its soaring endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year third quarter of 2018. That said, both sales growth in recent years, DynaEnergetics’ 2016 40.5 41.3 36.6 40.2 158.6 and earnings per share were down sequen- gross margin of 39% in the September pe- 2017 38.9 47.2 52.2 54.5 192.8 tially, owing to a slowdown in well- riod was considerably stronger than the 2018 67.3 80.9 87.9 90.3 326.4 completion activity in the North American 26% registered by the NobelClad segment. 2019 100.1 111.0 100.1 103.8 415 oil and gas industry. The board of directors has raised the 2020 110 110 115 115 450 The company’s DynaEnergetics seg- dividend substantially. In light of the Cal-EARNINGS PER SHARE A Full ment set the tone. The oilfield products company’s rising cash flow in recent years, endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year unit saw a 17% sales increase over the the dividend has been raised from an an- 2016 d.04 d.05 d.22 d.15 d.46 year-ago quarter, but a 13% decline se- nual rate of $0.08 up to $0.50. While this 2017 d.21 .04 .22 .09 .16 quentially. By contrast, the NobelClad seg- is a proportionally robust increase, the 2018 .50 .43 .68 .46 2.07 ment, which is DMC‘s composite metals yield is still considerably below the Value 2019 1.02 1.17 .90 .76 3.85 business, delivered a more steady perform- Line median, and the payout ratio remains 2020 1.10 1.20 1.10 1.10 4.50 ance, with sales up 5% versus the 2018 relatively modest. Cal-QUARTERLY DIVIDENDS PAID B Full third quarter and up 2% sequentially. These shares present an attractive op- endarMar.31 Jun.30 Sep.30 Dec.31 Year DynaEnergetics has become the leading portunity for patient investors. While 2015 .04 .04 .04 .04 .16 segment by sales in recent years, as DMC the stock does not stand out for year- 2016 .02 .02 .02 .02 .08 has expanded the unit’s product offerings, ahead performance, it holds strong appre- 2017 .02 .02 .02 .02 .08 with new customers flocking to its intrinsi- ciation potential based on our 18-month 2018 .02 .02 .02 .02 .08 2019 .02 .02 .02 .125 cally safe initiating systems (known as and 2022-2024 Target Price Ranges. IS2) as well as its DynaStage DS perforat- Adam J. Platt December 6, 2019 (A) Diluted earnings per share. Next earnings (46¢). (C) In millions. Company’s Financial Strength B+ report due in late Feb. Numbers may not sum (B) Initial dividend paid in June 2005. Quarterly Stock’s Price Stability 10 due to rounding. Excludes nonrecurring payments typically made in March, June, Sep- Price Growth Persistence 35 gains/(losses): ’17, ($1.47), ’18, (3¢), ’19, tember, and December. Earnings Predictability 15 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 48.4 RELATIVE DIV’D VALUE HAYNES INT’L, INC. NDQ-HAYN PRICE 37.25RATIO 19.8()Median: NMF P/E RATIO 1.12YLD 2.4% LINE 729 TIMELINESS 3 Raised 9/20/19 High: 69.5 35.0 43.3 67.7 67.2 56.5 59.4 51.7 48.4 45.2 45.1 38.1 Target Price Range Low: 12.5 10.9 26.6 37.7 44.9 43.4 40.1 33.9 25.5 29.0 24.5 26.1 2022 2023 2024 SAFETY 3 New 6/14/13 LEGENDS 10.0 x ″Cash Flow″ psh 128 TECHNICAL 3 Raised 10/25/19 .... Relative Price Strength Options: Yes 96 BETA 1.40 (1.00 = Market) Shaded area indicates recession 80 18-Month Target Price Range 64 Low-High Midpoint (% to Mid) 48 40 $25-$53 $39 (5%) 32 2022-24 PROJECTIONS 24 Ann’l Total Price Gain Return 16 High 100 (+170%) 30% Low 65 (+75%) 17% 12 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 30 to Buy 53 46 53 1 yr. 22.3 4.9 shares 20 3 yr. 15.4 30.2 to Sell 54 49 43 traded 10 Hld’s(000) 12388 12281 12010 5 yr. -16.3 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 - - - - 32.50 43.44 47.41 53.15 36.25 31.42 44.95 47.60 39.14 36.67 39.18 32.53 31.59 34.81 39.17 41.15 Sales per sh 56.15 - - - - .45 4.44 6.33 6.08 d1.03 1.66 3.58 5.18 2.90 1.61 4.06 2.05 .91 .07 2.29 4.60 ‘‘Cash Flow’’ per sh 8.45 - - - - d.35 3.46 5.89 5.22 d2.00 .73 2.54 4.07 1.74 .30 2.54 .40 d.83 d1.75 .78 2.10 Earnings per sh A 5.25 ------.80 .80 .88 .88 .88 .88 .88 .88 .88 .88 .88 Div’ds Decl’d per sh D 1.40 - - - - .90 1.07 1.37 1.56 .77 1.02 1.20 2.13 3.37 3.20 3.34 2.53 1.20 .89 .80 1.25 Cap’l Spending per sh 1.70 - - - - 11.19 15.15 26.80 31.67 23.04 21.89 22.59 24.73 28.85 27.92 27.48 24.92 26.68 26.65 23.68 23.10 Book Value per sh C 32.70 - - - - 10.00 10.00 11.81 11.98 12.10 12.14 12.08 12.18 12.33 12.42 12.45 12.49 12.51 12.50 12.51 13.00 Common Shs Outst’g B 13.00 ------8.8 11.3 11.9 - - 43.2 19.5 13.7 28.6 NMF 17.2 NMF - - - - 40.7 Avg Ann’l P/E Ratio 16.0 ------.48 .60 .72 - - 2.75 1.22 .87 1.61 NMF .87 NMF - - - - 2.28 Relative P/E Ratio .90 ------2.5% 1.6% 1.6% 1.8% 1.7% 2.0% 2.5% 2.4% 2.3% 2.8% Avg Ann’l Div’d Yield 1.7% CAPITAL STRUCTURE as of 9/30/19 438.6 381.5 542.9 579.6 482.7 455.4 487.6 406.4 395.2 435.3 490.2 535 Sales ($mill) 730 Total Debt $8.5 mill. Due in 5 Yrs $.5 mill. NMF 7.0% 11.3% 15.5% 9.6% 4.7% 13.6% 6.1% 1.3% 4.5% 7.5% 12.0% Operating Margin 18.0% LT Debt $8.3 mill. LT Int. $1.0 mill. 11.4 11.3 12.1 12.9 14.2 16.3 19.0 20.5 21.6 22.6 18.9 30.0 Depreciation ($mill) 40.0 (3% of Cap’l) d23.9 8.9 31.1 50.2 21.6 3.8 31.6 5.0 d10.2 d21.8 9.7 30.0 Net Profit ($mill) 70.0 - - 43.1% 37.0% 34.8% 32.6% 26.7% 34.6% ------27.1% 24.0% Income Tax Rate 24.0% Leases, Uncapitalized: Annual rentals $2.7 mill. NMF 2.3% 5.7% 8.7% 4.5% .8% 6.5% 1.2% NMF NMF 2.0% 5.6% Net Profit Margin 9.6% No Defined Pension Benefits Plan 307.1 300.2 318.7 350.0 347.2 322.6 332.0 310.9 300.5 304.2 311.8 65.0 Working Cap’l ($mill) 425 1.5 1.3 1.3 1.0 .8 .7 4.6 8.3 7.9 8.4 8.3 10.0 Long-Term Debt ($mill) 15.0 Pfd Stock None 278.8 265.8 272.9 301.1 355.8 346.7 342.0 311.3 333.8 333.2 296.3 300 Shr. Equity ($mill) 425 Common Stock 12,513,500 shs. NMF 3.3% 11.4% 16.6% 6.1% 1.1% 9.2% 1.7% NMF NMF 3.4% 10.0% Return on Total Cap’l 16.0% as of 11/14/19 NMF 3.3% 11.4% 16.7% 6.1% 1.1% 9.2% 1.6% NMF NMF 3.3% 10.0% Return on Shr. Equity 16.5% MARKET CAP: $475 million (Small Cap) NMF NMF 7.8% 13.1% 3.0% NMF 6.1% NMF NMF NMF NMF 6.0% Retained to Com Eq 12.0% CURRENT POSITION 2017 2018 9/30/19 - - 109% 31% 22% 50% NMF 34% NMF NMF NMF 113% 38% All Div’ds to Net Prof 26% ($MILL.) Cash Assets 46.3 9.8 31.0 BUSINESS: Haynes International, Inc. is focused on developing, corrosion-resistant alloys, or CRA products. Officers and directors Receivables 61.6 73.4 77.0 manufacturing, and distributing technologically advanced, high- own 3.2% of common stock; BlackRock, 12.9%; T. Rowe Price, Inventory (FIFO) 244.5 273.0 258.8 Other 2.8 10.2 5.1 performance nickel- and cobalt-based alloys in sheet, coil, and 12.2%; Vanguard, 10.1%; Royce & Associates, 9.1% (1/19 proxy). Current Assets 355.2 366.4 371.9 plate forms, which are used primarily in the aerospace, chemical Has 1,124 employees. Interim C.E.O. & President: Michael Shor. Accts Payable 32.8 37.1 34.5 processing, and land-based gas turbine industries. Its products con- Inc.: DE. Address: 1020 West Park Avenue, Kokomo, IN 46904- Debt Due - - 2.5 .2 sist of high-temperature-resistant alloys, or HTA products, and 9013. Telephone: (765) 456-6000. Internet: www.haynesintl.com. Other 21.9 22.6 25.4 Current Liab. 54.7 62.2 60.1 Haynes International concluded fiscal million in retirement benefit expenses, 2019 (ended September 30th) with a along with $1.4 million in additional costs ANNUAL RATES Past Past Est’d ’17-’19 solid operational performance. During of goods sold. This should be supplemented of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Sales -2.5% -3.0% 10.0% the fiscal fourth quarter, the company by lower capacity for property insurance, ‘‘Cash Flow’’ -11.5% -19.5% NMF faced ongoing margin headwinds that which may cost the company about $2 mil- Earnings - - - - NMF stemmed from falling cobalt prices and the lion by management’s account. In the fis- Dividends - - - - 9.5% Book Value -0.5% -1.0% 5.0% outage and upgrade of its cold-finishing cal first quarter, seasonal weakness and plant earlier this year. The decline in the some planned maintenance outages are Fiscal QUARTERLY SALES ($ mill.) Full Year Fiscal price of raw materials resulted in a year- likely to result in a sequential dip in sales Ends Dec. 31 Mar. 31 Jun. 30 Sep. 30 Year over-year decrease of 2.8% for the average and share earnings. However, better 2016 95.7 102.5 101.3 107.5 406.4 product sales price. However, this was volume, pricing, and an improving product 2017 93.3 103.1 98.0 100.8 395.2 largely offset by sales volume appreciation mix should all support a meaningful step 2018 89.7 110.2 113.1 122.3 435.3 of 8.5%, to 5.4 million pounds. The ad- forward for the top and bottom lines over 2019 107.1 127.5 126.0 129.6 490.2 2020 125 130 140 140 535 vance resulted in quarterly sales of $129.6 the duration of the fiscal year. million, which fell in line with our es- Shares of Haynes International have Fiscal EARNINGS PER SHARE A Full Year Fiscal timate, and share earnings of $0.48. responded notably to improving mar- Ends Dec.31 Mar. 31 Jun. 30 Sep. 30 Year Old headwinds are likely to be re- ket dynamics. They have now risen some 2016 .02 d.09 .22 .25 .40 placed by new margin constraints in 30% in value dating back to our early- 2017 d.06 d.15 d.32 d.30 d.83 fiscal 2020. In the near term, Haynes September report, despite some un- 2018 d1.81 d.17 .06 .17 d1.75 2019 d.13 .12 .30 .48 .78 management believes that cobalt pricing certainty that surrounds the 737 MAX air- 2020 .40 .40 .60 .70 2.10 will flatten out and that the impact of the craft and the state of global trade. If D outage and upgrade of the company’s cold recertification of the aircraft comes to Cal-QUARTERLY DIVIDENDS PAID Full finishing plant will be put in its rearview fruition, investors may well witness anoth- endarMar.31 Jun.30 Sep.30 Dec.31 Year mirror. That said, there are some non- er meaningful increase in value for the 2015 .22 .22 .22 .22 .88 operating expenses that it expects to take stock. At present, our 3- to 5-year earnings 2016 .22 .22 .22 .22 .88 on in fiscal 2020 in the stead of these dis- projection suggests that it still possesses 2017 .22 .22 .22 .22 .88 2018 .22 .22 .22 .22 .88 sipating headwinds. Specifically, lower dis- above-average price appreciation potential. 2019 .22 .22 .22 count rates are in line to cost it some $3.4 Robert J. Scrudato December 6, 2019 (A) Diluted earnings per share. Next earnings (B) In millions. September, and December. Company’s Financial Strength B+ report due in late January. Excludes non- (C) Includes intangibles. In 2018: $10,073; Stock’s Price Stability 25 recurring loss of $1.58 in December 2017 peri- $0.81/sh. Price Growth Persistence 10 od related to tax adjustment. (D) Dividends historically paid in March, June, Earnings Predictability 10 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 23.1 RELATIVE DIV’D VALUE ILL. TOOL WORKS NYSE-ITW PRICE 175.18RATIO 22.5()Median: 19.0 P/E RATIO 1.27YLD 2.4% LINE 730 TIMELINESS 3 Raised 3/8/19 High: 55.6 51.2 53.9 59.3 63.3 84.3 97.8 100.1 128.0 169.7 179.1 179.3 Target Price Range Low: 28.5 25.6 40.3 39.1 47.4 59.7 76.3 78.8 79.1 120.1 117.8 122.6 2022 2023 2024 SAFETY 1 Raised 6/24/05 LEGENDS 16.5 x ″Cash Flow″ psh 320 TECHNICAL Lowered 11/8/19 .... Relative Price Strength 3 2-for-1 split 5/06 BETA 1.10 (1.00 = Market) Options: Yes 200 Shaded area indicates recession 18-Month Target Price Range 160 Low-High Midpoint (% to Mid) 120 100 $117-$203 $160 (-10%) 80 2022-24 PROJECTIONS 60 Ann’l Total Price Gain Return 40 High 240 (+35%) 10% Low 195 (+10%) 6% % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 18 4Q2018 1Q2019 2Q2019 Percent 24 to Buy 467 505 485 1 yr. 36.0 4.9 shares 16 3 yr. 59.3 30.2 to Sell 568 537 543 traded 8 Hld’s(000) 254441 252862 254441 5 yr. 107.7 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 16.26 20.07 23.01 25.15 30.51 31.80 27.63 31.88 36.78 39.38 32.86 37.83 36.86 39.20 41.92 45.01 44.20 45.55 Sales per sh 58.80 2.18 2.90 3.34 3.87 4.44 4.56 3.27 4.17 5.06 5.58 5.21 6.89 7.17 7.22 8.22 9.21 9.15 9.45 ‘‘Cash Flow’’ per sh 13.20 1.69 2.20 2.60 3.01 3.36 3.05 1.93 3.03 3.74 4.09 3.63 4.67 5.13 5.70 6.78 7.60 7.65 7.95 Earnings per sh A 11.45 .47 .50 .61 .71 .91 1.18 1.24 1.30 1.40 1.48 1.18 1.75 2.07 2.40 2.73 3.56 4.14 4.40 Div’ds Decl’d per sh B■ 5.70 .42 .48 .52 .54 .67 .71 .49 .58 .73 .84 .86 .94 .78 .79 .87 1.11 1.05 1.10 Cap’l Spending per sh 1.30 12.76 13.05 13.44 16.14 17.64 15.35 17.55 18.85 20.75 23.23 22.57 17.82 14.37 12.26 13.43 9.93 9.25 9.85 Book Value per sh C 12.10 617.27 584.46 561.63 558.75 530.10 499.12 502.34 497.74 483.61 455.10 430.20 382.90 363.71 346.90 341.50 328.10 319.00 314.00 Common Shs Outst’g D 295.00 20.1 20.0 16.6 15.5 16.1 14.9 20.1 15.4 13.7 13.9 19.4 18.5 18.0 19.0 21.0 19.3 Bold figures are Avg Ann’l P/E Ratio 19.0 1.15 1.06 .88 .84 .85 .90 1.34 .98 .86 .88 1.09 .97 .91 1.00 1.06 1.04 Value Line Relative P/E Ratio 1.05 1.4% 1.1% 1.4% 1.5% 1.7% 2.6% 3.2% 2.8% 2.7% 2.6% 1.7% 2.0% 2.2% 2.2% 1.9% 2.4% estimates Avg Ann’l Div’d Yield 2.6% CAPITAL STRUCTURE as of 9/30/19 13877 15870 17787 17924 14135 14484 13405 13599 14314 14768 14100 14300 Sales ($mill) 17350 Total Debt $7643.0 mill. Due in 5 Yrs $1500 mill. 17.1% 19.7% 20.1% 19.3% 22.1% 25.1% 26.7% 26.0% 28.4% 27.4% 27.5% 28.0% Operating Margin 30.0% LT Debt $7643.0 mill. LT Interest $230 mill. 674.9 548.3 594.0 613.0 613.0 749.0 708.0 470.0 462.0 461.0 435 430 Depreciation ($mill) E 450 (72% of Cap’l) (Total int. coverage: 14.7x) 969.5 1527.2 1851.1 1926.0 1630.0 1890.0 1899.0 2035.0 2345.0 2563.0 2490 2530 Net Profit ($mill) 3445 Leases, Uncapitalized Ann’l Rentals $67.0 mill. 20.1% 31.0% 28.6% 29.6% 30.5% 30.0% 30.2% 30.0% 28.3% 24.5% 24.0% 24.5% Income Tax Rate 24.0% 7.0% 9.6% 10.4% 10.7% 11.5% 13.0% 14.2% 15.0% 16.4% 17.4% 17.7% 17.7% Net Profit Margin 19.9% Pension Assets-12/18 $2.55 bill. 2839.0 2874.8 3872.7 5309.0 3782.0 4543.0 4352.0 3363.0 4225.0 2236.0 4000 4050 Working Cap’l ($mill) 4350 Oblig. $2.43 bill. 2914.9 2512.0 3488.2 4589.0 2793.0 5981.0 6896.0 7177.0 7478.0 6029.0 7725 7575 Long-Term Debt ($mill) 7125 Pfd Stock None Common Stock 321,406,096 shs. 8817.9 9381.2 10034 10570 9709.0 6824.0 5228.0 4254.0 4585.0 3528.0 2955 3100 Shr. Equity ($mill) 3575 9.0% 13.6% 14.4% 13.4% 14.0% 15.7% 16.6% 18.8% 20.5% 29.0% 24.0% 25.0% Return on Total Cap’l 34.0% MARKET CAP: $56.3 billion (Large Cap) 11.0% 16.3% 18.4% 18.2% 16.8% 27.7% 36.3% 47.8% 51.1% 78.5% 84.0% 82.0% Return on Shr. Equity 97.0% CURRENT POSITION 2017 2018 9/30/19 4.0% 9.5% 11.7% 10.0% 11.4% 17.3% 22.1% 28.5% 30.6% 41.8% 39.0% 37.0% Retained to Com Eq 49.0% ($MILL.) 64% 42% 37% 45% 32% 38% 39% 40% 40% 47% 54% 55% All Div’ds to Net Prof 50% Cash Assets 3094 1504 1825 Receivables 2628 2622 2499 BUSINESS: Illinois Tool Works Inc. manufactures a broad range of rate: 5.7%. Has about 48,000 employees. All directors, nominees, Inventory (LIFO) 1220 1318 1209 consumer and industrial products and equipment. Has 28 operating and executive officers own less than 1% of common stock; The Other 336 334 712 segments divided into Automotive OEM; Food Equipment; Test & Vanguard Group, 8.0%; Briar Hall Management, 7.9% (3/19 Proxy). Current Assets 7278 5778 6245 Measurement and Electronics; Welding; Polymers & Fluids; Con- CEO and President: E. Scott Santi. Chairman: Robert S. Morrison. Accts Payable 590 524 493 Debt Due 850 1351 - - struction Products; and Specialty Products. Research & develop- Inc.: Delaware. Address: 155 Harlem Avenue, Glenview, Illinois Other 1613 1667 1730 ment, 1.6% of ’18 sales; foreign sales 56% of total. ’18 depreciation 60025. Telephone: 847-724-7500. Internet: www.itwinc.com. Current Liab. 3053 3542 2223 Illinois Tool Works’ bottom-line com- Divestitures should have minimal im- ANNUAL RATES Past Past Est’d ’16-’18 parison returned to positive territory pact on share net. By the end of 2020, of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 in the September quarter. To be sure, ITW plans to divest businesses with total Sales 4.0% 2.0% 6.0% ‘‘Cash Flow’’ 7.0% 9.0% 8.0% ITW continues to face several challenges. revenues of around $1 billion. Manage- Earnings 7.0% 10.0% 9.5% In particular, slowing capex investment ment aims to offset the impact through Dividends 12.5% 11.5% 12.0% and declines in auto builds in North Amer- share repurchases. After completion, it Book Value -1.5% -8.5% .5% ica and China (more below) weighed on looks for the divestitures to result in about Cal-QUARTERLY SALES ($ mill.) Full the demand environment across a broad 100 basis points of companywide margin endarMar.31 Jun.30 Sep.30 Dec.31 Year section of the company’s portfolio. On the improvement and a 50-basis-point gain in 2016 3274 3431 3495 3399 13599 plus side, savings from enterprise initia- the organic growth rate. 2017 3471 3599 3615 3629 14314 tives, easing raw material costs, and stock All in all, earnings appear likely to 2018 3744 3831 3613 3580 14768 repurchases helped boost share net 7%. top last year’s tally by a modest 2019 3552 3609 3479 3460 14100 The Automotive OEM business is amount. In light of the current demand 2020 3575 3625 3600 3500 14300 holding up reasonably well. Revenue environment, management has accelerated Cal-EARNINGS PER SHARE A Full for the segment was down 2% in the some restructuring projects which, along endarMar.31 Jun.30 Sep.30 Dec.31 Year quarter, which was an improvement over with headwinds from currency translation, 2016 1.29 1.46 1.50 1.45 5.70 the June interim. The (now ended) strike will impact the fourth-quarter bottom line. 2017 1.54 1.69 1.85 1.70 6.78 at General Motors was responsible for Meanwhile, although we’ve cut our 2020 2018 1.90 1.97 1.90 1.83 7.60 about half of the decline, while a product estimate by $0.30 a share, to $7.95, this 2019 1.81 1.91 2.04 1.89 7.65 line simplification program accounted for still suggests a 3% to 5% improvement 2020 1.90 1.95 2.10 2.00 7.95 most of the rest. On a positive note, China over our target for this year. Cal-QUARTERLY DIVIDENDS PAID B■ Full sales increased 7% despite lower build The stock is best suited to conserva- endarMar.31 Jun.30 Sep.30 Dec.31 Year rates. The outperformance there was a re- tive types. Although the price is up about 2015 .485 .485 .55 .55 2.07 sult of penetration gains with local OEMs. 40% from this year’s low, risk-adjusted to- 2016 .55 .55 .65 .65 2.40 Looking ahead, product launches and in- tal return potential out to 2022-2024 is 2017 .65 .65 .78 .78 2.86 creased content on new vehicles should al- still decent. Other investors, however, will 2018 .78 .78 1.00 1.00 3.56 low ITW to continue to outpace the auto want to wait for a better entry point. 2019 1.00 1.00 1.07 market by 200 to 400 basis points. Mario Ferro December 6, 2019 (A) Diluted earnings. Excludes nonrecurring 11¢; ’14, $2.61. Earnings may not sum due to ■ Dividend reinvestment plan available. Company’s Financial Strength A++ gains/(losses): ’11, 33¢; ’12, $1.18; ’13, (9¢); rounding. Next earnings report due mid- (C) Includes intangibles. In ’18: $5.7 bill., Stock’s Price Stability 90 ’17, ($1.92). Excl. discontinued operations: ’07, January. (B) Dividends historically paid in late $17.37/sh. (D) In millions, adjusted for stock Price Growth Persistence 95 8¢; ’08, (12¢); ’09, (6¢); ’11, 11¢; ’12, 79¢; ’13, Mar., June, Sept, and Dec. split. (E) Includes accelerated depreciation. Earnings Predictability 90 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 13.8 RELATIVE DIV’D VALUE KENNAMETAL NYSE-KMT PRICE 34.28RATIO 18.0()Median: 19.0 P/E RATIO 1.02YLD 2.3% LINE 731 TIMELINESS 4 Lowered 6/21/19 High: 38.8 28.3 39.8 45.7 47.8 52.4 52.2 39.9 35.7 49.3 52.5 42.0 Target Price Range Low: 12.8 13.2 23.5 29.3 30.7 35.5 33.2 17.7 15.1 31.3 30.3 27.5 2022 2023 2024 SAFETY 3 New 7/27/90 LEGENDS 12.0 x ″Cash Flow″ psh 120 TECHNICAL 4 Lowered 12/6/19 .... Relative Price Strength 100 2-for-1 split 12/07 80 BETA 1.55 (1.00 = Market) Options: Yes Shaded area indicates recession 64 18-Month Target Price Range 48 Low-High Midpoint (% to Mid) 32 $25-$58 $42 (20%) 24 2022-24 PROJECTIONS 20 Ann’l Total 16 Price Gain Return High 65 (+90%) 19% 12 Low 45 (+30%) 10% % TOT. RETURN 10/19 8 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 45 to Buy 123 132 102 1 yr. -10.6 4.9 shares 30 3 yr. 16.8 30.2 to Sell 130 120 140 traded 15 Hld’s(000) 81144 81590 81701 5 yr. -9.5 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 24.79 26.91 30.22 30.17 30.59 35.20 27.31 23.00 29.63 34.17 33.26 36.45 33.35 26.33 25.52 29.00 28.82 26.50 Sales per sh A 28.25 1.44 1.91 2.50 2.95 3.31 3.94 2.12 2.30 4.21 5.22 4.06 4.23 3.67 2.41 2.86 4.01 4.41 3.30 ‘‘Cash Flow’’ per sh 4.55 .26 1.01 1.63 1.98 2.28 2.76 .80 1.10 2.98 3.86 2.52 2.50 2.02 1.11 1.51 2.65 3.02 1.90 Earnings per sh AB 3.10 .34 .34 .34 .36 .41 .48 .48 .48 .48 .54 .64 .72 .72 .80 .80 .80 .84 .84 Div’ds Decl’d per sh C ■ .92 .70 .78 1.16 1.03 1.18 2.13 1.43 .69 1.03 1.29 1.06 1.51 1.27 1.39 1.46 2.09 2.58 3.00 Cap’l Spending per sh 1.90 10.17 12.11 12.76 16.78 19.04 21.44 17.03 16.06 20.19 20.53 22.89 24.78 16.96 12.10 12.61 14.63 16.20 16.55 Book Value per sh D 18.00 70.95 73.27 76.25 77.21 77.97 76.86 73.23 81.90 81.13 80.09 77.84 77.84 79.38 79.69 80.67 81.65 82.42 83.00 Common Shs Outst’g E 85.00 NMF 20.1 14.2 13.8 13.7 13.3 27.6 23.4 11.9 10.1 15.3 18.3 18.8 22.1 21.9 15.7 12.5 Avg Ann’l P/E Ratio 18.0 NMF 1.06 .76 .75 .73 .80 1.84 1.49 .75 .64 .86 .96 .95 1.16 1.10 .84 .69 Relative P/E Ratio 1.00 2.1% 1.7% 1.5% 1.3% 1.3% 1.3% 2.2% 1.9% 1.3% 1.4% 1.7% 1.6% 1.9% 3.3% 2.4% 1.9% 2.2% Avg Ann’l Div’d Yield 1.7% CAPITAL STRUCTURE as of 9/30/19 1999.9 1884.1 2403.5 2736.2 2589.4 2837.2 2647.2 2098.4 2058.4 2367.9 2375.2 2200 Sales ($mill) A 2400 Total Debt $596.4 mill. Due in 5 Yrs $592.5 mill. 8.5% 13.1% 18.3% 19.0% 15.8% 14.5% 14.1% 11.4% 10.7% 18.2% 19.0% 16.0% Operating Margin 20.0% LT Debt $592.9 mill. LT Interest $33.0 mill. 96.4 96.4 93.5 104.1 113.1 130.2 131.7 117.5 107.7 108.7 112.1 115 Depreciation ($mill) 125 (Total interest coverage: 9.2x) (31% of Cap’l) 58.8 91.8 247.8 313.7 203.3 199.0 160.0 74.8 123.0 218.9 251.7 160 Net Profit ($mill) 265 Pension Assets-6/19 $825.9 mill. 2.0% 30.0% 21.2% 18.6% 22.4% 23.1% 23.2% 24.8% 24.8% 18.6% 21.5% 23.0% Income Tax Rate 22.0% Oblig. $964.7 mill. 2.9% 4.9% 10.3% 11.5% 7.9% 7.0% 6.0% 3.6% 6.0% 9.2% 10.6% 7.2% Net Profit Margin 11.0% 496.9 522.9 446.1 704.4 1031.9 962.4 775.9 648.0 652.4 659.7 729.1 650 Working Cap’l ($mill) 700 436.6 314.7 1.9 490.6 703.6 981.7 735.9 699.6 695.0 591.5 592.5 575 Long-Term Debt ($mill) 425 Pfd Stock None 1247.4 1315.5 1638.1 1643.9 1781.8 1929.3 1345.8 964.3 1017.3 1194.3 1335.2 1375 Shr. Equity ($mill) 1525 Common Stock 82,856,908 shs. 4.3% 6.4% 15.8% 15.3% 8.7% 7.4% 8.4% 5.3% 8.0% 13.1% 14.0% 9.0% Return on Total Cap’l 14.5% as of 10/31/19 4.7% 7.0% 15.1% 19.1% 11.4% 10.3% 11.9% 7.8% 12.1% 18.3% 18.9% 11.5% Return on Shr. Equity 17.5% MARKET CAP: $2.8 billion (Mid Cap) 1.9% 4.0% 12.7% 16.4% 8.5% 7.4% 7.7% 1.1% 5.8% 12.9% 13.6% 6.5% Retained to Com Eq 12.0% CURRENT POSITION 2018 2019 9/30/19 60% 43% 16% 14% 25% 28% 36% 85% 52% 30% 28% 44% All Div’ds to Net Prof 30% ($MILL.) Cash Assets 556.2 182.0 113.5 BUSINESS: Kennametal Inc. is a global leader in the development al engineering. ’19 foreign sales 57%. Has about 10,400 employ- Receivables 401.3 379.9 327.6 and application of tungsten carbides, ceramics, super-hard mate- ees. BlackRock owns 11.6% of common stock; The Vanguard Inventory (LIFO) 525.5 571.6 557.1 Other 63.2 57.3 67.2 rials and solutions used in metal cutting and mission-critical wear Group, 10.1%. Officers & directors, 1.5% (9/19 proxy). President Current Assets 1546.2 1190.8 1065.4 applications. End users of the company’s metalworking products in- and CEO: Chris Rossi. Chairman: Lawrence W. Stranghoener. Inc.: Accts Payable 221.9 212.9 198.7 clude manufacturers in a diverse array of industries, including PA. Address: 600 Grant Street, Suite 5100, Pittsburgh, PA 15219- Debt Due 400.2 .2 3.5 aerospace, defense, energy, earthworks, transportation, and gener- 2706. Telephone: 412-248-8000. Internet: www.kennametal.com. Other 264.4 248.6 216.5 Current Liab. 886.5 461.7 418.7 Kennametal posted weaker-than- more in the latest quarter, or $0.07 a expected results for its fiscal first share, and expects the run rate to reach ANNUAL RATES Past Past Est’d ’16-’18 quarter. (Year ends June 30th.) Adjusted $35 million to $40 million this year, with of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Sales -1.5% -3.5% 1.0% earnings per share fell precipitously, as another $25 million to $30 million in fiscal ‘‘Cash Flow’’ -1.0% -7.0% 6.5% global market conditions deteriorated 2021. Earnings -3.0% -11.0% 10.0% more than management had originally ex- Share net is likely to improve consid- Dividends 6.5% 7.5% 2.5% Book Value -3.5% -9.0% 5.5% pected. The slowdown is being experienced erably in the second half. Management across all regions and end markets, but expects raw material cost pressures to Fiscal QUARTERLY SALES ($ mill.) A Full Year Fiscal has been most acute in the energy, ease in the quarters ahead. Also, cost ab- Ends Sep.30 Dec.31 Mar.31 Jun.30 Year engineering, and transportation segments, sorption issues should decrease as plants 2016 555.4 524.0 497.8 521.2 2098.4 reflecting declines in U.S. land rig counts are closed later this year and next. How- 2017 477.1 487.6 528.6 565.1 2058.4 and decelerated global manufacturing. ever, due to the weak first quarter, and 2018 542.6 571.3 607.9 646.1 2367.9 Moreover, the impact of lower volumes the expected delay in the recovery of the 2019 586.7 587.4 597.2 603.9 2375.2 2020 518.1 527 660 594.9 2200 was magnified by higher raw material transportation and energy markets, we costs and unfavorable labor and fixed-cost have lowered our full-year share-net es- Fiscal EARNINGS PER SHARE AB Full Year Fiscal absorption. timate by $1.00, to $1.90. As the company Ends Sep.30 Dec.31 Mar.31 Jun.30 Year Restructuring actions have been gains further traction with its cost-cutting 2016 .14 .14 .39 .44 1.11 stepped up. In light of the lower demand, efforts, and assuming some stability in its 2017 .11 .24 .60 .56 1.51 the maker of metalworking products is ad- end markets, a partial rebound is likely in 2018 .55 .52 .71 .87 2.65 2019 .70 .71 .77 .84 3.02 justing production levels and managing fiscal 2021. 2020 .17 .21 .60 .92 1.90 costs. It recently discontinued production These shares retain their appeal as a at a facility in Germany, and it plans to long-term holding. Though we have C■ Cal-QUARTERLY DIVIDENDS PAID Full close three other manufacturing locations trimmed our 3- to 5-year earnings projec- endarMar.31 Jun.30 Sep.30 Dec.31 Year and a distribution center. It also expects to tion by $0.55, to $3.10 a share, we still 2015 .18 .18 .20 .20 .76 divest a noncore specialty alloys business look for above-average price upside poten- 2016 .20 .20 .20 .20 .80 in the fiscal second quarter. Kennametal tial. The stock’s attractive yield should 2017 .20 .20 .20 .20 .80 achieved about $40 million in savings in make the wait easier for patient investors. 2018 .20 .20 .20 .20 .80 2019 .20 .20 .20 .20 fiscal 2019. It generated about $8 million Mario Ferro December 6, 2019 (A) Fisc. yr. ends June 30th. (B) Diluted egs. ’10, (53¢); ’11, (22¢); ’12, (9¢); ’14, (51¢); ’15, earnings report due late January. (C) Div’ds Company’s Financial Strength B++ per share. May not sum due to rounding. Excl. ($6.73); ’16, ($3.94); ’17, (91¢); ’18 23¢; ’19, usually paid late Feb., May, Aug., and Nov. ■ Stock’s Price Stability 35 nonrec. gain/(losses): ’04, (13¢); ’05, (12¢); (12¢); ’20 Q1, (9¢). Excl. disc. ops.; ’06, Div’d reinv’t plan avail. (D) Incl. intang. In ’19: Price Growth Persistence 20 ’06, $2.92; ’07, (6¢); ’08, (61¢); ’09, ($1.01); ($0.40); ’07, (6¢): ’09, (24¢); ’10, (2¢). Next $461.0 mill., $5.59/sh. (E) In mill., adj. for split. Earnings Predictability 45 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 18.0 RELATIVE DIV’D VALUE MUELLER INDS., INC. NYSE-MLI PRICE 31.80RATIO 15.7()Median: 18.0 P/E RATIO 0.89YLD 1.3% LINE 732 TIMELINESS 4 Lowered 10/11/19 High: 18.4 13.9 16.9 23.9 25.7 31.7 34.7 37.2 41.3 44.0 37.6 34.2 Target Price Range Low: 7.8 8.0 10.9 15.5 19.1 24.0 27.1 26.9 23.1 27.7 21.5 22.5 2022 2023 2024 SAFETY 3 New 4/2/99 LEGENDS 11.0 x ″Cash Flow″ psh TECHNICAL Raised 11/29/19 .... Relative Price Strength 80 3 2-for-1 split 3/14 BETA 1.35 (1.00 = Market) Options: Yes 60 Shaded area indicates recession 2-for-1 50 18-Month Target Price Range 40 Low-High Midpoint (% to Mid) 30 25 $14-$38 $26 (-20%) 20 2022-24 PROJECTIONS 15 Ann’l Total Price Gain Return 10 High 65 (+105%) 20% Low 45 (+40%) 10% 7.5 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 15 to Buy 77 104 72 1 yr. 28.3 4.9 shares 10 3 yr. 5.7 30.2 to Sell 95 81 107 traded 5 Hld’s(000) 52358 52135 52563 5 yr. 0.6 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 14.57 18.95 23.60 33.91 36.38 34.44 20.55 27.21 31.61 38.94 38.09 41.53 36.74 35.82 39.20 44.23 43.75 50.00 Sales per sh A 71.45 1.08 1.65 1.77 2.57 2.15 1.68 .99 1.36 1.51 2.03 2.10 2.38 2.14 2.35 2.09 2.58 2.55 2.90 ‘‘Cash Flow’’ per sh 4.45 .48 1.08 1.20 2.13 1.55 1.09 .44 .83 1.04 1.16 1.53 1.79 1.54 1.74 1.49 1.82 1.80 2.00 Earnings per sh AB 3.40 - - .20 .20 .20 .20 .20 .20 .20 .20 .21 .25 .30 .30 .38 .40 .40 .40 .52 Div’ds Decl’d per sh C .60 .40 .27 .25 .56 .40 .30 .19 .25 .25 1.01 .73 .69 .50 .65 .80 .68 .80 .80 Cap’l Spending per sh .90 11.89 4.83 5.77 7.95 9.58 9.43 9.47 10.42 11.19 9.01 12.41 13.39 14.47 15.66 9.03 9.67 11.60 13.20 Book Value per sh 16.45 68.55 72.78 73.29 74.05 74.16 74.29 75.30 75.71 76.49 56.24 56.67 56.92 57.16 57.40 57.81 56.70 56.00 56.00 Common Shs Outst’g D 56.00 29.4 15.8 11.7 8.0 10.6 12.7 26.2 16.1 18.3 19.5 18.0 16.9 21.3 18.1 22.7 15.7 Bold figures are Avg Ann’l P/E Ratio 16.0 1.68 .83 .62 .43 .56 .76 1.75 1.02 1.15 1.24 1.01 .89 1.07 .95 1.14 .85 Value Line Relative P/E Ratio .90 - - 1.2% 1.4% 1.2% 1.2% 1.4% 1.8% 1.5% 1.1% .9% .9% 1.0% .9% 1.2% 1.2% 1.4% estimates Avg Ann’l Div’d Yield 1.1% CAPITAL STRUCTURE as of 9/28/19 1547.2 2059.8 2417.8 2189.9 2158.5 2364.2 2100.0 2055.6 2266.1 2507.9 2450 2800 Sales ($mill) A 4000 Total Debt $441.5 mill. Due in 5 Yrs $210.9 mill. 6.7% 7.5% 6.9% 7.1% 7.5% 8.0% 7.6% 9.5% 8.2% 8.3% 7.5% 8.0% Operating Margin 10.0% LT Debt $434.1 mill. LT Interest $25.2 mill. 41.6 40.4 36.0 31.5 32.4 33.7 34.6 35.1 33.9 39.6 44.0 46.0 Depreciation ($mill) 60.0 (47% of Cap’l) 32.6 62.9 79.4 82.4 86.4 101.6 87.9 99.7 87.0 106.8 100.0 115 Net Profit ($mill) 190 Leases, Uncapitalized Annual rentals $6.6 mill. 37.1% 35.2% 33.0% 30.5% 32.8% 30.7% 32.9% 33.0% 29.8% 20.6% 21.0% 21.0% Income Tax Rate 21.0% Pension Assets - 12/18 $166.7 mill. 2.1% 3.1% 3.3% 3.8% 4.0% 4.3% 4.2% 4.9% 3.8% 4.3% 4.1% 4.1% Net Profit Margin 4.8% Oblig. $164.6 mill. 625.4 717.2 813.5 488.5 655.4 703.1 591.0 675.3 496.8 469.8 500 630 Working Cap’l ($mill) 900 Pfd Stock None 158.2 158.2 156.5 207.3 206.3 205.3 204.3 213.7 448.6 489.6 400 400 Long-Term Debt ($mill) 300 Common Stock 56,952,083 shs. 713.2 788.7 855.7 506.9 703.4 762.2 827.3 898.7 522.1 548.4 650 740 Shr. Equity ($mill) 920 as of 10/18/19 4.2% 7.1% 8.3% 12.0% 9.7% 10.8% 8.9% 9.3% 9.9% 11.5% 9.5% 10.0% Return on Total Cap’l 15.5% 4.6% 8.0% 9.3% 16.3% 12.3% 13.3% 10.6% 11.1% 16.7% 19.5% 15.5% 15.5% Return on Shr. Equity 20.5% MARKET CAP: $1.8 billion (Mid Cap) 2.5% 6.1% 7.5% 13.3% 10.3% 11.1% 8.6% 8.7% 12.3% 15.3% 12.0% 11.0% Retained to Com Eq 17.0% CURRENT POSITION 2017 2018 9/28/19 46% 24% 19% 18% 16% 17% 19% 21% 26% 21% 22% 26% All Div’ds to Net Prof 18% ($MILL.) Cash Assets 120.3 72.6 100.3 BUSINESS: Mueller Industries, Inc. is a leading manufacturer of Vemco, 8/04. Has 5,134 employees. Officers and directors own Receivables 244.7 273.4 319.6 copper tube and fittings; brass and copper alloy rods, bars, and 3.3% of common stock; BlackRock, 14.7%; GAMCO, 11.3%; Inventory (FIFO) 327.9 329.8 277.6 Other 46.2 26.8 33.2 shapes; aluminum and brass forgings; aluminum and copper impact Vanguard, 10.3%; Wellington Management, 7.3% (3/19 proxy). Current Assets 739.1 702.6 730.7 extrusions; plastic fittings and valves; and refrigeration valves and Chairman & CEO: Gregory L. Christopher. Incorporated: Delaware. Accts Payable 102.5 103.8 102.1 fittings. Has plants located in the United States, Canada, Mexico, Address: 150 Schilling Blvd., Suite 100, Collierville, TN 38017. Tel- Debt Due 16.5 7.1 7.4 and the United Kingdom. Acquired Mueller Comercial SA., 9/04; & ephone: 901-753-3200. Internet: www.muellerindustries.com. Other 123.3 121.9 137.3 Current Liab. 242.3 232.8 246.8 Mueller Industries delivered a sig- starts has been a headwind for the nificant profit margin increase in the company over the past decade. ANNUAL RATES Past Past Est’d ’16-’18 third quarter. Sales of $608.6 million Residential construction activity is an im- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Sales 1.5% 2.0% 10.5% declined significantly from the $646 mil- portant determinant of Mueller’s sales to ‘‘Cash Flow’’ 1.0% 4.5% 11.5% lion figure for the same quarter of 2018. the heating, ventilation, air conditioning; Earnings .5% 6.5% 12.5% This owed primarily to lower copper refrigeration; and plumbing markets. Dividends 7.0% 12.0% 7.5% Book Value 2.5% 1.0% 6.0% prices, as the selling prices of the compa- While such activity has shown improve- ny’s products are highly sensitive to fluc- ment in recent years, new housing starts Cal-QUARTERLY SALES ($ mill.) A Full tuations in the value of copper. It also was remain at relatively low levels compared endarMar.Per Jun.Per Sep.Per Dec.Per Year due to lower unit volume in Mueller’s to long-term historical averages. As a re- 2016 532.8 544.0 506.6 472.2 2055.6 Piping Systems and Industrial Metals seg- sult, the company has struggled to beat its 2017 577.9 614.3 550.4 523.5 2266.1 ments. However, the decrease in copper 2006 share-net record. However, between 2018 640.0 662.8 646.0 559.1 2507.9 prices also led to a decline in cost of goods accretion from acquisitions and the 2019 611.8 666.4 608.6 563.2 2450 2020 670 720 710 700 2800 sold, while investments in the company’s likelihood of continued improvement in copper tube manufacturing platforms have residential construction activity, we expect Cal-EARNINGS PER SHARE AB Full reduced production costs while yielding Mueller to exceed its top- and bottom-line endarMar.Per Jun.Per Sep.Per Dec.Per Year improvements in throughput and quality. records by the 2022-2024 stretch. 2016 .50 .49 .45 .30 1.74 Acquisitions have contributed to the These shares are best suited to 2017 .52 .48 .39 .10 1.49 bottom line as well. The purchase of patient investors. At the recent quota- 2018 .42 .58 .35 .47 1.82 2019 .28 .50 .52 .50 1.80 ATCO Rubber Products last July for tion, MLI’s three- to five-year appreciation 2020 .45 .55 .50 .50 2.00 $156.7 million has given Mueller a leader- potential exceeds the Value Line median C ship position in the HVAC flexible duct by a considerable margin. However, the Cal-QUARTERLY DIVIDENDS PAID Full systems arena. Meanwhile, the $13.6 mil- stock already trades considerably above endarMar.31 Jun.30 Sep.30 Dec.31 Year lion acquisition last march of Die-Mold, a the midpoint of our 18-month Target Price 2015 .075 .075 .075 .075 .30 manufacturer of plumbing-related fittings, Range. Furthermore, this issue carries a 2016 .075 .10 .10 .10 .38 has boosted sales in the Piping Systems Below Average rank (4) for year-ahead rel- 2017 .10 .10 .10 .10 .40 2018 .10 .10 .10 .10 .40 segment. ative performance. 2019 .10 .10 .10 The long-term slump in new housing Adam J. Platt December 6, 2019 (A) Fiscal year ends last Saturday in Dec. report due late Feb. (C) A special dividend with mid-March, June, September, and December. Company’s Financial Strength B+ (B) Diluted earnings. Excludes nonrecurring a nominal value of $8.00 ($3.00 in cash, $5.00 (D) In millions, adj. for split. Stock’s Price Stability 50 gains/(losses): ’03, 14¢; ’06, (13¢); ’09, (38¢); in 6% debentures due 2027) was paid in 2017. Price Growth Persistence 45 ’10, 31¢; ’11, 9¢; ’13, $1.53. Next earnings Quarterly dividend commenced in 2004. Paid in Earnings Predictability 75 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: NMF RELATIVE DIV’D VALUE NN, INC. NDQ-NNBR PRICE 8.60RATIO NMF()Median: NMF P/E RATIO NMFYLD Nil LINE 733 TIMELINESS 3 Raised 9/13/19 High: 17.4 5.3 12.6 19.4 10.9 21.4 30.9 29.9 20.4 32.9 29.5 11.7 Target Price Range Low: 0.8 0.8 3.2 4.5 5.5 8.3 16.6 12.6 10.3 17.7 5.6 5.9 2022 2023 2024 SAFETY 5 Lowered 11/1/19 LEGENDS 3.0 x ″Cash Flow″ psh TECHNICAL 4 Raised 12/6/19 .... Relative Price Strength 40 Options: Yes 32 BETA 1.75 (1.00 = Market) Shaded area indicates recession 24 18-Month Target Price Range Low-High Midpoint (% to Mid) 16 12 $2-$10 $6 (-30%) 10 2022-24 PROJECTIONS 8 Ann’l Total Price Gain Return 6 High 11 (+30%) 7% Low 6 (-30%) -8% 4 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 24 to Buy 66 59 45 1 yr. -35.6 4.9 shares 16 3 yr. -56.6 30.2 to Sell 53 42 51 traded 8 Hld’s(000) 42007 42084 39873 5 yr. -68.4 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 15.17 18.13 18.68 19.61 26.57 26.11 15.94 21.98 25.06 21.71 21.15 25.74 24.85 30.59 22.48 18.30 19.85 20.60 Sales per sh 24.45 1.44 1.38 1.82 1.90 2.24 2.36 d.09 2.03 2.10 2.03 1.93 1.60 1.38 2.58 .67 .14 1.25 1.75 ‘‘Cash Flow’’ per sh 3.45 .62 .41 .87 .83 .74 .66 d1.43 .88 1.10 .99 1.00 .45 d.35 .29 d1.24 d2.06 d.95 d.35 Earnings per sh A .55 .32 .32 .32 .32 .32 .24 ------.18 .28 .28 .28 .28 .28 .21 Nil Div’ds Decl’d per sh B Nil .69 .72 .97 1.14 1.19 1.14 .26 .92 1.20 1.00 .86 1.45 1.44 1.61 1.59 1.52 1.10 1.15 Cap’l Spending per sh 1.25 6.37 6.86 6.75 7.91 8.20 6.75 4.72 4.70 5.88 7.54 8.66 9.15 11.69 11.57 17.63 9.93 8.15 7.80 Book Value per sh C 8.35 16.71 16.78 17.21 16.84 15.86 16.27 16.27 16.62 16.95 17.04 17.65 18.98 26.85 27.25 27.57 42.10 42.35 43.00 Common Shs Outst’g D 45.00 17.9 28.7 13.7 14.8 15.0 15.3 - - 7.6 10.4 8.6 12.7 NMF - - NMF NMF NMF Bold figures are Avg Ann’l P/E Ratio 15.0 1.02 1.52 .73 .80 .80 .92 - - .48 .65 .55 .71 NMF - - NMF NMF NMF Value Line Relative P/E Ratio .85 2.9% 2.7% 2.7% 2.6% 2.9% 2.4% ------1.4% 1.2% 1.3% 1.8% 1.1% 1.5% estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 259.4 365.4 424.7 370.1 373.2 488.6 667.3 833.5 619.8 770.7 840 885 Sales ($mill) 1050 Total Debt $867.3 mill. Due in 5 Yrs $850.4 mill. NMF 13.9% 10.9% 11.8% 12.0% 10.2% 10.7% 15.9% 13.8% 9.7% 12.0% 13.0% Operating Margin 15.0% LT Debt $841.7 mill. LT Interest $58.0 mill. 21.8 19.2 17.0 17.6 17.0 22.1 44.5 62.5 52.4 71.1 92.0 90.0 Depreciation ($mill) 130 (70% of Cap’l) d23.3 14.6 18.6 17.0 17.2 8.2 d7.4 7.9 d34.0 d65.3 d40.0 d15.0 Net Profit ($mill) 25.0 Leases Uncapitalized: Annual Rentals $13.3 mill. - - 41.6% 21.7% - - 31.8% 43.9% - - - - NMF NMF NMF NMF Income Tax Rate NMF NMF 4.0% 4.4% 4.6% 4.6% 1.7% NMF 1.0% NMF NMF NMF NMF Net Profit Margin 2.4% No Defined Benefit Pension Plan 29.8 32.1 51.0 68.5 56.3 105.2 146.8 142.0 368.9 151.9 150 160 Working Cap’l ($mill) 200 79.4 69.5 75.2 67.2 29.5 328.0 817.9 791.6 790.8 811.5 840 810 Long-Term Debt ($mill) 750 Pfd Stock None Common Stock 42,327,206 shs. 76.8 78.1 99.7 128.6 152.8 173.7 313.8 315.2 486.1 418.3 345 335 Shr. Equity ($mill) 375 as of 11/1/19 NMF 12.2% 12.0% 9.7% 10.1% 2.6% .4% 3.4% NMF NMF NMF 1.0% Return on Total Cap’l 4.5% NMF 18.7% 18.6% 13.2% 11.2% 4.7% NMF 2.5% NMF NMF MNF NMF Return on Shr. Equity 6.5% MARKET CAP: $375 million (Small Cap) NMF 18.7% 18.6% 13.2% 9.2% 1.8% NMF .1% NMF NMF NMF NMF Retained to Com Eq 6.5% CURRENT POSITION 2017 2018 9/30/19 ------18% 62% NMF 95% NMF NMF Nil Nil All Div’ds to Net Prof Nil ($MILL.) Cash Assets 224.4 17.9 24.4 BUSINESS: NN, Inc. designs and manufactures high-precision ficers and directors own 2.5% of common stock; PRIMECAP Mgt., Receivables 108.4 133.4 141.6 components and asssemblies for a variety of global markets. Oper- 14.9%; Prudential Fin’l, 8.3%; Legion Partners, 8.0%; BlackRock, Inventory (FIFO) 82.6 122.6 126.8 Other 61.9 23.0 23.5 ating segments include Life Sciences, Mobile Solutions, and Power 7.1%; Private Mgt. Grp., 7.0%; Corre Partners, 6.2%; Dimensional Current Assets 477.3 296.9 316.3 Solutions. Sold Precision Bearing Components Group in August, Fund, 6.1%; RE Advisors, 5.7% (4/19 Proxy). Chairman: R. Brun- Accts Payable 52.9 65.7 65.5 2017. Has 51 facilities in North America, Western & Eastern ner. CEO: W. Veltman. Inc.: DE. Address: 6210 Ardrey Kell Road, Debt Due 17.3 31.3 25.6 Europe, S. America, & China. On 12/31/18, 5,479 employees. Of- Charlotte, NC 28277. Tel.: 423-434-8310. Internet: www.nnbr.com. Other 38.2 48.0 64.9 Current Liab. 108.4 145.0 156.0 NN, Inc. has announced plans to tion/transition and intangibles/deferred reduce costs, improve cash flow, and financing costs, NN says it would have ANNUAL RATES Past Past Est’d ’16-’18 repay debt. Efforts to steamline facilities earned $0.27 a share in the September of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Sales - - 1.0% .5% and lower selling expenses are expected to term, down from $0.30 a year earlier. ‘‘Cash Flow’’ -6.5% -11.0% 20.0% generate $10 million of savings. The NN may end 2019 on a weak note, but Earnings - - - - NMF elimination of the quarterly cash dividend we look for the company to report a Dividends -.5% - - Nil Book Value 5.5% 12.0% -8.0% will save the company $12 million a year. smaller loss in 2020. NN’s Mobile Solu- And NN aims to lower annual capital tions segment’s sales and profits in the Cal-QUARTERLY SALES ($ mill.) Full spending by $10 million. It expects to real- December quarter are expected to be hurt endarMar.31 Jun.30 Sep.30 Dec.31 Year ize the combined $32 million of cash sav- by the United Auto Workers strike that 2016 212.2 214.3 205.0 202.0 833.5 ings by the June quarter of 2020, and in- ended in late October. New programs may 2017 157.6 157.9 148.2 156.1 619.8 tends to use the funds to repay debt and support modest sales growth in 2020, how- 2018 169.1 196.3 205.7 199.5 770.7 invest in promising businesses. NN also ever. Meanwhile, Power Solutions 2019 213.3 221.7 213.9 191.1 840 2020 215 230 225 215 885 plans to refinance its senior credit (aerospace) sales are forecast to advance facilities to extend maturities and genera- at a moderate pace. But Life Science Cal-EARNINGS PER SHARE A Full te additional liquidity. (medical devices) sales growth is likely to endarMar.31 Jun.30 Sep.30 Dec.31 Year The high level of debt relative to slow since fewer product introductions are 2016 d.05 .07 .15 .11 .29 shareholders equity is largely due to scheduled for the new year. Meanwhile, 2017 .07 d.96 d.13 d.22 d1.24 acquisitions over the years that trans- we assume NN’s cost-reduction efforts will 2018 d.22 d.89 d.48 d.50 d2.06 2019 d.44 d.16 d.13 d.22 d.95 formed NN, from a supplier of balls continue and interest costs will decline as 2020 d.15 d.10 d.08 d.02 d.35 and rollers for bearings, to a more NN repays debt. It may take time, how- B diversified company. The 2018 purchase ever, to lower debt meaningfully. Cal-QUARTERLY DIVIDENDS PAID Full of an orthopedic device business fueled NN’s share price discounts most of the endarMar.31 Jun.30 Sep.30 Dec.31 Year much of the growth in sales and operating issue’s 3- to 5-year comeback poten- 2015 .07 .07 .07 .07 .28 profits in the September quarter. But in- tial. The issue also is too risky for most in- 2016 .07 .07 .07 .07 .28 terest expense exceeded operating profits, vestors (Safety rank: 5 - Lowest, and Stock 2017 .07 .07 .07 .07 .28 2018 .07 .07 .07 .07 .28 and NN logged a net loss on a reported Price Stability rating of 5, out of 100). 2019 .07 .07 .07 - - earnings basis. Excluding acquisi- Theresa Brophy December 6, 2019 (A) Diluted earnings. Excludes nonrecurring $5.35. Quarterly EPS do not sum in 2018 due (C) Includes goodwill & intangibles. As of Company’s Financial Strength C+ gains/(losses): ’07, ($1.17); ’08, ($1.77); ’09, to increase in shares. Next egs. report due ear- 9/30/19: $777.8 mill., $18.39/sh. (D) In millions. Stock’s Price Stability 5 ($0.74); ’10, ($0.43); ’11, $0.14; ’12, $0.43; ’18, ly Feb. (B) Dividend restored in June 2013, Price Growth Persistence 45 ($6.29). Excludes discontinued operations: ’17, suspended in October 2019. Earnings Predictability 15 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 15.9 RELATIVE DIV’D VALUE TENARIS S.A. (ADS) NYSE-TS PRICE 21.90RATIO 16.5()Median: 20.0 P/E RATIO 0.93YLD 3.7% LINE 734 TIMELINESS 4 Lowered 11/8/19 High: 75.4 43.5 49.5 51.1 44.9 49.9 48.4 32.8 36.2 37.2 40.6 30.3 Target Price Range Low: 15.3 14.8 32.9 23.3 29.8 38.5 28.2 22.8 18.5 25.9 20.5 19.9 2022 2023 2024 SAFETY 3 New 3/13/15 LEGENDS 14.0 x ″Cash Flow″p ADR 128 TECHNICAL 4 Lowered 12/6/19 .... Relative Price Strength 5-for-1 split 4/06 96 BETA 1.40 (1.00 = Market) Options: Yes 80 Shaded area indicates recession 18-Month Target Price Range 64 Low-High Midpoint (% to Mid) 48 40 $16-$34 $25 (15%) 32 2022-24 PROJECTIONS 24 Ann’l Total Price Gain Return 16 High 60 (+175%) 31% Low 40 (+85%) 19% 12 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 15 to Buy 86 84 79 1 yr. -28.5 4.9 shares 10 3 yr. -22.2 30.2 to Sell 113 97 82 traded 5 Hld’s(000) 78327 82872 82872 5 yr. -41.1 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 5.39 7.01 11.41 13.09 17.01 20.55 13.81 13.06 16.89 18.35 17.95 17.51 12.03 7.27 8.96 12.97 12.35 11.80 Sales per ADS 17.20 .70 1.59 2.53 3.65 4.07 3.81 2.87 2.77 3.19 3.84 3.66 3.32 2.20 1.27 1.78 2.61 2.20 2.50 ‘‘Cash Flow’’ per ADS 4.05 .36 1.32 2.16 3.18 3.16 2.98 2.00 1.90 2.26 2.88 2.62 2.28 1.08 .15 .77 1.48 1.30 1.60 Earnings per ADS A 2.80 .20 .22 .60 .35 .86 .76 .86 .68 .68 .76 .86 .90 .90 .90 .82 .82 .82 .86 Gross Div’ds Decl’d ADS D 1.10 .28 .31 .48 .75 .76 .75 .78 1.44 1.46 1.34 1.28 1.95 1.92 1.33 .95 .59 .55 .60 Cap’l Spending per ADS .85 3.12 4.23 5.94 9.04 11.87 13.85 15.40 16.78 17.80 19.29 20.82 21.72 19.84 19.12 19.45 19.96 20.45 21.20 Book Value per ADS C 24.95 590.14 590.27 590.27 590.27 590.27 590.27 590.27 590.27 590.27 590.27 590.27 590.27 590.27 590.27 590.27 590.27 590.27 590.27 Equiv ADSs Outst’g B 590.27 13.8 5.8 7.9 11.9 15.0 14.9 14.6 21.6 18.1 13.3 16.6 18.5 25.2 NMF 40.3 22.4 Bold figures are Avg Ann’l P/E Ratio 18.0 .79 .31 .42 .64 .80 .90 .97 1.37 1.14 .85 .93 .97 1.27 NMF 2.03 1.21 Value Line Relative P/E Ratio 1.00 4.0% 2.9% 3.5% .9% 1.8% 1.7% 2.9% 1.7% 1.7% 2.0% 2.0% 2.1% 3.3% 3.4% 2.6% 2.5% estimates Avg Ann’l Div’d Yield 2.2% CAPITAL STRUCTURE as of 9/30/19 8149.3 7711.6 9972.5 10834 10597 10338 7100.8 4293.6 5288.5 7658.6 7295 6970 Sales ($mill) 10150 Total Debt $922.9 mill. Due in 5 Yrs $922.9 mill. 29.9% 27.6% 26.1% 28.2% 28.2% 27.9% 20.1% 14.5% 17.8% 20.0% 19.5% 23.0% Operating Margin 28.0% LT Debt $49.1 mill. LT Int. $36.9 mill. 504.9 506.9 554.3 567.7 610.1 615.6 658.8 662.4 608.6 664.4 525 525 Depreciation ($mill) 710 (Interest coverage: 23.6x) (7% of Cap’l) 1189.7 1127.4 1331.2 1699.0 1551.4 1343.3 637.5 86.5 444.8 873.9 770 940 Net Profit ($mill) 1670 29.3% 28.3% 27.0% 24.1% 28.5% 30.0% 26.5% 16.5% - - 20.8% 20.0% 20.0% Income Tax Rate 20.0% 14.6% 14.6% 13.3% 15.7% 14.6% 13.0% 9.0% 2.0% 8.4% 11.4% 10.6% 13.5% Net Profit Margin 16.5% 3651.3 3576.9 3989.5 4157.7 4805.8 4793.5 3988.2 3104.2 3310.3 3745.8 3645 3480 Working Cap’l ($mill) 4565 Pension Assets-12/18 $132 mill. Oblig. $147 mill. 655.2 220.6 149.8 532.4 246.2 30.8 223.2 31.5 34.6 29.2 50.0 75.0 Long-Term Debt ($mill) 150 Pfd Stock None 9092.2 9902.4 10506 11388 12290 12819 11713 11287 11482 11783 12075 12500 Shr. Equity ($mill) 14725 Common Stock 590,268,500 ADSs. 12.8% 11.5% 12.7% 14.5% 12.7% 10.6% 5.4% .9% 4.0% 7.6% 6.5% 7.5% Return on Total Cap’l 11.0% MARKET CAP: $12.9 billion (Large Cap) 13.1% 11.4% 12.7% 14.9% 12.6% 10.5% 5.4% .8% 3.9% 7.4% 6.5% 7.5% Return on Shr. Equity 11.5% CURRENT POSITION 2017 2018 9/30/19 7.5% 7.3% 8.8% 11.0% 8.5% 6.3% .9% NMF NMF 3.3% 2.5% 3.5% Retained to Com Eq 7.0% ($MILL.) 43% 36% 30% 26% 33% 40% 83% NMF 109% 55% 63% 54% All Div’ds to Net Prof 39% Cash Assets 330.2 428.4 1537.0 Receivables 1214.1 1737.4 1310.2 BUSINESS: Tenaris S.A., through its subsidiaries, engages in the and other metallic products. Has 21,605 employees. Officers. & Inventory (FIFO) 2368.3 2524.3 2387.4 manufacture and sale of steel pipe products and related services. It Directors own less than 1% of common stock; San Faustin S.A. Other 1468.6 774.1 596.2 operates in two segments: Tubes and Other. The Tubes segment owns 60.5% (12/18 20-F). Chairman, C.E.O. & President: Paolo Current Assets 5381.2 5464.2 5830.8 produces and sells seamless and welded steel tubular products pri- Rocca. Incorporated: Luxembourg. Address: 29 Avenue de la Accts Payable 750.7 693.7 551.9 Debt Due 931.2 509.8 873.8 marily for energy and industrial applications. The Other segment Porte-Neuve, 3rd Floor, L-2227 Luxembourg, LU. Telephone: 713- Other 389.0 514.9 528.2 provides sucker rods, hot briquetted iron, steel electrical conduit, 767-4400. Internet: www.tenaris.com. Current Liab. 2070.9 1718.4 1953.9 Tenaris is likely to close out 2019 on a it was agreed upon late last March. Once ANNUAL RATES Past Past Est’d ’16-’18 weak note. The producer of Oil Country completed, it stands to add more than 1.8 of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Tubular Goods (OCTG) recently reported million tons of annualized production ca- Sales -5.5% -11.5% 10.0% ‘‘Cash Flow’’ -7.0% -12.0% 13.5% results for the third quarter, during which pacity to Tenaris’ operations within the Earnings -12.5% -21.0% 23.0% time lower rig activity in the U.S. and Ar- U.S., expanding deployment capabilities Dividends 2.5% 2.0% 4.5% gentina was accompanied by planned and reducing its time to market. The cash Book Value 5.5% - - 4.0% maintenance in certain areas of Mexico. that the company has been able to genera- Cal-QUARTERLY SALES ($ mill.) Full This environment was supplemented by te over the last few quarters should allow endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year weak pricing of key commodities like it to fund the $1.2 billion acquisition with- 2016 1206.0 1054.8 987.0 1045.8 4293.6 crude, which materially impaired the top out taking on any debt. It’s addition 2017 1153.8 1242.7 1303.0 1589.0 5288.5 line. Total sales fell 7%, year over year, to should help curtail the impact of falling 2018 1866.2 1788.5 1898.9 2105.0 7658.6 $1.76 billion. That said, owing to improved volume on the top line in 2020. 2019 1871.8 1917.7 1763.8 1741.7 7295 working capital management, which came The company should get share earn- 2020 1705 1745 1690 1830 6970 about as a product of growth at Rig Direct, ings back on track next year. Tenaris Cal-EARNINGS PER ADS A Full the company was able to generate strong ought to take on fewer maintenance costs endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year free cash flow of $287 million during the in the first half of 2020, while offshore 2016 .05 .03 .03 .04 .15 period. Rig Direct’s highly efficient inven- drilling continues to improve. Certain 2017 .19 .13 .18 .27 .77 tory management system should continue areas of South America are also expected 2018 .40 .29 .42 .38 1.48 to benefit the bottom line moving forward. to mount a comeback at that time, while 2019 .41 .41 .18 .30 1.30 However, it now seems that rig counts will countries like Brazil should have a 2020 .45 .40 .35 .40 1.60 remain on the decline in the fourth stronger impact on the second half. Cal-QUARTERLY DIVIDENDS PAID D Full quarter, which ought to stave off a Untimely Tenaris ADS’ have material endarMar.31 Jun.30 Sep.30 Dec.31 Year recovery for earnings before year’s end. long-term growth potential. This is due 2015 - - .60 - - .30 .90 The company expects to close on its to the market share gains and improved 2016 - - .60 - - .26 .86 acquisition of IPSCO Tubulars in efficiency that we expect it to generate as 2017 - - .56 - - .26 .82 2019. Tenaris’ deal for the PAO TMK sub- a product of enhancement of the Rig Direct 2018 - - .56 - - .26 .82 2019 -- .56 -- sidiary has been awaiting approval from program. anti-trust authorities within the U.S. since Robert J. Scrudato December 6, 2019 (A) Diluted earnings per ADS. Next earnings nonrec. expenses; ’15, ($1.22); ’16, ($0.06); $2.48/ADS. Company’s Financial Strength A report due in late February. Excludes gain/loss ’17, $0.15. May not sum due to rounding. (B) In (D) Dividends paid in May and November. Stock’s Price Stability 40 from disc. ops.: ’06, $0.12; ’07, $0.10; ’08, millions, adjusted for split. Price Growth Persistence 10 $0.62; ’09, ($0.04). Excludes gain/loss from (C) Includes intangibles. In 2018: $1,466.0; Earnings Predictability 30 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 11.1 RELATIVE DIV’D VALUE THE TIMKEN CO. NYSE-TKR PRICE 52.88RATIO 11.7()Median: 15.0 P/E RATIO 0.66YLD 2.1% LINE 735 TIMELINESS 3 Lowered 10/12/18 High: 38.7 26.1 49.3 57.8 57.9 64.4 69.5 43.6 41.2 53.1 55.7 54.5 Target Price Range Low: 11.0 9.9 22.0 30.2 32.6 47.7 37.6 26.3 22.2 40.1 34.0 36.3 2022 2023 2024 SAFETY 3 New 7/27/90 LEGENDS 7.0 x ″Cash Flow″ psh E 128 TECHNICAL 4 Raised 12/6/19 .... Relative Price Strength Options: Yes 96 BETA 1.45 (1.00 = Market) Shaded area indicates recession 80 18-Month Target Price Range 64 Low-High Midpoint (% to Mid) 48 40 $33-$67 $50 (-5%) 32 2022-24 PROJECTIONS 24 Ann’l Total Price Gain Return 16 High 70 (+30%) 9% Low 50 (-5%) 1% 12 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 30 to Buy 161 164 170 1 yr. 27.2 4.9 shares 20 3 yr. 59.7 30.2 to Sell 179 154 165 traded 10 Hld’s(000) 58736 59335 60086 5 yr. 30.2 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 42.53 49.87 55.57 52.82 54.65 58.66 32.44 41.47 52.94 51.98 46.79 34.87 35.79 34.47 38.66 47.14 50.05 50.65 Sales per sh 56.00 2.97 3.67 4.86 4.57 4.68 5.64 2.61 4.89 6.65 6.81 4.93 4.19 3.98 3.72 4.44 6.23 7.00 7.05 ‘‘Cash Flow’’ per sh 8.50 .67 1.35 2.53 2.48 2.40 3.26 .53 2.95 4.59 4.66 2.74 2.55 2.21 1.97 2.63 4.18 4.75 4.75 Earnings per sh A 6.00 .52 .52 .60 .62 .66 .70 .45 .53 .78 .92 .92 1.00 1.03 1.04 1.07 1.11 1.12 1.15 Div’ds Decl’d per sh B■ 1.40 1.31 1.71 2.38 3.14 3.28 2.82 1.18 1.18 2.10 3.10 3.51 1.44 1.32 1.78 1.35 1.48 2.00 2.00 Cap’l Spending per sh 2.00 12.23 14.03 16.10 15.68 20.46 16.99 16.29 19.68 20.77 23.27 28.42 17.87 16.50 16.46 18.57 20.80 24.85 26.00 Book Value per sh C 39.25 89.07 90.50 93.01 94.16 95.81 96.55 96.85 97.80 97.67 95.94 92.78 88.21 80.26 77.45 77.70 75.95 75.50 75.00 Common Shs Outst’g D 75.00 25.3 17.4 10.7 12.7 13.7 8.6 36.1 11.3 9.9 9.7 20.5 20.5 16.1 16.8 17.5 10.9 Bold figures are Avg Ann’l P/E Ratio 10.0 1.44 .92 .57 .69 .73 .52 2.40 .72 .62 .62 1.15 1.08 .81 .88 .88 .59 Value Line Relative P/E Ratio .55 3.1% 2.2% 2.2% 2.0% 2.0% 2.5% 2.4% 1.6% 1.7% 2.0% 1.6% 1.9% 2.9% 3.1% 2.3% 2.4% estimates Avg Ann’l Div’d Yield 2.3% CAPITAL STRUCTURE as of 9/30/19 3141.6 4055.5 5170.2 4987.0 4341.2 3076.2 2872.3 2669.8 3003.8 3580.8 3780 3800 Sales ($mill) 4200 Total Debt $1650.1 mill. Due in 5 Yrs $615 mill. 10.3% 16.1% 18.1% 18.5% 15.2% 16.0% 15.2% 14.4% 15.4% 17.7% 19.5% 19.5% Operating Margin 19.5% LT Debt $1553.3 mill. LT Interest $62.0 mill. 201.5 189.7 192.5 198.0 194.6 137.0 130.8 131.7 137.7 146.0 165 170 Depreciation ($mill) 185 (46% of Cap’l) 50.9 288.9 456.6 455.6 262.7 232.9 189.0 156.4 207.5 327.5 365 360 Net Profit ($mill) 450 Leases, Uncap Annual rentals $36.1 mill. 36.8% 32.4% 34.5% 33.7% 36.9% 32.1% 31.3% 30.2% 30.0% 26.4% 27.0% 26.5% Income Tax Rate 26.5% 1.6% 7.1% 8.8% 9.1% 6.1% 7.6% 6.6% 5.9% 6.9% 9.1% 9.7% 9.5% Net Profit Margin 10.7% PensionAssets-12/18 $702.9 mill. 1482.2 1679.3 1447.7 1506.2 957.4 948.1 701.1 751.3 828.4 1051.6 850 850 Working Cap’l ($mill) 825 Oblig. $886.9 mill. 469.3 481.7 478.8 455.1 206.6 522.1 580.6 635.0 854.2 1638.6 1625 1600 Long-Term Debt ($mill) 1600 Pfd Stock None 1577.6 1925.0 2028.3 2232.2 2636.6 1576.2 1324.5 1274.9 1442.7 1579.6 1875 1950 Shr. Equity ($mill) C 2950 Common Stock 75,324,189 shs. 3.5% 12.7% 18.9% 17.5% 9.7% 11.8% 10.7% 9.0% 9.8% 11.0% 11.5% 11.0% Return on Total Cap’l 10.5% 3.2% 15.0% 22.5% 20.4% 10.0% 14.8% 14.3% 12.3% 14.4% 20.7% 19.5% 18.5% Return on Shr. Equity 15.5% MARKET CAP: $4.0 billion (Mid Cap) .5% 12.3% 18.8% 16.4% 6.6% 9.0% 7.7% 5.9% 8.6% 15.3% 15.0% 14.0% Retained to Com Eq 11.5% CURRENT POSITION 2017 2018 9/30/19 85% 18% 17% 20% 33% 39% 46% 52% 40% 26% 23% 24% All Div’ds to Net Prof 23% ($MILL.) Cash Assets 121.6 132.5 181.4 BUSINESS: The Timken Co. engineers, manufactures, and mar- off Steel segment, which became TimkenSteel, 6/14. Foreign oper- Receivables 524.9 546.6 548.3 kets bearings, gear drives, belts, chain, and related products, and ations.: 49.8% of ’18 sales. Empl. 17,000 (12/31/18). Stock owners: Inventory (LCOM) 738.9 835.7 805.3 Other 114.7 222.4 272.4 offers a spectrum of powertrain rebuild and repair services. Timken Two fin’l inst., 16.5%; Timken family, 12.1%; Off. & dir., 11.6% Current Assets 1500.1 1737.2 1807.4 is the leader in tapered roller bearings. Products are marketed in (3/19 proxy). Chrmn.: John M. Timken, Jr.; Pres. & CEO: Richard Accts Payable 265.2 273.2 265.2 the industrial equipment, construction, agriculture, rail, aerospace G. Kyle. Inc.: OH. Addr.: 4500 Mount Pleasant St., NW, North Debt Due 108.1 43.0 96.6 and defense, automotive, heavy truck, and energy industries. Spun Canton, OH 44720. Tel.: 234-262-3000. Internet: www.timken.com. Other 298.4 369.4 342.8 Current Liab. 671.7 685.6 704.6 Timken’s recent acquisitions played that may lie ahead. Although the heavy an important role in its financial re- truck and off-highway markets are impor- ANNUAL RATES Past Past Est’d ’16-’18 sults for the third quarter. The contin- tant to Timken and it has tempered its of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Sales -3.0% -4.5% 5.5% ued slowing in the heavy truck and off- outlook in these arenas as a result, the ‘‘Cash Flow’’ -.5% -5.0% 10.0% highway markets (particularly in North company is currently experiencing good Earnings 1.0% -6.0% 12.5% America), combined with some weakness traction in the rail, aerospace, marine, and Dividends 5.0% 4.0% 4.5% Book Value 0.5% -5.0% 13.0% in the industrial services arena, weighed wind/solar markets. In addition, Timken’s on the top line, which experienced a drop latest acquisition, BEKA Lubrication, Cal-QUARTERLY SALES ($ mill.) Full in organic sales of 3.0% ($26 million). So should strengthen its position in the auto- endarMar.31 Jun.30 Sep.30 Dec.31 Year even though acquisitions were also a posi- matic lubrication business, particularly in 2016 684.0 673.6 657.4 654.8 2669.8 tive factor in the first half when sales were Germany and China. Still, BEKA is fore- 2017 703.8 750.6 771.4 778.0 3003.8 advancing on an organic basis, their effect cast to be somewhat dilutive to operating 2018 883.1 906.3 881.3 910.1 3580.8 was more pronounced in the September income in 2020, though the positive factors 2019 979.7 1000.0 914.0 886.3 3780 2020 950 975 950 925 3800 period, when acquired operations added mentioned above (price/mix, etc.) ought to 8.0% to revenues ($70 million). Acquisi- continue working to Timken’s advantage. Cal-EARNINGS PER SHARE A Full tions also played an important part on the Nonetheless, we are now taking a more endarMar.31 Jun.30 Sep.30 Dec.31 Year cost side in the third quarter, accounting conservative view for next year, with our 2016 .46 .55 .49 .47 1.97 for $11 million of the $15 million increase latest revenue and earnings estimates 2017 .55 .68 .71 .68 2.63 in adjusted operating income, which rose showing little change from 2019. 2018 1.01 1.11 1.06 1.00 4.18 2019 1.35 1.27 1.14 .99 4.75 11.8%, to $142 million. We note here that What about Timken stock? Support for 2020 1.15 1.25 1.20 1.15 4.75 Timken continued to benefit from favor- TKR shares has improved markedly, as in- able price/mix and lower materials and vestors have become more comfortable B■ Cal-QUARTERLY DIVIDENDS PAID Full logistics costs in the September period, with the company’s ability to operate and endarMar.31 Jun.30 Sep.30 Dec.31 Year which partially offset lower volume and re- to maintain profitability in a range of mar- 2015 .25 .26 .26 .26 1.03 lated manufacturing utilization. ket conditions. That said, the stock’s cur- 2016 .26 .26 .26 .26 1.04 Despite the slowing in some of the rent valuation suggests that new commit- 2017 .26 .26 .27 .27 1.06 company’s end markets, it should be ments may be best deferred, for now. 2018 .27 .28 .28 .28 1.11 2019 .28 .28 .28 .28 effective in navigating the challenges Charles Clark December 6, 2019 (A) Diluted earnings. Quarters may not sum to ’09, d$1.92; ’10, d$0.14; ’12 $0.41; ’14, d$0.94; June, September, and December. ■Div’d rein- Company’s Financial Strength B++ annual total due to rounding. Excl. nonrecurring ’15, d$3.04; ’16, d$0.05; ’17, $0.04; vest. plan available. (C) Incl. intang. In 2018: Stock’s Price Stability 50 items: ’03, d$0.23; ’04, $0.15; ’05, d$0.28; ’18, d$0.35. Next earnings report due late Jan. $960.5 mill., $12.65/sh. (D) In millions. Price Growth Persistence 35 ’06, d$0.61; ’07, d$0.10; ’08, d$0.48; (B) Div’ds historically paid in early February, (E) Spun off Steel segment on June 30, 2014. Earnings Predictability 55 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. December 6, 2019 STEEL INDUSTRY 736

The entire Steel Industry is reviewed in this INDUSTRY TIMELINESS: 91 (of 95) Issue. The group includes producers of steel from recycled ferrous scrap in electric furnaces. These drop in imports and an uptick in metals production has nonintegrated steel producers, processors, and helped to a degree. However, as a glance at U.S. Steel’s distributors are joined by their generally larger results for the third quarter clearly attested, the mill has integrated steelmaking rivals, which employ iron headed into choppy waters, with falling revenues and ore and coal as raw materials in the production of lower profits. But as the results were better than fore- carbon steel. cast, the issue rallied a bit. Its near-term outlook is uncertain at this time. A better situated steelmaker at The nation’s economy, which began the year so present is Nucor, the other big U.S. metals enterprise. impressively, with a 3.1% opening-period jump in Its results are more predictable and the stock is a solid growth, has seen this early edge give way during selection for more conservative investors. the following two quarters, with respective GDP A Changing Approach To Expansion increases of 2.0% and 2.1%. As to the latest GDP David M. Roderick, the CEO of U.S. Steel. from 1979 tally, it was helped by a positive, albeit lesser, to 1989, passed away in October. Under his leadership, contribution from the consumer and a favorable and faced with massive deficits, he chose to shutter swing in exports. scores of steel mills and move aggressively into a new The cyclical steel industry, despite operating in business: oil and gas. By 1986, the oil and gas category this toughening backdrop, is managing to largely (which would be led by Marathon Oil and Texas Oil & hold its own, but to hardly prosper. So, we are Gas) had become Big Steel’s largest line. The company seeing incremental volume gains at best, with would rename itself USX Corp., to reflect this changing steel production and capability utilization rates profile. But this transformation would not halt the slide holding on fairly high plateaus. The mills, in the in steel. So, by 2001, the company would split off its two meantime, are finding it hard to increase their viable energy lines. Now, it is back to its core steel earnings in this setting, and their stocks are lag- segment, goes by U.S. Steel again, and is trying to ging for the most part. establish a clear footprint. Not surprisingly, the day of The nation’s steel mills have been downsizing diversification for this downsizing industry is long past. for years as they strive to rid themselves of the There just is not the wherewithal for such risky and legacies of a bygone era. But this is not solely a expensive undertakings in this environment. domestic issue, as overbuilding has been a global The Long-Term Perspective burden. As to the U.S. mills, themselves, they’re With the focus back on steel, the industry appears focusing just about entirely on their core steel better positioned to grapple with the challenges likely to business. In earlier times, diversification had been ensue as a new decade nears. Could diversification have a popular option and the tab for such mixed ef- worked? Probably--but only in a more forgiving back- forts had been increased financial leverage. drop. Unfortunately, the 1980s was not that time. And This is hardly a new golden age for steel. But things are just incrementally better now. To wit, back in money can be made via the deft trading of stocks the 1950s, the domestic industry held a third of the in mature and fading industries. Steel is one of global steel market; it now retains a 5% share. Still, those sectors, but mainly for the venturesome. assuming we can avoid a recession in the next couple of The Steel Industry, which has seen a number of years and steel uses its limited resources wisely, the its stocks fade recently, remains out of favor with industry can forge a partial comeback by 2022-2024. But our Timeliness Ranking System. This group also the margin for error will be small. carries considerable risk. For enterprising and Conclusion patient investors, however, steel stocks can hold The Steel Industry is not favored by our Timeliness some speculative appeal. Ranking System. Still, a case can be made for the more patient. There are two ways for an investor to go. The The Economic Outlook conventional option would be Nucor, while the riskier The U.S. economy is currently caught in the grip of a selection would be U.S. Steel. Each issue has appeal. moderate deceleration in growth, with progressively Harvey S. Katz, CFA slower rates of GDP improvement so far this year. To wit, after a 3.1% gain in GDP in the first three months of Steel Industry 2019, we have seen back-to-back increases of 2.0% and RELATIVE STRENGTH (Ratio of Industry to Value Line Comp.) 2.1%. This latter result reflected a lesser assist from the 500 consumer and further declines in investment spending. The economy’s slowdown is mostly being felt on the 400 industrial side, where manufacturing activity has con- tracted for three months in a row. Housing, too, is 300 performing unevenly, although lower mortgage rates 250 seem to now be getting this sector on track. Still, job 200 growth remains strong; wages are ticking higher, and the non-manufacturing sector is ambling forward. Our 150 sense, therefore, is that GDP growth will continue in the recent understated range for the next few quarters. 100 Steel Industry Prospects A slowing pace of economic improvement is rarely welcoming to steel, especially when that deceleration is felt mostly in the business investment side. So, it is not 50 2013 2014 2015 2016 2017 2018 2019 surprising that some mills are struggling anew. Still, a Index: June, 1967 = 100

© 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 4.8 RELATIVE DIV’D VALUE AK STEEL HOLDINGS NYSE-AKS PRICE 2.71RATIO NMF()Median: NMF P/E RATIO NMFYLD Nil LINE 737 TIMELINESS 4 Raised 10/18/19 High: 73.1 24.3 26.8 17.9 10.3 8.5 11.4 6.2 11.4 11.3 6.8 3.3 Target Price Range Low: 5.2 5.4 11.3 5.5 3.4 2.8 5.1 2.0 1.6 4.0 2.1 1.7 2022 2023 2024 SAFETY 5 Lowered 9/14/12 LEGENDS 6.0 x ″Cash Flow″ psh TECHNICAL 3 Raised 11/22/19 .... Relative Price Strength 20 Options: Yes 16 BETA 2.10 (1.00 = Market) Shaded area indicates recession 12 18-Month Target Price Range Low-High Midpoint (% to Mid) 8 6 $1-$3 $2 (-35%) 5 2022-24 PROJECTIONS 4 Ann’l Total Price Gain Return 3 High 10 (+270%) 38% Low 6 (+120%) 22% 2 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 150 to Buy 121 110 107 1 yr. -36.2 4.9 shares 100 3 yr. -54.6 30.2 to Sell 110 104 90 traded 50 Hld’s(000) 197149 192429 197895 5 yr. -68.8 36.8 AK Steel Holdings’ predecessor company 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 operated as a joint venture 50% owned by 37.27 54.26 58.65 43.65 40.84 36.71 37.62 18.72 19.31 21.61 20.30 29.95 Sales per sh 25.05 both Armco Inc. and Kawasaki Steel Corpo- 1.19 1.25 1.78 .94 1.05 .59 .92 .66 .74 1.29 1.10 1.00 ‘‘Cash Flow’’ per sh 1.85 ration. It went public on March 30, 1994, d.68 d.54 .11 d.57 d.34 d.65 d.30 d.03 .02 .59 .35 .20 Earnings per sh A 1.00 selling 52.4 million shares of common stock .20 .20 .20 .10 ------Nil Nil Div’ds Decl’d per sh Nil through Credit Suisse First Boston at $11.75 1.00 2.42 3.82 .47 .47 .46 .56 .41 .48 .48 .45 .60 Cap’l Spending per sh .50 a share. AK Steel merged with Armco, Inc. 8.05 5.83 3.52 d3.72 d1.62 d2.78 d5.50 d.87 d.69 .32 .60 .80 Book Value per sh 2.55 in a pooling of interests on September 30, 109.39 109.99 110.28 135.94 136.38 177.22 177.89 314.16 314.89 315.54 315.00 315.00 Common Shs Outst’g B 315.00 1999. -- -- NMF ------NMF 7.7 Bold figures are Avg Ann’l P/E Ratio 8.0 -- -- NMF ------NMF .41 Value Line Relative P/E Ratio .45 CAPITAL STRUCTURE as of 9/30/19 estimates Total Debt $1969.7 mill. Due in 5 Yrs $1239.7 mill. 1.3% 1.2% 1.6% 1.6% ------Avg Ann’l Div’d Yield Nil LT Debt $1969.7 mill. LT Interest $146.4 mill. 4076.8 5968.3 6468.0 5933.7 5570.4 6505.7 6692.9 5882.5 6080.5 6818.2 6390 6290 Sales ($mill) 7890 (Total interest coverage: 2.5x) 3.3% 2.3% 3.3% 3.1% 4.6% 3.9% 6.0% 9.2% 7.2% 8.6% 9.7% 7.4% Operating Margin 7.0% (81% of Cap’l) 204.6 197.1 185.0 192.0 190.1 201.9 216.0 216.6 226.0 220.2 230 230 Depreciation ($mill) 275 Leases, Uncapitalized Annual rentals $46.2 mill. d74.6 d59.9 11.3 d64.4 d46.8 d96.9 d51.8 d7.8 6.2 186.0 110 62.5 Net Profit ($mill) 315 ------NMF 5.2% 5.2% NMF 22.5% 22.5% Income Tax Rate 22.5% Pension Assets-12/18 $1.7 bill. Oblig. $2.3 bill. NMF NMF .2% NMF NMF NMF NMF NMF .1% 2.7% 1.7% 1.0% Net Profit Margin 4.0% Pfd Stock None 889.4 559.6 137.3 630.3 441.8 900.5 763.6 958.4 832.9 1072.7 655 675 Working Cap’l ($mill) 775 605.8 650.6 650.0 1411.2 1506.2 2452.5 2354.1 1816.6 2110.1 1993.7 1845 1655 Long-Term Debt ($mill) 1500 880.1 641.1 388.5 d505.3 d221.0 d492.5 d977.6 d272.2 d216.0 99.9 190 250 Shr. Equity ($mill) 810 Common Stock 316,418,632 shs NMF NMF 3.4% NMF 1.0% NMF 2.4% 4.7% 3.7% 8.9% 5.5% 3.5% Return on Total Cap’l 13.5% as of 10/28/19 NMF NMF 2.9% ------NMF NMF NMF NMF Return on Shr. Equity 39.0% MARKET CAP: $850 million (Small Cap) NMF NMF NMF ------NMF NMF NMF NMF Retained to Com Eq 39.0% CURRENT POSITION 2017 2018 9/30/19 ($MILL.) NMF NMF NMF NMF ------Nil Nil All Div’ds to Net Prof Nil Cash Assets 38.0 48.6 30.8 BUSINESS: AK Steel Holdings Corporation is the leading manufac- coats stainless steel for automotive industry customers. Has ap- Receivables 517.8 635.8 624.4 Inventory (LIFO) 1147.8 1419.9 1362.7 turer of high-strength, low-carbon flat-rolled steel products, the larg- proximately 9,200 employees. Officers and directors own 1.3% of Other 130.3 97.0 48.3 est segment of the domestic steel market. The company focuses on common stock; BlackRock, 14.5%; Vanguard, 10.2% (4/19 proxy). Current Assets 1833.9 2201.3 2066.2 the production of premium-quality coated, cold rolled and hot rolled Chief Executive Officer: Roger K. Newport. Incorporated: Delaware. Accts Payable 690.4 801.0 676.0 carbon steel primarily for sale to the auto, appliance, construction, Address: 9227 Centre Point Drive, West Chester, OH 45069. Tel.: Debt Due 40.1 - - - - and manufacturing markets. AK Steel also cold rolls aluminum and 513-425-5000. Internet: www.aksteel.com. Other 270.5 327.6 325.6 Current Liab. 1001.0 1128.6 1001.6 AK Steel posted weaker-than- 25th and will impact fourth-quarter re- ANNUAL RATES Past Past Est’d ’16-’18 expected results for the third quarter. sults. Moreover, the decrease in pricing of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Net sales decreased 11.5% to $1.54 billion, has been severe, with the carbon hot-rolled Sales -11.0% -16.0% -3.0% well below our estimate of $1.67 billion. spot coil price at $562 per ton as of Sep- ‘‘Cash Flow’’ -12.0% -6.5% 17.5% Net income was $42.8 million, or $0.01 per tember 30th, versus the previous-year Earnings -18.5% - - NMF Dividends - - - - Nil diluted share, likewise below our call of level of $899 per ton. To reflect these fac- Book Value - - - - NMF $15.7 million, or $0.05 per diluted share. tors, we have lowered our share-net es- We note the bottom line included mark-to- timates for 2019 and 2020 by $0.05 each, Cal-QUARTERLY SALES ($ mill.) Full endarMar.31 Jun.30 Sep.30 Dec.31 Year market charges on derivatives contracts of to $0.35 and $0.20, respectively. 2016 1518 1492 1452 1418 5882.5 $15.3 million, or $0.05 per diluted share, A strong foundation in ferrous metal- 2017 1533 1557 1494 1495 6080.5 which we include, since changes are recog- lurgy supports a position that will 2018 1658 1746 1735 1677 6818.2 nized on a quarterly basis. Accounting for achieve market-share advances. AKS 2019 1697 1681 1536 1476 6390 the shortfall was a large decrease in car- is already participating in vehicle pro- 2020 1497 1510 1598 1685 6290 bon spot market pricing, to which many grams commencing this fall that will sup- Cal-EARNINGS PER SHARE A Full customer contracts are indexed. The im- port gains in market share as they go into endarMar.31 Jun.30 Sep.30 Dec.31 Year pact was evident across the company’s production for 2020. Moreover, the compa- 2016 d.09 .08 .20 d.22 d.03 markets to notably varying degrees. Sales ny has announced a licensing agreement 2017 .20 .19 d.02 d.35 .02 to distributors and converters (19% of the that will allow it to produce its 2018 .09 .18 .21 .11 .59 total) declined about 20% to about $290 ULTRALUME high-strength, high-forma- 2019 .23 .21 .01 d.10 .35 million, while infrastructure and manufac- bility steel for hot-stamping applications 2020 .02 .05 .06 .07 .20 turer consumption was down almost 6%, to for automakers. This complements the Cal-QUARTERLY DIVIDENDS PAID Full about $245 million. Sales to automotive NexMet steel introduced last year with endarMar.31 Jun.30 Sep.30 Dec.31 Year manufacturers (65% of total sales) were off similar attributes, which is used for cold- 2015 ------roughly 11% to $990 million, due to the stamping applications. 2016 ------strike at GM. Ranked 4 for Timeliness, AK Steel 2017 -- -- .------We expect a slow recovery next year shares offer above-average potential 2018 ------following a weak fourth quarter. The gains to 2022-2024. 2019 ------strike at GM was only settled on October Glenn Pierr Johnson December 6, 2019 (A) Diluted earnings. Quarterly figures may not $.23. Next earnings report due late January. Company’s Financial Strength C sum due to rounding/changes in shares out- (B) In millions. Stock’s Price Stability 5 standing. Excludes nonrecurring losses: ’10, Price Growth Persistence 10 $0.63; ’11, $1.52; ’12, $8.49; ’15, $2.56; ’19, Earnings Predictability 20 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 13.3 RELATIVE DIV’D VALUE ARCELORMITTAL NYSE-MT PRICE 17.45RATIO NMF()Median: NMF P/E RATIO NMFYLD 1.1% LINE 738 TIMELINESS 5 Lowered 11/22/19 High: 314.3 141.1 148.2 116.7 70.9 54.0 53.5 35.9 26.5 33.0 37.5 24.2 Target Price Range Low: 46.3 48.8 78.8 44.3 39.8 32.5 31.7 11.1 8.8 19.6 19.8 12.5 2022 2023 2024 SAFETY 3 Raised 6/8/18 LEGENDS 5.0 x ″Cash Flow″ psh TECHNICAL 5 Lowered 12/6/19 .... Relative Price Strength 80 1-for-3 Rev split 5/17 1-for-3 BETA 1.85 (1.00 = Market) Options: Yes 60 Shaded area indicates recession Reverse 50 18-Month Target Price Range 40 Low-High Midpoint (% to Mid) 30 25 $10-$25 $18 (0%) 20 2022-24 PROJECTIONS 15 Ann’l Total Price Gain Return 10 High 50 (+185%) 32% Low 30 (+70%) 16% 7.5 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 15 to Buy 85 88 67 1 yr. -39.8 4.9 shares 10 3 yr. -26.3 30.2 to Sell 113 82 110 traded 5 Hld’s(000) 31821 32739 26415 5 yr. -61.6 36.8 ArcelorMittal was formed by the merger of 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 Mittal Steel and Arcelor in June 2006. Ar- 129.41 149.98 180.63 163.10 133.15 132.81 115.13 55.71 67.34 75.02 71.00 73.00 Revenues per sh 80.00 celor was created from the merger of Arbed 9.96 15.70 14.11 1.86 3.55 4.97 d9.47 4.37 7.20 8.02 2.45 4.85 ‘‘Cash Flow’’ per sh 7.50 (Luxembourg), Acelaria (Spain), and Usinor .24 5.76 3.48 d7.23 d4.38 d1.83 d13.29 1.86 4.46 5.04 d.25 2.00 Earnings per sh A 4.00 (France) in February, 2002. Mittal’s initial 2.25 2.25 2.25 2.25 .60 .60 .60 - - - - .10 .20 .20 Div’ds Decl’d per sh B .40 public offering on the NYSE took place in 5.55 6.36 9.30 9.07 5.79 6.14 4.90 2.40 2.76 3.26 3.00 4.00 Cap’l Spending per sh 6.00 August 1997. It sold 25 million shares of 129.98 127.05 116.25 106.91 89.13 75.65 45.76 29.56 38.03 41.52 43.00 44.50 Book Value per sh D 52.00 stock at $25 a share. The deal was un- 503.13 520.25 520.25 516.32 596.61 596.94 552.22 1019.4 1019.9 1013.6 1000.0 1000.0 Common Shs Outst’g C 1000.0 derwritten by CSFB and DLJ. NMF 18.7 24.5 ------8.8 5.8 6.0 Bold figures are Avg Ann’l P/E Ratio 10.0 NMF 1.19 1.54 ------.46 .29 .32 Value Line Relative P/E Ratio .55 CAPITAL STRUCTURE as of 9/30/19 estimates Total Debt $14305 mill. Due in 5 Yrs $10597 mill. 2.4% 2.1% 2.6% 4.4% 1.4% 1.4% 2.4% - - - - .3% Avg Ann’l Div’d Yield .8% LT Debt $10968 mill. LT Interest $650 mill. 65110 78025 93973 84213 79440 79282 63578 56791 68679 76033 71000 73000 Revenues ($mill) 80000 (18% of Cap’l) 4.9% 10.9% 11.1% 4.0% 7.4% 8.8% NMF 11.0% 11.9% 12.3% 5.0% 8.0% Operating Margin 11.0% Leases, Uncapitalized Annual rentals $322.0 mill. 4894.0 4920.0 5126.0 4684.0 4695.0 3939.0 3192.0 2721.0 2768.0 2799.0 2700 2850 Depreciation ($mill) 3500 118.0 3246.0 2217.0 d3726 d2575 d974.0 d8423 1734.0 4575.0 5330.0 d250 2000 Net Profit ($mill) 4000 Pension Assets-12/18 $6.9 bill. Oblig. $9.9 bill. - - - - 28.5% ------36.3% 8.6% NMF NMF 25.0% Income Tax Rate 25.0% .2% 4.2% 2.4% NMF NMF NMF NMF 3.1% 6.7% 7.0% NMF 2.7% Net Profit Margin 5.0% Pfd Stock None 9316.0 11952 11781 7976.0 8790.0 6934.0 4285.0 4132.0 5335.0 9020.0 6480 6800 Working Cap’l ($mill) 8165 20677 19292 23634 21965 18219 17275 17478 11789 10143 9316.0 10800 10500 Long-Term Debt ($mill) 10000 Common Stock 1,012,000,000 shs. 65398 66100 60477 55197 53173 45160 25272 30135 38789 42086 43000 44500 Shr. Equity ($mill) 52000 1.0% 4.5% 3.8% NMF NMF 1.1% NMF 5.5% 10.2% 12.5% NMF 3.5% Return on Total Cap’l 6.5% .2% 4.9% 3.7% NMF NMF NMF NMF 5.8% 11.8% 12.7% NMF 4.5% Return on Shr. Equity 7.5% MARKET CAP: $17.7 billion (Large Cap) NMF 3.0% 1.7% NMF NMF NMF NMF 5.8% 11.8% 12.1% NMF 4.0% Retained to Com Eq 7.0% CURRENT POSITION 2017 2018 9/30/19 ($MILL.) NMF 39% 54% NMF NMF NMF NMF - - -- 2% NMF 10% All Div’ds to Net Prof 10% Cash Assets 2786 2354 3647 BUSINESS: ArcelorMittal is one of the world’s largest integrated The company serves various markets, including automotive, rail, Receivables 3863 4432 4340 Inventory (FIFO) 17986 20744 18938 steel companies. It engages in the production and sale of a range construction, household appliances, and packaging. Has about Other 2110 4945 2945 of finished and semi-finished carbon steel products. It mainly offers 208,583 employees. Chairman, President & CEO: Lakshmi Mittal. Current Assets 26745 32475 29870 flat steel products, including sheet and plate; and long steel prod- Incorporated: Luxembourg. Address: 24-26 Boulevard d’Avranches, Accts Payable 13428 13981 12440 ucts, including bars, rod, and structural shapes; and stainless steel L-1160 Luxembourg, Grand Duchy of Luxembourg. Telephone: Debt Due 2785 3167 3337 products. It also produces pipes and tubes for various applications. +352 4792-2484. Internet: www.arcelormittal.com. Other 5197 6307 5317 Current Liab. 21410 23455 21094 ArcelorMittal faced tough market con- political troubles. Italy’s coalition govern- ANNUAL RATES Past Past Est’d ’16-’18 ditions in the third quarter. The period ment voted last month to remove an im- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 was characterized by low steel prices com- munity clause that was key to the agree- Revenues -11.0% -16.0% 3.5% bined with high raw material costs. As a ment, leading ArcelorMittal to back away ‘‘Cash Flow’’ -13.5% - - 2.5% result, September-period revenues and from the acquisition. Furthermore, the Earnings -15.0% - - 1.0% Dividends - - - - NMF earnings per share significantly undershot original agreement included substantial Book Value -10.5% -19.0% 6.0% our estimates, as well as the year-ago com- job cuts, as steel demand in the European parable figures. Third-quarter revenues of Union has been weak of late. However, the Cal-QUARTERLY REVENUES ($ mill.) Full endarMar.31 Jun.30 Sep.30 Dec.31 Year $16.6 billion were the lowest in three Italian government is balking at the job 2016 13399 14743 14523 14126 56791 years, while the share loss of $0.53 cuts as well, and is considering nationaliz- 2017 16086 17244 17639 17710 68679 reflected severe gross margin compression. ing the plant instead of renegotiating the 2018 19186 19998 18522 18327 76033 As a result of these headwinds, we acquisition. By contrast, the company’s 2019 19188 19279 16634 15899 71000 have reduced our revenue and share- purchase of Essar Steel in India has gone 2020 17700 18200 18400 18700 73000 net estimates for 2019 and 2020. relatively smoothly. India’s Supreme Cal-EARNINGS PER SHARE A Full Whereas we previously anticipated full- Court recently approved the acquisition, endarMar.31 Jun.30 Sep.30 Dec.31 Year year revenues of $76.9 billion and $78.0 and completion of the transaction is now 2016 d.69 1.50 .66 .39 1.86 billion for 2019 and 2020 respectively, we expected before the end of the year. Upon 2017 .98 1.29 1.18 1.01 4.46 now expect to see a sum of $71.0 billion completion, ArcelorMittal will jointly own 2018 1.17 1.82 .88 1.17 5.04 this year and $73.0 billion in 2020. Mean- Essar Steel in partnership with Japan’s 2019 .41 .26 d.53 d.39 d.25 while, whereas we had previously expected Nippon Steel. 2020 .30 .50 .50 .70 2.00 earnings per share of $2.00 and $2.90 for These shares hold appeal for inves- Cal-QUARTERLY DIVIDENDS PAID B Full 2019 and 2020 respectively, we now expect tors with a long-term horizon. endarMar.31 Jun.30 Sep.30 Dec.31 Year to see a share loss of $0.25 for this year, Recovery potential out to the 2022-2024 2015 -- .60 -- -- .60 and share net of $2.00 next year. stretch exceeds the Value Line median by 2016 ------The company is facing mixed results a wide margin. However, the stock has our 2017 ------on the acquisition front. ArcelorMittal’s Lowest rank (5) for Timeliness, indicating 2018 -- .10 -- -- .10 agreement to purchase the Ilva steel plant poor year-ahead relative performance. 2019 -- .20 -- in Italy last year has led to legal and Adam J. Platt December 6, 2019 (A) Diluted earnings. Excludes nonrecurring 6/13/18. Company’s Financial Strength B+ impairment charge of (70¢) in 2019. Next earn- (C) In millions, adj. for reverse split. Stock’s Price Stability 15 ings report due late Feb. (D) Includes intangibles. In 2018: $5.7 bill., Price Growth Persistence 10 (B) Dividend suspended 11/6/15. Reinstated $5.63/sh. Earnings Predictability 5 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 14.6 RELATIVE DIV’D VALUE CARPENTER TECH. NYSE-CRS PRICE 52.91RATIO 13.6()Median: 25.0 P/E RATIO 0.77YLD 1.5% LINE 739 TIMELINESS 2 Raised 11/8/19 High: 75.4 28.3 43.2 60.0 58.0 62.9 67.0 49.7 42.3 53.6 61.5 56.3 Target Price Range Low: 11.7 12.0 25.7 36.6 42.2 43.3 41.4 27.5 24.0 34.2 32.8 34.4 2022 2023 2024 SAFETY 3 New 7/27/90 LEGENDS 10.0 x ″Cash Flow″ psh TECHNICAL Lowered 12/6/19 .... Relative Price Strength 160 3 2-for-1 split 11/07 BETA 1.65 (1.00 = Market) Options: Yes 120 Shaded area indicates recession 100 18-Month Target Price Range 80 Low-High Midpoint (% to Mid) 60 50 $39-$92 $66 (25%) 40 2022-24 PROJECTIONS 30 Ann’l Total Price Gain Return 20 High 110 (+110%) 21% Low 70 (+30%) 9% 15 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 30 to Buy 113 119 109 1 yr. 14.3 4.9 shares 20 3 yr. 62.7 30.2 to Sell 130 98 113 traded 10 Hld’s(000) 44309 43518 44082 5 yr. 6.9 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 18.57 21.06 25.32 29.58 37.23 43.13 30.94 27.26 37.98 40.56 43.05 40.89 44.25 38.91 38.45 45.72 50.14 52.10 Sales per sh A 68.00 .87 1.73 3.48 4.83 5.28 5.51 2.28 1.53 3.01 4.08 4.76 4.61 3.60 3.75 3.53 5.07 6.08 6.65 ‘‘Cash Flow’’ per sh 8.80 d.28 .75 2.66 4.04 4.32 4.12 1.08 .18 1.48 2.51 2.75 2.48 1.11 1.16 .99 2.55 3.43 3.90 Earnings per sh B 6.00 .29 .17 .21 .30 .50 .56 .72 .72 .72 .72 .72 .72 .72 .72 .72 .72 .80 .92 Div’ds Decl’d per sh C■ 1.40 .18 .17 .27 .36 .90 2.63 2.64 1.01 1.80 3.44 6.38 6.57 3.39 2.04 2.11 2.86 3.80 3.50 Cap’l Spending per sh 3.50 9.90 10.71 13.57 17.51 20.44 18.53 14.01 13.04 17.59 22.25 24.69 28.31 26.35 23.71 25.64 31.49 32.02 33.55 Book Value per sh 40.00 46.90 48.28 51.90 53.01 52.24 45.30 44.03 43.97 44.11 50.02 52.77 53.14 50.32 46.60 46.75 47.19 47.47 48.00 Common Shs Outst’g D 50.00 - - 18.1 9.9 9.8 13.1 15.0 21.0 NMF 27.4 20.4 17.9 24.0 41.7 28.3 38.1 19.0 14.1 Avg Ann’l P/E Ratio 15.0 - - .96 .53 .53 .70 .90 1.40 NMF 1.72 1.30 1.01 1.26 2.10 1.49 1.92 1.03 .79 Relative P/E Ratio .85 4.0% 1.2% .8% .8% .9% .9% 3.2% 2.5% 1.8% 1.4% 1.5% 1.2% 1.6% 2.2% 1.9% 1.5% 1.7% Avg Ann’l Div’d Yield 1.6% CAPITAL STRUCTURE as of 9/30/19 1362.3 1198.6 1675.1 2028.7 2271.7 2173.0 2226.7 1813.4 1797.6 2157.7 2380.2 2500 Sales ($mill) A 3400 Total Debt $628.5 mill. Due in 5 Yrs $550.0 mill. 9.3% 6.4% 9.9% 15.1% 14.8% 14.9% 11.8% 12.9% 12.1% 14.1% 15.2% 16.0% Operating Margin 17.5% LT Debt $550.9 mill. LT Interest $26.0 mill. 52.7 59.1 66.5 83.8 104.1 111.9 122.3 119.3 117.8 116.6 121.5 130 Depreciation ($mill) 140 (Total interest coverage: 9.3x) (27% of Cap’l) Pension Assets- 6/19 $964.7 mill. 47.9 8.3 66.1 120.2 147.1 133.3 58.7 55.6 47.0 122.5 167.0 190 Net Profit ($mill) 300 Oblig. $1331.6 mill. 24.0% 23.9% 19.4% 35.7% 32.0% 32.1% 34.1% 33.7% 33.0% 23.5% 22.7% 20.0% Income Tax Rate 20.0% Pfd Stock None 3.5% .7% 3.9% 5.9% 6.5% 6.1% 2.6% 3.1% 2.6% 5.7% 7.0% 7.6% Net Profit Margin 8.8% 551.2 602.1 762.2 695.5 860.3 763.9 748.3 711.9 697.6 815.5 820.2 850 Working Cap’l ($mill) 900 Common Stock 47,720,105 shs. 258.6 259.6 407.8 305.9 604.2 604.3 607.1 611.3 550.0 545.7 550.6 470 Long-Term Debt ($mill) 400 as of 10/16/19 617.0 573.4 776.0 1113.1 1303.1 1504.3 1325.9 1104.9 1198.6 1485.9 1520.1 1610 Shr. Equity ($mill) 2000 6.4% 2.1% 6.3% 9.3% 8.3% 6.7% 3.7% 4.1% 3.5% 6.6% 8.7% 9.0% Return on Total Cap’l 12.5% MARKET CAP: $2.5 billion (Mid Cap) 7.8% 1.4% 8.5% 10.8% 11.3% 8.9% 4.4% 5.0% 3.9% 8.2% 11.0% 12.0% Return on Shr. Equity 15.0% CURRENT POSITION 2018 2019 9/30/19 2.7% NMF 4.4% 7.8% 8.3% 6.3% 1.6% 1.9% 1.1% 5.9% 8.4% 9.0% Retained to Com Eq 11.5% ($MILL.) 66% NMF 49% 28% 26% 29% 65% 63% 73% 28% 23% 24% All Div’ds to Net Prof 23% Cash Assets 56.2 27.0 24.6 Receivables 378.5 384.1 383.4 BUSINESS: Carpenter Technology Corporation manufactures and ica and Europe. Acquired Latrobe Specialty Metals, 2/12. Has ap- Inventory (LIFO) 689.2 787.7 837.6 distributes specialty alloys, including stainless steel and titanium, proximately 5,100 employees. Officers & Directors own 3.9% of Other 54.9 37.4 64.0 and various engineered products made from metallic materials. The common stock (9/19 Proxy). Chairman: Gregory Pratt, Pres. & Current Assets 1178.8 1236.2 1309.6 company serves the automotive, aerospace, energy, industrial, CEO: Tony R. Thene. Incorporated: Delaware. Address: 1735 Mar- Accts Payable 214.7 238.7 259.9 Debt Due - - 19.7 77.6 medical, defense, and consumer products industries. Carpenter op- ket Street, 15th Floor, Philadelphia, PA 19103. Telephone: 610- Other 148.6 157.6 129.1 erates its own network of service/distribution centers in North Amer- 208-2000. Internet: www.cartech.com. Current Liab. 363.3 416.0 466.6 Carpenter Technology delivered solid leader in the additive manufacturing ANNUAL RATES Past Past Est’d ’17-’19 sales and share-net growth in the first arena. The additive manufacturing field is of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 quarter. (Fiscal years end June 30th.) a natural fit for Carpenter, which already Sales 2.0% 1.5% 8.5% ‘‘Cash Flow’’ 1.0% 1.5% 12.5% September-period sales of $585.4 million holds technical expertise in highly Earnings -3.0% -2.0% 21.0% were up slightly from the year-ago engineered metal powders. Dividends 2.5% 0.5% 13.5% quarter, largely due to healthy increases While the PEP segment has become a Book Value 5.5% 3.5% 6.0% in sales to aerospace, defense, and medical focus of the company’s future plans, Fiscal QUARTERLY SALES ($ mill.) A Full Year Fiscal end-use markets, as well as accretion from the Specialty Alloys Operations (SAO) Ends Sep.30 Dec.31 Mar.31 Jun.30 Year the company’s acquisition of LPW Technol- division still leads by sales. Indeed, in 2016 455.6 443.8 456.3 457.7 1813.4 ogy in October of last year. Meanwhile, the September quarter the SAO segment 2017 389.0 427.4 473.6 507.6 1797.6 earnings per share of $0.85 were a first- accounted for 82% of companywide sales. 2018 479.8 487.7 572.2 618.0 2157.7 quarter all-time high for Carpenter, out- The SAO division is comprised of Car- 2019 572.4 556.5 609.9 641.4 2380.2 matching the $0.65 figure for the previous- penter’s major premium alloy and stain- 2020 585.4 590 640 684.6 2500 year period. less steel manufacturing operations. The Fiscal EARNINGS PER SHARE AB Full Year Fiscal The company has combined some of segment broke its first-quarter operating Ends Sep.30 Dec.31 Mar.31 Jun.30 Year its additive manufacturing (collo- income record, and is currently investing 2016 .26 .24 .30 .36 1.16 quially known as 3D Printing) in capacity expansions at its Athens, Ala- 2017 d.13 .15 .44 .53 .99 businesses into a single unit. Effective bama manufacturing facility. 2018 .49 .55 .63 .88 2.55 July 1, 2019, Carpenter’s LPW, CalRAM, These shares are appealing. With an 2019 .65 .73 1.05 1.00 3.43 and Powder businesses were merged into Above Average rank (2) for Timeliness, 2020 .85 .90 1.05 1.10 3.90 the Carpenter Additive unit, which is in- CRS stands out for year-ahead relative Cal-QUARTERLY DIVIDENDS PAID C■ Full cluded in the Performance Engineered performance. Furthermore, our 18-month endarMar.31 Jun.30 Sep.30 Dec.31 Year Products (PEP) reporting segment. LPW’s and 2022-2024 Target Price Ranges both 2015 .18 .18 .18 .18 .72 expertise is in the development and supply reflect appreciation potential that exceeds 2016 .18 .18 .18 .18 .72 of advanced metal powders, and CalRAM‘s the Value Line median. On the other hand, 2017 .18 .18 .18 .18 .72 strength is in powder-bed fusion additive the dividend yield is subpar at the stock’s 2018 .18 .18 .20 .20 .76 manufacturing. All told, the Carpenter Ad- recent quotation. 2019 .20 .20 .20 .20 ditive business is now a fully integrated Adam J. Platt December 6, 2019 (A) Fiscal year ends June 30th. May not sum due to changes in shares out- June, Sept. and Dec. ■Div’d. reinvestment plan Company’s Financial Strength B++ (B) Diluted earnings. Excl. nonrecurring standing and rounding. Next earnings report available. Stock’s Price Stability 25 gains/(losses): ’16, (93¢), ’18, $1.37. Excl. disc. due in late Jan. (D) In millions, adjusted for stock split. Price Growth Persistence 25 ops.: ’07, 23¢; ’08, $1.58; ’10, 11¢; ’12, 2¢. (C) Dividends historically paid in early March, Earnings Predictability 40 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 6.3 RELATIVE DIV’D VALUE CLEVELAND-CLIFFS NYSE-CLF PRICE 8.25RATIO 11.8()Median: 9.0 P/E RATIO 0.67YLD 2.9% LINE 740 TIMELINESS 4 Lowered 12/6/19 High: 121.9 48.4 80.4 102.5 78.9 40.4 26.6 9.4 10.9 12.4 13.1 12.3 Target Price Range Low: 13.7 11.8 39.1 47.3 28.0 15.4 5.6 1.4 1.2 5.6 6.3 6.6 2022 2023 2024 SAFETY 5 Lowered 10/17/14 LEGENDS 5.0 x ″Cash Flow″ psh 64 TECHNICAL 4 Lowered 12/6/19 .... Relative Price Strength 2-for-1 split 7/06 48 BETA 1.90 (1.00 = Market) 2-for-1 split 5/08 2-for-1 40 Options: Yes 18-Month Target Price Range Shaded area indicates recession 32 Low-High Midpoint (% to Mid) 24 20 $5-$15 $10 (20%) 16 2022-24 PROJECTIONS 12 Ann’l Total Price Gain Return 8 High 45 (+445%) 55% Low 25 (+205%) 34% 6 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 150 to Buy 152 160 146 1 yr. -30.7 4.9 shares 100 3 yr. 35.0 30.2 to Sell 140 140 156 traded 50 Hld’s(000) 213334 228053 222728 5 yr. -32.7 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 10.21 13.94 19.84 23.49 26.10 31.80 17.88 34.57 47.84 41.21 37.17 30.17 13.11 9.05 7.84 7.97 7.45 7.60 Sales per sh 12.50 d.10 2.80 3.61 4.26 4.26 8.04 2.92 9.09 14.54 6.90 6.33 4.64 1.22 1.33 .75 2.18 1.50 2.15 ‘‘Cash Flow’’ per sh 4.00 d.40 2.02 2.45 2.60 2.57 6.58 1.15 6.68 11.61 3.20 2.36 1.69 .63 .97 .47 1.81 1.10 .80 Earnings per sh A 3.40 - - .03 .15 .24 .25 .35 .26 .51 .84 2.16 .60 .60 ------.28 .28 Div’ds Decl’d per sh B .72 .24 .70 1.21 1.62 4.36 2.16 1.51 1.97 6.20 7.91 5.63 1.85 .53 .30 .51 .70 1.45 .75 Cap’l Spending per sh .45 2.72 4.90 7.43 9.12 13.35 15.42 19.42 28.39 40.73 32.51 34.86 d14.11 d17.66 d6.28 d1.49 1.45 2.00 2.50 Book Value per sh 13.55 83.98 86.57 87.67 81.80 87.17 113.51 130.97 135.46 142.02 142.50 153.13 153.25 153.59 233.07 297.40 292.60 270.00 270.15 Common Shs Outst’g C 264.50 - - 4.0 7.3 8.1 14.6 10.0 24.5 9.0 7.0 15.9 10.0 9.1 6.9 5.2 16.1 4.9 Bold figures are Avg Ann’l P/E Ratio 9.0 - - .21 .39 .44 .78 .60 1.63 .57 .44 1.01 .56 .48 .35 .27 .81 .27 Value Line Relative P/E Ratio .50 - - .3% .8% 1.1% .7% .5% .9% .8% 1.0% 4.2% 2.5% 3.9% ------estimates Avg Ann’l Div’d Yield 2.0% CAPITAL STRUCTURE as of 9/30/19 2342.0 4682.2 6794.3 5872.7 5691.4 4623.7 2013.3 2109.0 2330.2 2332.4 2010 2050 Sales ($mill) 3305 Total Debt $2109.1 mill. Due in 5 Yrs $124.0 mill. 18.1% 34.3% 41.8% 24.1% 26.5% 16.1% 12.9% 18.3% 20.8% 32.7% 30.0% 30.0% Operating Margin 39.5% LT Debt $2109.1 mill. LT Interest $129.3 mill. 236.6 322.3 426.9 525.8 593.3 504.0 134.0 115.4 87.7 89.0 110 140 Depreciation ($mill) 150 (85% of Cap’l) 145.2 909.0 1637.6 457.1 411.5 258.5 104.4 194.0 135.7 549.9 300 220 Net Profit ($mill) 905 Leases, Uncapitalized: Annual Rentals $4.9 mill. - - 28.2% 18.7% 46.7% 11.3% NMF NMF - - NMF 22.5% 10.0% 17.5% Income Tax Rate 22.5% Pension Assets-12/18 $687.2 mill. 6.2% 19.4% 24.1% 7.8% 7.2% 5.6% 5.2% 9.2% 5.8% 23.6% 15.0% 10.7% Net Profit Margin 27.4% Oblig. $905.7 mill. 590.8 1555.0 297.4 268.5 474.5 490.3 401.0 433.5 1092.4 1011.4 1050 1100 Working Cap’l ($mill) 1350 525.0 1713.1 3608.7 3960.7 3022.6 2962.3 2699.4 2175.1 2304.2 2092.9 1990 1780 Long-Term Debt ($mill) 1355 Pfd Stock None 2542.8 3845.9 5785.0 4632.7 6069.5 d1431 d1981 d1464 d444.3 424.2 535 675 Shr. Equity ($mill) 3590 Common Stock 270,081,088 shs. 5.4% 17.0% 18.6% 6.4% 5.5% 22.8% 29.9% 41.4% 10.8% 21.8% 12.0% 9.0% Return on Total Cap’l 18.5% as of 10/21/19 5.7% 23.6% 28.3% 9.9% 6.8% ------6.8% NMF NMF 39.5% Return on Shr. Equity 25.0% MARKET CAP: $2.2 billion (Mid Cap) 4.5% 21.8% 26.3% 3.2% 5.3% ------5.3% NMF NMF 31.0% Retained to Com Eq 20.5% CURRENT POSITION 2017 2018 9/30/19 22% 8% 7% 67% 31% 56% 49% ------26% 11% All Div’ds to Net Prof 21% ($MILL.) Cash Assets 1007.7 823.1 399.3 BUSINESS: Cleveland-Cliffs is a U.S.-based mining and natural re- 2020. U.S. mining assets situated on the northern Great Lakes Receivables 140.6 226.7 164.9 sources company operating on the Great Lakes. It is North Amer- serving U.S. and Canadian Steel makers by economical, water- Inventory (LIFO) 277.3 181.0 328.2 Other 119.0 248.7 172.2 ica’s largest producer of iron ore pellets used in blast furnaces. borne transit. Has 2,926 employees. Officers & directors own 1.3% Current Assets 1544.6 1479.6 1064.6 Now operates two segments: Mining and Pellitizing (100% of 2018 of common; Vanguard, 11.5% (4/19 Proxy). CEO: Lourenco Gon- Accts Payable 127.7 186.8 212.8 revenue) and Metallics, which will manufacture hot briqueted iron calves. Inc.: OH. Addr: 200 Public Square, Cleveland, OH 44114- Debt Due ------(HBI) at a Toledo plant currently under construction, starting in 2315. Tel: 216-694-5700. Internet: www.clevelandcliffs.com. Other 324.5 281.4 245.7 Current Liab. 452.2 468.2 458.5 Cleveland-Cliffs’ third-quarter results European markets, into which China has were in line with expectations, albeit increased shipments as its own economy ANNUAL RATES Past Past Est’d ’15-’17 down year to year. Revenues decreased weakens. Steelmaker Nucor reportedly of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Sales -8.0% -24.5% -6.5% 25.1% year to year to $555.6 million, as to- sees signs of improvement, and Cleveland- ‘‘Cash Flow’’ -12.0% -36.0% -9.0% tal net income was $90.9 million, or $0.33 Cliff management expects a pickup to soon Earnings -12.0% -37.5% -3.0% per diluted share. The latter was spot on be evident. The company has lowered its Dividends - - - - NMF Book Value - - - - NMF our estimate and just about half of the planned production by 500,000 metric tons previous-year $0.64. Total adjusted to 19.5 million metric tons with the deci- Cal-QUARTERLY SALES ($ mill.) Full EBITDA was $144.1 million, representing sion in the third quarter to withhold this endarMar.31 Jun.30 Sep.30 Dec.31 Year a decrease of 42.4%, and 25.0% of reve- volume from the European market. Ac- 2016 305.5 496.2 553.3 754.0 2109.0 nues. Driving the sharp decreases were cordingly, we have lowered our share-net 2017 461.6 569.3 698.4 600.9 2330.2 both competitive pricing pressure and estimates for this year and next by $0.60 2018 180.0 714.3 741.8 696.3 2332.4 changes in supply and demand. Vale, the and $0.65, respectively, to $1.10 and $0.80. 2019 157.0 743.2 555.6 554.2 2010 2020 127 565 640 718 2050 Brazilian mining company, has returned The start of production at the new hot to the market following a decrease in its briqueted iron plant in Toledo in mid- Cal-EARNINGS PER SHARE A Full shipments in the wake of the tailings dam 2020 will significantly increase free endarMar.31 Jun.30 Sep.30 Dec.31 Year failure last January, which disrupted mar- cash flow. The company announced the 2016 .60 .07 d.12 .42 .97 kets and led to excess orders from steel- completion of a 472-foot furnace reactor 2017 d.11 .26 .07 .20 .47 makers. With Vale’s pellet production, tower in September, achieving a key mile- 2018 d.05 .76 .64 .44 1.81 2019 d.08 .63 .33 .22 1.10 supply now exceeds demand, particularly stone in its construction. 2020 d.10 .25 .27 .38 .80 in Europe. The Atlantic Basin pellet pre- Though ranked 4 for Timeliness, B mium and the hot-rolled coil indices, to Cleveland-Cliffs shares have strong Cal-QUARTERLY DIVIDENDS PAID Full which pricing is pegged, have both fallen, recovery potential to 2022-2024. In- endarMar.31 Jun.30 Sep.30 Dec.31 Year with the company’s revenues and profits creased dividends are planned when the 2015 ------in tandem. plant is in production. Once capital invest- 2016 ------Industry participants believe a ment falls, the company will allocate the 2017 ------2018 ------recovery will soon be under way. funds to regular and special dividends. 2019 .05 .06 .10 Heightened competition is most evident in Glenn Pierr Johnson December 6, 2019 (A) Diluted earnings. Excl. nonrec. ’11, ($0.13); ’12, $0.25; ’15, ($5.76); ’17, (B) Quarterly div’d suspended January 2015 Company’s Financial Strength C++ gains/(losses): ’03, $0.03; ’04, $0.93; ’05, (0.59); ’18, $1.90. Qrtr’ly egs. may not sum due and resumed with first quarter of 2019. Stock’s Price Stability 5 $0.08; ’08, ($1.82); ’09, $0.48; ’10, $0.81; ’12, to changes in share count. Next egs. report (C) In millions, adjusted for splits. Price Growth Persistence 20 ($9.77); ’14, ($49.21). Excl. g/(l) from disc. op.: due late January. Earnings Predictability 30 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 10.1 RELATIVE DIV’D VALUE COMMERCIAL METALS NYSE-CMC PRICE 20.94RATIO 9.0()Median: 35.0 P/E RATIO 0.51YLD 2.3% LINE 741 TIMELINESS 2 Raised 11/22/19 High: 39.8 21.3 18.2 18.2 16.5 20.7 21.2 17.8 24.6 23.3 26.7 21.1 Target Price Range Low: 6.3 8.8 12.1 8.6 11.3 13.3 14.2 12.8 12.4 17.0 15.2 13.3 2022 2023 2024 SAFETY 3 Lowered 3/30/01 LEGENDS 8.0 x ″Cash Flow″ psh 64 TECHNICAL 4 Lowered 12/6/19 .... Relative Price Strength 2-for-1 split 5/06 48 BETA 1.50 (1.00 = Market) Options: Yes 40 Shaded area indicates recession 18-Month Target Price Range 32 Low-High Midpoint (% to Mid) 24 20 $16-$44 $30 (45%) 16 2022-24 PROJECTIONS 12 Ann’l Total Price Gain Return 8 High 45 (+115%) 22% Low 30 (+45%) 11% 6 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 45 to Buy 118 114 130 1 yr. 4.2 4.9 shares 30 3 yr. 32.6 30.2 to Sell 122 123 87 traded 15 Hld’s(000) 103643 106918 112601 5 yr. 27.1 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 25.68 40.72 56.71 64.10 70.25 91.65 60.35 55.16 68.54 67.28 58.88 59.75 51.79 40.22 39.46 39.68 49.43 50.35 Sales per sh A 59.35 .72 1.73 3.12 3.75 3.90 3.22 1.55 .02 .26 2.00 1.81 2.02 2.55 1.74 1.36 2.63 3.03 3.45 ‘‘Cash Flow’’ per sh 4.45 .17 1.11 2.32 2.89 2.92 1.96 .17 d1.47 d1.13 .83 .64 .86 1.37 .62 .27 1.49 1.67 2.25 Earnings per sh B 2.90 .08 .09 .11 .17 .33 .45 .48 .48 .48 .48 .48 .48 .48 .48 .48 .48 .48 .48 Div’ds Decl’d per sh C .60 .44 .44 .95 1.11 1.74 3.12 3.28 1.11 .63 .98 .76 .86 1.03 1.42 1.84 1.49 1.60 1.85 Cap’l Spending per sh 1.25 4.53 5.64 7.74 10.35 13.06 14.40 13.59 10.94 10.04 10.71 10.85 11.44 11.41 11.93 12.10 12.76 13.78 15.45 Book Value per sh 22.15 111.98 117.11 116.26 117.88 118.57 113.78 112.57 114.33 115.53 116.35 117.01 117.83 115.64 114.64 115.79 117.02 117.92 117.90 Common Shs Outst’g D 117.50 25.0 6.4 5.5 7.4 9.9 15.7 NMF - - - - 15.7 23.4 21.4 11.6 25.1 NMF 14.6 Bold figures are Avg Ann’l P/E Ratio 13.0 1.43 .34 .29 .40 .53 .94 NMF - - - - 1.00 1.31 1.13 .58 1.32 NMF .78 Value Line Relative P/E Ratio .70 1.9% 1.2% .9% .8% 1.1% 1.5% 3.5% 3.1% 3.2% 3.7% 3.2% 2.6% 3.0% 3.1% 2.5% 2.2% estimates Avg Ann’l Div’d Yield 1.6% CAPITAL STRUCTURE as of 8/31/19 6793.4 6306.1 7918.4 7828.4 6889.6 7040.0 5988.6 4610.5 4569.7 4643.7 5829 5935 Sales ($mill) A 6975 Total Debt $1244.7 mill. Due in 5 Yrs $650.0 mill. 3.9% .6% 3.0% 4.7% 4.8% 5.1% 7.8% 7.1% 4.7% 8.4% 8.6% 9.3% Operating Margin 9.5% LT Debt $1227.2 mill. LT Interest $65.2 mill. 154.7 168.9 159.6 137.3 136.5 136.0 132.8 126.9 125.1 131.7 158.7 140 Depreciation ($mill) 195 (43% of Cap’l) 19.7 d166.7 d129.6 95.5 75.0 102.1 161.8 72.7 32.6 176.1 198.8 265 Net Profit ($mill) 330 40.0% - - - - 41.3% 43.6% 29.5% 33.8% 14.6% 27.7% 19.3% 26.1% 25.0% Income Tax Rate 25.0% Leases, Uncapitalized None. .3% NMF NMF 1.2% 1.1% 1.5% 2.7% 1.6% .7% 3.8% 3.4% 4.5% Net Profit Margin 4.8% 1182.3 1072.2 1127.4 1338.7 1585.1 1662.6 1689.7 1227.0 1105.5 1535.3 1385.4 1250 Working Cap’l ($mill) 1300 No Defined Benefit Pension Plan 1181.7 1197.3 1167.5 1157.1 1278.8 1281.0 1277.9 757.9 805.6 1138.6 1227.2 1225 Long-Term Debt ($mill) 1140 Pfd Stock None 1529.7 1250.7 1160.4 1246.4 1270.0 1348.5 1319.2 1367.3 1400.8 1493.4 1625.1 1825 Shr. Equity ($mill) 2605 Common Stock 117,934,611 shs. 2.1% NMF NMF 5.4% 4.3% 5.3% 7.7% 4.8% 2.3% 7.5% 7.0% 8.5% Return on Total Cap’l 9.5% as of 10/22/19 1.3% NMF NMF 7.7% 5.9% 7.6% 12.3% 5.3% 2.3% 11.8% 12.2% 14.5% Return on Shr. Equity 12.5% MARKET CAP: $2.5 billion (Mid Cap) NMF NMF NMF 3.2% 1.5% 3.4% 8.0% 1.3% NMF 8.0% 8.8% 11.5% Retained to Com Eq 10.0% CURRENT POSITION 2017 2018 8/31/19 NMF NMF NMF 58% 75% 55% 35% 76% NMF 32% 28% 21% All Div’ds to Net Prof 21% ($MILL.) Cash Assets 252.6 622.5 192.5 BUSINESS: Commercial Metals Company is a world leader in the in 12/03. Acquired assets of Gerdau S.A. 11/18. Foreign sales 31% Receivables 706.5 749.50 1016.1 production, fabrication, and distribution of steel and metal products of total. Has approximately 8,900 employees. Off./dir. control 1.0% Inventory 614.5 589.0 692.4 Other 140.3 116.2 179.0 through its network of mills and facilities. 2018 revenue mix: Amer- of common; BlackRock Inc., 11.4% Vanguard, 10.0%; (11/19 Current Assets 1713.9 2077.2 2080.0 icas Mills, 53%; International Mills, 14%; Americas Fabrication, Proxy). Chairman, President & CEO: Barbara Smith. Incorporated: Accts Payable 282.1 261.3 288.0 38%; Recycling, 19%. International Marketing and Distribution DE. Address: 6565 N. MacArthur Blvd., Irving, TX 75039. Tele- Debt Due 19.2 19.7 17.5 divested in 2018. Acquired Huta Zawiercie S.A., a Polish steel mill phone: 214-689-4300. Internet: www.commercialmetals.com. Other 307.1 260.9 389.1 Current Liab. 608.4 541.9 694.6 Commercial Metals posted solid re- positioned as its U.S. markets recover. sults for its fiscal fourth quarter Vale’s tailings dam disaster early in the ANNUAL RATES Past Past Est’d ’16-’18 (ended August 31st). The acquisition of year created significant volatility in the of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Sales -6.0% -9.5% 1.5% four mills and 33 fabrication facilities in iron ore and steel markets as production ‘‘Cash Flow’’ -6.0% 7.0% 6.5% the first quarter enabled it to post strong ceased during a government review. Ex- Earnings -11.0% 47.5% 11.0% growth, despite the present industry cess global manufacturing capacity was on Dividends 4.0% - - 3.0% Book Value -.5% 3.0% 4.5% downturn. Net sales increased 17.9% to hand to supplant the supply, which is now $1,543.0 million, while earnings from con- in excess of demand with Vale’s return to Fiscal QUARTERLY SALES ($ mill.) A Full Year Fiscal tinuing operations were $85.9 million, or the market. Given the protection offered Ends Nov.30 Feb.28 May.31 Aug.31 Year $0.72 per diluted share. Adjusted for by Trump Administration tariffs, and 2016 1154 1019 1227 1208 4611 charges related to the acquisition, earn- Commercial’s strength as the largest rebar 2017 994 1053 1260 1261 4570 ings were $90.8 million, or $0.76 per manufacturer in the U.S., the company 2018 1077 1054 1205 1309 4644 diluted share. Results were uneven from has been well positioned to grow through 2019 1277 1403 1606 1543 5829 2020 1430 1390 1520 1595 5935 segment to segment. Sales decreased this period of instability. Also contributing 25.7% to $268.4 million for Americas Recy- is the ramp of its second micro mill in Ok- Fiscal EARNINGS PER SHARE AB Full Year Fiscal cling, as shipments and selling prices were lahoma and the addition of hot spooler Ends Nov.30 Feb.28 May 31 Aug.31 Year down 13.2% and 27.2%, respectively. rebar capability at its micro mill in Ari- 2016 .22 .09 .30 .01 .62 Boosted by the acquisition noted above, zona. Given these factors, we have in- 2017 .06 .25 .34 d.38 .27 however, sales of the Americas Mills and creased our share-net estimate for 2020 by 2018 .31 .26 .41 .51 1.49 2019 .17 .12 .66 .72 1.67 Americas Fabrication segments were up $0.05, to $2.25. 2020 .53 .51 .56 .65 2.25 36.5% and 54.1%, respectively, to $824.8 With a rank of 2 (Above Average) for C million and $622.4 million. Lastly, the In- Timeliness, Commercial Metals shares Cal-QUARTERLY DIVIDENDS PAID Full ternational Mill segment, based in Poland, offer superior potential returns over endarMar.31 Jun.30 Sep.30 Dec.31 Year saw sales decrease 18.8%, to $253.0 mil- the 18-month horizon. Moreover, given 2015 .12 .12 .12 .12 .48 lion, due to increased competitive pressure the earnings growth we project, the 3- to 2016 .12 .12 .12 .12 .48 from Chinese and Brazilian producers. 5-year appreciation potential of the stock 2017 .12 .12 .12 .12 .48 2018 .12 .12 .12 .12 .48 The speedy integration of the ac- is above average, as well. 2019 .12 .12 .12 .12 quired assets leaves the company well Glenn Pierr Johnson December 6, 2019 (A) Fiscal year ends August 31st. ’16, (15¢). Next egs. report due late December. (D) In mill., adj. for stock split. Company’s Financial Strength B+ (B) Diluted earnings. Excl. gains/(losses) from Quarterlies may not add due to rounding. Stock’s Price Stability 30 disc. ops.: ’08, 1¢; ’09, 1¢; ’10, (34¢); ’11, (C) Dividends historically paid in late January, Price Growth Persistence 20 (87¢); ’12, 95¢; ’13, 2¢; ’14, 11¢; ’15, (17¢); April, July, and October. Earnings Predictability 35 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 22.1 RELATIVE DIV’D VALUE GIBRALTAR INDS. NDQ-ROCK PRICE 52.24RATIO 19.2()Median: 26.0 P/E RATIO 1.08YLD Nil LINE 742 TIMELINESS 2 Raised 11/15/19 High: 24.6 16.7 18.3 14.8 17.4 20.0 19.2 27.9 48.1 45.1 49.1 55.2 Target Price Range Low: 8.4 3.4 7.4 7.4 9.0 12.6 12.7 13.4 18.2 25.6 30.1 33.4 2022 2023 2024 SAFETY 3 Raised 6/9/17 LEGENDS 10.5 x ″Cash Flow″ psh TECHNICAL Lowered 11/8/19 .... Relative Price Strength 80 3 Options: Yes BETA 1.30 (1.00 = Market) Shaded area indicates recession 60 50 18-Month Target Price Range 40 Low-High Midpoint (% to Mid) 30 25 $35-$66 $51 (-5%) 20 2022-24 PROJECTIONS 15 Ann’l Total Price Gain Return 10 High 65 (+25%) 6% Low 45 (-15%) -3% 7.5 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 21 to Buy 74 69 69 1 yr. 49.4 4.9 shares 14 3 yr. 36.8 30.2 to Sell 79 67 72 traded 7 Hld’s(000) 34486 32541 32229 5 yr. 249.0 36.8 Gibraltar Industries was founded in 1972 by 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 Dr. Ken Lipke. On November 4, 1993 27.54 22.45 24.97 25.54 26.58 27.51 33.26 31.42 30.52 30.48 32.15 33.30 Sales per sh 37.75 Gibraltar issued its IPO, selling 3,750,000 .82 .80 1.35 1.51 1.55 1.27 1.73 1.80 2.23 2.56 3.45 3.55 ‘‘Cash Flow’’ per sh 4.40 shares of common stock at $16.50 per d.25 d.07 .50 .66 .69 .47 .74 1.05 1.56 1.96 2.50 2.60 Earnings per sh A 3.20 share, and began trading on the NASDAQ .05 ------Nil Nil Div’ds Decl’d per sh B Nil under the trading symbol ROCK. Since that .36 .28 .38 .37 .48 .74 .40 .34 .35 .38 .45 .65 Cap’l Spending per sh .65 time the company has completed two 17.44 14.45 14.98 15.41 15.15 12.36 13.10 14.36 16.45 18.14 20.90 23.35 Book Value per sh D 32.10 secondary offerings underwritten by Salmon 30.30 30.52 30.70 30.94 31.13 31.34 31.30 32.09 32.33 32.89 32.50 32.75 Common Shs Outst’g C 33.00 Smith Barney. In June of 1996 it sold ap- - - - - 22.5 19.6 23.5 34.5 25.6 30.9 22.4 17.6 Bold figures are Avg Ann’l P/E Ratio 17.0 proximately 3,000,000 shares that raised - - - - 1.41 1.25 1.32 1.82 1.29 1.62 1.13 .96 Value Line Relative P/E Ratio .95 nearly $34 million. In July 2002, $51 million .5% ------estimates Avg Ann’l Div’d Yield Nil was raised on the sale of 4,726,500 shares. 834.2 685.1 766.6 790.1 827.6 862.1 1040.9 1008.0 986.9 1002.4 1045 1090 Sales ($mill) 1245 CAPITAL STRUCTURE as of 9/30/19 5.5% 6.2% 8.9% 9.0% 8.7% 7.3% 8.0% 10.6% 11.6% 11.4% 14.0% 14.5% Operating Margin 12.5% Total Debt None 32.4 26.4 26.2 26.3 27.1 25.4 30.5 24.1 21.7 20.4 30.0 32.0 Depreciation ($mill) 40.0 d7.4 d2.0 15.3 20.4 21.3 14.5 23.5 33.7 50.4 63.8 82.0 85.0 Net Profit ($mill) 105 - - - - 33.0% 22.6% 4.7% 37.6% 36.7% 32.5% 35.3% 35.8% 23.5% 23.5% Income Tax Rate 23.5% Leases, Uncapitalized: Annual rentals $11.4 mill. NMF NMF 2.0% 2.6% 2.6% 1.7% 2.3% 3.3% 5.1% 6.4% 7.8% 7.4% Net Profit Margin 8.4% Pension Assets-12/18 None Oblig. $6.1 mill. 142.2 142.3 140.5 149.6 202.5 226.3 166.0 239.1 261.8 151.7 275 285 Working Cap’l ($mill) 350 256.9 206.8 206.7 206.7 213.6 213.2 208.9 209.2 209.6 1.6 Nil Nil Long-Term Debt ($mill) Nil Pfd Stock None 528.2 440.9 459.9 476.8 471.7 387.2 410.1 460.9 531.7 596.7 680 765 Shr. Equity ($mill) 1060 Common Stock 32,272,420 shs. as of 10/24/19 .4% 1.0% 3.8% 4.3% 4.7% 3.6% 5.0% 6.1% 7.7% 10.6% 12.0% 11.0% Return on Total Cap’l 10.0% MARKET CAP: $1.7 billion (Mid Cap) NMF NMF 3.3% 4.3% 4.5% 3.7% 5.7% 7.3% 9.5% 10.7% 12.0% 11.0% Return on Shr. Equity 10.0% CURRENT POSITION 2017 2018 9/30/19 NMF NMF 3.3% 4.3% 4.5% 3.7% 5.7% 7.3% 9.5% 10.7% 12.0% 11.0% Retained to Com Eq 10.0% ($MILL.) NMF ------Nil Nil All Div’ds to Net Prof Nil Cash Assets 222.3 297.0 137.6 Receivables 145.4 140.3 196.3 BUSINESS: Gibraltar Industries is a leading North American metal facilities in the United States, Canada, and Asia. Officers & Direc- Inventory (FIFO) 86.4 98.9 83.0 processor and distributor of products used in both residential and tors own 0.6% of common stock; ; BlackRock, Inc., 14.8%; Franklin Other 8.7 8.4 17.6 commercial markets. It operates three business segments: Mutual Advisors LLC, 9.7%; T. Rowe Price, 7.3% (4/19 Proxy). Vice Current Assets 432.8 544.6 434.5 Residential Products (46% of revenue), Industrial and Infrastructure Chairman: William Montague, C.E.O.: Bill Bosway. Incorporated: Accts Payable 82.4 79.2 103.6 Products (22%), and Renewable Energy & Conservation Products DE. Addr: P.O. Box 2028, 3556 Lake Shore Road, Buffalo, N.Y. Debt Due .4 208.8 - - Other 88.2 104.9 136.6 (32%). It has approximately 2,630 employees and operates 34 14219. Tel: 716-826-6500. Internet: www.gibraltar1.com. Current Liab. 171.0 392.9 240.2 Gibraltar Industries posted better- and share-net estimates for 2019 by $15 ANNUAL RATES Past Past Est’d ’16-’18 than-expected results for the third million and $0.05, respectively, to $1.03 of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 quarter. Net sales grew 6.8% to $299.2 billion and $2.50. Our estimates for 2020 Sales -3.0% 5.5% 6.0% ‘‘Cash Flow’’ -3.0% 9.5% 11.5% million, a bit above our estimate of $295 are unchanged, at $1.09 billion and $2.60. Earnings -3.0% 25.0% 18.5% million. Strong demand drove organic An acquisition highlights Gibraltar’s Dividends - - - - Nil growth up 11.3%, while acquisitions con- commercial greenhouse business. The Book Value -2.0% -.5% 4.5% tributed 7.3% growth. Adjusted operating company closed the purchase this quarter Cal-QUARTERLY SALES ($ mill.) Full income was $20.8 million, up 39.6% and of Apeks Supercritical, a manufacturer of endarMar.31 Jun.30 Sep.30 Dec.31 Year amounting to 17.8% of sales. Adjusted net botanical oil extraction systems utilizing 2016 237.7 265.7 272.7 231.8 1008.0 income of $31.2 million, or $0.95 per subcritical and supercritical carbon 2017 206.6 246.6 275.6 258.1 986.9 diluted share, was up 33.9% from the pre- dioxide that serves the cannabis industry. 2018 215.3 266.1 280.1 240.9 1002.4 vious year’s $23.3 million, or $0.71. Share With the legalization of this substance in 2019 227.4 262.7 299.2 255.7 1045 net was well above our call of $0.86 per many states, the company has experienced 2020 235 283 305 267 1090 share. A focus on execution and top-line strong growth in its greenhouse contract- Cal-EARNINGS PER SHARE A Full growth is driving the outperformance. ing business, which offers standard and endarMar.31 Jun.30 Sep.30 Dec.31 Year Growth was distributed unevenly custom products and services to growers. 2016 .28 .58 .43 d.24 1.05 across Gibraltar’s segments. Residen- Backlog for the Renewable Energy and 2017 .12 .41 .64 .39 1.56 tial Products and Infrastructure and In- Conservation segment was up 72% in 2018 .26 .70 .60 .40 1.96 dustrial segments were essentially flat, value in the quarter, and that for the lat- 2019 .28 .73 .95 .54 2.50 with the former having sales of $126.3 mil- ter subsegment nearly doubled. The acqui- 2020 .43 .80 .80 .57 2.60 lion (42% of sales) and the latter $56.2 sition extends the company’s position from Cal-QUARTERLY DIVIDENDS PAID Full million (19% of sales). The Renewable En- growing to processing. endarMar.31 Jun.30 Sep.30 Dec.31 Year ergy & Conservation segment, in turn, Gibraltar shares are ranked 2 (Above 2015 generated an increase of 18.6% in net Average) for Timeliness. Given the 2016 NO CASH DIVIDENDS sales to $116.8 million (39% of sales), recent strong performance, up nearly 30% 2017 BEING PAID driven by strong growth in the latter sub- since our last report, appreciation poten- 2018 segment (discussed below). Given this out- tial out to 2022-2024 is subpar. 2019 performance, we have increased our sales Glenn Pierr Johnson December 6, 2019 (A) Next earnings report due mid-January. Ex- 16¢; ’13, (87¢). Quarterly egs. may not sum (D) Includes intangibles. In 2018: $420.0 mill., Company’s Financial Strength B+ cludes non-recurring loss: ’09, $1.47; ’10, due to rounding. (B) Dividends were $12.77/sh. Stock’s Price Stability 35 $2.49; ’12, (25¢). Excludes discontinued opera- suspended in February of 2009. Price Growth Persistence 75 tions: ’07, 59¢; ’08, 31¢; ’09, 1¢; ’10, 59¢; ’11, (C) In millions. Earnings Predictability 45 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 79.5 RELATIVE DIV’D VALUE INSTEEL INDUSTRIES NYSE-IIIN PRICE 22.27RATIO NMF()Median: 25.0 P/E RATIO NMFYLD 0.5% LINE 743 TIMELINESS 4 Raised 10/4/19 High: 20.2 13.6 13.5 15.1 13.7 23.2 24.8 25.8 42.8 39.2 43.8 25.6 Target Price Range Low: 7.0 4.8 7.7 8.8 8.9 12.1 17.9 14.6 18.7 23.2 22.2 17.5 2022 2023 2024 SAFETY 3 New 6/8/18 LEGENDS 15.0 x ″Cash Flow″ psh TECHNICAL Lowered 11/22/19 .... Relative Price Strength 80 4 2-for-1 split 6/06 BETA 1.25 (1.00 = Market) Options: Yes 60 Shaded area indicates recession 50 18-Month Target Price Range 40 Low-High Midpoint (% to Mid) 30 25 $17-$50 $34 (50%) 20 2022-24 PROJECTIONS 15 Ann’l Total Price Gain Return 10 High 60 (+170%) 29% Low 40 (+80%) 16% 7.5 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 30 to Buy 72 63 64 1 yr. -26.6 4.9 shares 20 3 yr. -23.1 30.2 to Sell 85 64 53 traded 10 Hld’s(000) 15135 15207 15671 5 yr. -8.2 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 12.54 18.23 18.32 18.19 16.27 20.21 13.33 12.04 19.13 20.51 20.01 22.25 24.23 22.06 20.42 23.58 23.66 23.80 Sales per sh A 29.25 .81 2.02 1.56 2.15 1.64 2.91 d.79 .57 .96 .64 1.19 1.46 1.83 2.57 1.80 2.56 1.00 1.20 ‘‘Cash Flow’’ per sh 3.40 .39 1.76 1.28 1.86 1.33 2.47 d1.20 .17 .42 .08 .64 .89 1.15 1.95 1.17 1.88 .29 .50 Earnings per sh B 2.45 - - - - .06 .12 .12 .12 .12 .12 .12 .12 .12 .12 .12 .12 .12 .12 .12 .12 Div’ds Decl’d per sh C .12 .06 .17 .35 1.05 .93 .54 .14 .09 .45 .46 .28 .49 .39 .68 1.08 .96 1.05 1.10 Cap’l Spending per sh 1.50 1.85 3.90 5.15 6.76 7.86 9.70 8.51 8.41 8.43 8.44 8.86 9.73 10.84 11.83 11.73 12.57 12.77 12.90 Book Value per sh D 21.20 16.92 18.24 18.86 18.11 18.30 17.51 17.27 17.58 17.61 17.72 18.19 18.38 18.47 18.98 19.04 19.22 19.26 19.75 Common Shs Outst’g E 20.50 .9 1.1 5.8 9.1 13.7 5.5 - - NMF 27.8 NMF 23.8 22.2 17.6 13.8 27.9 16.7 29.1 Avg Ann’l P/E Ratio 20.0 .05 .06 .31 .49 .73 .33 - - NMF 1.74 NMF 1.34 1.17 .89 .72 1.40 .90 1.64 Relative P/E Ratio 1.10 - - - - .8% .7% .7% .9% 1.3% 1.1% 1.0% 1.1% .8% .6% .6% .4% .4% .4% .7% Avg Ann’l Div’d Yield .3% CAPITAL STRUCTURE as of 9/30/19 230.2 211.6 336.9 363.3 363.9 409.0 447.5 418.5 388.9 453.2 455.7 470 Sales ($mill) 600 Total Debt None .4% 5.3% 6.4% 3.7% 7.8% 8.7% 10.0% 16.3% 11.8% 12.2% 1.2% 4.0% Operating Margin 9.5% 7.4 7.0 9.6 9.8 9.8 10.3 12.0 11.6 11.7 12.9 13.6 14.0 Depreciation ($mill) 18.0 d20.9 2.9 7.3 1.5 11.7 16.6 21.7 37.2 22.5 36.3 5.6 9.8 Net Profit ($mill) 51.5 Leases, Uncapitalized $5.2 mill. - - 30.6% 38.8% 33.4% 34.8% 34.0% 34.1% 33.8% 34.0% 14.9% 24.9% 15.0% Income Tax Rate 22.0% No Defined Benefit Pension Plan NMF 1.4% 2.2% .4% 3.2% 4.1% 4.9% 8.9% 5.8% 8.0% 1.2% 2.0% Net Profit Margin 8.6% 82.3 92.0 75.8 79.1 83.8 79.4 105.6 126.7 117.9 123.5 132.2 45.0 Working Cap’l ($mill) 175.0 Pfd Stock None - - - - 13.5 11.5 ------Nil Long-Term Debt ($mill) Nil Common Stock 19,260,725 shs. 147.1 147.9 148.5 149.5 161.1 178.9 200.2 224.6 223.4 241.7 246.0 255 Shr. Equity ($mill) 435 as of 10/24/19 NMF 2.0% 4.8% 1.1% 7.4% 9.4% 10.8% 16.6% 10.1% 15.0% 2.3% 4.0% Return on Total Cap’l 11.5% NMF 2.0% 4.9% 1.0% 7.3% 9.3% 10.8% 16.6% 10.1% 15.0% 2.3% 4.0% Return on Shr. Equity 11.5% MARKET CAP: $425 million (Small Cap) NMF .6% 3.5% NMF 6.0% 8.1% 9.7% 15.7% 9.1% 14.1% 1.3% 4.0% Retained to Com Eq 11.0% CURRENT POSITION 2017 2018 9/30/19 NMF 72% 29% NMF 18% 13% 10% 6% 10% 6% 40% 7% All Div’ds to Net Prof 5% ($MILL.) Cash Assets 32.1 43.9 38.2 BUSINESS: Insteel Industries, Inc. manufactures steel wire rein- either a standard or a specially engineered reinforcement for con- Receivables 40.3 51.5 44.2 forcing products for concrete construction applications. Products crete pipe, box culverts, and precast manholes. Directors and Of- Inventory 81.9 94.2 70.9 Other 5.9 5.9 7.3 comprise prestressed concrete strand (PC strand, 40% of 2018 ficers own 5.2% of common stock, Blackrock, 12.1%, Dimensional, Current Assets 160.2 195.5 160.6 sales) and welded wire reinforcement (WWR, 60%). Its PC strand 6.8%; RBC, 6.6%; Franklin Advisory, 6.4%. (Proxy 12/18) Has 803 Accts Payable 33.7 60.1 21.6 is a high-strength seven-wire strand that is used to impart compres- employees. CEO: H.O. Woltz III. Addr: 1373 Boggs Drive, Mount Debt Due ------sion forces into pre-cast concrete structures. WWR is produced as Airy, NC 27030. Tel.: (336) 786-2141. Internet: www.insteel.com. Other 8.7 11.9 6.8 Current Liab. 42.4 72.0 28.4 Insteel Industries reported weaker- enforcement). While Insteel purchases its than-expected results for the fourth steel at elevated prices due to the tariffs, ANNUAL RATES Past Past Est’d ’16-’18 quarter. (Fiscal years end September foreign producers have access to un- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Sales 2.0% 2.0% 4.5% 30th.) Net sales declined 6.6% year to tariffed steel costing at least 25% less. The ‘‘Cash Flow’’ .5% 20.0% 7.5% year, to $113.4 million, while the bottom situation has prevailed for about a year. Earnings -1.0% 34.5% 8.0% line was a net loss of $1.8 million, or $0.09 The company has made the administration Dividends - - - - 8.5% Book Value 4.0% 7.0% 6.0% per share. This was well below our sales aware of the problem, and moves are afoot and share-net estimates of $127.7 million to seek a solution over a yet-to-be known Cal-QUARTERLY REVENUES ($ mill.) A Full and $0.23. Weaker steel prices and lower timeframe. endarDec.31 Mar.31 Jun.30 Sep.30 Year selling volumes drove the miss. The com- Weather has been a problem for the 2016 92.4 107.4 115.6 103.1 418.5 pany’s seasonal outdoor construction mar- company as well. Many of the company’s 2017 93.9 101.2 96.9 96.9 388.9 kets are doing well. However, it continues products are used with concrete in the out- 2018 97.7 107.4 126.7 121.4 453.2 to suffer the effects of the Trump Adminis- door construction of roads and bridges. In 2019 104.1 111.9 126.3 113.4 455.7 2020 108 116 120 126 470 tration Section 242 tariffs on imported its southern home base, there has been steel, which has significantly raised the record rainfall in the first nine months of Cal-EARNINGS PER SHARE AB Full price of its core raw material, domestic- 2019. Despite more recent improvement, endarDec.31 Mar.31 Jun.30 Sep.30 Year produced hot-rolled steel coil. This has al- third-quarter shipments were down 4% se- 2016 .35 .38 .71 .51 1.95 lowed foreign steel producers, using much quentially and only up 7% from previous- 2017 .22 .39 .36 .20 1.17 cheaper globally sourced steel, to sell the year depressed levels. 2018 .42 .31 .67 .49 1.88 2019 .21 .05 .11 d.09 .29 company’s downstream products at prices Insteel shares are rated 4 (Below 2020 d.11 d.03 .17 .47 .50 that are comparable to its cost of mate- Average) for Timeliness. Negative earn- rials. It is losing market share as a result. ings comparisons and weak share price Cal-QUARTERLY DIVIDENDS PAID Full There is little prospect of a near-term performance have garnered the stock its endarMar.31 Jun.30 Sep.30 Dec.31 Year fix. When the administration imposed low standing. Once the drawbacks of 2016 .06 .03 .03 - - .12 tariffs on imported steel, foreign steel pro- tariffs are resolved, the company’s strong 2017 .06 .03 .03 - - .12 ducers switched production to downstream execution and market position will likely 2018 .06 .03 .03 - - .12 products, including Insteel’s core products be better reflected in the stock price. 2019 .06 .03 .03 - - .12 2020 .03 (PC strand and welded-wire re- Glenn Pierr Johnson December 6, 2019 (A) Fiscal years end September 30th. March, June, and September. Special mill., $0.94/sh. Company’s Financial Strength B+ (B) Diluted earnings. Next earnings report due dividends paid in the first quarter of 2016, (E) In millions Stock’s Price Stability 25 in late January. 2017, and 2018. Price Growth Persistence 65 (C) Dividends paid early January and late (D) Includes intangible assets. In 2018: $18.0 Earnings Predictability 35 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 9.5 RELATIVE DIV’D VALUE NUCOR CORP. NYSE-NUE PRICE 55.92RATIO 10.1()Median: 25.0 P/E RATIO 0.57YLD 2.9% LINE 744 TIMELINESS 4 Lowered 10/18/19 High: 83.6 51.1 50.7 49.2 45.8 54.7 58.8 50.7 68.0 66.0 70.5 62.3 Target Price Range Low: 25.3 29.8 35.7 29.8 34.2 41.3 46.4 36.8 33.9 51.7 49.8 46.1 2022 2023 2024 SAFETY 3 New 7/27/90 LEGENDS 10.0 x ″Cash Flow″ psh TECHNICAL 4 Lowered 9/13/19 .... Relative Price Strength 200 2-for-1 split 6/06 160 BETA 1.35 (1.00 = Market) Options: Yes Shaded area indicates recession 18-Month Target Price Range 100 Low-High Midpoint (% to Mid) 80 60 $43-$74 $59 (5%) 50 2022-24 PROJECTIONS 40 Ann’l Total Price Gain Return 30 High 180 (+220%) 35% Low 120 (+115%) 23% 20 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 45 to Buy 352 406 316 1 yr. -6.1 4.9 shares 30 3 yr. 19.4 30.2 to Sell 411 332 425 traded 15 Hld’s(000) 236295 233370 236487 5 yr. 15.3 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 19.93 35.66 40.94 49.02 57.62 75.37 35.54 50.17 63.22 61.16 59.85 66.15 51.70 50.85 63.69 82.03 77.80 83.35 Sales per sh 100.00 1.36 4.72 5.43 7.05 6.51 7.36 .64 2.05 4.11 3.27 3.22 4.28 3.09 4.42 5.60 9.79 7.70 9.15 ‘‘Cash Flow’’ per sh 12.65 .20 3.51 4.13 5.73 4.98 6.01 d.94 .42 2.45 1.58 1.52 2.22 1.11 2.48 3.56 7.42 5.20 6.50 Earnings per sh A 9.35 .20 .24 .93 2.15 2.44 1.91 1.41 1.44 1.45 1.46 1.47 1.48 1.49 1.50 1.51 1.54 1.60 1.92 Div’ds Decl’d per sh B■ 2.20 .69 .90 1.07 1.12 1.81 3.25 1.24 1.09 1.39 2.98 3.76 2.09 1.18 1.90 1.41 3.22 2.50 2.60 Cap’l Spending per sh 2.80 7.45 10.83 13.80 16.04 17.75 25.25 23.47 22.55 23.60 24.06 24.02 24.36 23.33 24.72 27.48 32.04 32.90 34.75 Book Value per sh 43.35 314.36 319.02 310.22 300.95 287.99 313.98 314.86 315.79 316.75 317.66 318.33 319.03 317.96 318.74 317.97 305.59 302.00 300.00 Common Shs Outst’g C 300.00 NMF 5.4 6.9 8.9 12.0 9.4 - - NMF 16.7 25.5 31.2 23.2 40.1 19.7 16.5 8.5 Bold figures are Avg Ann’l P/E Ratio 16.0 NMF .29 .37 .48 .64 .57 - - NMF 1.05 1.62 1.75 1.22 2.02 1.03 .83 .46 Value Line Relative P/E Ratio .90 1.7% 1.2% 3.3% 4.2% 4.1% 3.4% 3.3% 3.4% 3.6% 3.6% 3.1% 2.9% 3.3% 3.1% 2.6% 2.4% estimates Avg Ann’l Div’d Yield 1.5% CAPITAL STRUCTURE as of 9/28/19 11190 15845 20024 19429 19052 21105 16439 16208 20252 25067 23500 25000 Sales ($mill) 30000 Total Debt $4364.2 mill. Due in 5 Yrs $1121 mill. 1.9% 5.9% 9.7% 8.0% 7.7% 9.6% 10.6% 12.6% 12.4% 16.2% 12.0% 13.0% Operating Margin 14.0% LT Debt $4287.6 mill. LT Interest $135.0 mill. 494.0 512.1 522.6 534.0 535.9 652.0 625.8 613.2 635.8 630.9 755 795 Depreciation ($mill) 985 (Total interest coverage: 24.9x) (30% of Cap’l) d293.6 134.1 778.2 504.6 488.0 713.9 357.7 796.3 1143.5 2360.8 1570 1950 Net Profit ($mill) 2805 - - 31.2% 33.4% 34.0% 29.6% 35.3% 30.1% 30.7% 31.1% 23.2% 20.0% 20.0% Income Tax Rate 20.0% No Defined Benefit Pension Plan NMF .8% 3.9% 2.6% 2.6% 3.4% 2.2% 4.9% 5.6% 9.4% 6.7% 7.8% Net Profit Margin 9.4% 3955.2 4356.8 4312.0 3631.8 4449.9 4344.1 4369.2 4116.4 3999.6 5830.0 5725 5900 Working Cap’l ($mill) 7200 Pfd Stock None 3080.2 4280.2 3630.2 3380.2 4376.9 4360.6 4360.6 3739.1 3242.2 4233.3 3700 3200 Long-Term Debt ($mill) 3000 Common Stock 303,215,267 shs. 7390.5 7120.1 7474.9 7641.6 7645.8 7772.5 7416.9 7879.9 8739.0 9792.1 9935 10430 Shr. Equity ($mill) 12520 NMF 1.9% 7.8% 5.3% 4.7% 6.6% 3.8% 7.6% 10.3% 17.3% 11.5% 14.5% Return on Total Cap’l 18.0% NMF 1.9% 10.4% 6.6% 6.4% 9.2% 4.8% 10.1% 13.1% 24.1% 16.0% 18.5% Return on Shr. Equity 22.5% MARKET CAP: $17.0 billion (Large Cap) NMF NMF 4.2% .5% .2% 3.1% NMF 4.0% 7.5% 19.2% 11.0% 13.0% Retained to Com Eq 16.5% CURRENT POSITION 2017 2018 9/28/19 NMF NMF 59% 92% 97% 67% NMF 60% 42% 21% 31% 30% All Div’ds to Net Prof 24% ($MILL.) Cash Assets 999.1 1398.9 1936.0 BUSINESS: Nucor Corporation is a manufacturer of steel and steel and manufacturers. 2018 depreciation rate: 4.3%. Has 26,300 em- Receivables 2028.5 2505.6 2312.4 products. Principal steel products: hot rolled steel shapes (angles, ployees. Officers and directors own less than 1% of common stock; Inventory (LIFO) 3461.7 4553.5 4072.5 Other 335.1 178.3 363.4 rounds, flats, channels, wide flange beams, pilings and billets), cold State Farm Mutual holds 10.0%; Vanguard, 9.6%; BlackRock, 7.6% Current Assets 6824.4 8636.3 8684.3 finished bars, joists, and deck. Hot rolled products are made from (3/19 Proxy). Chairman & CEO: John J. Ferriola. Incorporated: Del- Accts Payable 1181.3 1428.2 1310.7 scrap, utilizing electric furnaces, continuous casters, and automated aware. Address: 1915 Rexford Road, Charlotte, North Carolina Debt Due 552.8 57.9 76.6 rolling mills. Major end markets: Steel service centers, fabricators, 28211. Telephone: 704-366-7000. Internet: www.nucor.com. Other 1090.7 1320.5 1198.7 Current Liab. 2824.8 2806.3 2586.0 Nucor’s third-quarter sales and earn- tional capacities. ings results were down sharply from The new CEO will face questions ANNUAL RATES Past Past Est’d ’16-’18 the year-ago period. Sales of $5.5 billion about the company’s expansion plans. of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Sales 1.0% 1.5% 7.5% missed our estimate of $6.2 billion, as well Nucor is currently investing in building a ‘‘Cash Flow’’ -.5% 13.5% 11.5% as the $6.7 billion figure in the previous- new steel plate mill in Kentucky, which Earnings -2.0% 19.5% 13.0% year period. Meanwhile, share net of $0.90 will have an estimated annual capacity of Dividends -3.5% 1.0% 6.5% Book Value 3.5% 3.5% 7.5% fell well short of our $1.50 call, as well as 1.2 million tons. It is also adding to its the $2.13 sum for the year-ago quarter. engineered bar capabilities at its mill in Cal-QUARTERLY SALES ($ mill.) Full The steep dropoff in sales and earnings South Carolina, with an eye toward serv- endarMar.Per Jun.Per Sep.Per Dec.Per Year was owed to lower prices for steel plate ing the high-quality automotive applica- 2016 3716 4246 4290 3956 16208 and sheet, while excess inventory through- tions market. Most of the company’s 2017 4815 5175 5170 5092 20252 out the supply chain resulted in destock- domestic competitors have announced 2018 5568 6461 6742 6296 25067 ing by the company’s customers. On the similar plans, which increases the risk of 2019 6097 5896 5465 6042 23500 2020 6000 6000 6500 6500 25000 bright side, spending in the nonresidential an oversupplied market over the long construction market remained healthy, term. The decline in steel prices over the Cal-EARNINGS PER SHARE AD Full which boosted Nucor’s metal buildings, past year, which has been partly driven by endarMar.Per Jun.Per Sep.Per Dec.Per Year piling, joist, and deck businesses. a manufacturing slump, may cause leader- 2016 .27 .76 .95 .50 2.48 The company’s chairman and chief ex- ship to rethink some of these investments. 2017 1.11 1.00 .79 .66 3.56 ecutive officer (CEO), John Ferriola, With Nucor’s new capacity set to begin op- 2018 1.10 2.13 2.13 2.07 7.42 2019 1.63 1.26 .90 1.41 5.20 is retiring at the end of this year. The erating in 2021 and 2022, a delay until 2020 1.40 1.80 1.80 1.50 6.50 board of directors has elected Leon market conditions improve may be wise. Topalian, who is currently the company’s This stock holds appeal for patient ac- B■ Cal-QUARTERLY DIVIDENDS PAID Full president and chief operating officer, to re- counts. Appreciation potential out to the endarMar.31 Jun.30 Sep.30 Dec.31 Year place Mr. Ferriola as CEO, effective Janu- 2022-2024 stretch exceeds the Value Line 2015 .37 .37 .37 .37 1.48 ary, 1, 2020. In the past, Mr. Topalian has median. However, with a Below Average 2016 .375 .375 .375 .375 1.50 also served as vice president of the compa- rank (4) for Timeliness, it is marked for 2017 .378 .378 .378 .378 1.51 ny, as general manager of two Nucor unimpressive year-ahead relative gains. 2018 .38 .38 .38 .38 1.52 2019 .40 .40 .40 .40 facilities, and in a number of other opera- Adam J. Platt December 6, 2019 (A) Diluted earnings. Excludes nonrecurring (B) Dividends historically have been paid in (D) Quarterly earnings may not sum due to Company’s Financial Strength A gains: ’17, 55¢. Next earnings report due late February, May, August, and November. rounding. Stock’s Price Stability 60 February. ■ Div’d reinvestment plan available. Price Growth Persistence 25 (C) In millions, adjusted for stock splits. Earnings Predictability 45 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 11.2 RELATIVE DIV’D VALUE POSCO (ADR) NYSE-PKX PRICE 48.91RATIO 6.3()Median: 12.0 P/E RATIO 0.36YLD 4.8% LINE 745 TIMELINESS 4 Raised 12/28/18 High: 151.1 133.0 140.3 118.0 95.3 87.0 87.0 66.9 60.1 79.5 93.1 62.9 Target Price Range Low: 40.0 47.1 87.8 70.5 71.3 62.3 63.0 33.7 31.0 50.4 52.5 41.1 2022 2023 2024 SAFETY 3 New 3/3/95 LEGENDS 4.5 x ″Cash Flow″p ADR TECHNICAL 4 Lowered 12/6/19 .... Relative Price Strength 200 Options: Yes 160 BETA 1.25 (1.00 = Market) Shaded area indicates recession 18-Month Target Price Range 100 Low-High Midpoint (% to Mid) 80 60 $40-$148 $94 (90%) 50 2022-24 PROJECTIONS 40 Ann’l Total Price Gain Return 30 High 105 (+115%) 24% Low 70 (+45%) 14% 20 % TOT. RETURN 10/19 U.S. Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 6 to Buy 79 83 72 1 yr. -22.1 4.9 shares 4 3 yr. -13.6 30.2 to Sell 99 76 90 traded 2 Hld’s(000) 16948 15902 15867 5 yr. -37.2 36.8 POSCO (formerly Pohang Iron & Steel 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 Co., Ltd.) was incorporated with limited - - - - 1163 1069 1055 1091 1175 1205 1066 1112 1180 1180 Translation Rate(W/$) A 1180 liability by the Korean government on March 102.94 172.79 193.46 192.58 183.81 185.51 155.70 137.32 176.39 182.84 175.00 184.40 Sales per ADR 212.50 25, 1968. It was 71.4% state owned until 16.19 20.43 16.69 14.99 11.60 10.10 7.24 11.02 16.99 13.59 16.95 17.70 ‘‘Cash Flow’’ per ADR 23.50 1988, when the government sold 36.4% to 9.00 12.00 10.24 7.62 4.13 1.72 d.39 3.43 8.01 5.43 7.60 8.00 Earnings per ADR B 11.00 the public. In October of 1994, the company 1.57 1.96 2.25 2.09 1.77 1.91 1.78 1.75 2.26 1.94 2.35 2.50 Div’ds Decl’d per ADR C 3.40 sold 4,225,352 ADRs in the United States at 1.06 16.80 14.45 20.53 19.52 10.04 6.81 6.03 6.70 5.99 9.00 9.50 Cap’l Spending per ADR 11.00 $35.50 each, representing 1,056,338 com- 86.33 106.01 113.41 119.46 124.93 119.05 109.62 109.81 127.95 121.58 131.25 137.50 Book Value per ADR 175.00 mon shares. The underwriting team was led 306.65 308.13 308.98 308.98 319.13 319.97 319.98 319.99 320.00 320.00 320.00 320.00 Equiv ADRs Outst’g DE 320.00 by Goldman Sachs. 9.9 9.2 9.6 10.8 18.1 42.2 - - 13.8 8.3 13.5 Bold figures are Avg Annual P/E Ratio 8.0 .66 .59 .60 .69 1.02 2.22 - - .72 .42 .73 Value Line Relative P/E Ratio .45 CAPITAL STRUCTURE as of 12/31/18 1.8% 1.8% 2.3% 2.5% 2.4% 2.6% 3.7% 3.7% 3.4% 2.7% estimates Avg Annual Div’d Yield 3.9% Total Debt $21746 mill. Due in 5 Yrs $17661 mill. LT Debt $8908 mill. LT Interest $2012 mill. 31565 53242 59775 59502 58660 59358 49820 43940 56443 58509 56000 59000 Sales ($mill) 68000 (LT interest earned: 2.6x; Total interest coverage: 17.4% 14.3% 11.0% 9.8% 8.9% 9.4% 8.9% 10.8% 12.3% 13.2% 13.0% 13.0% Operating Margin 15.0% 2.6x) (19% of Cap’l) 2186.3 2591.0 1837.0 2398.4 2375.7 2653.2 2414.9 2402.5 2708.0 2614.1 3000 3100 Depreciation ($mill) 4000 2776.9 3703.3 3320.6 2231.7 1325.2 579.9 d98.9 1124.5 2728.4 1735.3 2430 2560 Net Profit ($mill) 3520 No Defined Benefit Pension Plan 12.2% 20.8% 21.5% 29.0% 29.3% 59.4% NMF 26.9% 29.0% 46.6% 35.0% 35.0% Income Tax Rate 35.0% Pfd Stock None 8.8% 7.0% 5.6% 3.8% 2.3% 1.0% NMF 2.6% 4.8% 3.0% 4.3% 4.3% Net Profit Margin 5.2% 9728.8 8792.6 10685 11031 10833 9929.4 7788.0 8889.9 11586 13220 13500 13600 Working Capital ($mill) 14000 Common Stock 320,002,424 ADRs 7048.5 9314.8 13789 13485 14728 14043 10948 10383 9180.3 8907.8 9700 9500 Long-Term Debt ($mill) 8000 (Each ADR represents one-fourth of an ordinary 26472 32664 35042 36909 39868 38091 35078 35138 40945 38906 42000 44000 Shr. Equity ($mill) 56000 share.) 9.0% 9.2% 8.6% 7.0% 4.9% 3.9% .5% 3.2% 7.7% 5.7% 4.5% 4.5% Return on Total Cap’l 5.5% 10.5% 11.3% 9.5% 6.0% 3.3% 1.5% NMF 3.2% 6.7% 4.5% 6.0% 6.0% Return on Shr. Equity 6.5% MARKET CAP: $15.7 billion (Large Cap) 8.3% 9.5% 7.6% 4.1% 1.8% NMF NMF 1.5% 4.7% 2.8% 4.0% 4.0% Retained to Com Eq 4.0% CURRENT POSITION 2016 2017 12/31/18 21% 16% 20% 32% 46% 107% NMF 52% 30% 37% 31% 32% All Div’ds to Net Prof 31% ($MILL.) Cash Assets 2031.5 2450.0 2374.2 BUSINESS: POSCO (formerly Pohang Iron & Steel) is the third Exports: 61.6% of ’18 sales. ’18 depr. rate: 4.2%. Has about 33,784 Receivables 8029.4 8275.8 8198.9 largest steel producer in the world. Output in ’18: 42.4 million tons. emplys. BlackRock owns 5.2% of common stock; National Pension Inventory 7898.2 10122.4 10913.7 Other 6654.6 9015.4 9181.7 Capacity utilization rate: 89.0%. Its main production facilities are Service, 10.7% (’18 Form 20-F); employees, less than 1%. Chair- Current Assets 24613.7 29863.6 30668.5 Pohang Works and Gwangyang Works. Major markets include con- man & CEO: Choi Jeong-woo. Address: POSCO Center, 440 Accts Payable 1536.9 3249.6 1544.6 struction, automobile, and electrical appliances. Principal products: Teheran-ro, Gangnam-gu, Seoul, South Korea. Telephone: 82-2- Debt Due 11842.5 10573.2 12837.6 stainless steel, silicon steel sheets, hot and cold rolled products. 3457-0975. Internet: www.posco.co.kr. Other 2344.4 4455.2 3066.5 Current Liab. 15723.8 18278.0 17448.7 While ADRs of POSCO have power electric vehicles. Management has rebounded slightly since our Septem- indicated that it expects electric vehicles ANNUAL RATES Past Past Est’d ’16-’18 of change (per ADR) 10 Yrs. 5 Yrs. to ’22-’24 ber report, they are down by nearly (EVs) to grow rapidly in the mainstream Sales 5.0% -2.5% 4.5% half since last year’s peak. Since early global automotive market, representing a ‘‘Cash Flow’’ -3.0% -1.0% 9.0% 2018, slowing global demand for steel huge growth opportunity. Earlier this Earnings -7.0% -5.0% 12.0% Dividends -.5% -.5% 9.5% along with stubbornly high raw material year, the company faced a setback in this Book Value 4.0% - - 6.5% costs have put a squeeze on the company’s arena, as it pulled out of a major battery profit margins. Thus, while we anticipate parts-factory project in Chile. On the other Cal-SEMIANNUAL SALES ($ mill.) Full a substantial rebound in profitability from hand, it is going ahead with plans for a endarMar.31 Jun.30 Sep.30 Dec.31 Year the second half of last year, earnings per commercial-scale lithium hydroxide plant 2016 -- 21014 - - 22926 43940 ADR are likely to fall short of the $4.30 in Argentina, with construction expected 2017 -- 28154 - - 28289 56443 2018 -- 28669 -- 29840 58509 figure for the second half of 2017. to begin in the first half of 2020. Over the 2019 -- 26838 -- 29162 56000 The South Korea-based steel maker is long haul, POSCO intends to capture a 2020 -- 29000 -- 30000 59000 particularly sensitive to fluctuations 20% share of the global battery materials in demand from China. On that front, market. While prices for these materials Cal-EARNINGS PER ADR B Full endarMar.31 Jun.30 Sep.30 Dec.31 Year POSCO has seen worrying signs from have fallen this year owing to the Chinese China’s automotive and machinery sectors, government’s reduction in EV subsidies, 2016 - - 1.65 - - 1.78 3.43 2017 - - 3.71 - - 4.30 8.01 and key manufacturing indicators are in the coming years will likely see rising 2018 - - 4.84 - - .59 5.43 negative territory. On the brighter side, demand, as European automakers are 2019 - - 3.78 - - 3.82 7.60 the Chinese government has responded to coming out with a new generation of EVs. 2020 -- 4.00 -- 4.00 8.00 the slowdown by expanding infrastructure These ADRs are only suitable for investment. patient investors. With a Below Average Cal-QUARTERLY DIVIDENDS PAID C Full endarMar.31 Jun.30 Sep.30 Dec.31 Year The company is expanding its foot- rank (4) for Timeliness, they have un- print in the battery component busi- appealing year-ahead relative prospects. 2015 - - 1.36 .42 - - 1.78 2016 - - 1.30 .33 .16 1.79 ness. POSCO plans to build on its rela- However, recovery potential over the next 2017 - - 1.59 .33 .34 2.26 tionships in the automotive industry to 18 months and out to the 2022-2024 2018 - - 1.17 .33 .44 1.94 bolster its drive into becoming a supplier stretch is appealing. 2019 - - 1.52 .41 .42 of materials for the large batteries used to Adam J. Platt December 6, 2019 (A) Translation from Korean won at yearend. dend currently paid in mid-April, early Sept, Company’s Financial Strength A (B) Based on U.S. accounting. Dil. earnings. and early Dec. Stock’s Price Stability 50 Next earnings report due early March. (D) In mill. Price Growth Persistence 15 (C) Before 16 1⁄8% Korean tax to U.S. res. Divi- (E) Each com. sh. equal to four ADRs. Earnings Predictability NMF © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 12.8 RELATIVE DIV’D VALUE RELIANCE STEEL NYSE-RS PRICE 116.86RATIO 13.0()Median: 15.0 P/E RATIO 0.73YLD 1.9% LINE 746 TIMELINESS 3 Lowered 8/16/19 High: 78.4 46.1 55.5 60.6 62.4 76.8 76.8 66.9 87.6 88.6 97.4 120.9 Target Price Range Low: 12.6 18.3 34.6 31.1 44.8 59.4 56.1 50.6 50.1 68.5 68.6 69.1 2022 2023 2024 SAFETY 3 New 6/24/05 LEGENDS 8.0 x ″Cash Flow″ psh 320 TECHNICAL Lowered 12/6/19 .... Relative Price Strength 3 2-for-1 split 7/06 BETA 1.25 (1.00 = Market) Options: Yes 200 Shaded area indicates recession 18-Month Target Price Range 160 Low-High Midpoint (% to Mid) 120 100 $70-$140 $105 (-10%) 80 2022-24 PROJECTIONS 60 Ann’l Total Price Gain Return 40 High 195 (+65%) 15% Low 130 (+10%) 5% % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 18 4Q2018 1Q2019 2Q2019 Percent 45 to Buy 125 171 184 1 yr. 50.7 4.9 shares 30 3 yr. 81.0 30.2 to Sell 242 180 175 traded 15 Hld’s(000) 55019 54839 56425 5 yr. 93.8 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 29.21 45.04 50.85 75.93 96.86 118.93 72.11 84.58 108.45 111.02 119.03 135.14 130.34 118.51 133.88 172.46 170.30 167.70 Sales per sh 215.40 1.10 3.28 3.81 5.51 6.51 7.92 3.42 4.22 6.36 7.31 6.72 7.52 7.39 7.24 8.54 12.69 13.35 13.55 ‘‘Cash Flow’’ per sh 18.70 .54 2.60 3.11 4.82 5.36 6.56 1.81 2.61 4.58 5.34 4.28 4.83 4.16 4.16 5.47 8.75 9.40 9.20 Earnings per sh A 12.55 .12 .13 .18 .21 .30 .40 .40 .40 .48 .80 1.26 1.40 1.60 1.65 1.80 2.00 2.40 2.60 Div’ds Decl’d per sh B 3.40 .32 .55 .81 1.44 1.66 2.07 .95 1.49 2.09 2.81 2.17 2.46 2.40 2.13 2.23 3.59 3.50 3.70 Cap’l Spending per sh 4.00 10.05 12.59 15.55 23.07 28.12 33.17 35.34 37.83 41.91 46.79 50.00 53.00 54.56 57.08 64.28 69.85 75.75 84.60 Book Value per sh D 107.70 64.45 65.34 66.22 75.70 74.91 73.31 73.75 74.64 75.01 76.04 77.49 77.34 71.74 72.68 72.61 66.88 66.00 65.00 Common Shs Outst’g C 65.00 20.3 6.9 7.5 7.9 9.8 7.5 19.3 16.9 10.5 10.0 16.2 14.4 14.2 17.1 14.1 9.9 Bold figures are Avg Ann’l P/E Ratio 13.0 1.16 .36 .40 .43 .52 .45 1.29 1.08 .66 .64 .91 .76 .71 .90 .71 .53 Value Line Relative P/E Ratio .70 1.1% .7% .8% .6% .6% .8% 1.1% .9% 1.0% 1.5% 1.8% 2.0% 2.7% 2.3% 2.3% 2.3% estimates Avg Ann’l Div’d Yield 1.8% CAPITAL STRUCTURE as of 9/30/19 5318.1 6312.8 8134.7 8442.3 9223.8 10452 9350.5 8613.4 9721.0 11535 11100 10900 Sales ($mill) 14000 Total Debt $1643.4 mill. Due in 5 Yrs $1393.4 6.9% 7.6% 8.7% 9.6% 8.2% 8.0% 8.8% 9.1% 9.1% 10.3% 10.5% 10.5% Operating Margin 11.5% mill. 118.9 120.6 133.1 151.5 192.4 213.8 218.5 222.0 218.4 215.2 260 280 Depreciation ($mill) 400 LT Debt $1578.2 mill. LT Interest $85.0 mill. (LT int. earned: 11.0x; total int. coverage: 10.9x) 133.4 194.4 343.8 404.3 328.6 367.6 311.5 304.3 402.0 633.7 620 600 Net Profit ($mill) 815 (24% of Cap’l) 26.5% 33.3% 31.7% 32.9% 31.2% 31.3% 31.1% 28.0% 29.8% 24.5% 24.0% 24.0% Income Tax Rate 24.0% 2.5% 3.1% 4.2% 4.8% 3.6% 3.5% 3.3% 3.5% 4.1% 5.5% 5.5% 5.5% Net Profit Margin 5.8% Leases, Uncapitalized: Annual rentals $59.5 mill. 973.3 1192.3 1698.3 1699.2 2165.5 2458.3 1564.5 2032.5 2347.6 2585.9 3025 3300 Working Cap’l ($mill) 3810 Pension Assets 12/18: $50.1 mill. 852.6 855.1 1319.0 1123.8 2072.5 2222.3 1427.9 1846.7 1809.4 2138.5 1470 1425 Long-Term Debt ($mill) 1325 Oblig. $53.0 mill. Common Stock 66,656,861 shs. 2606.4 2823.7 3143.9 3558.4 3874.6 4099.0 3914.1 4148.8 4667.1 4671.6 5000 5500 Shr. Equity ($mill) 7000 as of 10/25/19 4.8% 6.1% 8.4% 9.3% 6.2% 6.5% 6.6% 5.8% 6.7% 9.9% 9.5% 8.5% Return on Total Cap’l 10.0% MARKET CAP: $7.8 billion (Large Cap) 5.1% 6.9% 10.9% 11.4% 8.5% 9.0% 8.0% 7.3% 8.6% 13.6% 12.5% 11.0% Return on Shr. Equity 11.5% CURRENT POSITION 2017 2018 9/30/19 4.0% 5.8% 9.8% 9.7% 6.0% 6.3% 4.9% 4.4% 5.8% 10.5% 9.0% 8.0% Retained to Com Eq 8.5% ($MILL.) 22% 15% 10% 15% 29% 30% 39% 40% 33% 23% 26% 28% All Div’ds to Net Prof 27% Cash Assets 154.4 128.2 166.0 Receivables 1087.3 1242.3 1250.9 BUSINESS: Reliance Steel & Aluminum provides value-added met- Group 8/08, HLN 9/08, Metals USA 4/13. Reliance has roughly Inventory (LIFO) 1726.0 1817.1 1669.5 als processing services and distributes a full line of more than 15,600 employees and over 220 locations in 43 states, as well as Other 83.6 97.4 78.6 100,000 metal products. Reliance also operates through its wholly several locations abroad. Off. and dir. own 3.4% of common; Black- Current Assets 3051.3 3285.0 3165.0 owned subsidiaries, Valex Corp. and RSAC Management Corp. Rock, 10.0% (4/19 proxy). Chairman: Mark Kaminski, CEO: Gregg Accts Payable 346.7 338.8 385.9 Debt Due 92.0 65.2 65.2 Acq’d Industrial Metals 1/07, Crest Steel 1/07, Encore 2/07, Clayton Mollins. Inc.: CA. Addr.: 350 S. Grand Ave. Suite 5100 Los Other 265.0 295.1 337.4 Metals 7/07, Metalweb 10/07, Dynamic Metals Int’l 4/08, PNA Angeles, CA 90071. Tel.: (213) 687-7700. Internet: www.rsac.com. Current Liab. 703.7 699.1 788.5 Shares of Reliance Steel have risen but raised our share-net call from $9.00 to ANNUAL RATES Past Past Est’d ’16-’18 significantly in value since our Sep- $9.40. Despite solid recent results, lower of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 tember report. This was largely driven steel prices will likely lead to unfavorable Sales 4.0% 4.5% 7.0% ‘‘Cash Flow’’ 3.5% 7.0% 12.0% by the company’s strong third-quarter fi- year-over-year comparisons in the first Earnings 1.0% 5.5% 12.5% nancial results. While sales of $2.686 bil- half of 2020. Indeed, we have lowered our Dividends 19.5% 16.5% 11.0% lion came in slightly below our $2.7 billion 2020 sales estimate from $11.4 billion to Book Value 8.5% 6.5% 9.0% estimate, Reliance showed more resilience $10.9 billion, and continue to expect share Cal-QUARTERLY SALES ($ mill.) Full in the face of lower steel prices than in the net of $9.20 which would mark a decline endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year previous-year period. Indeed, share net of from our 2019 target. 2016 2162.7 2203.9 2185.2 2061.6 8613.4 $2.40 beat our $2.00 call by a substantial The company’s top- and bottom-line 2017 2419.3 2475.3 2450.1 2376.3 9721.0 margin, and even came in ahead of the results remain elevated compared to 2018 2757.1 2988.9 2974.5 2814.0 11534.5 $2.04 sum for the year-ago quarter. The the pre-2018 period. This is partly due 2019 2956.6 2883.5 2685.9 2574.0 11100 strong bottom-line performance was owed to acquisitions made last year. Last No- 2020 2700 2800 2800 2600 10900 to better-than-anticipated demand and a vember, the company acquired All Metals Cal-EARNINGS PER SHARE A Full higher-margin sales mix than in the Holding, which specializes in toll process- endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year previous-year period. Specifically, demand ing for automotive, construction, and ap- 2016 1.27 1.38 .67 .84 4.16 in the nonresidential construction market pliance end markets. This followed the Oc- 2017 1.52 1.40 1.32 1.23 5.47 (which includes infrastructure) more than tober purchase of all remaining shares of 2018 2.31 3.18 2.04 1.22 8.75 offset the effects of the continuing decline Acero Prime, a toll processor in Mexico 2019 2.80 2.69 2.40 1.51 9.40 in demand from oil and gas end markets. that it had previously shared in a joint 2020 2.50 2.60 2.50 1.60 9.20 We have adjusted our 2019 top- and venture with U.S. Steel. Cal-QUARTERLY DIVIDENDS PAID B Full bottom-line estimates. While manage- We do not recommend these shares at endarMar.31 Jun.30 Sep.30 Dec.31 Year ment expects end-user demand to remain this time. At the recent quotation, RS al- 2015 .40 .40 .40 .40 1.60 steady in the fourth quarter, sales and ready trades above the midpoint of our 18- 2016 .40 .40 .425 .425 1.65 profits will likely decline on a sequential month Target Price Range. Furthermore, 2017 .45 .45 .45 .45 1.80 basis due to seasonal weakness. All told, it has subpar appreciation potential out to 2018 .50 .50 .50 .50 2.00 2019 .55 .55 .55 we have lowered our full-year sales es- the 2022-2024 stretch. timate from $11.24 billion to $11.1 billion, Adam J. Platt December 6, 2019 (A) Fully diluted earnings. Earnings may not (B) Dividends historically paid in late Mar., mid- (D) Includes intangibles. In 2018: $2942.8 mill., Company’s Financial Strength B++ sum to total due to rounding and changes in June, early Sept, and early Dec. In ’10 compa- $43.77/sh. Stock’s Price Stability 65 shares outstanding. Next earnings report due ny decl’d. 40¢ but paid 50¢. Price Growth Persistence 55 late Feb. (C) In millions, adjusted for split. Earnings Predictability 60 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 10.9 RELATIVE DIV’D VALUE RUSSEL METALS TSE-RUS.TO PRICE 22.74RATIO 13.4()Median: 19.0 P/E RATIO 0.76YLD 6.7% LINE 747 TIMELINESS 4 Lowered 10/11/19 High: 31.4 22.0 23.9 27.8 28.8 31.4 37.4 27.9 27.7 29.5 31.9 25.3 Target Price Range Low: 15.0 9.3 16.3 18.9 22.5 23.7 25.2 14.5 14.8 24.0 18.9 18.2 2022 2023 2024 SAFETY 3 New 9/12/14 LEGENDS 11.0 x ″Cash Flow″ psh TECHNICAL Lowered 11/22/19 .... Relative Price Strength 80 5 Options: Yes BETA 1.10 (1.00 = Market) Shaded area indicates recession 60 50 18-Month Target Price Range 40 Low-High Midpoint (% to Mid) 30 25 $16-$27 $22 (-5%) 20 2022-24 PROJECTIONS 15 Ann’l Total Price Gain Return 10 High 65 (+185%) 33% Low 45 (+100%) 22% 7.5 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 15 to Buy 010 1 yr. -4.9 4.9 shares 10 3 yr. 21.0 30.2 to Sell 001traded 5 Hld’s(000) 000 006 000 5 yr. -9.8 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 35.26 48.48 51.63 43.17 40.58 56.39 33.03 36.27 44.83 49.83 52.31 62.74 50.43 41.77 53.26 67.06 60.15 61.15 Sales per sh 71.65 .83 4.21 2.84 2.87 2.06 4.22 d1.11 1.58 2.45 2.16 1.91 2.57 1.50 1.59 2.55 4.10 2.50 3.10 ‘‘Cash Flow’’ per sh 4.40 .47 3.85 2.42 2.63 1.73 3.65 d1.54 1.16 1.97 1.64 1.37 1.95 .94 1.01 2.00 3.52 1.70 2.20 Earnings per sh A 3.35 .29 .51 .90 1.50 1.75 1.80 1.00 1.00 1.15 1.35 1.40 1.46 1.52 1.52 1.52 1.52 1.52 1.52 Div’ds Decl’d per sh B 1.80 .81 .51 .52 .44 .26 .37 .31 .20 .30 .56 .45 .78 .62 .27 .58 .66 .35 .40 Cap’l Spending per sh .50 5.90 9.15 10.63 14.34 14.01 16.42 13.29 13.31 13.64 13.75 14.46 15.65 14.08 13.37 13.36 16.18 16.25 16.85 Book Value per sh 22.35 43.02 49.89 50.66 62.37 63.07 59.70 59.70 59.98 60.07 60.20 60.95 61.67 61.70 61.74 61.89 62.11 62.50 62.80 Common Shs Outst’g C 63.50 12.9 2.8 7.0 9.9 16.8 6.9 - - 17.1 12.0 15.9 20.1 16.4 23.7 21.2 13.4 7.8 Bold figures are Avg Ann’l P/E Ratio 16.0 .74 .15 .37 .53 .89 .42 - - 1.09 .75 1.01 1.13 .86 1.19 1.11 .67 .42 Value Line Relative P/E Ratio .90 4.8% 4.6% 5.3% 5.8% 6.0% 7.2% 6.4% 5.0% 4.8% 5.2% 5.1% 4.6% 6.8% 7.1% 5.7% 5.5% estimates Avg Ann’l Div’d Yield 3.4% CAPITAL STRUCTURE as of 9/30/19 1971.8 2175.4 2693.3 3000.1 3187.8 3869.3 3111.6 2578.6 3296.0 4165.0 3760 3840 Sales ($mill) 4550 Total Debt $595.7 mill. Due in 5 Yrs $297.0 mill. NMF 6.8% 12.7% 11.0% 10.6% 11.6% 7.5% 11.1% 7.3% 8.8% 6.5% 7.0% Operating Margin 9.0% LT Debt $444.4 mill. LT Interest $27.0 mill. 25.7 25.0 29.0 31.0 33.5 34.8 35.1 35.1 34.2 35.7 50.0 55.0 Depreciation ($mill) 65.0 (31% of Cap’l) Leases, Uncapitalized Annual rentals $23.3 mill. d92.0 69.7 118.3 98.8 83.2 123.5 57.4 62.8 123.8 219.0 105 140 Net Profit ($mill) 215 - - 27.3% 30.2% 28.5% 27.6% 29.8% - - 35.5% 30.9% 26.9% 26.9% 26.9% Income Tax Rate 26.9% Pension Assets-12/18 $135.0 mill. NMF 3.2% 4.4% 3.3% 2.6% 3.2% 1.8% 2.4% 3.8% 5.3% 2.8% 3.6% Net Profit Margin 4.7% Oblig. $137.9 mill. 898.2 879.1 922.3 937.1 965.4 1028.7 826.1 818.3 818.5 1118.9 810 900 Working Cap’l ($mill) 850 340.8 325.5 296.5 453.6 457.2 460.5 295.2 295.8 296.5 443.6 445 445 Long-Term Debt ($mill) 445 Pfd Stock None 793.2 798.1 819.4 828.0 881.0 965.0 868.9 825.3 826.8 1004.9 1015 1060 Shr. Equity ($mill) 1420 Common Stock 62,173,430 shs. NMF 7.4% 11.8% 9.0% 7.6% 9.6% 6.4% 6.5% 11.8% 16.2% 7.0% 9.5% Return on Total Cap’l 12.0% NMF 8.7% 14.4% 11.9% 9.4% 12.8% 6.6% 7.6% 15.0% 21.8% 10.5% 13.0% Return on Shr. Equity 15.0% MARKET CAP: $1.4 billion (Mid Cap) NMF 1.3% 6.0% 2.1% NMF 3.5% NMF NMF 3.6% 12.4% 1.5% 4.0% Retained to Com Eq 7.0% CURRENT POSITION 2017 2018 9/30/19 NMF 86% 58% 82% 102% 73% NMF NMF 76% 43% 89% 69% All Div’ds to Net Prof 54% ($MILL.) Cash Assets 125.8 124.3 128.6 BUSINESS: Russel Metals Inc. operates as a metals distribution products, line pipe, tubes, valves, and fittings primarily to the ener- Receivables 446.2 567.5 505.0 and processing company in North America. It operates in three seg- gy industry. The Steel Distributors segment distributes steel to Inventory (Avg Cst) 819.9 1052.5 964.3 Other 21.7 19.3 30.1 ments: Metals Service Centers, Energy Tubular Products, and Steel equipment manufacturers and steel service centers. Has more Current Assets 1413.6 1763.6 1628.0 Distributors. The Metals Service Centers segment offers processing than 3,400 employees. President & CEO: John G. Reid. Inc.: Cana- Accts Payable 365.7 494.7 364.1 and distribution services for metal products in various specifica- da. Address: 1900 Minnesota Ct., Suite 210, Mississauga, Ontario Debt Due 207.8 128.5 151.3 tions. The Energy Tubular Products segment distributes tubular L5N 3C9., CA Tel.: 905-819-7777. Internet: www.russelmetals.com. Other 21.6 21.5 .3 Current Liab. 595.1 644.7 515.7 Russel Metals’ reported third-quarter to $1.70. Our call for 2020 remains $2.20. results were well below expectations. The company has completed its acqui- ANNUAL RATES Past Past Est’d ’15-’17 Revenues declined 23.8% to $869.2 mil- sition of City Pipe and Supply. Valued of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Sales 0.5% 2.0% .5% lion, while EBIT of $34.9 million was at roughly $160 million, the transaction ‘‘Cash Flow’’ -3.0% -2.0% 5.0% roughly a third of the previous-year level. extends Russel’s exposure to the Permian Earnings -5.5% -3.5% 5.0% Net income of $83.2 million, or $0.29 per Basin and eastern New Mexico, Founded Dividends 1.0% 5.5% .5% Book Value 0.5% - - 2.5% share, was well below its year-to-year in 1942, City Pipe & Supply generated comp of $172.8 million, or $1.01 per share. $275 million in revenues in fiscal 2018 dis- Cal-QUARTERLY SALES ($ mill.) Full The declines reflect lower steel prices and tributing pipe, valves and fittings. It oper- endarMar.31 Jun.30 Sep.30 Dec.31 Year volumes. ates five distribution centers, four of which 2016 662.1 623.7 639.2 653.6 2579 All three segments were down sharp- are in Texas (Odessa, Big Spring, 2017 803.5 816.5 850.9 825.1 3296 ly. Metals Service Centers saw revenues Weatherford, and Longview), as well as 2018 931.0 978.0 1140.1 1115.4 4165 decrease 14.8% to $473.6 million, as its op- one in Hobbs, Mexico. The centers together 2019 1032.6 936.7 869.2 921.5 3760 2020 960 960 960 960 3840 erating margin contracted 650 basis points can serve roughly 60% of the active oil and to 3.3%. Same-store tons shipped declined gas rigs in the United States. City’s exist- Cal-EARNINGS PER SHARE A Full 5% while average selling prices were down ing footprint complements Russel’s Apex endarMar.31 Jun.30 Sep.30 Dec.31 Year 11%, due both to declining steel prices and Remington operation, and its management 2016 .12 .27 .26 .36 1.01 competitive pricing pressure. Revenues of team is well known to the company. 2017 .48 .52 .55 .45 2.00 the Energy Products segment decreased Russel Metals shares are ranked 4 2018 .62 1.07 1.09 .74 3.52 2019 .55 .50 .29 .36 1.70 even more sharply, by 35.8% to $297.7 mil- (Below Average) for Timeliness. The 2020 .50 .55 .55 .60 2.20 lion. Decreases in the North American rig stock has increased nearly 17% in value B count and the presence of a sizable ship- since our last report, but earnings are off Cal-QUARTERLY DIVIDENDS PAID Full ment in 2018 contributed to the gap. The sharply. That said, because of the gener- endarMar.31 Jun.30 Sep.30 Dec.31 Year steel distributors segment, the company’s ous dividend, the yield is well above aver- 2015 .38 .38 .38 .38 1.52 smallest, posted a 17.8% decline in reve- age. Price upside potential over the 3- to 5- 2016 .38 .38 .38 .38 1.52 nues on lower volumes and pricing. To re- year horizon is above average as well. In- 2017 .38 .38 .38 .38 1.52 2018 .38 .38 .38 .38 1.52 flect the negative trends, we have lowered come investors should take a closer look 2019 .38 .38 .38 .38 our share-net estimate for 2019 by $0.30, Glenn Pierr Johnson December 6, 2019 (A) Diluted earnings. Quarterly figures may not and Dec. Company’s Financial Strength B++ sum due to rounding. Next earnings report due (C) In millions. Stock’s Price Stability 50 mid-January. Price Growth Persistence 20 (B) Historically paid in mid-March, June, Sept., Earnings Predictability 40 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 11.0 RELATIVE DIV’D VALUE SCHNITZER STEEL IND. NDQ-SCHN PRICE 22.03RATIO 16.2()Median: NMF P/E RATIO 0.92YLD 3.4% LINE 748 TIMELINESS 4 Lowered 1/18/19 High: 118.6 64.0 66.9 69.4 47.4 33.0 33.3 22.8 30.6 35.2 38.8 26.9 Target Price Range Low: 16.5 23.3 37.0 32.8 22.8 23.1 21.4 12.6 11.7 17.5 21.1 18.7 2022 2023 2024 SAFETY 3 New 6/18/10 LEGENDS 8.0 x ″Cash Flow″ psh 128 TECHNICAL 4 Lowered 12/6/19 .... Relative Price Strength Options: Yes 96 BETA 1.50 (1.00 = Market) Shaded area indicates recession 80 18-Month Target Price Range 64 Low-High Midpoint (% to Mid) 48 40 $17-$39 $28 (25%) 32 2022-24 PROJECTIONS 24 Ann’l Total Price Gain Return 16 High 60 (+170%) 30% Low 40 (+80%) 19% 12 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 150 to Buy 86 76 79 1 yr. -18.2 4.9 shares 100 3 yr. -3.4 30.2 to Sell 93 92 82 traded 50 Hld’s(000) 22791 22398 23838 5 yr. 7.9 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 16.98 22.69 27.99 60.86 90.07 130.35 68.67 83.92 126.71 126.88 98.69 96.37 71.52 50.49 62.37 88.56 79.99 73.10 Sales per sh AB 104.00 2.22 4.34 5.50 4.48 6.02 10.74 1.03 4.75 7.08 4.28 3.05 3.19 .23 1.37 3.50 6.13 4.12 3.60 ‘‘Cash Flow’’ per sh 6.40 1.55 3.58 4.72 3.42 4.32 8.61 d1.14 2.86 4.24 1.10 d.07 .19 d2.29 d.66 1.60 3.88 2.00 1.50 Earnings per sh B 4.00 .07 .07 .07 .07 .07 .07 .07 .07 .07 .41 .75 .75 .75 .75 .75 .75 .75 .75 Div’ds Decl’d per sh C 1.00 .75 .73 1.58 2.84 2.83 3.02 2.13 2.35 3.84 2.98 3.40 1.48 1.21 1.29 1.66 2.91 3.55 2.80 Cap’l Spending per sh 3.50 10.36 13.81 19.02 24.09 26.79 35.01 33.23 35.57 40.10 41.04 29.23 29.20 19.96 18.58 19.72 24.94 26.14 28.25 Book Value per sh E 36.00 29.26 30.33 30.48 30.48 28.56 27.94 27.67 27.42 27.30 26.33 26.57 26.39 26.78 26.79 27.06 26.70 26.66 26.00 Common Shs Outst’g D 25.00 5.9 8.2 6.4 9.9 10.0 8.7 - - 17.0 13.3 34.7 - - NMF - - - - 14.5 8.1 12.4 Avg Ann’l P/E Ratio 13.0 .34 .43 .34 .53 .53 .52 - - 1.08 .83 2.21 - - NMF - - - - .73 .44 .69 Relative P/E Ratio .70 .7% .2% .2% .2% .2% .1% .2% .1% .1% 1.1% 2.7% 2.7% 3.9% 4.6% 3.2% 2.4% 3.0% Avg Ann’l Div’d Yield 1.9% CAPITAL STRUCTURE as of 8/31/19 1900.2 2301.2 3459.2 3340.9 2621.9 2543.6 1915.4 1352.5 1687.6 2364.7 2132.8 1900 Sales ($mill) A 2600 Total Debt $105.1 mill. Due in 5 Yrs $97.0 mill. NMF 8.1% 7.4% 4.1% 3.7% 4.2% 3.7% 6.1% 6.0% 8.2% 6.4% 5.0% Operating Margin 7.0% LT Debt $103.8 mill. LT Interest $8.0 mill. 60.7 63.4 74.9 82.3 83.1 79.2 67.9 54.6 49.8 49.7 53.3 55.0 Depreciation ($mill) 60.0 (13% of Cap’l) d32.2 66.8 118.5 30.4 d2.0 5.1 d61.8 d18.1 44.9 113.9 56.6 39.0 Net Profit ($mill) 100.0 Leases, Uncapitalized: Annual rentals $21.3 mill. - - 36.6% 31.6% 33.4% NMF 18.6% - - - - 2.7% 17.3% 23.2% 20.0% Income Tax Rate 20.0% NMF 2.9% 3.4% .9% NMF .2% NMF NMF 2.7% 4.8% 2.7% 2.1% Net Profit Margin 3.8% 270.9 300.7 420.7 338.0 301.1 286.6 201.9 166.1 161.7 193.7 198.1 300 Working Cap’l ($mill) 500 Pfd Stock None 110.4 99.2 403.3 334.6 372.7 318.8 227.6 184.1 144.4 106.2 103.8 100 Long-Term Debt ($mill) 80 Common Stock 26,665,063 shs. 919.4 975.3 1094.7 1080.6 776.6 770.8 534.5 497.7 533.6 666.1 697.0 735 Shr. Equity ($mill) 900 Includes 200,000 Class B shares NMF 6.3% 8.2% 2.6% .2% 1.0% NMF NMF 7.2% 15.3% 7.6% 4.5% Return on Total Cap’l 10.0% as of 10/22/2019 NMF 6.8% 10.8% 2.8% NMF .7% NMF NMF 8.4% 17.1% 8.1% 5.5% Return on Shr. Equity 11.0% MARKET CAP: $575 million (Small Cap) NMF 6.7% 10.6% 1.8% NMF NMF NMF NMF 4.6% 14.0% 5.2% 2.5% Retained to Com Eq 8.5% CURRENT POSITION 2017 2018 8/31/19 NMF 2% 2% 38% NMF NMF NMF NMF 45% 18% 36% 50% All Div’ds to Net Prof 25% ($MILL.) Cash Assets 7.3 4.7 12.4 BUSINESS: Schnitzer Steel Industries, Inc. engages in recycling outside of North America. The company has 3,363 employees. Of- Receivables 139.0 169.5 145.6 ferrous and nonferrous scrap metals, as well as used and salvaged ficers and directors own 4.1% of common stock (12/18 proxy). Inventory (FIFO) 166.9 205.9 187.3 Other 24.8 68.3 121.0 vehicles; and manufacturing finished steel products. The company Chairman: John D. Carter. President and Chief Executive Officer: Current Assets 338.0 448.4 466.3 distributes its products globally through two business segments: Tamara L. Lundgren. Incorporated: Oregon. Address: 299 SW Clay Accts Payable 94.7 128.5 110.3 Auto and Metals Recycling (79% of total 2019 sales) and Cascade Street, Suite 350, Portland, OR 97201. Telephone: (503) 224-9900. Debt Due .7 1.1 1.3 Steel and Scrap (21%). Schnitzer generated 60% of 2019 sales Internet: www.schnitzersteel.com. Other 80.9 125.1 156.6 Current Liab. 176.3 254.7 268.2 Schnitzer Steel delivered weaker- year sales of $2.4 billion and earnings per than-expected sales and earnings in share of $3.15, we now anticipate sales of ANNUAL RATES Past Past Est’d ’17-’19 the fiscal fourth quarter of 2019. (The just $1.9 billion and we have cut our of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Sales -2.0% -6.5% 6.0% fiscal year ended August 31st.) Fourth- share-net estimate by more than half, to ‘‘Cash Flow’’ -2.5% 5.5% 7.0% quarter sales of $547.8 million fell short of $1.50. Management expects lower prices Earnings -4.5% 43.5% 10.0% our $575 million estimate, as well as the for both ferrous and nonferrous products Dividends 27.0% 3.5% 6.0% Book Value -3.0% -6.5% 9.0% $669.6 million figure for the previous-year to further compress operating margins in period. Meanwhile, share net of $0.41 the current quarter. However, the compa- Fiscal QUARTERLY SALES ($ mill.)A Full Year Fiscal missed our $0.61 call by a wide margin, ny’s productivity improvement program is Ends Nov.30 Feb.28 May.31 Aug.31 Year and also fell well short of the $1.03 figure expected to deliver significant cost savings 2016 321.2 289.1 351.6 390.6 1352.5 for the year-ago quarter. beginning in the March quarter. Addi- 2017 334.2 382.1 477.1 494.2 1687.6 The disappointing results were driven tionally, management expects its advanced 2018 483.3 559.4 652.4 669.6 2364.7 by weakening demand for recycled metal recovery investments to improve 2019 564.0 473.6 547.4 547.8 2132.8 2020 450 470 480 500 1900 metals in recent months. For example, yields and reduce costs in the second half in the company’s Auto and Metals Recy- of fiscal 2020. Fiscal EARNINGS PER SHAREAB Full Year Fiscal cling segment, weak domestic and export These shares hold significant Ends Nov.30 Feb.28 May.31 Aug.31 Year demand for scrap metal led to the lowest recovery potential for patient inves- 2016 d.20 d.1.44 .40 .58 d.66 selling prices for ferrous products in two tors. Based on our 18-month and 2022- 2017 d.05 .40 .60 .65 1.60 years, which compressed profit margins 2024 Target Price Ranges, SCHN’s appre- 2018 .64 .90 1.31 1.03 3.88 2019 .57 .46 .56 .41 2.00 dramatically. Meanwhile, tariffs between ciation potential significantly exceeds the 2020 .15 .30 .50 .55 1.50 the U.S. and China, as well as a global Value Line median over both of those time C slowdown in manufacturing activity, led to frames. Furthermore, it has an above- Cal-QUARTERLY DIVIDENDS PAID Full reduced prices for Schnitzer’s nonferrous average dividend yield, which should boost endarMar.31 Jun.30 Sep.30 Dec.31 Year products. total returns. However, with a Below 2015 .188 .188 .188 .188 .75 We have lowered our targets for fiscal Average rank (4) for Timeliness, this stock 2016 .188 .188 .188 .188 .75 2020, as the aforementioned head- is set for lackluster relative gains over the 2017 .188 .188 .188 .188 .75 2018 .188 .188 .188 .188 .75 winds are unlikely to abate quickly. next six to 12 months. 2019 .188 .188 .188 .188 Whereas we had previously expected full- Adam J. Platt December 6, 2019 (A) Fiscal year ends Aug. 31st. (B) Diluted due to change in shares outstanding. The next (E) Incl. intangibles. In 2019: $173.7 mill; $6.51 Company’s Financial Strength B+ earnings. Excludes nonrecurring earnings report due early Jan. p/sh. Stock’s Price Stability 20 gains/(losses): ’03, (8¢); ’06, $1.23; ’12, (10¢); (C) Div. hist. paid in Mar., May, Aug., and Nov. Price Growth Persistence 15 ’13, ($10.49); ’18, $1.58. EPS may not sum (D) In millions. Earnings Predictability 10 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 9.2 RELATIVE DIV’D VALUE STEEL DYNAMICS NDQ-STLD PRICE 33.35RATIO 9.5()Median: 17.0 P/E RATIO 0.54YLD 2.9% LINE 749 TIMELINESS 4 Lowered 5/3/19 High: 40.9 18.6 20.5 20.7 16.7 19.7 25.5 23.2 40.2 43.9 52.1 39.3 Target Price Range Low: 5.2 5.9 12.9 8.8 10.1 13.9 15.8 16.2 15.3 32.2 28.9 25.0 2022 2023 2024 SAFETY 3 Raised 3/14/14 LEGENDS 8.0 x ″Cash Flow″ psh 128 TECHNICAL 5 Lowered 12/6/19 .... Relative Price Strength 2-for-1 split 11/06 96 BETA 1.45 (1.00 = Market) 2-for-1 split 3/08 80 Options: Yes 18-Month Target Price Range Shaded area indicates recession 64 Low-High Midpoint (% to Mid) 48 40 $22-$45 $34 (0%) 32 2022-24 PROJECTIONS 24 Ann’l Total Price Gain Return 16 High 80 (+140%) 26% Low 50 (+50%) 13% 12 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 90 to Buy 239 239 202 1 yr. -21.1 4.9 shares 60 3 yr. 17.7 30.2 to Sell 279 217 257 traded 30 Hld’s(000) 179140 180881 179245 5 yr. 48.0 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 5.07 11.06 12.65 16.70 23.04 44.44 18.33 28.96 36.54 33.21 33.08 36.26 31.24 31.90 40.18 52.48 48.65 52.25 Sales per sh 59.10 .55 1.96 1.82 2.64 2.80 3.70 .99 1.66 2.24 1.73 1.89 2.28 .68 2.11 3.92 6.99 4.90 5.50 ‘‘Cash Flow’’ per sh 6.75 .20 1.32 1.09 1.89 2.01 2.38 d.04 .67 1.23 .78 .83 1.21 d.54 1.56 2.60 5.35 3.40 4.00 Earnings per sh A 5.00 - - .06 .10 .25 .30 .40 .33 .30 .40 .40 .44 .46 .55 .56 .62 .75 .91 1.00 Div’ds Decl’d per sh B• 1.20 .71 .53 .37 .66 2.08 2.27 1.53 .61 .76 1.02 .84 .46 .47 .81 .69 1.06 1.00 1.00 Cap’l Spending per sh 1.50 3.02 4.37 5.09 6.35 8.03 8.93 9.21 9.62 10.58 10.96 11.43 12.06 11.02 12.01 14.12 17.47 19.15 20.10 Book Value per sh D 24.55 194.58 193.94 172.74 193.97 190.32 181.82 216.00 217.57 218.87 219.52 222.87 241.45 243.09 243.79 237.40 225.27 220.00 220.00 Common Shs Outst’g C 220.00 18.9 5.6 7.5 7.3 11.1 10.6 - - 23.3 12.5 16.8 19.5 16.3 - - 16.0 13.8 8.2 Bold figures are Avg Ann’l P/E Ratio 13.0 1.08 .30 .40 .39 .59 .64 - - 1.48 .78 1.07 1.10 .86 - - .84 .69 .44 Value Line Relative P/E Ratio .70 - - .8% 1.2% 1.8% 1.4% 1.6% 2.3% 1.9% 2.6% 3.1% 2.7% 2.3% 2.9% 2.2% 1.7% 1.7% estimates Avg Ann’l Div’d Yield 1.9% CAPITAL STRUCTURE as of 9/30/19 3958.8 6300.9 7997.5 7290.2 7372.9 8756.0 7594.4 7777.1 9538.8 11822 10700 11500 Sales ($mill) 13000 Total Debt $2437.4 mill. Due in 5 Yrs $742 mill. 8.6% 10.0% 10.6% 9.1% 9.2% 10.4% 9.2% 14.1% 15.6% 18.8% 15.5% 17.0% Operating Margin 18.0% LT Debt $2355.2 mill. LT Interest $120 mill. 221.4 224.7 222.6 225.2 230.9 263.3 294.6 132.8 299.0 317.2 325 330 Depreciation ($mill) 380 (Total int. coverage 13.7x) (37% of Cap’l) d8.2 136.6 268.1 154.1 189.3 287.7 d130.3 382.1 631.7 1258.4 750 880 Net Profit ($mill) 1100 - - 43.1% 39.8% 37.4% 37.8% 45.8% - - 36.2% 33.2% 22.5% 21.0% 21.0% Income Tax Rate 21.0% NMF 2.2% 3.4% 2.1% 2.6% 3.3% NMF 4.9% 6.6% 10.6% 7.0% 7.7% Net Profit Margin 8.5% Leases, Uncapitalized: Annual rentals $18.9 mill. 861.2 1438.7 1354.9 1686.5 1498.4 2123.2 2002.6 2216.9 2639.8 3013.6 2915 3100 Working Cap’l ($mill) 3675 No Defined Benefit Pension Plan 2054.6 2377.9 1936.0 2172.6 1766.0 2977.7 2578.0 2353.2 2353.1 2352.5 1960 1850 Long-Term Debt ($mill) 1600 Common Stock 215,452,169 shs. 1988.3 2092.9 2315.9 2405.5 2547.3 2913.0 2679.7 2927.0 3351.6 3935.1 4210 4420 Shr. Equity ($mill) 5400 as of 10/28/19 1.5% 5.0% 8.4% 5.1% 5.9% 6.0% NMF 8.6% 12.2% 21.0% 12.0% 14.0% Return on Total Cap’l 15.5% MARKET CAP: $7.2 billion (Large Cap) NMF 6.5% 11.6% 6.4% 7.4% 9.9% NMF 13.1% 18.8% 32.0% 18.0% 20.0% Return on Shr. Equity 20.5% CURRENT POSITION 2017 2018 9/30/19 NMF 3.4% 8.0% 2.8% 3.7% 6.3% NMF 8.4% 14.5% 27.7% 13.0% 15.0% Retained to Com Eq 15.5% ($MILL.) NMF 48% 31% 57% 50% 37% NMF 36% 23% 13% 27% 25% All Div’ds to Net Prof 24% Cash Assets 1028.6 1057.0 1215.5 Receivables 868.9 1043.8 983.5 BUSINESS: Steel Dynamics, Inc., manufactures and sells steel steel decking. Metals Recycling and Ferrous Resources offers Inventory (FIFO) 1519.3 1859.2 1767.0 products in the U.S. The company has three segments. Steel Oper- heavy melting steel, busheling, bundled scrap, and shredded scrap. Other 91.5 72.7 54.3 ations offers hot-rolled, cold-rolled, and coated steel products; Has 8,200 employees. Officers and directors own 4.9% of common Current Assets 3508.3 4032.7 4020.3 structural steel beams and pilings; special bar quality and merchant stock (3/19 proxy). Chairman: Keith E. Busse. Pres. & CEO: Mark Accts Payable 489.4 550.8 518.9 Debt Due 28.8 24.2 82.2 bar quality rounds; billets and merchant steel products. Steel D. Millett. Inc.: IN. Addr.: 7575 W. Jefferson Blvd., Ft. Wayne, IN Other 350.3 444.1 404.2 Fabrication engages in fabricating trusses, girders, steel joists, and 46268. Tel.: 260-969-3500. Internet: www.steeldynamics.com. Current Liab. 868.5 1019.1 1005.3 Steel Dynamics faced difficult sales pected commencement of operations by ANNUAL RATES Past Past Est’d ’16-’18 and earnings comparisons in the third mid-2021. The facility is designed to have of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 quarter. Sales of $2.5 billion were down product size and quality capabilities that Sales 4.0% 4.0% 6.0% ‘‘Cash Flow’’ 3.5% 17.5% 7.5% considerably from the $3.2 billion sum in go beyond those of existing electric-arc- Earnings 4.0% 27.5% 8.0% the previous-year period. This decline was furnace plants, and its products will be Dividends 7.5% 9.5% 11.0% primarily driven by a steep drop in steel targeted towards the southwest U.S. and Book Value 6.5% 5.5% 9.0% prices from a year ago, at which time the Mexico markets. Cal-QUARTERLY SALES ($ mill.) Full domestic steel industry was benefiting Most of the company’s domestic com- endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year from strong demand and newly imposed petitors are making similar invest- 2016 1741.3 2023.9 2101.3 1910.6 7777.1 protective tariffs. Indeed, average steel ments. A 25% tariff on imported steel that 2017 2368.2 2390.7 2443.4 2336.5 9538.8 pricing declines more than offset the was imposed last March has emboldened 2018 2603.9 3090.5 3223.5 2903.9 11821.8 benefit of lower scrap costs, leading to a the biggest players in the U.S. steel indus- 2019 2817.4 2770.5 2526.8 2585.3 10700 sharp decline in earnings per share, as try to invest in building new mills. While 2020 2800 2900 2900 2900 11500 well. Share net of $0.69 fell far short of the many of the new plants will lead to cost ef- Cal-EARNINGS PER SHARE A Full $1.69 figure for the year-ago quarter, as ficiencies and quality enhancements, the endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year well as our $0.90 call. As a result of these new capacity increases the risk that the 2016 .26 .58 .65 .07 1.56 soft results, we have lowered our full-year domestic market will become oversupplied 2017 .82 .63 .64 .51 2.60 2019 sales estimate from $11.2 billion to over the long term. 2018 .96 1.53 1.69 1.17 5.35 $10.7 billion, and our earnings-per-share These shares hold appeal for inves- 2019 .91 .87 .69 .93 3.40 call from $3.60 to $3.40. tors with a long time horizon. Appreci- 2020 .90 1.00 1.00 1.10 4.00 The company is investing in efficiency ation potential out to the 2022-2024 Cal-QUARTERLY DIVIDENDS PAID B• Full improvements and capacity expan- stretch exceeds the Value Line median endarMar.31 Jun.30 Sep.30 Dec.31 Year sion. In July, Steel Dynamics announced considerably. However, with a Below Aver- 2015 .115 .138 .138 .138 .53 plans to construct an electric-arc-furnace age rank (4) for Timeliness, the stock is 2016 .138 .14 .14 .14 .56 flat roll steel mill in Sinton, Texas. Man- ranked for subpar year-ahead relative per- 2017 .14 .155 .155 .155 .61 agement currently estimates that this will formance. Meanwhile, it does not stand 2018 .155 .188 .188 .188 .72 2019 .188 .24 .24 .24 cost $1.9 billion, and construction is slated out for 18-month appreciation potential. to begin in early 2020, followed by the ex- Adam J. Platt December 6, 2019 (A) Fully diluted earnings. Includes amort. of in- (B) Dividends historically paid in early January, (C) In millions, adjusted for splits. Company’s Financial Strength B++ tangible assets. Next earnings report due late April, July, October. ■ DRIP available. (D) Includes intangibles. In 2018: $700.0 mill., Stock’s Price Stability 35 Feb. Excludes nonrecurring gains (losses): ’10, $3.11/sh. Price Growth Persistence 60 3¢; ’12, (8¢); ’14, (54¢); ’17, 76¢. Earnings Predictability 15 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: NMF RELATIVE DIV’D VALUE TIMKENSTEEL CORP. NYSE-TMST PRICE 5.75RATIO NMF()Median: NMF P/E RATIO NMFYLD Nil LINE 750 TIMELINESS 5 New 3/8/19 High: 50.8 37.5 18.6 23.0 20.2 14.6 Target Price Range Low: 30.2 7.1 3.7 12.5 8.2 4.9 2022 2023 2024 SAFETY 4 Lowered 6/7/19 LEGENDS 1.0 x ″Cash Flow″ psh 64 TECHNICAL 4 Lowered 12/6/19 .... Relative Price Strength Options: Yes 48 BETA 2.35 (1.00 = Market) Shaded area indicates recession 40 18-Month Target Price Range 32 Low-High Midpoint (% to Mid) 24 20 $4-$10 $7 (20%) 16 2022-24 PROJECTIONS 12 Ann’l Total Price Gain Return 8 High 25 (+335%) 44% Low 15 (+160%) 27% 6 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 45 to Buy 67 56 79 1 yr. -51.7 4.9 shares 30 3 yr. -45.2 30.2 to Sell 62 65 54 traded 15 Hld’s(000) 34169 33605 31850 5 yr. -85.8 36.8 TimkenSteel announced the completion of 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 its spinoff from The Timken Company on ------37.42 25.03 19.67 29.09 36.11 26.85 29.05 Sales per sh 34.15 June 30, 2014. Shareholders of record of ------3.63 .02 d.63 .77 1.05 .30 1.85 ‘‘Cash Flow’’ per sh 4.45 the Timekn company as of June 23, 2014 ------2.27 d1.63 d2.39 d.99 d.71 d.30 .15 Earnings per sh 2.40 received one share of TimkenSteel for every ------.28 .42 ------Nil Nil Div’ds Decl’d per sh C Nil two shares held. TimkenSteel shares were ------2.90 1.77 .97 .72 1.12 1.00 1.20 Cap’l Spending per sh 1.40 issued and began ‘regular way‘ trading on ------16.72 15.53 13.52 12.27 12.00 11.40 11.45 Book Value per sh 15.80 July 1, 2014. ------44.75 44.20 44.20 45.70 44.60 45.25 45.45 Common Shs Outst’g 46.25 CAPITAL STRUCTURE as of 9/30/19 ------18.3 - - - - NMF NMF Bold figures are Avg Ann’l P/E Ratio 9.0 Total Debt $187.4 mill. Due in 5 Yrs $187.4 mill. ------.96 -- -- NMF NMF Value Line Relative P/E Ratio .50 LT Debt $187.4 mill. LT Interest $8.1 mill. ------.7% 1.9% ------estimates Avg Ann’l Div’d Yield Nil

(Total interest not covered.) ------1674.2 1106.2 869.5 1329.2 1610.6 1215 1320 Sales ($mill) 1580 (24% of Cap’l) ------13.1% NMF NMF 4.2% 4.1% 4.0% 8.5% Operating Margin 13.0% Leases, Uncapitalized Annual rentals $10.1 mill. ------58.0 73.4 77.8 78.9 78.5 72.0 78.0 Depreciation ($mill) 95.0 ------104.4 d72.4 d105.5 d43.8 d31.7 d58.5 6.5 Net Profit ($mill) 110 Pension Assets-12/18 $1.2 bill. Oblig. $1.3 bill. ------34.0% - - - - 2.6% NMF NMF NMF Income Tax Rate 10.5% Pfd Stock None ------6.2% NMF NMF NMF NMF NMF .5% Net Profit Margin 7.0% ------325.8 213.6 159.7 203.4 270.6 250 325 Working Cap’l ($mill) 640 ------185.2 200.2 136.6 165.3 189.1 185 185 Long-Term Debt ($mill) 200 Common Stock 44,820,153 ------748.1 686.4 597.4 560.7 535.2 515 520 Shr. Equity ($mill) 730 as of 10/31/19 ------11.2% NMF NMF NMF NMF NMF 1.0% Return on Total Cap’l 12.0% MARKET CAP: $250 million (Small Cap) ------14.0% NMF NMF NMF NMF NMF 1.5% Return on Shr. Equity 15.0% CURRENT POSITION 2017 2018 9/30/19 ($MILL.) ------12.3% NMF NMF NMF NMF NMF 1.5% Retained to Com Eq 15.0% Cash Assets 24.5 21.6 18.4 ------12% NMF ------Nil Nil All Div’ds to Net Prof Nil Receivables 149.8 163.4 107.4 Inventory 224.0 296.8 279.4 BUSINESS: TimkenSteel Corporation manufactures alloy steel, as in advanced applications such as gears in transmissions. Has ap- Other 11.9 9.6 12.8 well as carbon and micro-alloy steel, with annual melt capacity of 2 proximately 2,830 employees. Offr. and dir. own 8.7% of common Current Assets 410.2 491.4 418.0 million tons and shipment capacity of 1.5 million tons. It focuses on stock; Ward Timken, 7.5%; BlackRock, 13.2%; Timken family, Accts Payable 135.3 160.6 79.0 the production of special bar quality (SBQ) bars and seamless me- 10.9%. (4/19 proxy). Chairman: John P. Reilly. CEO: Terry L. Dun- Debt Due ------chanical tubing, primarily for sale to the automotive, oil and gas, lap. Inc.: Ohio. Address: 1835 Dueber Ave. SW, Canton, OH Other 71.5 60.2 43.5 and manufacturing markets. Specializes in custom alloys required 45069. Tel.: 330-471-7000. Internet: www.timkensteel.com. Current Liab. 206.8 220.8 122.5 ANNUAL RATES Past Past Est’d ’16-’18 TimkenSteel reported weak results Sales fall sharply as customers work down of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 for the third quarter. Net sales sole-sourced inventories. Management in- Sales - - - - -3.0% decreased 33.1% year to year, to $274.2 dicated that while inventories at auto pro- ‘‘Cash Flow’’ - - - - 17.5% Earnings - - - - NMF million, well below our estimate of $303 ducers have come into greater balance, the Dividends - - - - Nil million. However, the net loss of $4.6 mil- GM strike contributed to the sequential Book Value - - - - NMF lion, or $0.10 per share, was well above decline in sales. Oil and gas producers, Cal-QUARTERLY SALES ($ mill.) Full our estimated loss of $22.0 million, or moreover, have reduced drilling and well endarMar.31 Jun.30 Sep.30 Dec.31 Year $0.49 per share, due to a concerted effort completion activity, decreasing demand for 2016 217.6 223.1 213.8 214.7 869.5 by management to cut costs. Year to date, the company’s Oil Country Tubular Goods 2017 309.4 339.3 339.1 341.4 1329.2 it has eliminated 250 positions, or nearly (OCTG). Given these developments, we 2018 380.8 413.9 409.9 406.0 1610.6 10% of the workforce, with a focus on have reduced our share-net estimates for 2019 371.0 336.7 274.2 233.1 1215 eliminating a layer of management. More- 2019 and 2020 by $0.60 and $0.40, respec- 2020 270 300 360 390 1320 over, through working capital manage- tively, to a loss of $0.30 and a profit of Cal-EARNINGS PER SHARE A Full ment, the company generated $32.5 mil- $0.15. Our sales estimate for this year is endarMar.31 Jun.30 Sep.30 Dec.31 Year lion in free cash flow, which was directed down by $245 million. 2016 d.22 d.15 d.50 d1.52 d2.39 to paying down $35.0 million in debt. In- Tim (Ward) Timken has stepped down 2017 d.12 .03 d.13 d.77 d.99 vestors were initially cheered by the news, as chairman of the board, president, 2018 d.04 .19 .03 d.89 d.71 driving the shares up nearly 20% prior to and CEO. As a member of the Timken 2019 .09 d.10 d.10 d.19 d.30 the management conference call. Yet, family, he led the spinout of the company 2020 d.10 d.03 .12 .16 .15 leadership indicated on the call that a from Timken Inc. in 2014. A member of Cal-QUARTERLY DIVIDENDS PAID Full recovery in the company’s markets is still the board, Terry L. Dunlap, has been endarMar.31 Jun.30 Sep.30 Dec.31 Year a couple of quarters away, which prompted named interim CEO, and lead director 2015 .14 .14 .14 - - .42 a 25% decrease in the share price. John Reilly was appointed chairman. 2016 ------The company’s competitive strengths We rank TimkenSteel shares 5 2017 -- -- .------amplify its present difficulties. Its (Lowest) for Timeliness. Despite strong 2018 ------focus on providing customized alloys and recovery potential to 2022-2024, they are 2019 ------grades of steel leave it exposed to not suitable for most investors. downturns in its customers’ markets. Glenn Pierr Johnson December 6, 2019 (A) Diluted earnings. Quarterly figures may not (B) In millions. Company’s Financial Strength B sum due to rounding/changes in shares out- (C) Dividend suspended 2015. Stock’s Price Stability 5 standing. Next earnings report due late Janu- Price Growth Persistence 10 ary. Earnings Predictability 15 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 9.6 RELATIVE DIV’D VALUE U.S. STEEL CORP. NYSE-X PRICE 13.79RATIO 30.6()Median: NMF P/E RATIO 1.73YLD 1.5% LINE 751 TIMELINESS 5 Lowered 9/20/19 High: 196.0 58.2 70.9 64.0 32.5 30.5 46.6 27.7 39.1 41.8 47.6 24.7 Target Price Range Low: 20.7 16.7 36.9 18.8 17.7 15.8 22.5 6.8 6.1 18.5 17.1 9.9 2022 2023 2024 SAFETY 4 Raised 3/10/17 LEGENDS 6.0 x ″Cash Flow″ psh TECHNICAL Lowered 12/6/19 .... Relative Price Strength 80 5 Options: Yes BETA 2.10 (1.00 = Market) Shaded area indicates recession 60 50 18-Month Target Price Range 40 Low-High Midpoint (% to Mid) 30 25 $8-$23 $16 (10%) 20 2022-24 PROJECTIONS 15 Ann’l Total Price Gain Return 10 High 55 (+300%) 42% Low 35 (+155%) 27% 7.5 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 210 to Buy 190 170 168 1 yr. -56.1 4.9 shares 140 3 yr. -38.9 30.2 to Sell 198 181 170 traded 70 Hld’s(000) 119816 108278 104202 5 yr. -69.8 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 91.24 123.75 129.05 132.57 143.00 204.43 77.07 120.93 138.08 133.96 120.43 120.20 79.12 59.04 69.91 81.85 79.40 84.10 Sales per sh 90.60 d.57 12.64 11.56 15.31 11.74 23.38 d5.16 1.23 4.36 3.72 2.94 5.01 d7.49 .39 5.07 7.29 4.40 5.70 ‘‘Cash Flow’’ per sh 8.20 d4.09 8.37 7.00 11.18 7.40 17.96 d10.42 d3.36 d.37 d.86 d1.79 .69 d11.24 d2.81 2.19 4.15 .55 1.60 Earnings per sh A 3.50 .20 .20 .38 .60 .80 1.10 .45 .20 .20 .20 .20 .20 .20 .20 .20 .20 .20 .32 Div’ds Decl’d per sh B .60 3.05 5.08 6.81 5.16 5.86 7.71 4.32 4.71 5.89 5.01 3.30 2.88 3.42 1.76 2.88 5.78 3.70 3.80 Cap’l Spending per sh 4.10 8.36 32.93 28.57 36.82 46.87 42.13 32.62 26.80 24.30 24.10 23.14 26.08 16.65 13.08 18.95 24.26 25.00 25.30 Book Value per sh 29.60 103.66 114.00 108.79 118.55 118.00 116.20 143.35 143.67 144.00 144.28 144.68 145.66 146.28 173.81 175.22 173.22 170.00 170.00 Common Shs Outst’g C 170.00 - - 4.4 6.4 5.7 13.4 6.1 ------43.4 - - - - 12.9 7.9 Bold figures are Avg Ann’l P/E Ratio 13.0 - - .23 .34 .31 .71 .37 ------2.28 - - - - .65 .43 Value Line Relative P/E Ratio .70 1.1% .5% .9% .9% .8% 1.0% 1.3% .4% .5% .8% .9% .7% 1.1% 1.1% .7% .6% estimates Avg Ann’l Div’d Yield 1.3% CAPITAL STRUCTURE as of 9/30/19 11048 17374 19884 19328 17424 17507 11574 10261 12250 14178 13500 14300 Sales ($mill) 15400 Total Debt $2567 mill. Due in 5 Yrs $1291 mill NMF 3.1% 4.1% 4.7% 3.4% 5.9% NMF 3.7% 8.3% 10.8% 5.0% 8.0% Operating Margin 10.0% LT Debt $2500 mill. LT Interest $220 mill. 661.0 658.0 681.0 661.0 684.0 627.0 547.0 507.0 501.0 521.0 650 700 Depreciation ($mill) 800 (Total interest coverage: 5.8x) (36% of Cap’l) d1401 d482.0 d53.0 d124.0 d258.0 102.0 d1642 d440.0 387.0 741.0 95.0 270 Net Profit ($mill) 595 Pension Assets-12/18 $4.96 bill. - - - - NMF NMF - - 40.0% - - - - NMF 8.7% 20.0% 20.0% Income Tax Rate 20.0% Oblig. $5.63 bill. NMF NMF NMF NMF NMF .6% NMF NMF 3.2% 5.2% .7% 1.9% Net Profit Margin 3.9% 2541.0 2157.0 2125.0 2384.0 2833.0 2862.0 1769.0 2025.0 2034.0 1633.0 2590 2700 Working Cap’l ($mill) 3265 Pfd Stock None 3345.0 3517.0 3828.0 3936.0 3616.0 3120.0 3116.0 2981.0 2700.0 2316.0 2200 2000 Long-Term Debt ($mill) 1600 Common Stock 170,037,954 shs. 4676.0 3851.0 3500.0 3477.0 3348.0 3799.0 2436.0 2274.0 3320.0 4202.0 4250 4300 Shr. Equity ($mill) 5035 as of 10/28/19 NMF NMF .6% NMF NMF 3.0% NMF NMF 8.3% 12.6% 1.5% 4.5% Return on Total Cap’l 9.0% NMF NMF NMF NMF NMF 2.7% NMF NMF 11.7% 17.6% 2.0% 6.5% Return on Shr. Equity 12.0% MARKET CAP $2.3 billion (Mid Cap) NMF NMF NMF NMF NMF 1.9% NMF NMF 10.6% 16.8% 1.5% 5.0% Retained to Com Eq 10.0% CURRENT POSITION 2017 2018 9/30/19 NMF NMF NMF NMF NMF 28% NMF NMF 9% 5% 36% 20% All Div’ds to Net Prof 17% ($MILL.) Cash Assets 1553 1000 476 BUSINESS: United States Steel Corporation is among the world’s in 2007. Steel shipments in 2018: 15.7 million tons. Key markets: Receivables 1173 1435 1183 largest integrated steel producers. Engaged in production, sale, and service centers, converters, and construction. 2018 depreciation Inventory (LIFO) 1738 2092 2071 Other 291 303 312 transportation of steel products, coke, and coal. Also involved, via rate: 3.3%. Has 29,000 employees. Vanguard owns 9.3% of com. Current Assets 4755 4830 4042 U.S. Steel Kocise (located in the Slovak Republic), in production (3/19 Proxy). Chairman: David S. Sutherland, President and CEO: Accts Payable 2170 2454 2138 and sale of steel in Central Europe. Acquired National Steel Co. David B. Burritt. Inc.: DE. Address: 600 Grant St., Pittsburgh, PA Debt Due 3 65 67 and U.S. Steel Balkan in 2003; Lone Star Technologies and Stelco 15219-2800. Telephone: 412-433-1121. Internet: www.ussteel.com. Other 548 678 645 Current Liab. 2721 3197 2850 U.S. Steel posted weak top- and and our $2.00 prediction for 2020 now bottom-line results for the third stands at $1.60. ANNUAL RATES Past Past Est’d ’16-’18 quarter. Sales of $3.1 billion marked a The long-term picture is brighter. We of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Sales -8.0% -11.5% 4.5% substantial decline from the $3.7 billion expect demand headwinds to abate over ‘‘Cash Flow’’ -13.0% 3.0% 11.5% figure for the year-ago period, while a time. Furthermore, U.S. Steel is currently Earnings -21.0% - - 20.0% share loss of $0.49 compared unfavorably investing in capacity and efficiency im- Dividends -13.5% - - 20.0% Book Value -7.5% -4.5% 8.0% with the $1.62 share profit for the third provements. It plans to spend $1.2 billion quarter of 2018. to construct a new casting and rolling fa- Cal-QUARTERLY SALES ($ mill.) Full The poor results were mostly due to cility and a cogeneration facility at its Mon endarMar.31 Jun.30 Sep.30 Dec.31 Year falling steel prices combined with a Valley Works plant, and $280 million to 2016 2341 2584 2686 2650 10261 larger-than-anticipated drop in scrap complete an advanced electric-arc-furnace 2017 2725 3144 3248 3133 12250 metal prices. Furthermore, as a result of steelmaking facility at its Alabama plant. 2018 3149 3609 3729 3691 14178 soft demand, the company expects to con- U.S. Steel has acquired a stake in Big 2019 3499 3545 3069 3387 13500 2020 3500 3550 3600 3650 14300 tinue idling two blast furnaces. Mean- River Steel, with an option to take full while, in Europe, market conditions have ownership in four years. The company Cal-EARNINGS PER SHARE AD Full deteriorated, as weak steel selling prices paid $700 million to take a 49.9% stake in endarMar.31 Jun.30 Sep.30 Dec.31 Year and high raw material costs have led to Big River, which owns one of the newest 2016 d2.20 d.32 .32 d.61 d2.81 severe gross margin compression. and most efficient flat-rolled mills in the 2017 d1.02 1.48 .83 .90 2.19 Due to the tough outlook, we have United States. The new partnership is 2018 .10 1.20 1.62 1.23 4.15 2019 .31 .39 d.49 .34 .55 lowered our sales and share-net es- designed to accelerate U.S. Steel’s strategy 2020 .20 .40 .40 .60 1.60 timates for 2019 and 2020. Whereas we to target high-margin end markets, includ- B had previously expected sales to reach ing advanced automotive steels. Cal-QUARTERLY DIVIDENDS PAID Full $14.3 billion this year and $14.6 billion These untimely shares hold strong endarMar.31 Jun.30 Sep.30 Dec.31 Year next year, we now foresee sums of $13.5 long-term rebound potential. The 2015 .05 .05 .05 .05 .20 billion and $14.3 billion, respectively. Our stock’s appreciation potential out to the 2016 .05 .05 .05 .05 .20 earnings-per-share estimates have 2022-2024 stretch exceeds the Value Line 2017 .05 .05 .05 .05 .20 2018 .05 .05 .05 .05 .20 dropped even more sharply, as our $1.90 median by a significant margin. 2019 .05 .05 .05 .05 call for 2019 has been lowered to $0.55, Adam J. Platt December 6, 2019 (A) Fully diluted earnings. Excludes special ber. (C) In millions. Company’s Financial Strength B gains (charges): ’03, (55¢), ’18, $2.11. Next (D) Quarterly earnings may not sum due to Stock’s Price Stability 5 earnings report: late Feb. (B) Div’ds historically rounding. Price Growth Persistence 15 paid in March, June, September, and Decem- Earnings Predictability 5 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 17.0 RELATIVE DIV’D VALUE WORTHINGTON IND. NYSE-WOR PRICE 38.18RATIO 13.6()Median: 15.0 P/E RATIO 0.77YLD 2.5% LINE 752 TIMELINESS 4 Lowered 2/15/19 High: 26.1 16.4 18.8 23.7 26.2 48.6 45.4 32.8 62.4 53.3 49.9 41.5 Target Price Range Low: 8.7 7.0 12.0 12.8 15.6 25.5 29.6 21.1 25.5 39.5 31.4 33.2 2022 2023 2024 SAFETY 3 Lowered 1/7/94 LEGENDS 9.0 x ″Cash Flow″ psh 128 TECHNICAL 4 Lowered 11/8/19 .... Relative Price Strength Options: Yes 96 BETA 1.30 (1.00 = Market) Shaded area indicates recession 80 18-Month Target Price Range 64 Low-High Midpoint (% to Mid) 48 40 $27-$49 $38 (0%) 32 2022-24 PROJECTIONS 24 Ann’l Total Price Gain Return 16 High 95 (+150%) 27% Low 65 (+70%) 16% 12 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 36 to Buy 68 88 78 1 yr. -9.9 4.9 shares 24 3 yr. -16.8 30.2 to Sell 125 98 114 traded 12 Hld’s(000) 28108 27537 26272 5 yr. 6.2 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 25.83 27.39 35.01 32.67 35.00 38.67 33.31 24.53 34.08 37.33 37.45 46.38 52.76 45.82 47.99 60.83 67.78 67.00 Sales per sh A 93.75 1.68 2.15 2.70 2.31 2.07 2.15 d.56 1.39 2.46 2.53 2.91 3.43 2.52 3.71 4.64 5.06 4.49 4.70 ‘‘Cash Flow’’ per sh 7.70 .87 1.38 2.03 1.64 1.31 1.31 d1.37 .57 1.53 1.65 1.91 2.11 1.12 2.22 3.15 3.09 2.61 2.80 Earnings per sh B 5.25 .64 .64 .66 .68 .68 .68 .61 .40 .40 .48 .52 .60 .72 .76 .80 .84 .92 .96 Div’ds Decl’d per sh C■ 1.12 .29 .34 .53 .52 .68 .60 .81 .43 .31 .47 .64 1.06 1.50 1.58 1.09 1.29 1.52 1.70 Cap’l Spending per sh 1.90 7.40 7.83 9.33 10.66 11.02 11.16 8.94 8.98 9.62 10.27 11.91 12.62 11.68 12.89 15.15 15.60 14.99 17.00 Book Value per sh 25.00 85.95 86.86 87.93 88.69 84.91 79.31 79.00 79.22 71.68 67.91 69.75 67.41 64.14 61.53 62.80 58.88 55.47 53.00 Common Shs Outst’g D 48.00 18.3 11.5 9.7 11.5 14.7 15.1 - - 25.0 11.2 10.8 13.2 18.0 30.6 13.6 14.7 14.9 15.8 Avg Ann’l P/E Ratio 15.0 1.04 .61 .52 .62 .78 .91 - - 1.59 .70 .69 .74 .95 1.54 .71 .74 .81 .88 Relative P/E Ratio .85 4.0% 4.0% 3.3% 3.6% 3.5% 3.4% 4.5% 2.8% 2.3% 2.7% 2.1% 1.6% 2.1% 2.5% 1.7% 1.8% 2.2% Avg Ann’l Div’d Yield 1.3% CAPITAL STRUCTURE as of 8/31/19 2631.3 1943.0 2442.6 2534.7 2612.2 3126.4 3384.2 2819.7 3014.1 3581.6 3759.6 3550 Sales ($mill) A 4500 Total Debt $699.2 mill. Due in 5 Yrs $152.5 mill. 1.1% 6.5% 7.5% 6.5% 7.8% 8.7% 7.5% 8.5% 10.2% 8.3% 6.3% 7.5% Operating Margin 10.0% LT Debt $698.6 mill. LT Interest $35.0 mill. 64.1 64.7 61.1 55.9 66.5 79.7 85.1 84.7 86.8 103.4 95.6 100 Depreciation ($mill) 120 (Total interest coverage: 6.4x) d108.2 45.2 115.1 115.6 136.4 151.3 76.8 143.7 204.5 194.8 153.5 150 Net Profit ($mill) 250 (42% of Cap’l) - - 34.1% 32.0% 29.3% 32.0% 26.4% 22.8% 27.2% 26.7% 3.9% 20.9% 20.0% Income Tax Rate 20.0% Pension Assets-5/19 $26.3 mill. Oblig. $38.5 mill. NMF 2.3% 4.7% 4.6% 5.2% 4.8% 2.3% 5.1% 6.8% 5.4% 4.1% 4.2% Net Profit Margin 5.6% 226.8 402.5 366.6 255.9 418.0 609.2 467.8 485.4 670.2 594.2 467.9 590 Working Cap’l ($mill) 720 Pfd Stock None 100.4 250.2 250.3 257.5 406.2 554.8 579.4 580.0 571.8 748.9 598.4 680 Long-Term Debt ($mill) 500 Common Stock 55,923,822 shs. 706.1 711.4 689.9 697.2 830.8 850.8 749.1 793.4 951.6 918.8 831.2 900 Shr. Equity ($mill) 1200 as of 10/1/19 NMF 5.2% 13.2% 12.9% 12.0% 11.6% 7.1% 11.6% 14.4% 12.7% 12.0% 9.5% Return on Total Cap’l 14.5% MARKET CAP: $2.1 billion (Mid Cap) NMF 6.4% 16.7% 16.6% 16.4% 17.8% 10.3% 18.1% 21.5% 21.2% 18.5% 16.5% Return on Shr. Equity 21.0% CURRENT POSITION 2018 2019 8/31/19 NMF 1.9% 12.3% 12.0% 11.1% 14.1% 4.1% 12.2% 16.2% 15.6% 12.2% 11.0% Retained to Com Eq 16.5% ($MILL.) NMF 70% 26% 28% 32% 21% 60% 33% 25% 26% 34% 34% All Div’ds to Net Prof 21% Cash Assets 122.0 92.4 45.6 Receivables 572.7 501.9 472.4 BUSINESS: Worthington Industries, Inc. is in three business lines: stakes in a number of joint ventures. 2018 depreciation rate 5.0%. Inventory (FIFO) 454.0 484.3 422.2 Processed Steel Products, Metal Framing, and Pressure Cylinders. Has 12,000 employees. John P. McConnell owns 30.8% of stock; Other 92.4 87.3 89.9 Processed Steel Products (which is a processor of flatrolled steel) BlackRock 8.3% (8/19 Proxy). Chairman & CEO: John P. McCon- Current Assets 1241.1 1165.9 1030.1 consists of The Worthington Steel Company and the Gerstenslager nell. Incorporated: Ohio. Address: 200 Old Wilson Bridge Road, Accts Payable 473.5 393.5 351.4 Debt Due 1.5 150.9 .6 Co. Metal Framing consists of Dietrich Industries, Inc. Pressure Columbus, OH 43085. Telephone: 614-438-3210. Internet: Other 171.9 153.6 130.7 Cylinders consists of Worthington Cylinder Corp. Also holds equity www.worthingtonindustries.com. Current Liab. 646.9 698.0 482.7 Worthington Industries’ fiscal first- remain a headwind, previous-year com- ANNUAL RATES Past Past Est’d ’17-’19 quarter results fell considerably short parisons ought to be less difficult over the of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 of our expectations. (Period ended Au- coming periods. Whereas we previously Sales 5.0% 8.0% 10.0% ‘‘Cash Flow’’ 14.5% 10.0% 10.0% gust 31st.) Sales of $856 million missed anticipated full-year sales of $3.60 billion, Earnings 21.5% 9.5% 12.0% our $920 million call, as well as the $988 we now expect a $3.55 billion tally. Mean- Dividends 2.5% 10.0% 5.5% million figure for the previous-year period. while, we have reduced our share net es- Book Value 4.0% 5.5% 10.5% The decline was concentrated in the com- timate from $3.20 to $2.80. Fiscal QUARTERLY SALES ($ mill.) A Full Year Fiscal pany’s Steel Processing segment, which The company has been making stra- Ends Aug.31 Nov.30 Feb.28 May 31 Year saw its sales drop 21% from the com- tegic acquisitions. In October, Worthing- 2016 758.1 699.8 647.1 714.7 2819.7 parable prior-year quarter. The decline ton acquired a steel pickling and slitting 2017 737.6 727.8 703.4 845.3 3014.1 was owed to a significant decrease in steel facility from Heidtman Steel Products. The 2018 848.2 871.3 841.7 1020.4 3581.6 prices, as well as soft demand in automo- plant specializes in the pickling and slit- 2019 988.1 958.2 874.4 938.9 3759.6 tive and agricultural end markets. By con- ting of hot-rolled carbon flat-rolled steel 2020 855.9 850 905 939.1 3550 trast, the Pressure Cylinders division for the automotive, heavy truck, agricul- Fiscal EARNINGS PER SHARE AB Full Year Fiscal delivered a 1% increase in sales over the ture, and heavy equipment markets. The Ends Aug.31 Nov.30 Feb.28 May 31 Year year-ago quarter, led by strong demand in purchase fits well into the company’s stra- 2016 .48 .36 .46 .92 2.22 the oil and gas business as well as con- tegy to expand its value-added steel pro- 2017 1.01 .72 .55 .87 3.15 sumer products end markets. Meanwhile, cessing capability. 2018 .70 .62 1.27 .50 3.09 adjusted earnings per share, which ex- These shares hold strong long-term 2019 .92 .57 .46 .66 2.61 cluded nonrecurring impairment and appreciation potential. We expect the 2020 .56 .65 .75 .84 2.80 restructuring charges, reached $0.56, company’s earnings to increase over the Cal-QUARTERLY DIVIDENDS PAID C■ Full which fell far short of our $1.00 call as next few years, while the price/earnings endarMar.31 Jun.30 Sep.30 Dec.31 Year well as the $0.92 figure for the previous- ratio is likely to rise closer to its historical 2015 .18 .18 .19 .19 .74 year period. average. However, with a Below Average 2016 .19 .19 .20 .20 .78 We believe results will stabilize in the rank (4) for Timeliness, this issue is slated 2017 .20 .20 .21 .21 .84 coming quarters, and thus we have for lackluster year-ahead relative price 2018 .21 .21 .23 .23 .88 only reduced our 2020 estimates performance. 2019 .23 .23 .24 slightly. While steel prices are likely to Adam J. Platt December 6, 2019 (A) Fiscal year ends May 31st of calendar year. (C) Dividends historically paid in March, June, Company’s Financial Strength B++ (B) Basic shares. Earnings may not sum due to Sept., and Dec. ■ Dividend reinvestment plan Stock’s Price Stability 35 rounding. Excludes nonrecurring charge in available. (D) In mill. Price Growth Persistence 65 2020 of 65¢. Next earnings report: early Jan. Earnings Predictability 40 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. December 6, 2019 INSURANCE (PROPERTY/CASUALTY) 753

The Property/Casualty Insurance Industry con- INDUSTRY TIMELINESS: 4 (of 95) tinues to be ranked near the head of the pack for year-ahead relative price performance. This months ahead. We still believe that many insurers under doesn’t come as much of a surprise to us, given our perusal will post an increase in net investment that many of the companies we review will regis- income in 2020, thanks to increased invested assets. ter strong earnings advances in 2019. There are What’s more, while the weather is difficult to predict, many factors that were pointing in insurers favor we believe that there is a decent chance that industry- during the course of the year. We will discuss these wide catastrophes may tick higher following 2019’s rela- variables in more granularity in the paragraphs tively tame year. While wild fires in California and other below. severe storms did indeed cause damages, the aggregate amount was less than 2018, which was ravaged by Sorry To See 2019 Go hurricanes. Finally, price increases may be a bit more difficult to Most insurers housed in this industry will likely be come by next year. For one, the domestic economy has unhappy to see the calendars turn to 2020. For the most shown some signs of slowing, which may make rate part, insurers were firing on all cylinders in 2019, with increases less likely to stick. Furthermore, 2019’s likely most macroeconomic variables also pointing in their mundane year for catastrophes will probably give insur- favor. ers less bargaining clout during 2020’s policy-renewal One factor that was largely positive is the top line, as season. measured by net premiums earned. A generally healthy In a nutshell, we look for the insurance industry to eke economy has enabled insurers to raise their rates in out a modest to moderate advance next year, though what continues to be a secular industry uptrend. Fur- results will likely not be as strong as 2019. thermore, new business continues to funnel in, which has helped shore-up results. Finally, 2018’s high level of Long-Term Considerations industrywide catastrophes has helped lift rates during 2019’s policy renewal season. Catastrophes can be a bit Many P/C insurance stocks under our review have of a double-edged sword for insurers. On one hand, they seen their share price rise sharply over the past 12 cut into profits as claims are paid out. However, they do months, following a string of year-to-year earnings ad- provide leverage when policies are renewed, particularly vances. This has discounted a portion of the long-term in the product lines and geographic regions affected. capital gains potential for some of the issues we cover. Policyholder retentions have also remained at a fairly Also, while it is difficult to predict when the next high percentage over the past year or so, despite the industrywide downturn might occur, industry overca- aforementioned rate increases. The price increases, for pacity is generally seen as a red flag. the most part, have been moderate, and thus haven’t deterred customers from renewing their policies. Also, Conclusion switching insurers can be a bit of a headache, and thus consumers are unlikely to do so unless they have a good We advise that investors carefully study the indi- reason to. vidual reports on the following pages to identify those Profitable underwriting margins have been another stocks that offer the best risk/reward prospects for their positive for the insurance industry. Following 2018’s portfolios, both for the year ahead and over the 3- to severe hurricane season, which saw a few named storms 5-year pull. wreak havoc on the United States and its territories, Insurance companies tend to pay a decent dividend 2019 has been relatively quiet on that front. Hence, and, in many cases, the distributions are above the Value insurers haven’t had to delve into their reserves for the Line median. What’s more, from time to time, some most part, which has kept earnings trending higher. insurers pay out a special dividend. While not a cer- Also, most insurers under our review have a high- tainty, this can provide a nice bonus for investors. quality book of business, which has helped to keep losses Alan G. House under wrap. Finally, investment income has been a shot in the arm for insurers for quite some time. Interest rates had trended higher, which provided for increased bond rein- Insurance (Property/Casualty) vestment rates. (Insurers tend to keep the lion’s share of RELATIVE STRENGTH (Ratio of Industry to Value Line Comp.) their investments in fixed-income securities, due to their 480 conservative bent.) However, the tides began to change during the latter half of the year, as the Federal Reserve began to cut interest rates. We will discuss the ramifi- 360 cations for 2020 below.

2020 Vision 240 Though we believe that next year will be a decent one for the industry, there are some headwinds on the horizon. Investment income, which has been a buoy to earnings over the past couple of years, may begin to wane over the next 12 to 18 months. As noted earlier, the Federal Reserve pared interest rates three times in 2019, which 120 2013 2014 2015 2016 2017 2018 2019 will begin to cut into bond reinvestment rates in the Index: June, 1967 = 100

© 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: NMF RELATIVE DIV’D VALUE ALLEGHANY CORP. NYSE-Y PRICE 779.56RATIO 19.0()Median: 18.0 P/E RATIO 1.07YLD Nil LINE 754 TIMELINESS 2 Lowered 12/6/19 High: 395.8 289.8 304.9 340.9 364.9 420.9 482.0 518.5 617.3 667.2 659.9 808.5 Target Price Range Low: 170.8 213.1 246.2 277.0 281.5 337.7 361.0 436.4 446.5 521.1 558.5 600.2 2022 2023 2024 SAFETY 1 Raised 3/14/14 LEGENDS 1.0 x Book value p sh 1250 TECHNICAL Lowered 12/6/19 .... Relative Price Strength 3 Options: Yes BETA .95 (1.00 = Market) Shaded area indicates recession 800 18-Month Target Price Range 600 500 Low-High Midpoint (% to Mid) 400 $698-$1256 $977 (25%) 300 2022-24 PROJECTIONS 250 Ann’l Total 200 Price Gain Return 150 High 930 (+20%) 5% Low 760 (-5%) Nil % TOT. RETURN 10/19 100 Institutional Decisions THIS VL ARITH.* STOCK INDEX 75 4Q2018 1Q2019 2Q2019 Percent 9 to Buy 147 164 134 1 yr. 29.6 4.9 shares 6 3 yr. 50.8 30.2 to Sell 160 146 181 traded 3 Hld’s(000) 11865 11910 11822 5 yr. 75.2 36.8 Alleghany Corporation traces its roots to 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 the 1920s and the Van Sweringen brothers. 91.67 86.09 87.43 221.01 252.84 274.73 272.22 322.89 321.96 341.30 392.85 407.15 P/C Prem Earned per sh A 471.45 The Kirby family’s control dates back to 11.06 14.01 12.74 18.53 27.77 28.65 28.24 28.46 29.31 34.33 40.85 36.50 Investment Inc per sh 38.75 1937. Originally a railroad holding company, 9.07 10.50 1.76 d9.28 14.65 15.08 29.94 26.15 d20.56 d10.92 51.05 57.00 Underwriting Inc per sh 66.00 Alleghany is primarily an insurance concern, 12.42 14.88 16.20 45.48 29.30 26.23 23.83 27.35 5.85 2.62 70.75 42.00 Earnings per sh A 47.00 with its overarching tenet to increase in------Nil Nil Div’ds Decl’d per sh Nil trinsic value per share over the long term. 294.80 326.03 342.12 379.13 414.38 466.05 486.15 515.24 553.22 527.62 621.45 657.15 Book Value per sh C 714.30 Divested Heads & Threads (steel fastener 9.22 8.92 8.55 16.89 16.77 16.05 15.54 15.41 15.39 14.58 14.00 14.00 Common Shs Outst’g B 14.00 importer) in ’04 and World Minerals (indus- 86% 88% 91% 87% 94% 90% 99% 101% 107% 115% Bold figures are Price to Book Value 118% trial minerals concern) in ’05. 20.4 19.2 19.2 7.3 13.3 16.0 20.2 19.0 NMF NMF Value Line Avg Ann’l P/E Ratio 18.0 estimates CAPITAL STRUCTURE as of 9/30/19 1.36 1.22 1.20 .46 .75 .84 1.02 1.00 NMF NMF Relative P/E Ratio 1.00 Total Debt None ------Avg Ann’l Div’d Yield Nil 845.0 768.1 747.6 3733.0 4239.2 4410.6 4230.3 4975.8 4955.0 4976.2 5500 5700 P/C Premiums Earned A 6600 Leases, Uncapitalized: Annual rentals $39.2 mill. 52.3% 49.2% 57.5% 70.5% 58.5% 56.6% 55.3% 58.6% 73.1% 70.7% 55.0% 54.0% Loss to Prem Earned 54.0% 37.8% 38.6% 40.5% 33.7% 35.7% 38.0% 41.8% 33.3% 33.3% 32.5% 32.0% 32.0% Expense to Prem Writ 32.0% Pension Assets-12/18 $3.3 mill. 9.9% 12.2% 2.0% -4.2% 5.8% 5.5% 2.9% 8.1% -6.4% -3.2% 13.0% 14.0% Underwriting Margin 14.0% Oblig. $32.3 mill. 26.3% 29.7% 24.9% 2.4% 31.4% 36.9% 25.8% 28.9% NMF NMF 21.0% 21.0% Income Tax Rate 21.0% 118.6 135.2 143.3 702.2 491.8 430.4 560.3 456.9 90.1 39.5 1000 590 Net Profit ($mill) 660 Pfd Stock None Common Stock 14,393,281 shs. 2.5% 2.8% 2.9% 1.7% 2.6% 2.5% 2.6% 2.5% 2.5% 2.9% 3.0% 3.0% Inv Inc/Total Inv 3.1% 6193 6432 6478 22808 23361 23489 22846 23757 25384 25345 26500 27500 Total Assets ($mill) 30000 2717.5 2908.9 2925.7 6403.8 6923.8 7473.4 7554.7 7939.9 8514.1 7692.7 8700 9200 Shr. Equity ($mill) 10000 MARKET CAP: $11.2 billion (Large Cap) 4.4% 4.6% 4.9% 11.0% 7.1% 5.8% 7.4% 5.8% 1.1% .5% 11.5% 6.5% Return on Shr. Equity 6.5% FINANCIAL POSITION 2017 2018 9/30/19 4.4% 4.6% 4.9% 11.0% 7.1% 5.8% 7.4% 5.8% 1.1% .5% 11.5% 6.5% Retained to Com Eq 6.5% ($MILL.) Bonds 12721.4 11824.0 14488.3 ------Nil Nil All Div’ds to Net Prof Nil Stocks 4099.5 3572.8 2092.3 BUSINESS: Alleghany Corporation is an insurance holding compa- investments through Alleghany Capital. Has 9,300 employees. Of- Cash 578.1 893.8 968.5 Other 7985.3 9054.3 8941.7 ny engaged in the property & casualty insurance businesses. Its ficers & directors own 3.4% of common stock; BlackRock, Inc., Total Assets 25384.3 25344.9 26490.8 P&C insurance business is conducted via the AIHL subsidiary, 10.2%; Vanguard Group, 8.9% (3/19 proxy). Chairman: Jefferson Unearned Prems 2182.3 2267.1 2495.7 which consists of RSUI, CapSpecialty, and PacificComp. W. Kirby. President & CEO: Weston M. Hicks. Incorporated: DE. Reserves 11871.3 12250.3 11634.0 Reinsurance operations are run through the TransRe unit. Al- Address: 1411 Broadway, 34th Floor, New York, NY 10018. Tele- Other 2710.1 2965.0 3351.6 leghany sources, executes, manages, and monitors private capital phone: 212-752-1356. Internet: www.alleghany.com. Total Liabilities 16763.7 17482.4 17481.3 Alleghany Corporation ought to keep not hesitate to put its ample warchest to ANNUAL RATES Past Past Est’d ’16-’18 its foot firmly pressed down on the work, with strategic bolt-on acquisitions of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Premium Inc 10.5% 18.5% 6.0% gas pedal through the final stanza of likely forthcoming. Invest Income 6.5% 13.5% 7.0% 2019. The excess & surplus business lines Reinsurance lines have rebounded Earnings 4.5% -1.5% 24.5% continue to benefit from a healthier un- nicely of late. In that vein, much of the Dividends - - - - Nil Book Value 8.0% 8.0% 5.0% derwriting environment, while more rate turnaround can be credited to the pur- hikes, improved policy terms, increased chase of the renewal rights to a block of Cal-NET PREMIUMS EARNED ($ mill.) Full submissions, and strong premium growth U.S. treaty business. Despite some foreign endarMar.31 Jun.30 Sep.30 Dec.31 Year have bolstered overall results at the RSUI currency headwinds, tighter underwriting 2016 1221.6 1261.5 1253.5 1239.2 4975.8 unit. Looking elsewhere, the TransRe seg- criteria and decreased risk exposure ought 2017 1209.2 1243.9 1239.7 1262.2 4955.0 ment has experienced a recovery for its to fortify loss ratios in this category. 2018 1207.9 1237.0 1225.3 1306.0 4976.2 2019 1297.3 1356.0 1390.0 1456.7 5500 casualty coverages, thanks to rising origi- The TransRe unit’s loss estimates may 2020 1390 1425 1435 1450 5700 nal rate trends on its proportional busi- shift. Though the company has included A ness and some modest reductions in ceding recent Typhoon Faxai (which made land- Cal-EARNINGS PER SHARE Full commissions. These growth drivers will fall in Japan) into its claims forecast, man- endarMar.31 Jun.30 Sep.30 Dec.31 Year probably more than offset a noticeable agement has stated that considerable un- 2016 7.00 1.50 8.33 10.52 27.35 bump in seasonal catastrophe loss activity certainty surrounds these figures due to 2017 9.67 6.60 d20.90 9.96 5.85 and pressure on investment returns from the location and nature of the event. Too, 2018 11.15 19.44 19.07 d48.30 2.62 2019 30.39 20.46 6.27 13.63 70.75 lower interest rates. Therefore, we are the impact of earlier Typhoon Hagibis has 2020 10.40 10.75 8.25 12.60 42.00 keeping intact our share-net estimate of not been fully tabulated. Thus, investors $70.75 for this year. will want to stay tuned for updates on in- Cal-QUARTERLY DIVIDENDS PAID Full The Alleghany Capital division con- sured loss numbers here. endarMar.31 Jun.30 Sep.30 Dec.31 Year tinues to stand out from the crowd. This timely issue holds below-average 2015 Revenue and earnings growth here has appreciation potential to 2022-2024. 2016 NO CASH DIVIDENDS been solid, as diverse business holdings Long-term accounts will want to wait for a 2017 BEING PAID (chiefly Jazwares and W&W/AFCO Steel) substantial pullback before initiating a 2018 2019 have supported the company’s core opera- position in this high-quality stock. tions. Management has hinted that it will Kenneth J. DeFranco, Jr. December 6, 2019 (A) Based on avg. annual shares outstanding. Next earnings report due late February. (B) In Company’s Financial Strength A Excludes realized gains/(losses): ’08, ($9.08); millions, adj’d for 2% annual stock div’d. Latest Stock’s Price Stability 100 ’10, $7.11. Qtrly. eps may not add due to paid 4/29/11. (C) Incl. intangibles. In 2018: Price Growth Persistence 65 rounding and changes in shares outstanding. $1008.3 mill., $69.16/share. Earnings Predictability 15 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 12.9 RELATIVE DIV’D VALUE ALLSTATE CORP. NYSE-ALL PRICE 110.64RATIO 10.1()Median: 12.0 P/E RATIO 0.57YLD 1.8% LINE 755 TIMELINESS 2 Raised 8/23/19 High: 52.9 33.5 35.5 34.4 42.8 54.8 71.5 72.9 74.8 105.4 104.5 111.8 Target Price Range Low: 17.7 13.8 26.9 22.3 27.0 40.7 49.2 54.1 56.0 73.0 77.0 80.2 2022 2023 2024 SAFETY 1 Raised 6/13/14 LEGENDS 15.0 x Earnings p sh 320 TECHNICAL Lowered 11/29/19 .... Relative Price Strength 3 Options: Yes BETA .80 (1.00 = Market) Shaded area indicates recession 200 18-Month Target Price Range 160 Low-High Midpoint (% to Mid) 120 100 $98-$139 $119 (5%) 80 2022-24 PROJECTIONS 60 Ann’l Total Price Gain Return 40 High 200 (+80%) 17% Low 160 (+45%) 11% % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 18 4Q2018 1Q2019 2Q2019 Percent 30 to Buy 378 406 413 1 yr. 13.5 4.9 shares 20 3 yr. 65.8 30.2 to Sell 491 445 452 traded 10 Hld’s(000) 262148 258146 253739 5 yr. 80.2 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 35.05 38.05 42.71 44.00 48.37 50.31 48.78 48.70 51.78 55.82 61.51 69.21 79.55 85.54 90.99 102.55 112.80 118.45 P/C Prem Earned per sh A 125.00 7.06 7.74 8.89 9.93 11.43 10.49 8.28 7.70 7.93 8.37 8.78 8.28 8.28 8.31 9.58 9.76 10.25 10.60 Investment Inc per sh 12.00 11.79 d4.05 d8.24 d.99 3.12 d1.96 d.58 d.58 d4.19 2.49 4.95 4.25 4.06 3.36 5.83 6.58 7.90 9.50 Underwriting Inc per sh 11.25 3.77 4.41 2.30 7.67 6.47 3.22 3.47 2.83 1.34 4.34 5.70 5.42 5.21 4.89 6.71 8.03 10.20 10.40 Earnings per sh B 12.00 .88 1.07 1.20 1.37 1.49 1.64 1.01 .80 .83 1.09 .75 1.12 1.18 1.29 1.45 1.84 2.00 2.04 Div’ds Decl’d per sh C 2.30 29.21 31.95 31.25 35.12 38.81 23.58 31.08 35.68 37.27 42.96 46.04 49.04 47.82 51.28 58.61 58.38 74.00 81.25 Book Value per sh 93.75 704.00 683.00 646.00 622.00 563.00 536.00 537.00 533.00 501.00 479.00 449.00 418.00 381.00 366.00 355.00 332.00 320.00 320.00 Common Shs Outst’g D 320.00 126% 146% 178% 164% 150% 183% 83% 86% 77% 82% 108% 121% 138% 131% 150% 162% Price to Book Value 190% 9.8 10.6 24.2 7.5 9.0 13.4 7.4 10.8 21.6 8.2 8.7 11.0 12.6 13.8 13.1 11.8 Bold figures are Avg Ann’l P/E Ratio 15.0 .56 .56 1.29 .40 .48 .81 .49 .69 1.35 .52 .49 .58 .63 .72 .66 .64 Value Line Relative P/E Ratio .85 2.4% 2.3% 2.2% 2.4% 2.6% 3.8% 3.9% 2.6% 2.9% 3.1% 1.5% 1.9% 1.8% 1.9% 1.6% 1.9% estimates Avg Ann’l Div’d Yield 1.3% CAPITAL STRUCTURE as of 9/30/19 26194 25957 25942 26737 27618 28929 30309 31307 32300 34048 36090 37900 P/C Premiums Earned A 40000 Total Debt $6630 mill. Due in 5 Yrs $1085 mill. 71.6% 73.0% 77.7% 69.1% 64.9% 67.2% 69.4% 71.0% 67.9% 67.1% 67.0% 66.0% Loss to Prem Earned 66.0% LT Debt $6630 mill. Total Interest $390 mill. 29.6% 28.2% 30.4% 26.4% 27.1% 26.7% 25.5% 25.1% 25.7% 26.5% 26.0% 26.0% Expense to Prem Writ 25.0% (20% of Cap’l) -1.2% -1.2% -8.1% 4.5% 8.0% 6.1% 5.1% 3.9% 6.4% 6.4% 7.0% 8.0% Underwriting Margin 9.0% Leases, Uncapitalized Annual rentals $130 mill. - - 20.9% - - 27.6% 21.0% 34.2% 34.8% 35.1% 37.7% 20.0% 20.0% 20.0% Income Tax Rate 20.0% Pension Assets 12/18: $5.3 bill. Oblig. $6.2 bill. 1876.0 1535.6 699.0 2143.0 2756.0 2379.3 2119.0 1843.0 2475.7 2954.0 3265 3330 Net Profit ($mill) 3840 Pfd Stock $1,930 mill. Pfd Div’d. $134 mill. 4.6% 4.2% 4.2% 4.2% 5.0% 4.4% 4.2% 3.9% 4.2% 4.1% 4.2% 4.5% Inv Inc/Total Inv 6.0% (6% of Cap’l) 132652 130874 125563 126947 123520 108533 104656 108610 112422 112249 114000 115750 Total Assets ($mill) 118000 Common Stock 323,956,116 shs. 16692 19016 18674 20580 21480 22304 20025 20573 22551 21312 23675 26000 Shr. Equity ($mill) 30000 10/14/19 MARKET CAP: $35.8 billion (Large Cap) 11.2% 8.1% 3.7% 10.4% 12.8% 10.7% 10.6% 9.0% 11.0% 13.9% 14.0% 13.0% Return on Shr. Equity 13.0% FINANCIAL POSITION 2017 2018 9/30/19 8.0% 5.8% 1.4% 7.8% 11.6% 8.9% 8.3% NMF 8.8% 11.4% 11.0% 10.5% Retained to Com Eq 10.5% ($MILL.) 29% 28% 62% 25% 13% 24% 28% 33% 26% 25% 20% 20% All Div’ds to Net Prof 19% Bonds 58992 57170 59259 Stocks 6621 5036 8206 BUSINESS: Allstate Corporation is the second-largest proper- sonal lines. Life insurance includes annuity, term, universal life, and Mortgages 4534 4670 4694 ty/casualty insurer, and one of the largest life insurers in the coun- whole life. BlackRock owns 8.2% of common shares outstanding; Other 41275 45373 48914 try. 2018 P/C division revenue breakdown: net premiums earned The Vanguard Group, 7.7%; officers & directors, 1.6% (4/19 proxy). Total Assets 112422 112249 121073 (91%); investment income (9%). Has approximately 45,700 employ- Chairman and Chief Executive Officer: Thomas J. Wilson. Address: Unearned Prems 13473 14510 15343 ees. Property/Casualty insurance is comprised of standard 2775 Sanders Road, Northbrook, Illinois 60062. Telephone: 847- Reserves P/C 26325 27423 28076 Other 50073 49004 51514 automobile, nonstandard automobile, homeowners, and other per- 402-5000. Internet: www.allstate.com. Total Liabilities 89871 90937 94933 Allstate will likely end a good 2019 on that Allstate will likely be up against diffi- ANNUAL RATES Past Past Est’d ’16-’18 a solid note. This is on the heels of a cult comparisons, so even a slight uptick of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 strong third quarter when the insurer reg- in earnings is good news. One factor to Premium Inc 7.0% 10.5% 5.0% istered operating earnings of $2.84 a keep an eye on is investment income. This Invest Income -1.5% 2.0% 4.5% Earnings 1.0% 11.5% 10.5% share, a sharp improvement over the pre- line item may come under pressure, as the Dividends - - 11.5% 7.0% vious year tally. (Operating earnings ex- Federal Reserve has reduced interest rates Book Value 5.5% 6.0% 9.0% clude capital gains and losses from the in- three times thus far in 2019. Allstate, like Cal-NET PREMIUMS EARNED A Full vestment portfolio.) Consolidated revenues many insurers, keeps a large portion of its endarMar.31 Jun.30 Sep.30 Dec.31 Year advanced 5.8%, to nearly $11.1 billion. investment portfolio in bonds, which are 2016 7723 7814 7869 7901 31307 What’s more, the combined ratio improved correlated to interest rates. 2017 7959 8018 8121 8202 32300 2.3%, to 91.6% for the September period. The company’s solid balance sheet, 2018 8286 8460 8595 8707 34048 This implies that the insurer generated strong brand name, and size give it a 2019 8802 8986 9094 9208 36090 $8.40 in pretax income for every $100 in leg up on many insurers, from our 2020 9400 9450 9500 9550 37900 policies insured. Catastrophe losses perspective. A good economy underscores Cal-EARNINGS PER SHARE B Full clocked in at $510 million during the peri- our long-term earnings projections. endarMar.31 Jun.30 Sep.30 Dec.31 Year od, an 18.4% decrease from last year’s These timely shares have appreciated 2016 .84 .62 1.26 2.17 4.89 comparable period. We look for the trends sharply in price since our September 2017 1.64 1.38 1.60 2.09 6.71 to remain largely the same during the De- report. We believe this may likely reflect 2018 2.96 1.90 1.93 1.24 8.03 cember period and look for share earnings the company’s solid results during the 2019 2.30 2.18 2.84 2.88 10.20 of $2.88, which would be a significant im- third period, and an overall good year. 2020 2.55 2.65 2.50 2.70 10.40 provement from the previous year’s $1.24. Even so, the shares have ample total re- Cal-QUARTERLY DIVIDENDS PAID C Full Of course, our estimate is based on a turn potential for the 3 to 5 years ahead. endarMar.31 Jun.30 Sep.30 Dec.31 Year normal level of catastrophes. 2019’s re- Their Highest (1) Safety score, coupled 2015 .28 .30 .30 .30 1.18 sults were constrained by significant with a decent dividend yield, ought to in- 2016 .30 .33 .33 .33 1.29 claims activity, which can be difficult to terest conservative investors. Moreover, 2017 .34 .37 .37 .37 1.45 predict. the stock’s Price Stability rating is at the 2018 .46 .46 .46 .46 1.84 We look for a decent bottom-line per- head of the pack (100 out of 100). 2019 .50 .50 .50 formance next year. It should be noted Alan G. House December 6, 2019 (A) Excludes life insurance. (C) Dividends historically paid late March, Company’s Financial Strength A+ (B) Egs. from ops. May not sum due to June, Sept., and Dec. Special dividend, rights Stock’s Price Stability 100 changes in shares outstanding. buyback, $0.01 per right, paid 1/2/04. (D) In Price Growth Persistence 95 Next earnings report due late Jan. millions. Earnings Predictability 65 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 13.2 RELATIVE DIV’D VALUE AMER. FINANCIAL GRP. NYSE-AFG PRICE 107.83RATIO 12.2()Median: 12.0 P/E RATIO 0.69YLD 1.7% LINE 756 TIMELINESS 2 Raised 8/23/19 High: 32.0 26.6 32.8 37.5 40.5 58.4 62.5 75.7 88.5 109.4 121.7 110.9 Target Price Range Low: 13.6 12.8 23.9 29.5 36.2 39.8 52.9 57.5 64.9 85.6 84.2 88.7 2022 2023 2024 SAFETY 2 Raised 9/12/14 LEGENDS 12.0 x Earnings p sh TECHNICAL 2 Raised 11/29/19 .... Relative Price Strength 200 3-for-2 split 12/06 160 BETA .90 (1.00 = Market) Options: Yes Shaded area indicates recession 18-Month Target Price Range 100 Low-High Midpoint (% to Mid) 80 60 $90-$137 $114 (5%) 50 2022-24 PROJECTIONS 40 Ann’l Total Price Gain Return 30 High 145 (+35%) 9% Low 105 (-5%) 1% 20 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 18 to Buy 179 182 183 1 yr. 5.7 4.9 shares 12 3 yr. 45.8 30.2 to Sell 185 183 185 traded 6 Hld’s(000) 56861 56686 58299 5 yr. 87.5 36.8 American Financial Group’s predecessor, 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 American Premier Group, was formed in 21.28 24.25 28.20 32.00 35.79 44.21 48.29 49.79 51.87 54.48 58.70 60.50 P/C Prem Earned per sh 69.75 1994 for the purpose of acquiring American 10.59 11.32 12.68 14.75 15.04 17.15 18.67 19.51 20.74 23.45 25.20 25.50 Investment Inc per sh 26.50 Financial Corp. and American Premier Un- 3.68 2.81 1.84 .98 1.62 2.42 2.39 2.50 2.46 3.12 4.70 5.45 Underwriting Inc per sh 7.00 derwriters (formerly known as Penn Central 4.23 3.92 3.53 3.26 4.22 4.82 5.43 6.02 6.56 8.40 8.70 8.80 Earnings per sh A 10.50 Corp.) in merger transactions completed in .52 .58 .66 .72 .81 .91 1.03 1.15 1.29 1.45 1.65 1.85 Div’ds Decl’d per sh B 2.25 April 1995. Over the years, AFG and its pre- 33.35 42.50 46.45 51.45 51.38 55.63 52.50 56.56 60.38 55.66 62.90 68.20 Book Value per sh 93.00 decessors have owned, operated and in- 113.39 105.17 97.85 88.98 89.51 87.71 87.47 86.92 88.28 89.29 89.00 88.00 Common Shs Outst’g C 86.00 vested in businesses in a variety of in- 66% 68% 74% 74% 98% 105% 127% 130% 164% 195% Bold figures are Price to Book Value 135% dustries. Generally, AFG’s interests have 5.2 7.3 9.7 11.7 11.9 12.1 12.3 12.2 15.1 12.9 Value Line Avg Ann’l P/E Ratio 12.0 been in insurance, savings and loans, leas- .35 .46 .61 .74 .67 .64 .62 .64 .76 .70 estimates Relative P/E Ratio .65 ing, banking, real estate, communica- 2.4% 2.0% 1.9% 1.9% 1.6% 1.6% 1.5% 1.6% 1.3% 1.3% Avg Ann’l Div’d Yield 1.8% tions/entertainment, and food distribution. 2412.5 2550.0 2759.0 2847.0 3233.0 3878.0 4224.0 4328.0 4579.0 4865.0 5225 5325 P/C Premiums Earned 6000 CAPITAL STRUCTURE as of 9/30/19 49.2% 57.1% 63.2% 65.8% 63.7% 64.3% 63.8% 63.8% 64.5% 61.7% 62.0% 61.0% Loss to Prem Earned 60.0% Total Debt $1423.0 mill. Due in 5 Yrs $1088 mill. 33.5% 31.3% 30.3% 31.2% 31.8% 30.2% 31.3% 31.2% 30.7% 32.5% 30.0% 30.0% Expense to Prem Writ 30.0% Total Interest $81.0 mill. 17.3% 11.6% 6.5% 3.1% 4.5% 5.5% 4.9% 5.0% 4.7% 5.7% 8.0% 9.0% Underwriting Margin 10.0% (18% of Cap’l) Leases, Uncapitalized Annual rentals $65.0 mill. 34.9% 40.3% 30.0% 37.5% 34.3% 35.9% 32.7% 34.2% 31.8% 19.7% 20.0% 20.0% Income Tax Rate 20.0% No Defined Benefit Pension Plan 493.3 433.0 364.0 313.0 385.0 438.0 485.2 534.0 588.0 761.0 775 780 Net Profit ($mill) 905 Pfd Stock None 6.4% 5.5% 5.1% 4.9% 4.5% 4.3% 4.6% 4.3% 4.2% 4.5% 5.1% 5.2% Inv Inc/Total Inv 5.6% 27683 32454 36042 39171 42087 47535 49859 55072 60658 63456 69000 70500 Total Assets ($mill) 73000 Common Stock 90,176,219 shs. 3781.1 4470.0 4545.0 4578.0 4599.0 4879.0 4592.0 4916.0 5330.0 4970.0 5600 6000 Shr. Equity ($mill) 8000 as of 11/1/19 MARKET CAP: $9.7 billion (Large Cap) 13.0% 9.7% 8.0% 6.8% 8.4% 9.0% 10.6% 10.9% 11.0% 15.3% 14.0% 13.0% Return on Shr. Equity 11.5% 11.5% 8.3% 6.5% 5.4% 6.8% 7.4% 8.6% 8.9% 8.9% 12.8% 11.0% 10.5% Retained to Com Eq 9.0% CURRENT POSITION 2017 2018 9/30/19 ($MILL.) 12% 15% 18% 22% 18% 18% 19% 18% 19% 17% 19% 21% All Div’ds to Net Prof 21% Bonds 38727 42102 45611 Stocks 1662 1814 2004 BUSINESS: American Financial Group, Inc. is engaged in property Casualty, and Specialty Financial. Acq’d American Financial Corp. Premiums Due 1146 1234 1403 and casualty insurance and is focused on specialized commercial 4/95. Has about 6,600 employees. The Lindner family owns 6.6% Other 19123 18306 20049 products for businesses, and in the sale of various annuities and of common stock. All other officers & directors own 11.9% (4/19 Total Assets 60658 63456 69067 supplemental insurance products. It conducts operations primary Proxy). Co-CEO’s: Carl H. Lindner III & S. Craig Lindner. In- Loss Reserves 33974 37251 40264 through its Property and Casualty Insurance segment, which com- corporated: OH. Address: 301 East 4th St., Cincinnati, OH 45202. Unearned Prems 2410 2595 2986 Other 18940 18638 19496 prises of three businesses: Property and Transportation, Specialty Telephone: 513-579-2121. Internet: www.afginc.com. Total Liabilities 55324 58484 62746 American Financial Group remains that vein, underwriting operations in the ANNUAL RATES Past Past Est’d ’16-’18 on track to register share net of $8.70 Specialty Casualty Group have lagged be- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 this year. Though a delayed planting of hind the pack. In addition, the outlook for Premium Inc 8.5% 10.0% 5.0% spring crops resulted in late acreage American Financial’s workers’ comp busi- Invest Income 9.0% 8.5% 4.0% Earnings 7.0% 14.0% 7.0% reporting, the company has experienced a ness is murky, due to difficult pricing fun- Dividends 12.0% 12.0% 9.5% noticeable uptick in gross and net written damentals and fierce competition. What’s Book Value 9.0% 3.0% 8.5% premiums. Meantime, a combination of more, a low interest-rate climate will prob- Cal-NET PREMIUMS EARNED ($ mill.) Full modest rate hikes, favorable reserve devel- ably keep a lid on demand for the insurer’s endarMar.31 Jun.30 Sep.30 Dec.31 Year opment, and reduced catastrophe loss ac- core annuity products. 2016 998 1027 1165 1138 4328 tivity has spurred increased profitability. We believe a more-aggressive invest- 2017 1022 1065 1273 1219 4579 These positives will likely persist for the ment strategy is likely in the cards 2018 1107 1161 1333 1264 4865 remainder of 2019, in our view. here. As is the case with many of its 2019 1173 1200 1448 1404 5225 The insurer has lifted its quarterly peers, AFG might opt to utilize a larger 2020 1200 1225 1475 1425 5325 cash dividend. On point, it raised the dosage of riskier investment classes, Cal-EARNINGS PER SHARE A Full payout by a nickel, or approximately 13%, namely equities, joint ventures, and alter- endarMar.31 Jun.30 Sep.30 Dec.31 Year to $0.45 a share. AFG has now boosted its native holdings, in order to offset weaker 2016 1.25 1.28 1.51 1.98 6.02 dividend the last 14 years, owing to its returns from its fixed-income positions. 2017 1.69 1.61 1.06 2.20 6.56 solid long-term prospects, healthy balance Though the overall portfolio should keep 2018 2.42 2.04 2.19 1.75 8.40 sheet, and management’s desire to bolster its more-conservative bent, we expect a 2019 2.02 2.12 2.25 2.31 8.70 shareholder value. modest climb for investment income three 2020 2.25 2.05 2.00 2.50 8.80 We are leaving our 2020 share- to five years hence. Cal-QUARTERLY DIVIDENDS PAID B Full earnings estimate unchanged, at This timely issue offers lackluster endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year $8.80, for now. We think subdued long-term appreciation potential. 2015 .25 .25 .25 .28 1.03 catastrophe loss levels, mild claims activ- Despite the latest increase, AFG’s divi- 2016 .28 .28 .28 .313 1.15 ity, reduced risk exposure, and loftier dend yield fails to stand out from the 2017 .313 .313 .313 .35 1.29 policy retention rates should aid the bot- crowd. Patient investors will want to hold 2018 .35 .35 .35 .40 1.45 tom line next year. Nevertheless, a few off buying this stock, for the time being. 2019 .40 .40 .40 .45 challenges still linger in the distance. In Kenneth J. DeFranco, Jr. December 6, 2019 (A) Diluted earnings. Excl. real. gain/(loss) in (B) Dividends historically paid in late January, Company’s Financial Strength B+ ’03 and thereafter. Quarterly earnings may not April, July, and October. Stock’s Price Stability 100 sum due to change in shares outstanding. Next (C) In millions. Price Growth Persistence 95 earnings report due late January. Earnings Predictability 85 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 16.3 RELATIVE DIV’D VALUE ARCH CAPITAL GROUP NDQ-ACGL PRICE 41.20RATIO 14.3()Median: 11.0 P/E RATIO 0.81YLD Nil LINE 757 TIMELINESS 1 Raised 6/14/19 High: 8.9 8.0 10.2 12.7 15.1 19.9 20.0 26.3 29.5 34.2 31.6 42.9 Target Price Range Low: 6.1 5.0 7.3 9.5 11.8 14.7 17.4 19.2 19.9 28.1 24.8 25.1 2022 2023 2024 SAFETY 1 Raised 9/12/14 LEGENDS 12.0 x Earnings p sh TECHNICAL Lowered 11/22/19 .... Relative Price Strength 80 2 3-for-1 split 5/11 BETA .80 (1.00 = Market) 3-for-1 split 6/18 60 Options: Yes 50 18-Month Target Price Range Shaded area indicates recession 3-for-1 40 Low-High Midpoint (% to Mid) 30 25 $36-$51 $44 (5%) 20 3-for-1 2022-24 PROJECTIONS 15 Ann’l Total Price Gain Return 10 High 50 (+20%) 5% Low 40 (-5%) Nil 7.5 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 30 to Buy 119 172 178 1 yr. 47.2 4.9 shares 20 3 yr. 60.7 30.2 to Sell 177 132 156 traded 10 Hld’s(000) 321995 323363 324510 5 yr. 122.4 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 8.64 9.28 4.51 4.61 4.86 5.25 5.77 6.09 6.53 7.31 7.84 9.41 10.15 10.55 12.33 13.00 14.25 14.80 P/C Prem Earned per sh 17.50 .32 .46 .35 .57 .76 .86 .79 .87 .84 .73 .67 .79 .95 1.00 1.20 1.40 1.60 1.65 Investment Inc per sh 1.85 1.45 1.51 .60 1.12 1.35 .93 1.41 1.42 1.09 1.41 2.25 2.66 2.72 2.77 2.80 3.82 2.00 2.20 Underwriting Inc per sh 2.80 1.18 1.12 .38 1.01 1.25 .45 1.53 1.73 .99 1.34 1.69 1.71 1.67 1.54 1.07 2.20 2.80 2.95 Earnings per sh A 3.75 ------Nil Nil Div’ds Decl’d per sh Nil 3.53 4.64 3.76 4.89 6.12 5.73 8.11 10.00 10.68 12.06 13.27 15.19 15.98 17.32 19.94 21.52 25.25 27.70 Book Value per sh 33.05 253.80 314.13 660.01 668.43 605.87 542.36 492.86 418.90 403.08 401.53 401.02 382.10 367.88 368.36 392.93 402.46 405.00 405.00 Common Shs Outst’g B 400.00 109% 95% 132% 137% 126% 133% 85% 87% 103% 110% 133% 124% 140% 143% 159% 132% Bold figures are Price to Book Value 136% 3.2 4.0 13.0 6.6 6.2 16.8 4.5 5.1 11.1 9.9 10.5 11.0 13.4 16.1 29.5 12.9 Value Line Avg Ann’l P/E Ratio 12.0 .18 .21 .69 .36 .33 1.01 .30 .32 .70 .63 .59 .58 .67 .85 1.48 .70 estimates Relative P/E Ratio .65 ------Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 2842.7 2552.5 2631.8 2935.1 3146.0 3593.7 3733.9 3884.8 4844.6 5232.0 5775 6000 P/C Premiums Earned 7000 Total Debt $2362.1 mill. Due in 5 Yrs $1500.0 mill. 58.2% 59.5% 65.6% 63.4% 53.4% 53.4% 54.9% 56.3% 61.3% 55.2% 59.0% 58.0% Loss to Prem Earned 57.0% LT Debt $1871.4 mill. LT Interest $118.0 mill. ------27.0% 27.0% Expense to Prem Writ 27.0% 41.8% 40.5% 34.4% 36.6% 46.6% 46.6% 45.1% 43.7% 38.7% 44.8% 14.0% 15.0% Underwriting Margin 16.0% (14% of Cap’l) 2.3% .9% - - - - 4.4% 3.1% 15.8% 3.9% 22.7% 12.2% 5.0% 5.0% Income Tax Rate 5.0% Leases, Uncapitalized Annual rentals $31.1 mill. 876.9 842.6 436.4 593.4 709.7 712.9 655.3 605.5 499.9 953.5 1135 1195 Net Profit ($mill) 1500 3.8% 3.4% 3.3% 2.5% 2.2% 2.1% 2.2% 1.8% 2.3% 2.7% 2.8% 2.9% Inv Inc/Total Inv 3.1% Pfd Stock $780.0 mill. Pfd. Div $68.1 mill. 15376 15771 17142 17817 19566 22010 23177 29372 32052 32218 35500 37000 Total Assets ($mill) 41000 4323.3 4513.0 4628.5 5168.9 5647.5 6130.1 6204.9 8253.7 9196.6 9439.8 11000 12000 Shr. Equity ($mill) 14000 Common Stock 405,308,162 shs. 20.3% 18.7% 9.4% 11.5% 12.6% 11.6% 10.6% 7.3% 5.4% 10.1% 10.5% 10.0% Return on Shr. Equity 10.5% MARKET CAP: $16.7 billion (Large Cap) 20.3% 19.7% 9.4% 11.5% 12.6% 11.6% 10.6% 7.3% 5.4% 10.1% 10.5% 10.0% Retained to Com Eq 10.5% FINANCIAL POSITION 2017 2018 9/30/19 ------Nil Nil All Div’ds to Net Prof Nil ($MILL.) Bonds 13876.0 14699.0 16470.5 BUSINESS: Arch Capital Group, Ltd. provides insurance and tion insurance. The company reinsures third party liability and Stocks 495.8 338.9 550.5 reinsurance products worldwide. It offers casualty, construction, ex- workers’ comp. exposures; individual property risks that include Other 17679.9 17180.4 18551.6 ecutive assurance, healthcare, national accounts casualty, profes- personal lines and commercial property exposures; specialty lines. Total Assets 32051.7 32218.3 35572.6 sional liability, programs, surety, travel & accident, collateral pro- Has 3,642 employees. Chairman & C.E.O.: Constantine Iordanou. Unearned Prems 3622.3 3753.6 4243.4 tection, excess workers’ comp., employers’ liability, and alternative Add.: Waterloo House, Ground Floor, 100 Pitts Bay Road, Pem- Reserves 11383.8 11853.3 12389.4 markets business. It also issues property, energy, marine, and avia- broke HM 08. Tel.: 441-278-9250. Internet: www.archcapgroup.bm. Other 6799.6 6173.8 6878.0 Total Liab’ties 21805.7 21780.7 23510.8 Arch Capital Group ought to sail downturn by purchasing insurance-linked ANNUAL RATES Past Past Est’d ’16-’18 through the remainder of this year notes against mortgage coverages. of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 with the wind at its back. Indeed, rising Meantime, Arch seems to be wrapping up Premium Inc 9.5% 10.5% 6.5% premiums in the specialty, reinsurance, its acquisition of Barbican Group, seeking Invest Income 5.0% 10.0% 7.5% Earnings 6.0% 3.5% 15.0% and mortgage product categories have to bolster its market share and margins in Dividends - - - - Nil fueled the top line here. A spike in loss the Lloyd’s insurance segment. Positive Book Value 13.5% 10.5% 9.0% trends across the P&C industry has paved operating fundamentals ought to stay in- Cal-NET PREMIUMS EARNED Full the way for meaningful rate hikes, which tact next year, as reduced capacity, more- endarMar.31 Jun.30 Sep.30 Dec.31 Year should support improved profitability and normalized loss patterns, and solid reten- 2016 951.6 1006.0 958.4 968.8 3884.8 reserve development moving forward. The tion levels give way to loftier premiums 2017 1117.0 1240.9 1261.9 1224.8 4844.6 company’s conservative underwriting ap- and stronger underwriting metrics. 2018 1234.9 1336.8 1290.9 1369.4 5232.0 proach has helped preserve the combined Reinsurance lines have shown 2019 1368.9 1463.7 1438.0 1504.4 5775 ratio, leading to healthy levels of un- renewed strength of late. On point, the 2020 1475 1500 1500 1525 6000 derwriting income. Finally, ACGL’s invest- combined ratio here sits at just south of Cal-EARNINGS PER SHARE A Full ment portfolio continues to perform nicely, 93%, indicating good profitability. More- endarMar.31 Jun.30 Sep.30 Dec.31 Year with the insurer taking advantage of over, management’s decision to focus on 2016 .33 .44 .39 .38 1.54 elevated returns on its equity holdings. All distressed niche sectors has boosted writ- 2017 .47 .41 d.26 .45 1.07 told, Arch remains on pace to deliver share ten premiums for these coverages. Looking 2018 .56 .59 .59 .46 2.20 net of about $2.80 for 2019. ahead, we expect a greater amount of 2019 .67 .77 .63 .73 2.80 We think the bottom line will tack on multi-year treaties to lift results. 2020 .72 .81 .67 .75 2.95 some $0.15 in 2020, finishing around These shares have held onto our High- Cal-QUARTERLY DIVIDENDS PAID Full $2.95 per share when all of the dust est rank (1) for Timeliness. That said, endarMar.31 Jun.30 Sep.30 Dec.31 Year settles. A mix of stronger credit quality long-term accounts will notice that this is- 2015 statistics and a relatively stable real sue presently trades inside the low end of 2016 NO CASH DIVIDENDS estate market will likely propel demand our 3- to 5-year Target Price Range, large- 2017 BEING PAID for mortgage originations and policies. It’s ly limiting ACGL’s capital appreciation 2018 important to note, however, that the in- potential for that span. 2019 surer mitigates its risk of an economic Kenneth J. DeFranco, Jr. December 6, 2019 (A) Dil. earnings. Includes cap. gains/(losses) (B) In millions, adjusted for stock splits. Company’s Financial Strength A through 2013. Excl. cap. gains/(losses) ’14 and Stock’s Price Stability 100 thereafter. Egs. may not sum due to rounding. Price Growth Persistence 90 Next EPS report due mid-February. Earnings Predictability 45 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 23.1 RELATIVE DIV’D VALUE BERKLEY (W.R.) NYSE-WRB PRICE 68.16RATIO 22.6()Median: 15.0 P/E RATIO 1.28YLD 0.6% LINE 758 TIMELINESS 1 Raised 9/6/19 High: 20.8 20.7 19.2 24.0 26.9 30.4 36.1 39.0 44.6 48.8 53.8 77.5 Target Price Range Low: 11.1 12.4 15.9 17.7 22.2 25.4 25.2 31.6 31.7 41.3 44.7 47.4 2022 2023 2024 SAFETY 1 Raised 3/13/15 LEGENDS 16.0 x Earnings p sh 128 TECHNICAL 2 Lowered 11/29/19 .... Relative Price Strength 3-for-2 split 4/06 3-for-2 96 BETA .85 (1.00 = Market) 3-for-2 split 4/19 80 Options: Yes 18-Month Target Price Range Shaded area indicates recession 64 Low-High Midpoint (% to Mid) 48 40 $57-$81 $69 (0%) 32 2022-24 PROJECTIONS 24 Ann’l Total Price Gain Return 16 High 75 (+10%) 3% Low 60 (-10%) -2% 12 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 15 to Buy 189 160 382 1 yr. 41.1 4.9 shares 10 3 yr. 94.5 30.2 to Sell 162 174 55 traded 5 Hld’s(000) 132036 130109 129843 5 yr. 121.4 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 11.47 14.28 15.55 16.23 17.24 17.71 16.21 18.13 20.17 22.91 26.35 30.21 32.66 34.62 34.63 34.82 36.30 39.60 P/C Prem Earned per sh 52.80 .75 1.02 1.41 2.03 2.49 2.22 2.35 2.55 2.55 2.88 2.74 3.16 2.77 3.10 3.16 3.68 4.20 4.60 Investment Inc per sh 6.00 .53 .89 1.12 1.94 2.14 1.38 .94 1.00 .35 .66 .83 1.44 2.59 1.97 d.28 1.60 1.45 2.00 Underwriting Inc per sh 3.15 .96 1.38 1.77 2.29 2.49 1.97 1.49 1.80 1.39 1.75 2.04 2.41 2.27 2.27 1.61 2.69 3.05 2.95 Earnings per sh A 4.30 .08 .09 .09 .10 .13 .15 .16 .18 .21 .23 .25 .29 .31 .33 .36 .39 .42 .44 Div’ds Decl’d per sh B .60 5.97 7.42 8.95 11.53 13.20 12.58 15.31 17.51 19.47 21.25 22.03 24.32 24.89 27.76 29.69 29.72 32.05 34.85 Book Value per sh 48.35 281.94 284.42 286.90 289.16 270.48 242.20 234.83 211.51 206.28 204.03 198.35 190.12 184.96 181.79 182.27 182.99 182.00 180.00 Common Shs Outst’g C 180.00 158% 166% 184% 206% 159% 140% 104% 101% 107% 117% 128% 125% 141% 136% 154% 167% Price to Book Value 145% 9.8 8.9 9.3 10.4 8.4 9.0 10.7 9.8 14.9 14.2 13.9 12.6 15.4 16.6 28.3 18.5 Bold figures are Avg Ann’l P/E Ratio 16.0 .56 .47 .50 .56 .45 .54 .71 .62 .93 .90 .78 .66 .78 .87 1.42 1.00 Value Line Relative P/E Ratio .90 .8% .7% .5% .4% .6% .9% 1.0% 1.0% 1.0% .9% .9% .9% .9% .9% .8% .8% estimates Avg Ann’l Div’d Yield .8% CAPITAL STRUCTURE as of 9/30/19 3805.8 3835.6 4160.9 4673.5 5227.0 5744.0 6040.6 6293.3 6311.4 6371.6 6610 7125 P/C Premiums Earned 9500 Total Debt $2342.8 mill. Due in 5 Yrs $870 mill. 61.4% 60.2% 63.9% 63.1% 61.2% 60.8% 58.9% 61.1% 63.4% 62.4% 63.0% 63.0% Loss to Prem Earned 64.0% LT Debt $2342.8 mill. LT Interest $85.0 mill. 32.8% 34.3% 34.4% 34.0% 33.9% 33.0% 32.4% 32.5% 37.4% 33.0% 33.0% 32.0% Expense to Prem Writ 30.0% 5.8% 5.5% 1.7% 2.9% 4.9% 6.2% 8.7% 6.4% -.8% 4.6% 4.0% 5.0% Underwriting Margin 6.0% (28% of Cap’l) 4.0% 26.1% 21.5% 22.1% 25.8% 29.7% 30.1% 28.5% 56.6% 35.3% 20.0% 20.0% Income Tax Rate 20.0% Leases,Uncapitalized $46.6 million 367.0 421.1 308.3 382.9 423.2 488.9 446.6 448.2 330.8 516.7 555 530 Net Profit ($mill) 775 No Defined Benefit Pension Plan 4.2% 4.1% 4.2% 4.3% 4.0% 4.0% 3.5% 3.5% 3.4% 3.9% 3.8% 4.2% Inv Inc/Total Inv 6.0% Pfd Stock None 17329 17529 18488 20156 20552 21717 21731 23365 24300 24896 26000 27250 Total Assets ($mill) 29000 Common Stock 183,674,708 shs. 3596.1 3702.9 4015.9 4335.5 4369.4 4624.1 4603.2 5047.2 5411.3 5437.9 5835 6275 Shr. Equity ($mill) 8700 as of 11/4/19 10.2% 11.4% 7.7% 8.8% 9.7% 10.6% 9.7% 8.9% 6.1% 9.5% 9.5% 8.5% Return on Shr. Equity 9.0% MARKET CAP: $12.5 billion (Large Cap) 9.4% 10.0% 6.6% 7.7% 8.5% 9.4% 8.4% 7.7% 4.9% 8.2% 8.0% 7.0% Retained to Com Eq 8.0% FINANCIAL POSITION 2017 2018 9/30/19 8% 12% 14% 13% 12% 11% 13% 14% 20% 14% 14% 15% All Div’ds to Net Prof 14% ($MILL.) Bonds 13551.3 13606.8 14086.1 BUSINESS: W.R. Berkley Corp. is an insurance holding company, Liab., 32%; Workers’ Comp., 23%; Short-Tail Lines, 23%; Prof. Stocks 576.6 279.0 443.7 operating in domestic property/casualty insurance, reinsurance, Liab., 12%; Commercial Auto, 10%. Has about 7,448 employees. Other 10172.1 11010.2 11688.7 and international insurance. Domestic property/casualty operations Officers & directors own 21.7% of common stock (4/19 Proxy). Total Assets 24300.0 24896.0 26218.5 are primarily concentrated in the southern and midwestern United Chairman: William Berkley. Pres. and CEO: W. Robert Berkley. Unearned Prems 3290.2 3360.0 3691.3 States. The International unit underwrites policies in about 40 coun- Inc.: DE. Addr.: 475 Steamboat Road, Greenwich, CT 06830. Tele- Reserves 11670.4 11966.4 12397.0 tries. 2018 gross written premium breakdown by segment: Other phone: 203-629-3000. Internet: www.berkley.com. Other 3888.2 4131.7 4030.8 Total Liab’ties 18848,8 19458.1 20119.1 WR Berkley shares have lost a bit of son thus far in 2019. What’s more, the ANNUAL RATES Past Past Est’d ’16-’18 ground over the past three months, Federal Reserve has lowered interest rates of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 despite posting solid bottom-line com- three times since July of this year, which Premium Inc 7.5% 8.5% 7.5% parisons. While its difficult to gauge the will ultimately reduce bond reinvestment Invest Income 4.0% 4.0% 10.5% Earnings -.5% 5.0% 12.0% exact cause of the share-price retreat, we rates. Hence, despite a likely solid showing Dividends 11.0% 9.5% 9.0% think that investors may be a bit con- during the fourth quarter, we look for com- Book Value 9.0% 7.0% 9.0% cerned that the prolonged secular upturn parisons to become more difficult once the Cal-NET PREMIUMS EARNED ($ mill.) Full in the property/casualty insurance indus- calendar turns to 2020. endarMar.31 Jun.30 Sep.30 Dec.31 Year try may be on its last legs. The insurance Berkley’s balance sheet is in pretty 2016 1527 1559 1585 1620 6293.3 industry has had all of its ducks in a row good shape. Reserves to our forecast for 2017 1570 1568 1581 1591 6311.4 for quite some time, as price increases, at- anticipated losses are solid, which provide 2018 1567 1581 1603 1619 6371.6 tractive industry capacity, elevated bond a nice cushion during periods of higher 2019 1593 1647 1677 1693 6610 yields, and air-tight balance sheets have catastrophe activity. What’s more, 2020 1730 1770 1800 1825 7125 worked together to push earnings higher. reserves can affect the income statement. Cal-EARNINGS PER SHARE A Full We will discuss our concerns in more Indeed, if a company is underreserved it endarMar.31 Jun.30 Sep.30 Dec.31 Year granularity in the paragraphs below. would have to delve into its coffers, which 2016 .59 .55 .59 .54 2.27 We look for earnings to make a would result in a hit to the income state- 2017 .47 .43 .22 .49 1.61 healthy leap forward this year before ment. Conversely, if a company is over- 2018 .67 .65 .75 .62 2.69 taking a couple of steps back in 2020. reserved it may be able to release reserves, 2019 .66 .82 .85 .72 3.05 However, we believe this requires an ex- which is accretive to the bottom line. 2020 .71 .73 .72 .79 2.95 planation. As noted above, it appears that These shares are primarily suitable Cal-QUARTERLY DIVIDENDS PAID B Full the broader P/C insurance industry may for short-term accounts. Indeed, they endarMar.31 Jun.30 Sep.30 Dec.31 Year be due for a breather following several are ranked Highest (1) for year-ahead rel- 2015 .073 .073 .08 .08 .31 years of robust results. Rate increases may ative price action. However, for both the 2016 .08 .08 .087 .087 .33 become increasingly difficult to come by, 18 months ahead and the pull to 2022- 2017 .087 .087 .087 .087 .37 as industrywide catastrophes, in ag- 2024, these shares have limited appeal at 2018 .093 .093 .10 .10 .39 gregate, have been on the lighter side the recent valuation. 2019 .10 .10 .11 .11 ,reflecting a relatively quiet hurricane sea- Alan G. House December 6, 2019 (A) Diluted earnings per share. Excl. nonrecurr. ’18, 65¢. Incl. real. loss: ’04, 1¢. Next earnings on 12/31/12 and 12/30/14; 33¢/share paid on Company’s Financial Strength A gains/(losses): ’04, 14¢; ’06, 2¢; ’07, 3¢; ’08, report due late Jan. 10/5/16, 7/5/17, 11/29/17, 6/18/18, 10/3/18. Stock’s Price Stability 100 (87¢); ’09, (25¢); ’10, 13¢; ’11, 41¢; ’12, 62¢; (B) Div’ds. historically paid in mid-Feb, May, and 12/12/18 . Price Growth Persistence 85 ’13, 33¢; ’14, 83¢; ’15, 31¢; 16, 85¢; ’17, $1.23; Aug, and Nov. Paid special div’ds. of 67¢/share (C) In mill., adj. for splits. Earnings Predictability 60 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 21.6 RELATIVE DIV’D VALUE BERKSHIRE HATH. ‘B’ NYSE-BRKB PRICE 219.06RATIO 19.8()Median: NMF P/E RATIO 1.12YLD Nil LINE 759 TIMELINESS 2 Raised 12/6/19 High: 97.2 71.4 85.9 87.6 90.9 119.3 152.9 151.7 167.3 200.5 224.1 223.4 Target Price Range Low: 42.9 44.8 64.7 65.4 75.9 91.3 108.1 125.5 123.6 158.6 184.7 191.0 2022 2023 2024 SAFETY 1 New 6/18/10 LEGENDS 1.5 x Book value p sh C 320 TECHNICAL Lowered 9/6/19 .... Relative Price Strength 3 50-for-1 split 1/10 BETA .95 (1.00 = Market) Options: Yes 200 Shaded area indicates recession 18-Month Target Price Range 160 Low-High Midpoint (% to Mid) 120 100 $181-$299 $240 (10%) 80 2022-24 PROJECTIONS 60 Ann’l Total Price Gain Return 40 High 265 (+20%) 5% Low 215 (Nil) Nil % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 18 4Q2018 1Q2019 2Q2019 Percent 12 to Buy 1182 1113 1044 1 yr. 3.6 4.9 shares 8 3 yr. 47.3 30.2 to Sell 870 983 1006 traded 4 Hld’s(000) 887492 898500 915470 5 yr. 51.7 36.8 Berkshire Hathaway ’B’ shares were intro- 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 duced in May, 1996. At that time, each ’B’ 11.98 12.44 12.95 14.02 14.88 16.74 16.75 18.60 24.56 23.29 24.20 25.20 Premiums Earned p sh 28.55 was worth 1/30 of a Berkshire ‘A’ share. In 4.76 4.54 2.62 3.87 5.31 4.28 6.93 5.87 3.53 3.11 5.45 6.00 Invest. Inc (loss) p sh 7.35 February, 2010, the company acquired rail- 31.60 38.11 42.45 46.92 53.70 67.98 61.83 66.19 53.86 56.40 56.55 58.00 Other Income p sh 65.30 road Burlington Northern Santa Fe. As part 1.51 2.49 2.14 2.73 3.30 3.18 2.95 2.94 3.17 3.70 4.40 4.85 Underwriting Income p sh 6.00 of that transaction, Berkshire split the ‘B’ 3.46 5.29 4.14 5.24 7.89 8.06 9.77 9.77 6.43 10.04 10.75 10.30 Earnings p sh AC 12.00 shares 50-to-1. Now, each ‘B’ share is worth ------Nil Nil Div’ds Decl’d p sh Nil 1/1500 of an ‘A’. 58.36 65.90 68.23 77.73 91.05 98.62 104.91 116.11 141.16 141.42 152.75 154.75 Book Value p sh B 167.35 2326.8 2472.2 2476.2 2464.8 2454.4 2464.3 2465.2 2466.2 2467.4 2465.7 2475.0 2475.0 Common Shs. Outst’g C 2450.0 EQUITY INVESTMENTS as of 9/30/19 107% 119% 115% 93% 121% 132% 133% 124% 124% 144% Price to Book Value 145% Positions (12) of $3.5 billion or more: 18.1 14.8 19.0 15.9 14.0 16.2 14.3 14.7 27.2 20.3 Bold figures are Avg Ann’l P/E Ratio 20.0 Wells Fargo (409,803,773 shares) 1.20 .94 1.19 1.00 .79 .85 .73 .77 1.33 1.10 Value Line Relative P/E Ratio 1.10 Coca Cola Co. (400,000,000 shares) ------estimates Avg Ann’l Div’d Yield Nil Bank of New York Mellon (80,937,250 shares) American Express (151,610,700 shares) 27784 30749 32075 34545 36684 41253 41294 45881 60597 57418 59880 62350 Premiums Earned 70000 Goldman Sachs (18,353,635 shares) 11073 11217 6488 9539 13081 10539 17092 14484 8710 7678 13500 14850 Investment Income (loss) 18000 Delta Airlines (70,910,456 shares) 73536 94219 105125 115648 132385 142881 152435 163239 132887 139068 140000 145000 Other Income 160000 U.S. Bancorp (132,459,618 shares) 65.5% 58.8% 64.9% 58.2% 58.0% 64.0% 64.2% 67.4% 71.4% 69.5% 66.0% 66.0% Loss to Prem. Earned 65.0% Bank of America (927,248,600 shares) Kraft Heinz (325,634,818 shares) 21.9% 20.0% 18.6% 22.3% 19.8% 17.0% 18.2% 16.8% 15.7% 14.6% 15.0% 15.0% Expense to Prem Written 14.0% Apple (249,589,329 shares) 12.6% 21.2% 16.5% 19.5% 22.2% 19.0% 17.6% 15.8% 12.9% 15.9% 19.0% 19.0% Underwriting Margin 21.0% Moody’s (24,669,778 shares) 30.6% 29.4% 29.8% 31.1% 31.1% 28.2% 30.1% 27.4% 28.0% 8.0% 20.0% 20.0% Income Tax Rate 20.0% JPMorgan Chase (70,186,000 shares) 8055 12967 10254 12916 19476 19860 24083 24095 15865 24760 26600 25500 Net Profit ($mill) 29400 Market Value of all equities: $207 bill. 135785 162934 168961 191588 224485 243027 258627 286359 348296 348703 378000 383000 Shr. Equity ($mill) B 410000 Common Stock 2,445,047,487 Class B shares 5.9% 8.0% 6.1% 6.7% 8.7% 8.2% 9.3% 8.4% 4.6% 7.1% 7.0% 6.5% Return on Shr. Equity 7.0% Includes 707,755 Class A shares, as if converted. ------Nil Nil All Div’ds to Net Prof Nil as of 10/24/19 BUSINESS: Berkshire Hathaway Inc. is a holding company owning fractional ownership programs for general aviation (NetJets), ener- MARKET CAP: $537 billion (Large Cap) subsidiaries engaged in property and casualty insurance on a direct gy (Mid-American Energy). Has approximately 377,291 employees. FINANCIAL POSITION 2017 2018 9/30/19 and reinsurance basis through GEICO, General Re and Berkshire Officers & directors control 20.3% of voting power (3/19 proxy). ($MILL.) Bonds 2135 19898 19172 Reinsurance. Other business activities include electric utilities, rail- Chrmn. & CEO: Warren E. Buffett. Vice Chrmn.: Charles T. Stocks 164026 172757 220051 roads, flight training services, candy manufacturing, ice cream, Munger. Inc.: DE. Addr.: 3555 Farnam Street, Omaha, Nebraska Cash 103975 109255 128154 building products, newspapers, retailing, fine jewelry, etc. Also, 68131. Tel.: 402-346-1400. Internet: www.berkshirehathaway.com. Other 412741 405884 421105 Total Assets 702095 707794 788482 Berkshire Hathaway will likely end a 2020. One factor that bears watching is in- Unearned Prems 16040 18093 20764 good 2019 with solid bottom-line re- vestment income trends. A few interest- Reserves 104059 110292 113361 sults. The third quarter was especially rate reductions by the Federal Reserve Other 230042 226909 252799 strong for the company with earnings from will likely result in lower bond reinvest- Total Liabilities 350141 355294 386924 operations dialing in at $3.21 a share, ment yields in 2020. This might make ANNUAL RATES Past Past Est’d ’16-’18 representing a year-over-year advance of gains in investment income more difficult of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Earnings p sh 6.0% 12.0% 6.0% 15.1%. Profits were strong across the to come by. What’s more, a relatively tame Dividends - - - - Nil board with the P/C Insurance, Railroad, catastrophe year in 2019 will likely make Book Value 10.0% 11.0% 6.0% Utilities & Energy, and Manufacturing, rate increases difficult to come by next Cal-NET PREMIUMS EARNED($ mill.) Full Service & Retailing segments posting year. We believe that Berkshire’s diversity endarMar.31 Jun.30 Sep.30 Dec.31 Year gains on a year-over-year basis. The insur- will help it withstand sluggish conditions 2016 11124 10799 11364 12594 45881 ance segment received a shot in the arm in any one of its markets. 2017 21753 12367 13349 13128 60597 from rate increases, increased bond yields, Berkshire shares are currently in the 2018 13373 14149 14333 15563 57418 and a scarcity of catastrophes during the good graces of our momentum-based 2019 14319 14863 15323 15375 59880 year. Worth noting: We began reporting Timeliness Ranking System. However, 2020 15400 15500 15650 15800 62350 Berkshire’s earnings on an operating basis long-term capital gains potential is limited Cal-EARNINGS PER SHARE A Full beginning in 2018 as we believe that this at the recent valuation. It should be noted endarMar.31 Jun.30 Sep.30 Dec.31 Year is more indicative of the company’s un- that acquisitions have been a significant 2016 2.27 2.03 2.92 2.55 9.77 derlying operations. part of Berkshire’s long-term growth stra- 2017 1.65 1.73 1.65 1.40 6.43 We look for the industry behemoth to tegy, which may prove our estimates con- 2018 2.14 2.79 2.79 2.32 10.04 take a step back next year, though we servative. As per Value Line convention, 2019 2.26 2.50 3.21 2.78 10.75 feel this requires an explanation. The we don’t include acquisitions in our projec- 2020 2.50 2.55 2.60 2.65 10.30 broader insurance industry was firing on tions until they are consummated. On an- Cal-QUARTERLY DIVIDENDS PAID Full ally cylinders for the better part of 2019, other note, the stock’s Price Stability endarMar.31 Jun.30 Sep.30 Dec.31 Year as solid investment returns, pricing gains, rating is at the head of the pack, which 2017 and a relatively mundane hurricane sea- may entice conservative accounts to take a 2018 NO DIVIDENDS son made for a good year. We believe that look here. 2019 BEING PAID this will make for a difficult comparison in Alan G. House December 6, 2019 (A) Based on diluted shares outstanding. Earn- (B) Incl. goodwill and other intang. In 6/30/19, (C) In mill. Split B shares 50-to-1 in January Company’s Financial Strength A++ ings include investment gains/(losses) and $112.3 billion; $45.82/share. 2010. Each B share is now worth 1/1500 of an Stock’s Price Stability 100 derivative gains and losses prior to 2018. Next A share. Price Growth Persistence 90 earnings report due late Jan. Earnings Predictability 60 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 17.4 RELATIVE DIV’D VALUE CNA FINANCIAL NYSE-CNA PRICE 44.14RATIO 13.9()Median: 12.0 P/E RATIO 0.79YLD 3.2% LINE 760 TIMELINESS 3 Lowered 11/8/19 High: 35.0 26.5 29.5 31.5 31.5 42.9 43.7 43.7 42.3 55.6 55.4 50.5 Target Price Range Low: 8.5 6.4 21.7 21.2 25.7 28.5 35.7 33.8 28.0 40.0 41.5 42.3 2022 2023 2024 SAFETY 2 Raised 9/9/16 LEGENDS 15.0 x Earnings p sh 128 TECHNICAL 2 Lowered 12/6/19 .... Relative Price Strength Options: Yes 96 BETA 1.00 (1.00 = Market) Shaded area indicates recession 80 18-Month Target Price Range 64 Low-High Midpoint (% to Mid) 48 40 $40-$61 $51 (15%) 32 2022-24 PROJECTIONS 24 Ann’l Total Price Gain Return 16 High 105 (+140%) 26% Low 75 (+70%) 16% 12 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 6 to Buy 84 94 92 1 yr. 11.5 4.9 shares 4 3 yr. 51.1 30.2 to Sell 96 101 96 traded 2 Hld’s(000) 270031 269177 269409 5 yr. 67.7 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 31.06 28.11 26.89 25.70 25.26 24.32 22.78 22.05 22.42 23.47 24.90 24.66 23.58 23.62 23.78 24.99 25.55 29.05 P/C Prem Earned per sh 35.20 7.37 6.54 7.39 8.90 8.96 6.02 8.62 8.61 7.63 8.47 9.08 7.66 6.81 7.35 7.50 6.69 7.00 7.50 Investment Inc per sh 9.00 d11.62 d1.41 d2.69 1.03 1.29 .48 .71 1.21 .38 d1.13 .57 .62 1.13 1.01 d.74 .83 .55 .70 Underwriting Inc per sh 1.75 d8.09 2.08 .72 3.90 3.90 1.91 3.42 2.20 2.28 2.17 3.85 3.14 1.90 3.05 3.38 3.11 3.50 3.95 Earnings per sh AB 6.00 ------.35 .45 - - - - .40 .55 .80 1.00 1.00 1.00 1.10 1.30 1.40 1.44 Div’ds Decl’d per sh D 1.60 33.32 33.04 32.03 36.03 37.36 25.56 35.91 42.82 42.92 45.71 46.90 47.39 43.50 44.25 45.15 41.32 43.50 46.10 Book Value per sh 51.85 223.62 255.95 256.00 271.11 271.66 269.02 269.03 269.14 269.28 269.40 269.72 269.98 270.27 270.50 271.21 271.46 270.00 270.00 Common Shs Outst’g C 270.00 70% 81% 91% 95% 112% 97% 47% 62% 63% 61% 75% 84% 88% 76% 106% 116% Price to Book Value 175% - - 12.8 40.6 8.8 10.8 12.9 5.0 12.1 11.9 12.9 9.2 12.7 20.2 11.0 14.1 15.4 Bold figures are Avg Ann’l P/E Ratio 15.0 - - .68 2.16 .48 .57 .78 .33 .77 .75 .82 .52 .67 1.02 .58 .71 .83 Value Line Relative P/E Ratio .85 ------.8% 1.8% - - - - 1.5% 2.0% 2.3% 2.5% 2.6% 3.0% 2.3% 2.7% estimates Avg Ann’l Div’d Yield 1.8% CAPITAL STRUCTURE as of 9/30/19 6129.0 5935.0 6036.0 6324.0 6715.0 6657.0 6374.0 6389.0 6449.0 6783.0 6905 7850 P/C Premiums Earned 9500 Total Debt $2,678 mill. Due in 5 Yrs $1,100 mill. 64.0% 61.0% 65.5% 70.8% 64.6% 64.6% 61.0% 60.8% 67.9% 63.5% 65.0% 65.0% Loss to Prem Earned 64.0% LT Debt $2,678 mill. LT Interest $170 mill. 32.9% 33.5% 32.8% 34.0% 33.1% 32.9% 34.2% 34.9% 35.2% 33.2% 33.0% 32.5% Expense to Prem Writ 31.0% (18% of Cap’l) 3.1% 5.5% 1.7% -4.8% 2.3% 2.5% 4.8% 4.3% -3.1% 3.3% 2.0% 2.5% Underwriting Margin 5.0% Leases, Uncapitalized $35.0 mill. Pension Assets- 12/18 $2,025 mill. 25.3% 36.6% 29.9% 28.6% 17.5% 33.8% 27.1% 32.1% 29.7% 11.3% 22.0% 22.0% Income Tax Rate 20.0% Oblig. $2,466 mill. 1043.3 689.5 615.0 577.5 1057.7 850.3 514.1 826.6 920.7 855.0 945 1065 Net Profit ($mill) 1620 6.1% 5.7% 4.8% 5.0% 5.5% 4.6% 4.3% 4.5% 4.5% 4.2% 4.3% 4.5% Inv Inc/Total Inv 6.0% Common Stock 271,478,277 shs. 55298 55331 55179 58522 57194 55566 55047 55233 56567 57152 59000 61000 Total Assets ($mill) 65000 as of 10/24/19 10660 11524 11557 12314 12651 12794 11756 11969 12244 11217 11750 12450 Shr. Equity ($mill) 14000 9.8% 6.0% 5.3% 4.7% 8.4% 6.6% 4.4% 6.9% 7.5% 7.6% 8.0% 8.5% Return on Shr. Equity 11.5% MARKET CAP: $12.0 billion (Large Cap) 9.5% 5.3% 4.4% 3.4% 6.7% 4.5% 2.1% 4.6% 5.1% 4.5% 5.0% 5.5% Retained to Com Eq 8.5% FINANCIAL POSITION 2017 2018 9/30/19 12% 11% 18% 28% 20% 32% 53% 33% 32% 41% 40% 36% All Div’ds to Net Prof 27% Bonds 41487 39546 42459 Mortgages ------BUSINESS: CNA Financial Corp. is an insurance holding company and retirement products and annuities. The company’s products are Policy Loans ------whose main subsidiaries consist of property & casualty and life & marketed through independent agents, brokers, managing general Other 15080 17606 17991 group insurance businesses. The company conducts its operations agents and direct sales. Has 6,100 employees. Loews Corp. owns Total Assets 56567 57152 60450 through five operating segments: standard lines, specialty lines, 89.4% of voting stock (Proxy, 3/19). Chairman and CEO: Dino GrossReserves(p/c) 22004 21984 21596 CNA Re, group operations, and life. Insurance products include Robusto. Inc.: Delaware. Address: 151 North Franklin Street, Chi- Separate Accounts ------property and casualty coverage; life, accident and health insurance; cago, IL 60606. Telephone: 312-822-5000. Internet: www.cna.com. Other 22319 23951 26731 Total Liab. 44323 45935 48327 CNA Financial ought to post strong edged sword for insurers. On one hand ANNUAL RATES Past Past Est’d ’16-’18 results against an easy comparison they cut profits as claims are paid out. of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 during the December quarter. We es- However, they can increase an insurer’s Premium Inc -.5% .5% 6.5% timate that the insurer will earn $0.88 a bargaining clout during policy-renewal Invest Income -1.0% -3.0% 4.0% Earnings - - 3.0% 11.0% share during the period, which would easi- season. Another factor that may shift is in- Dividends 15.5% 14.0% 6.0% ly outdistance the previous year’s loss of vestment income, reflecting the Federal Book Value 3.0% -.5% 3.0% $0.08 a share. Conditions in the insurance Reserve’s loosening stance on interest Cal-NET PREMIUMS EARNED($ mill.) Full industry remain largely positive, thanks to rates. This will ultimately result in endarMar.31 Jun.30 Sep.30 Dec.31 Year rate increases, a manageable level of ag- reduced bond reinvestment rates, which 2016 1568 1595 1633 1593 6389.0 gregate catastrophe activity, and still- will constrain returns. 2017 1512 1600 1670 1667 6449.0 decent investment portfolio returns. For Earnings per share ought to increase 2018 1651 1684 1721 1727 6783.0 the year, at a low double-digit clip, on average, 2019 1674 1694 1761 1776 6905 Share net should continue to trend over the pull to 2022-2024. Our cautious 2020 1925 1950 1975 2000 7850 higher in 2020, though there are some optimism is based on a solid economy over Cal-EARNINGS PER SHARE AB Full headwinds that bear watching. The in- that time frame, which would enable CNA endarMar.31 Jun.30 Sep.30 Dec.31 Year surance industry has been in a secular up- to increase prices across most of its pro- 2016 .34 .74 1.15 .82 3.05 swing for years, thanks to healthy price in- duct lines. Management’s strict underwrit- 2017 .87 .88 .58 1.05 3.38 creases, strong investment returns, and ing standards should help generate an un- 2018 1.03 .99 1.17 d.08 3.11 enough catastrophes to provide leverage derwriting profit over that period, barring 2019 1.17 1.08 .37 .88 3.50 during policy-renewal season (without put- an overage of catastrophes. 2020 .95 .98 .96 1.06 3.95 ting too much pressure on the bottom Though only a middling choice for the Cal-QUARTERLY DIVIDENDS PAID D Full line). However, the tides may shift in the year ahead and the 18-month horizon, endarMar.31 Jun.30 Sep.30 Dec.31 Year coming quarters. This hurricane year has these shares have ample total return 2015 .25 .25 .25 .25 1.00 been relatively tame, which though good potential for the 3 to 5 years ahead. 2016 .25 .25 .25 .25 1.00 news to insurers’ bottom lines in 2019, Conservative accounts should note the is- 2017 .30 .30 .35 .35 1.10 may result in lackluster rate increases sue’s solid dividend yield and Stock Price 2018 .30 .30 .35 .35 1.30 during next year’s renewal season. Stability score. 2019 .35 .35 .35 .35 Catastrophes can be a bit of a double- Alan G. House December 6, 2019 (A) Dil. shs. Next egs. report late Jan. (B) Excl. ($0.13); ’16, $0.12; ’17, ($0.08); ’19, ($0.13). Reinstated 2011. Pmt dates: Late Feb, May, Company’s Financial Strength B++ nonrecur. items (net): ’04, ($0.61); ’05, ($0.04); Excl. disc. op. (net): ’05, $0.08; ’06, ($0.11); Aug & Nov. Paid spec. div’ds. of $1.00/sh, Stock’s Price Stability 90 ’07, $0.77; ’08, $3.12; ’09, ($2.32); ’10, $0.08; ’08, $0.03; ’14, ($0.44). Excl. extra. items (net): $2.00/sh, $2.00/sh, and $2.00/sh in 3/14, 3/15, Price Growth Persistence 50 ’12, $0.16; ’13, ($0.38); ’14, ($0.15); ’15, ’06, $0.15. (C) In mill. (D) Div’d. susp. 10/08. 3/16, 3/17, and 3/18. Earnings Predictability 45 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 15.2 RELATIVE DIV’D VALUE CHUBB LTD. NYSE-CB PRICE 149.97RATIO 13.5()Median: 10.0 P/E RATIO 0.76YLD 2.0% LINE 761 TIMELINESS 2 Raised 11/8/19 High: 68.0 55.6 62.6 73.8 82.1 104.1 117.9 119.9 133.9 156.0 157.5 162.4 Target Price Range Low: 34.9 30.9 47.1 56.9 68.5 79.8 92.0 96.0 106.8 127.1 119.5 124.4 2022 2023 2024 SAFETY 1 Raised 12/12/14 LEGENDS 13.0 x Earnings p sh 320 TECHNICAL Lowered 12/6/19 .... Relative Price Strength 2 Options: Yes BETA .85 (1.00 = Market) Shaded area indicates recession 200 18-Month Target Price Range 160 Low-High Midpoint (% to Mid) 120 100 $137-$195 $166 (10%) 80 2022-24 PROJECTIONS 60 Ann’l Total Price Gain Return 40 High 230 (+55%) 13% Low 190 (+25%) 8% % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 18 4Q2018 1Q2019 2Q2019 Percent 18 to Buy 451 476 478 1 yr. 24.6 4.9 shares 12 3 yr. 27.7 30.2 to Sell 528 500 489 traded 6 Hld’s(000) 404812 408740 414495 5 yr. 55.5 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 34.31 39.15 36.34 36.22 37.30 39.57 39.34 40.25 46.48 46.41 49.33 53.02 53.03 61.70 62.60 65.47 68.45 72.85 P/C Prem Earned per sh 95.00 3.08 3.52 3.91 4.90 5.82 6.18 6.04 6.17 6.77 6.46 6.37 6.85 6.76 6.15 6.92 5.78 7.55 7.85 Investment Inc per sh 8.55 2.81 1.42 .32 4.48 4.71 3.98 4.61 5.16 4.13 4.62 7.23 5.93 6.74 7.40 8.89 13.93 14.35 16.75 Underwriting Inc per sh 22.80 4.28 3.28 3.05 7.05 8.07 7.72 8.17 7.79 6.96 7.66 9.34 9.80 9.77 10.11 8.02 9.44 10.45 11.60 Earnings per sh A 16.25 .74 .82 .90 .98 1.06 1.09 1.19 1.30 1.50 1.94 2.14 2.56 2.64 2.72 2.80 2.88 2.96 3.04 Div’ds Decl’d per sh BE 3.60 23.35 26.49 29.42 36.69 43.61 43.30 58.44 68.47 74.06 81.50 85.60 90.02 89.77 103.60 110.32 109.56 119.00 127.70 Book Value per sh C 156.25 279.90 284.48 323.32 326.46 329.70 333.65 336.52 335.54 331.02 337.81 336.76 328.66 324.56 465.97 463.83 459.20 453.00 453.00 Common Shs Outst’g D 400.00 142% 156% 157% 148% 136% 126% 80% 79% 88% 92% 107% 115% 122% 119% 129% 124% Bold figures are Price to Book Value 135% 7.7 12.6 15.2 7.7 7.4 7.1 5.7 6.9 9.3 9.5 9.8 10.6 11.2 12.2 17.7 14.3 Value Line Avg Ann’l P/E Ratio 13.0 .44 .67 .81 .42 .39 .43 .38 .44 .58 .60 .55 .56 .56 .64 .89 .77 estimates Relative P/E Ratio .70 2.2% 2.0% 1.9% 1.8% 1.8% 2.0% 2.6% 2.4% 2.3% 2.6% 2.3% 2.5% 2.4% 2.2% 2.0% 2.1% Avg Ann’l Div’d Yield 1.7% CAPITAL STRUCTURE as of 9/30/19 13240 13504 15387 15677 16613 17426 17213 28749 29034 30064 31000 33000 P/C Premiums Earned 38000 Total Debt $13295 mill. Due in 5 Yrs $600 mill. 58.5% 56.1% 61.9% 61.3% 56.1% 57.0% 56.5% 58.3% 63.6% 60.1% 59.0% 58.0% Loss to Prem Earned 56.0% LT Debt $13285 mill. LT Interest $640 mill. 29.6% 30.6% 29.3% 28.3% 28.6% 29.9% 29.4% 21.3% 22.1% 18.3% 20.0% 19.0% Expense to Prem Writ 20.0% (Includes $308 mill. of Trust Preferred Securities) 11.9% 13.3% 8.9% 10.5% 15.3% 13.1% 14.1% 20.5% 14.4% 21.6% 21.0% 23.0% Underwriting Margin 24.0% (20% of Cap’l) 15.7% 17.9% 17.8% 9.1% 16.3% 16.0% 15.0% 17.4% 8.5% 14.4% 13.0% 13.0% Income Tax Rate 13.0% Leases, Uncapitalized Annual rentals $173 mill. 2759.0 2657.0 2372.0 2706.0 3215.0 3321.0 3212.0 4716.0 3784.0 4407.0 4800 5350 Net Profit ($mill) 6500 4.7% 4.9% 4.7% 4.1% 3.9% 4.1% 3.8% 4.1% 3.2% 2.7% 4.1% 4.2% Inv Inc/Total Inv 4.3% 77980 83355 87505 92545 94510 98248 102366 159786 167022 167771 175000 177000 Total Assets ($mill) 181000 Common Stock 453,202,305 shs. 19667 22974 24516 27531 28825 29587 29135 48275 51172 50312 53900 57850 Shr. Equity ($mill) 62500 as of 10/17/19 14.0% 11.6% 9.7% 9.8% 11.2% 11.2% 11.0% 9.8% 7.4% 8.8% 9.0% 9.0% Return on Shr. Equity 10.5% MARKET CAP: $68.0 billion (Large Cap) 12.1% 9.7% 7.8% 6.9% 9.4% 8.3% 8.1% 7.3% 4.8% 6.1% 6.5% 7.0% Retained to Com Eq 8.0% FINANCIAL POSITION 2017 2018 9/30/19 14% 16% 19% 30% 16% 26% 27% 25% 35% 30% 28% 26% All Div’ds to Net Prof 22% ($MILL.) Bonds 78939 78470 85044 BUSINESS: Chubb Limited provides insurance and reinsurance for book in 1999. Acquired Capital Re in 1999. Acquired Chubb Corp. Stocks 937 770 722 a diverse group of international clients. Has clients in about 140 1/16. Spun off 65% of AGC Holdings LTD, 4/04. Officers & directors Other 87146 88531 89382 countries. Net premiums earned breakdown in 2018: North America own less than 1.0% of stock; Vanguard Group, 8.3%; BlackRock, Total Assets 167022 167771 175148 (63%), Overseas General (28%), Global Reinsurance (2%), Life In- 6.8% (4/19 Proxy). Chairman, Pres., & CEO: Evan G. Greenberg. Unearned Premium 15216 15532 16571 surance and Reinsurance (7%). Acquired CAT LTD. and Address: Barengasse 32, CH-8001 Zurich, Switzerland. Telephone: Reserves 63179 62960 63012 Westchester Specialty Group in 1998; CIGNA’s property/casualty +41 (0)43 456 76 00. Internet: www.acelimited.com. Other 37455 38967 40993 Total Liab’ties 115850 117459 120576 Chubb Limited has announced that it It appears another solid performance ANNUAL RATES Past Past Est’d ’16-’18 intends to purchase an additional is likely on tap for 2020. We think policy of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 15.1% of Huatai Insurance Group prices will stay in lockstep with loss fre- Premium Inc 5.0% 5.5% 7.5% Company Limited. The company already quency trends, which augurs well for P&C Invest Income 2.5% 1.5% 3.5% Earnings 2.0% 2.5% 10.0% holds a nearly 27% stake in China-based insurance providers moving forward. Fur- Dividends 10.5% 8.5% 4.0% Huatai. Management stated that it plans thermore, it seems a combination of favor- Book Value 10.0% 6.0% 6.5% to first acquire 15.1% and then possibly able reserve development and higher Cal-NET PREMIUMS EARNED Full another 7.1%, based on the completion of retention levels ought to bolster premiums endarMar.31 Jun.30 Sep.30 Dec.31 Year the initial contingent, bringing its total and profits. What’s more, Chubb has found 2016 6597 7405 7688 7059 28749 ownership position to just shy of 50%. success implementing meaningful rate 2017 6772 7237 7807 7218 29034 These actions will likely cost CB some- hikes for its products in key overseas mar- 2018 7027 7664 7908 7465 30064 where around $1.53 billion after all is kets. A strategic usage of reinsurance 2019 7137 7891 8327 7645 31000 tallied. CEO Evan Greenberg reaffirmed pacts should help lessen the burden of 2020 7900 8300 8600 8200 33000 that Chubb’s goal is to eventually take elevated claims activity, as well. Cal-EARNINGS PER SHARE A Full over Huatai in order to capitalize on the Management will probably forge endarMar.31 Jun.30 Sep.30 Dec.31 Year growing need for diverse insurance solu- ahead with its current investment 2016 2.26 2.25 2.88 2.72 10.11 tions throughout China. philosophy. Though interest rates and 2017 2.48 2.50 d.13 3.17 8.02 We are keeping intact our 2019 share- yields have declined of late, the company 2018 2.34 2.68 2.41 2.02 9.44 earnings outlook of $10.45. The insurer plans to keep a conservative investment 2019 2.54 2.60 2.70 2.61 10.45 has registered solid results of late, thanks approach. It feels growth in invested as- 2020 2.85 2.95 3.15 2.65 11.60 to an improved pricing and underwriting sets and increased cash flow ought to sup- Cal-QUARTERLY DIVIDENDS PAID BE Full environment, where insurance rates and port present return levels. endarMar.31 Jun.30 Sep.30 Dec.31 Year terms remain quite favorable across most This timely issue offers investors a 2015 .65 .65 .67 .67 2.64 operating segments. Also, its combined modest source of risk-adjusted total- 2016 .67 .67 .69 .69 2.72 ratio has dwindled some, despite an uptick return potential to 2022-2024. Chubb’s 2017 .69 .69 .71 .71 2.80 in crop losses. We still expect the compa- stake in Huatai and ample market share 2018 .71 .71 .73 .73 2.88 ny’s bottom line to climb by approximately make it a top choice in the P&C realm. 2019 .73 .73 .75 .75 11% this year. Kenneth J. DeFranco, Jr. December 6, 2019 (A) Dil. egs. Op. egs. starting in 2003 (Excl. not sum due to rounding. Next egs. rpt. early (C) Incl. intang. In 2018: $21414 mill., Company’s Financial Strength A+ cap. gains/losses): ’03, $0.75; ’04, $0.25; ’05, February. (B) Div’ds paid in late Jan., Apr., $46.63/share. (D) In mill. (E) Advanced divi- Stock’s Price Stability 100 $0.26; ’06, ($0.14); ’07, ($0.18); ’08, ($4.19); July, and Oct. Paid in Swiss Francs as of 7/08 dend of $0.49 paid 12/28/12. Price Growth Persistence 95 ’09, ($0.61); ’10, $1.32; ’11, ($2.31). EPS may and converted to U.S. Dollars at pymt. date. Earnings Predictability 70 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 26.8 RELATIVE DIV’D VALUE CINCINNATI FINCL. NDQ-CINF PRICE 105.94RATIO 25.2()Median: 19.0 P/E RATIO 1.42YLD 2.1% LINE 762 TIMELINESS 1 Raised 12/28/18 High: 40.2 29.7 32.3 34.3 41.0 53.7 55.3 61.6 79.6 82.0 82.9 118.2 Target Price Range Low: 13.7 17.8 25.3 23.7 30.1 39.6 44.9 49.7 53.6 68.2 66.3 74.3 2022 2023 2024 SAFETY 2 New 7/27/90 LEGENDS 1.5 x Book value p sh TECHNICAL Raised 11/8/19 .... Relative Price Strength 160 1 Options: Yes BETA .85 (1.00 = Market) Shaded area indicates recession 120 100 18-Month Target Price Range 80 Low-High Midpoint (% to Mid) 60 50 $81-$123 $102 (-5%) 40 2022-24 PROJECTIONS 30 Ann’l Total Price Gain Return 20 High 110 (+5%) 3% Low 80 (-25%) -4% 15 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 24 to Buy 225 250 265 1 yr. 47.4 4.9 shares 16 3 yr. 73.0 30.2 to Sell 219 232 259 traded 8 Hld’s(000) 103691 103471 105690 5 yr. 158.5 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 15.04 16.65 17.57 18.28 18.83 18.58 17.97 17.94 18.70 20.52 23.28 25.92 27.33 28.65 30.23 31.76 34.50 35.90 P/C Prem Earned per sh 38.40 2.64 2.81 3.02 3.29 3.66 3.31 3.09 3.18 3.24 3.26 3.25 3.35 3.49 3.62 3.72 3.80 3.90 4.00 Investment Inc per sh A 4.35 .02 1.13 1.32 1.04 1.83 d.94 d2.19 d1.80 d3.28 d.82 .94 .52 1.75 .84 .11 1.14 2.40 2.85 Underwriting Inc per sh A 3.45 2.17 2.94 3.17 2.82 3.54 2.10 1.32 1.68 .74 2.57 2.81 2.66 3.56 3.07 2.74 3.35 4.05 4.15 Earnings per sh B 5.25 .91 1.00 1.21 1.34 1.42 1.56 1.57 1.59 1.61 1.62 1.66 1.74 1.82 1.90 1.98 2.09 2.21 2.30 Div’ds Decl’d per sh C■ 2.60 35.17 35.64 34.98 39.35 35.72 25.81 29.38 30.87 31.20 33.45 37.24 40.15 39.21 42.94 50.29 48.11 49.10 50.45 Book Value per sh 54.90 176.40 175.35 174.00 173.00 166.00 162.00 162.00 163.00 162.00 163.00 163.00 163.70 163.90 164.40 163.90 162.80 163.00 163.00 Common Shs Outst’g D 164.00 99% 112% 120% 116% 120% 122% 82% 92% 95% 110% 128% 121% 138% 162% 146% 155% Bold figures are Price to Book Value 172% 16.1 13.5 13.2 16.2 12.2 15.0 18.3 16.8 40.3 14.3 17.0 18.3 15.2 22.7 26.8 22.3 Value Line Avg Ann’l P/E Ratio 18.0 .92 .71 .70 .87 .65 .90 1.22 1.07 2.53 .91 .96 .96 .77 1.19 1.35 1.20 estimates Relative P/E Ratio 1.00 2.6% 2.5% 2.9% 2.9% 3.3% 4.9% 6.5% 5.6% 5.4% 4.4% 3.5% 3.6% 4.2% 2.8% 3.4% 2.8% Avg Ann’l Div’d Yield 2.8% CAPITAL STRUCTURE as of 9/30/19 2911.0 2924.0 3029.0 3344.0 3795.0 4243.0 4480.0 4710.0 4954.0 5170.0 5625 5850 P/C Premiums Earned 6300 Total Debt $885.0 mill. Due in 5 Yrs $60.0 mill. 77.0% 74.6% 83.3% 69.4% 64.2% 67.3% 62.7% 66.0% 68.4% 65.5% 62.0% 62.0% Loss to Prem Earned 62.0% LT Debt $847.0 mill. LT Interest $50.0 mill. 35.2% 35.5% 34.2% 34.5% 31.9% 30.7% 31.0% 31.1% 31.2% 30.9% 31.0% 30.0% Expense to Prem Writ 29.0% -12.2% -10.0% -17.5% -4.0% 3.9% 2.0% 6.4% 2.9% .4% 3.6% 7.0% 8.0% Underwriting Margin 9.0% (8% of Cap’l) 12.6% 20.1% - - 25.6% 29.7% 30.9% 27.4% 25.7% 21.8% 21.0% 21.0% 21.0% Income Tax Rate 21.0% No Defined Benefit Pension Plan 215.0 274.0 121.0 421.0 466.0 439.0 589.0 511.0 455.0 547.3 660 680 Net Profit ($mill) 865 4.7% 4.5% 4.4% 4.2% 3.9% 3.8% 4.0% 3.8% 3.6% 3.7% 4.0% 4.0% Inv Inc/Total Inv 4.2% Pfd Stock None 14440 15095 15668 16548 17662 18753 18888 20386 21843 21935 25000 26000 Total Assets ($mill) 29000 4760.0 5032.0 5055.0 5453.0 6070.0 6573.0 6427.0 7060.0 8243.0 7833.0 8100 8325 Shr. Equity ($mill) 9000 Common Stock 163,374,035 shs. as of 10/18/19 4.5% 5.4% 2.4% 7.7% 7.7% 6.7% 9.2% 7.2% 5.5% 7.0% 8.0% 8.0% Return on Shr. Equity 9.5% MARKET CAP: $17.3 billion (Large Cap) NMF .4% NMF 3.0% 3.3% 2.4% 3.5% 2.9% 1.6% 2.6% 3.5% 3.5% Retained to Com Eq 5.0% FINANCIAL POSITION 2017 2018 9/30/19 116% 92% NMF 61% 56% 63% 62% 60% 71% 62% 55% 55% All Div’ds to Net Prof 49% ($MILL.) Bonds 10699 10689 11600 BUSINESS: Cincinnati Financial Corporation is a holding company. ty/Casualty premium distribution: Commercial lines, 63%; Personal Stocks 6249 5920 7176 Subsidiaries operate in the following areas: property and casualty lines, 37%. Has 4,925 employees. Officers and directors own 7.2% Other 4895 5326 5966 insurance (Cincinnati Insurance, Cincinnati Casualty, and Cincinnati of stock; Vanguard Group, 11.3%; BlackRock, 8.3%; State Street, Total Assets 21843 21935 24742 Indemnity), life and health insurance, and financial services (CFC 6.0% (4/19 Proxy). Chairman: Kenneth Stecher. Pres. & CEO: Unearned Prems 2404 2516 2859 Investment Company). The company markets its insurance prod- Steven J. Johnston. Inc.: Ohio. Addr.: 6200 S. Gilmore Road, Fair- Reserves (p/c) 5273 5707 6056 ucts through independent insurance agencies. 2018 Proper- field, Ohio 45014. Phone: 513-870-2000. Internet: www.cinfin.com. Other 5923 5879 6456 Total Liab’ties 13600 14102 15371 Cincinnati Financial Corporation has Management continues to cautiously ANNUAL RATES Past Past Est’d ’16-’18 been firing on all cylinders of late. In build its reserve base. The last few of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 that vein, overall profitability has in- years of more-benign catastrophe loss ac- Premium Inc 4.5% 8.5% 4.0% creased thanks to the insurer’s improved tivity have allowed CINF to fuel its Invest Income 1.0% 2.5% 2.5% Earnings - - 13.5% 9.5% underwriting operations. More specifically, reserves. We believe the company will set Dividends 5.5% 7.0% 3.0% actions to reduce risk exposure and diver- aside capital consistent with the upper- Book Value 2.0% 7.0% 2.5% sify its product line have helped lower half of its estimated loss-expense range. Cal-P/C PREMIUMS EARNED ($ mill.) Full policy expenses and trim the combined That said, claims activity and the weather endarMar.31 Jun.30 Sep.30 Dec.31 Year ratio, resulting in greater underwriting in- prediction field can be quite tricky to 2016 1154 1173 1191 1192 4710 come. Also, a mix of strategic price hikes, navigate at times. Therefore, Cincinnati’s 2017 1208 1241 1247 1258 4954 the extinguishment of various legacy lines, loss/reserve forecasts are typically subject 2018 1260 1294 1298 1318 5170 and a larger agent base has been a boon to to drastic fluctuations, on an annual basis. 2019 1333 1384 1446 1462 5625 premiums and profits. Consequently, we These shares are ranked to out- 2020 1420 1450 1480 1500 5850 have decided to raise our 2019 share-net perform the broader market averages Cal-EARNINGS PER SHARE B Full forecast by $0.20, to $4.05. over the coming six to 12 months. endarMar.31 Jun.30 Sep.30 Dec.31 Year Our 2020 EPS target has advanced by Even so, this issue currently trades near 2016 .89 .57 .86 .75 3.07 $0.20, as well, to $4.15. Demand for the the high end of our 3- to 5-year Target 2017 .59 .64 .58 .93 2.74 company’s core commercial, personal, life, Price Range, greatly limiting its appreci- 2018 .72 .81 .84 .98 3.35 and excess & surplus coverages has ation potential for that span. Too, the 2019 1.05 .85 1.08 1.07 4.05 strengthened considerably in recent equity’s dividend yield is rather unexciting 2020 1.10 .95 .95 1.15 4.15 months. We think this pattern will persist when compared to others in this space. Cal-QUARTERLY DIVIDENDS PAID C■ Full next year, with a modest decline in the CINF seems rather expensive on a P/E endarMar.31 Jun.30 Sep.30 Dec.31 Year combined ratio setting the stage for better basis, meaning those searching for a 2015 .44 .46 .46 .46 1.82 profits. Meantime, investment income bargain will want to skip this selection. 2016 .46 .48 .48 .48 1.90 ought to keep trending in the right direc- We feel patient accounts will be able to lo- 2017 .48 .50 .50 .50 1.98 tion, as a shift in Cincinnati’s equity and cate better long-term investment options 2018 .50 .53 .53 .53 2.09 fixed-income holdings should bolster re- elsewhere in the Value Line universe. 2019 .53 .56 .56 .56 turns moving forward. Kenneth J. DeFranco, Jr. December 6, 2019 (A) Before inc. tax. (B) Diluted earnings. Op. Stock div’d of 5% paid 6/15/04 and 4/26/05. Company’s Financial Strength B++ egs. excl. cap. g/(l) begin. ’03. Excl. n.r. gain: Special dividend of $0.46 paid on 12/15/15. Stock’s Price Stability 95 ’03, 8¢. Next earnings report due early Febru- ■DRIP available. (D) In millions. Price Growth Persistence 75 ary. (C) Div’ds paid in mid-Jan., Apr., July, Oct. Earnings Predictability 65 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 28.1 RELATIVE DIV’D VALUE ERIE INDEMNITY NDQ-ERIE PRICE 171.98RATIO 25.7()Median: NMF P/E RATIO 1.45YLD 2.1% LINE 763 TIMELINESS 3 Lowered 11/29/19 High: 56.2 40.3 65.9 81.4 80.6 83.6 94.0 101.8 116.2 129.7 147.2 257.8 Target Price Range Low: 19.5 28.1 37.7 62.6 61.1 68.5 66.6 79.0 88.7 106.9 106.6 127.0 2022 2023 2024 SAFETY 2 Raised 6/22/07 LEGENDS 19.0 x Earnings p sh E 320 TECHNICAL Lowered 11/1/19 .... Relative Price Strength 2 Options: Yes BETA .80 (1.00 = Market) Shaded area indicates recession 200 18-Month Target Price Range 160 Low-High Midpoint (% to Mid) 120 100 $149-$249 $199 (15%) 80 2022-24 PROJECTIONS 60 Ann’l Total Price Gain Return 40 High 195 (+15%) 5% Low 145 (-15%) -1% % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 18 4Q2018 1Q2019 2Q2019 Percent 4.5 to Buy 77 98 130 1 yr. 45.0 4.9 shares 3 3 yr. 93.9 30.2 to Sell 50 61 94 traded 1.5 Hld’s(000) 14683 14766 16189 5 yr. 148.9 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 ------132.58 32.59 34.57 36.63 51.58 54.35 56.50 Revenues per sh D 68.90 ------NMF NMF NMF NMF NMF NMF NMF ‘‘Cash Flow’’ per sh NMF ------3.20 3.33 4.02 3.95 5.51 6.25 6.75 Earnings per sh 9.00 ------2.59 2.77 2.92 3.13 3.36 3.60 3.80 Div’ds Decl’d per sh AD 4.40 ------.42 .27 .55 .63 1.22 .70 .75 Cap’l Spending per sh B .80 ------15.22 16.66 17.69 18.56 21.08 23.35 26.40 Book Value per sh 34.45 ------46.19 46.19 46.19 46.19 46.19 46.00 46.00 Common Shs Outst’g C 45.00 ------24.0 25.9 24.6 30.3 22.1 Bold figures are Avg Ann’l P/E Ratio 19.0 ------1.26 1.30 1.29 1.52 1.19 Value Line Relative P/E Ratio 1.05 ------3.4% 3.2% 3.0% 2.7% 2.8% estimates Avg Ann’l Div’d Yield 2.6% CAPITAL STRUCTURE as of 9/30/19 ------6124.0 1505.5 1596.6 1691.8 2382.2 2500 2600 Revenues ($mill) 3100 ------29.7% 28.6% 30.7% 17.9% 15.0% 15.0% 15.0% Operating Margin 15.5% Total Debt None ------NMF NMF NMF NMF NMF NMF NMF Depreciation ($mill) NMF Leases, Uncapitalized Annual rentals $49.9 mill. ------167.5 174.7 210.4 207.1 288.2 290 315 Net Profit ($mill) 405 Pension Assets-12/18 $767.6 mill. ------33.3% 34.4% 34.3% 34.4% 22.4% 21.0% 21.0% Income Tax Rate 21.0% Oblig. $886.2 mill. ------11.9% 11.6% 13.2% 12.2% 12.1% 11.2% 12.1% Net Profit Margin 16.2% Pfd Stock None ------133.1 189.4 195.9 292.0 NMF NMF NMF Working Cap’l ($mill) D NMF ------Nil Nil Long-Term Debt ($mill) Nil Common Stock 46,189,068 shs. ------703.1 769.5 816.9 857.3 973.6 1075 1215 Shr. Equity ($mill) 1550 MARKET CAP: $7.9 billion (Large Cap) ------23.8% 22.7% 25.8% 22.3% 29.6% 27.0% 26.0% Return on Total Cap’l 26.0% CURRENT POSITION 2017 2018 9/30/19 ------23.8% 22.7% 25.8% 22.3% 29.6% 27.0% 26.0% Return on Shr. Equity 26.0% ($MILL.) ------7.0% 6.2% 9.1% 7.2% 13.5% 11.5% 11.5% Retained to Com Eq 13.5% Cash Assets 215.7 266.4 344.9 Available Securities 71.2 ------71% 73% 65% 70% 54% 57% 55% All Div’ds to Net Prof 49% Receivables 418.3 449.9 498.0 BUSINESS: Erie Indemnity Company, a management service com- commercial include multi peril, automobile, and workers’ com- Other 96.7 1062.0 1131.7 pany, provides sales, underwriting, and policy issuance services to pensation. Has about 5,300 employees. Dirs. & off. have 6.0% of Current Assets 801.9 1778.3 1974.6 the policy holders of Erie Indemnity Exchange. It offers proper- voting power; H.O. Hirt Trusts, 92.1% (4/19 Proxy). Chrmn.: Commissions Payable 228.1 241.6 272.9 Agent Bonuses 122.5 103.5 73.9 ty/casualty insurance, as well as underwrites personal and com- Thomas B. Hagen. President & CEO: Timothy G. NeCastro. Inc.: Accounts Payable 104.5 - - - - mercial insurance products. Its products in the personal lines in- PA. Address: 100 Erie Insurance Place, Erie, PA 16530. Tele- Other 54.8 459.6 508.5 clude private passenger automobile and homeowners’; and those in phone: 814-870-2000. Internet: www.erie-insurance.com. Current Liab. 509.9 804.7 855.3 Erie Indemnity stock has fallen $0.50 in 2020, reaching $6.75 when all ANNUAL RATES Past Past Est’d ’16-’18 precipitously in value since our Sep- is said and done. Underwriting income of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 RevenuesD -- -- 9.0% tember report. It seems myriad factors ought to climb as weather-related losses ‘‘Cash Flow’’ - - - - NMF have spurred investors to head toward the begin to retreat toward more-historical Earnings - - - - 12.5% exits. To wit, management has noted that levels. In addition, the company’s new Dividends - - - - 5.5% Book Value - - - - 10.5% it has experienced heightened competition electronic claims system will probably help and further price erosion in the private Erie further trim expenses, boost retention Cal-QUARTERLY REVENUES ($ mill.) Full passenger auto business. Moreover, ratios, and increase processing speeds. We endarMar.31 Jun.30 Sep.30 Dec.31 Year despite a modest improvement, the in- believe a bulk of Erie’s technology spend- 2016 374.7 423.9 418.4 379.6 1596.6 surer’s combined ratio has hovered at ing is now in its rearview mirror, suggest- 2017 399.3 448.6 442.5 401.4 1691.8 more than 100% for much of 2019 (reflect- ing operating costs ought to dwindle 2018 572.2 621.5 612.1 576.4 2382.2 2019 594.1 647.7 638.7 619.5 2500 ing an underwriting deficit). In our view, a moving forward. Finally, management fee 2020 620 675 665 640 2600 jump in weather-related claims and the revenue and policy issuance/renewal serv- A fact that ERIE was trading above the ices charges have been on the upswing of Cal-EARNINGS PER SHARE Full $260-a-share level earlier this year, indi- late, which augurs well for profits ahead. endarMar.31 Jun.30 Sep.30 Dec.31 Year cate that many investors have simply de- This good-quality issue is now ranked 2016 .89 1.17 1.09 .87 4.02 cided to take some chips off of the table. to perform in line with the broader 2017 .91 1.12 1.12 .80 3.95 We now look for the bottom line to market averages in the coming six to 2018 1.26 1.52 1.54 1.19 5.51 2019 1.44 1.68 1.80 1.33 6.25 rise about 13% year to year, finishing 12 months. Though this stock has 2020 1.70 1.85 1.80 1.40 6.75 at $6.25 for 2019. The Exchange unit con- dropped dramatically in price over the last B tinues to register higher direct written few months, it still offers below-average Cal-QUARTERLY DIVIDENDS PAID Full premiums, with decreased policy costs and appreciation potential three to five years endarMar.31 Jun.30 Sep.30 Dec.31 Year meaningful rate hikes bolstering results hence. Meantime, ERIE’s dividend yield is 2015 .681 .681 .681 .681 2.72 here. We think management will exit busi- not attractive enough to purchase this 2016 .73 .73 .73 .73 2.92 2017 .7825 .7825 .7825 .7825 3.13 ness lines with little profitability and pour equity based on that standalone character- 2018 .84 .84 .84 .84 3.36 the savings into niche coverages with istic. We feel better-defined, long-term in- 2019 .90 .90 .90 .90 wider margins available. vestment options are available elsewhere. Earnings per share should tack on Kenneth J. DeFranco, Jr. December 6, 2019 (A) Dil. egs. May not sum due to change in (D) Due to adoption of FASB ASC 810, results with Indemnity. Company’s Financial Strength B++ share count. Next egs. rpt. due late February. are reported on a consolidated basis. Stock’s Price Stability 85 (B) Dividends historically paid in mid-January, (E) Adopted a change in accounting standards. Price Growth Persistence 70 April, July, and October. (C) In millions. Exchange results are no longer consolidated Earnings Predictability 90 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 12.4 RELATIVE DIV’D VALUE FIRST AMERICAN FIN’L NYSE-FAF PRICE 62.91RATIO 11.4()Median: NMF P/E RATIO 0.64YLD 2.7% LINE 764 TIMELINESS 2 Raised 6/14/19 High: 16.0 17.4 25.0 28.6 34.5 43.2 43.6 57.5 62.7 64.4 Target Price Range Low: 11.9 10.5 12.5 20.4 24.8 32.6 31.7 36.5 42.0 43.5 2022 2023 2024 SAFETY 2 New 12/7/18 LEGENDS 13.0 x Earnings p sh 128 TECHNICAL 2 Raised 12/6/19 .... Relative Price Strength Options: Yes 96 BETA .90 (1.00 = Market) Shaded area indicates recession 80 18-Month Target Price Range 64 Low-High Midpoint (% to Mid) 48 40 $50-$75 $63 (0%) 32 2022-24 PROJECTIONS 24 Ann’l Total Price Gain Return 16 High 95 (+50%) 13% Low 70 (+10%) 6% 12 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 18 to Buy 175 166 195 1 yr. 44.0 4.9 shares 12 3 yr. 73.9 30.2 to Sell 216 182 167 traded 6 Hld’s(000) 93467 93236 93984 5 yr. 136.9 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 ------30.75 29.66 34.98 39.94 36.79 47.44 50.72 52.04 51.55 54.45 55.35 P/C Prem Earned per sh 63.40 ------.82 .70 .82 .85 .66 .92 1.15 1.46 2.07 2.30 2.50 Investment Inc per sh 2.90 ------27.68 25.98 34.98 39.94 36.79 40.41 42.77 43.48 43.00 45.00 46.00 Underwriting Inc per sh 47.00 ------1.23 .94 2.77 1.71 2.15 2.62 3.09 3.76 4.19 5.50 5.60 Earnings per sh A 6.35 ------.18 .24 .36 .48 .84 1.00 1.20 1.44 1.60 1.68 1.88 Div’ds Decl’d per sh B 2.25 ------18.96 19.24 21.90 23.16 23.93 25.28 27.36 31.37 33.56 36.60 39.30 Book Value per sh 49.10 ------104.46 105.41 107.24 105.90 107.54 109.10 109.94 110.93 111.50 112.00 112.00 Common Shs Outst’g C 112.00 ------75% 76% 84% 105% 117% 147% 140% 145% 158% Bold figures are Price to Book Value 168% ------11.6 15.5 6.7 14.3 13.1 14.1 12.4 12.1 12.7 Value Line Avg Ann’l P/E Ratio 13.0 ------.74 .97 .43 .80 .69 .71 .65 .61 .69 estimates Relative P/E Ratio .70 ------1.3% 1.6% 1.9% 2.0% 3.0% 2.7% 3.1% 3.2% 3.0% Avg Ann’l Div’d Yield 2.7% CAPITAL STRUCTURE as of 9/30/19 - - 3212.1 3126.1 3751.6 4229.3 3956.9 5175.5 5575.8 5772.3 5747.8 6100 6200 P/C Premiums Earned 7100 Total Debt $728.3 mill. Due in 5 Yrs $728.3 mill. - - 10.0% 12.4% ------64.1% 65.0% 63.0% 62.5% Loss to Prem Earned 62.0% LT Debt $728.3 mill. LT Interest $27.0 mill. ------Nil Nil Expense to Prem Writ Nil (15% of Cap’l) - - 90.0% 87.6% ------35.9% 35.0% 37.0% 37.5% Underwriting Margin 38.0% Leases, Uncapitalized $76.4 mill. No Defined Benefit Pension Plan - - 39.2% 38.8% 35.4% 39.8% 33.2% 33.3% 28.1% 5.3% 21.0% 21.0% 21.0% Income Tax Rate 21.0% - - 127.8 99.2 301.0 186.4 233.5 288.1 343.0 423.0 474.4 620 630 Net Profit ($mill) 715 Pfd Stock None - - 3.1% 2.7% 2.8% 2.7% 1.8% 2.1% 2.5% 3.0% 3.1% 3.2% 3.3% Inv Inc/Total Inv 3.5% - - 5822 5370 6051 6521 7666 8254 8832 9573 10631 12000 13000 Total Assets ($mill) 16000 Common Stock 112,336,298 shs. - - 1980.0 2028.6 2348.1 2453.0 2572.9 2758.5 3008.2 3480.0 3741.9 4100 4400 Shr. Equity ($mill) 5500 as of 10/21/19 MARKET CAP: $7.1 billion (Large Cap) - - 6.5% 4.9% 12.8% 7.6% 9.1% 10.4% 11.4% 12.2% 12.7% 15.0% 14.5% Return on Shr. Equity 13.0% FINANCIAL POSITION 2017 2018 9/30/19 - - 5.8% 3.6% 10.9% 5.5% 5.6% 6.5% 7.0% 7.6% 7.9% 10.5% 9.5% Retained to Com Eq 8.5% ($MILL.) - - 10% 25% 15% 28% 39% 38% 38% 38% 38% 30% 33% All Div’ds to Net Prof 35% Bonds 4752.7 5713.8 5882.4 Stocks 466.5 353.5 416.5 BUSINESS: First American Financial Corporation provides financial warranty solutions. It also provides customers with real property Cash Assets 1387.2 1467.1 1711.0 services through its title insurance & services and specialty insur- data designed to mitigate risk and facilitate real estate transactions. Other 2966.8 3096.2 3794.2 ance segments. The title insurance & services unit offers title cover- First American maintains, manages, and gives access to plant rec- Total Assets 9573.2 10630.6 11804.1 age, closing and/or escrow services, and various residen- ords and images. Has 18,251 employees. C.E.O.: Dennis J. Gil- Deposits 3070.6 3786.2 3840.7 tial/commercial real estate products. The company’s specialty divi- more. Inc.: DE. Add.: 1 First American Way, Santa Ana, California Reserves 1028.9 1042.7 1054.7 Other 1990.7 2056.3 2662.5 sion issues property & casualty insurance policies and sells home 92707. Tel.: 714-250-3000. Internet: www.firstam.com. Total Liab’ties 6090.2 6885.2 7557.9 First American Financial Corporation pace in recent months, reflecting a sharp ANNUAL RATES Past Past Est’d ’16-’18 appears set to place the finishing rise in closed orders (partially offset by a of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 touches on a positive 2019 campaign. minor dip in average revenue per order). Premium Inc - - 6.0% 6.5% In that vein, increased transactions across This trend ought to persist for the foresee- Invest Income - - 8.5% 11.0% Earnings - - 14.0% 9.5% the company’s core operating units have able future, in our view. Dividends - - 36.0% 8.0% fueled top-line expansion. Meantime, effec- The insurer recently launched its Book Value - - 7.0% 8.0% tive expense management and elevated in- Endpoint business. Specifically, the new Cal-NET PREMIUMS EARNED ($ mill.) Full vestment income have been a boon to over- arm is a mobile-first title and escrow endarMar.31 Jun.30 Sep.30 Dec.31 Year all profitability. FAF’s enhanced perform- entity that provides a next-generation 2016 1201.7 1361.5 1508.3 1504.3 5575.8 ance of late has prompted us to lift our closing experience for buyers, sellers, and 2017 1317.0 1454.4 1519.6 1481.3 5772.3 EPS call for this year by $0.25, to $5.50. their real estate agents. FAF has just in- 2018 1297.4 1491.1 1542.2 1417.1 5747.8 We have increased our 2020 earnings- vested $30 million into applications that 2019 1303.6 1498.6 1671.2 1626.6 6100 per-share forecast by 5%, to $5.60. Rev- allow for a step-by-step digitally guided in- 2020 1390 1585 1625 1600 6200 enues in the title business ought to remain teraction for the entire real estate Cal-EARNINGS PER SHARE A Full on the upswing, as lower interest rates buying/selling process. Management’s goal endarMar.31 Jun.30 Sep.30 Dec.31 Year continue to fuel refinance activity. First is to boost demand across a younger 2016 .47 .92 .96 .73 3.09 American’s newly upgraded operating sys- demographic utilizing secure mobile mes- 2017 .52 1.09 .19 1.96 3.76 tems, most notably in the Commercial saging, electronic documents, and online 2018 .67 1.37 1.34 .81 4.19 unit, have propelled sales of large policies money transfer at no additional cost. End- 2019 .97 1.64 1.65 1.24 5.50 across various geographies and asset point is currently available in Seattle and 2020 1.00 1.65 1.65 1.30 5.60 classes. Elsewhere, demand for the in- expects to expand into California, Arizona, Cal-QUARTERLY DIVIDENDS PAID B Full surer’s home warranty solutions has been and Texas over the next nine months. A endarMar.31 Jun.30 Sep.30 Dec.31 Year stout, with loss ratios declining and un- larger rollout is planned for 2021. 2015 .25 .25 .25 .25 1.00 derwriting income moving upward. This timely issue offers below-average 2016 .26 .26 .34 .34 1.20 A jump in fee-based income has been capital appreciation potential to 2022- 2017 .34 .34 .38 .38 1.44 a bright spot. In the Title Insurance & 2024. That said, the stock remains a good 2018 .38 .38 .42 .42 1.60 Services segment, direct premium and es- source of risk-adjusted income. 2019 .42 .42 .42 .42 crow fees have advanced at a double-digit Kenneth J. DeFranco, Jr. December 6, 2019 (A) Based on diluted earnings. Includes capital (B) Dividends historically paid in March, June, Company’s Financial Strength A gains and losses. Next earnings report due September, and December. Stock’s Price Stability 85 mid-February. Earnings may not sum due to (C) In millions. Price Growth Persistence 100 rounding. Earnings Predictability 55 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 17.4 RELATIVE DIV’D VALUE HANOVER INS. GROUP NYSE-THG PRICE 133.62RATIO 15.0()Median: 16.0 P/E RATIO 0.85YLD 1.8% LINE 765 TIMELINESS 2 Raised 12/6/19 High: 55.0 45.4 48.0 48.9 41.7 61.7 73.6 87.4 92.0 109.6 131.4 137.1 Target Price Range Low: 29.8 28.0 40.3 31.0 33.6 38.9 52.9 67.7 74.1 79.2 104.5 107.4 2022 2023 2024 SAFETY 2 Raised 9/18/09 LEGENDS 12.0 x Earnings p sh TECHNICAL 2 Raised 11/29/19 .... Relative Price Strength 200 Options: Yes 160 BETA .85 (1.00 = Market) Shaded area indicates recession 18-Month Target Price Range 100 Low-High Midpoint (% to Mid) 80 60 $117-$180 $149 (10%) 50 2022-24 PROJECTIONS 40 Ann’l Total Price Gain Return 30 High 155 (+15%) 6% Low 115 (-15%) -1% 20 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 18 to Buy 126 138 152 1 yr. 20.6 4.9 shares 12 3 yr. 83.8 30.2 to Sell 157 154 149 traded 6 Hld’s(000) 36099 34855 34535 5 yr. 118.8 36.8 Allmerica Financial Life Insurance and An- 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 nuity Co. was organized as a mutual life in- 53.61 63.27 80.69 95.69 101.84 107.30 109.41 109.15 113.73 110.88 112.50 115.00 P/C Prem Earned per sh 152.50 surance company until 10/16/95. On that 5.31 5.51 5.79 6.24 6.16 6.16 6.49 6.59 7.01 6.32 7.00 7.15 Investment Inc per sh 7.40 date, FAFLIC converted to a stock life insur- d.35 d2.23 d6.97 d7.29 d.32 .47 2.56 39.23 40.11 4.32 5.65 8.05 Underwriting Inc per sh 12.20 ance company and became a wholly owned 3.67 3.31 .70 1.02 5.06 5.18 6.26 4.25 4.75 6.79 8.45 9.15 Earnings per sh A 11.25 subsidiary of AFC. After the reorganization, .75 1.00 1.13 1.23 1.36 1.52 1.69 1.88 2.04 2.22 2.40 2.44 Div’ds Decl’d per sh B 2.88 the company issued 37.5 million shares of 49.65 54.80 56.27 58.59 59.37 64.78 66.15 67.39 70.53 69.85 73.75 81.25 Book Value per sh 110.00 common stock to eligible policyholders. Too, 47.50 44.90 44.60 44.30 43.70 43.90 43.00 42.40 42.50 42.30 40.00 40.00 Common Shs Outst’g C 40.00 AFC sold 12.6 million shares of common 77% 81% 71% 65% 86% 96% 115% 123% 132% 167% Bold figures are Price to Book Value 123% stock to the general public, resulting in pro- 10.4 13.4 NMF 37.1 10.1 12.0 12.2 19.4 19.7 15.3 Value Line Avg Ann’l P/E Ratio 12.0 ceeds of $248.0 million, and sold $200 mil- .69 .85 NMF 2.36 .57 .63 .61 1.02 .99 .83 estimates Relative P/E Ratio .65 lion in senior debentures. The company 2.0% 2.3% 2.8% 3.2% 2.7% 2.4% 2.2% 2.3% 2.2% 1.9% Avg Ann’l Div’d Yield 2.1% changed its name to Hanover 12/2005. 2546.4 2841.0 3598.6 4239.1 4450.5 4710.3 4704.8 4628.1 4833.4 4690.2 4500 4600 P/C Premiums Earned 6100 CAPITAL STRUCTURE as of 9/30/19 64.4% 65.3% 70.9% 70.2% 62.0% 62.2% 61.3% 64.1% 64.7% 68.4% 61.0% 60.0% Loss to Prem Earned 60.0% Total Debt $667.8 mill. Due in 5 Yrs $125.0 mill. 36.3% 38.2% 37.8% 37.5% 38.3% 37.4% 36.4% - - 36.4% 27.7% 34.0% 33.0% Expense to Prem Writ 32.0% LT Debt $667.8 mill. LT Interest $55.0 mill. -.7% -3.5% -8.6% -7.6% -.3% .4% 2.3% 35.9% 35.3% 3.9% 5.0% 7.0% Underwriting Margin 8.0% (18% of Cap’l) Leases, Uncapitalized $13.5 mill. 30.7% 27.4% - - - - 26.8% 29.3% 29.0% 31.2% 27.2% 21.0% 21.0% 21.0% Income Tax Rate 21.0% Pension Assets 12/18-$450.7 mill. 187.8 153.2 31.9 46.1 227.3 232.2 279.0 184.4 203.8 328.4 350 390 Net Profit ($mill) 480 Oblig. $469.5 mill. 5.3% 5.0% 3.8% 3.7% 3.5% 3.3% 3.5% 3.3% 3.3% 3.3% 3.4% 3.5% Inv Inc/Total Inv 3.8% Pfd Stock None 8043 8570 12624 13485 13379 13760 13791 14220 15470 12400 13000 14000 Total Assets ($mill) 15000 Common Stock 39,391,552 shs. 2358.6 2460.5 2509.8 2595.4 2594.5 2844.0 2844.4 2857.5 2997.7 2954.7 2950 3250 Shr. Equity ($mill) 4400 as of 10/30/19 MARKET CAP: $5.3 billion (Large Cap) 8.0% 6.2% 1.3% 1.8% 8.8% 8.2% 9.8% 6.5% 6.8% 11.1% 12.0% 12.0% Return on Shr. Equity 11.0% 6.4% 4.3% NMF NMF 6.4% 5.8% 7.2% 3.6% 3.9% 7.9% 8.5% 9.0% Retained to Com Eq 8.5% FINANCIAL POSITION 2017 2018 9/30/19 ($MILL.) 20% 31% NMF NMF 26% 29% 27% 44% 43% 29% 27% 25% All Div’ds to Net Prof 24% Bonds 7779.7 6161.5 6946.3 Stocks 576.5 464.4 570.8 BUSINESS: The Hanover Insurance Group, Incorporated through The company’s life insurance operations have been sold. Officers Mortgages 685.5 661.5 722.5 its subsidiaries underwrites property and casualty insurance, pri- and directors own approximately 1.7% of common stock (3/19 Other 6427.9 5112.3 4387.6 marily through an independent agent network concentrated in the proxy). Has approximately 4,200 employees. Inc.: Delaware. Chair- Total Assets 15469.6 12399.7 12627.2 Midwest, Northeast, and Southeast United States. In 2018, Per- man: Michael P. Angelini. Pres. and Chief Executive Officer: John Unearned Prems 2763.6 2277.8 2456.8 sonal Lines accounted for approximately 33% of segmented reve- Conner Roche. Address: 440 Lincoln Street, Worcester, MA 01653. Reserves 7745.0 5304.1 5550.5 Other 1963.3 1863.1 1533.1 nues; Commercial Lines, 51%; Other Property & Casualty, 16%. Telephone: 508-855-1000. Internet: www.hanover.com. Total Liab’ties 12471.9 9445.0 9540.4 The Hanover Insurance Group contin- historical catastrophe loss patterns, which ANNUAL RATES Past Past Est’d ’16-’18 ues to run like a well-oiled machine. augurs well for the combined ratio and un- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Premiums have been recovering of late, derwriting metrics. Slight tweaks through- Premium Inc 10.0% 7.0% 5.5% with increased demand for the company’s out Hanover’s investment portfolio will Invest Income 1.0% 3.0% 1.5% Earnings 5.0% 25.0% 13.5% specialty coverages (most notably in the probably boost returns next year. Dividends 19.5% 11.0% 6.0% professional, small commercial, and per- The insurer’s technology enhance- Book Value 5.5% 4.0% 8.0% sonal lines) bolstering results. Meanwhile, ments seem to be paying off nicely. In Cal-NET PREMIUMS EARNED ($ mill.) Full a heightened focus on improving policy fact, it recently introduced a platform endarMar.31 Jun.30 Sep.30 Dec.31 Year quality while slashing risk/expenses has aimed at targeting commercial clients with 2016 1151.3 1145.5 1160.9 1170.4 4628.1 led to a reduced combined ratio (translat- specific underwriting credentials, dubbed 2017 1181.3 1181.2 1226.9 1244.0 4833.4 ing into loftier underwriting income). The Cyber Advantage. These digital tools have 2018 1263.6 1272.9 1071.7 1082.0 4690.2 insurer’s sizable reserve base has enabled spurred more-profitable contracts, lower 2019 1095.1 1111.0 1124.1 1169.8 4500 it to carefully navigate upticks in various costs, elevated retention levels, and im- 2020 1130 1145 1155 1170 4600 loss/liability trends. What’s more, manage- proved claims processing. We think fur- Cal-EARNINGS PER SHARE A Full ment has found success instituting modest ther technology upgrades are likely endarMar.31 Jun.30 Sep.30 Dec.31 Year rate hikes for its core product suites. All forthcoming at Hanover. 2016 1.64 1.24 1.83 d.46 4.25 told, we have raised our 2019 share- The stock is now favorably ranked for 2017 .95 1.69 .11 2.00 4.75 earnings target by $0.25, to $8.45, which year-ahead relative price perform- 2018 1.54 1.77 1.97 1.51 6.79 reflects Hanover’s third-quarter beat. ance. Even so, these shares hold below- 2019 1.96 1.88 2.31 2.30 8.45 The bottom line should check in average appreciation potential three to 2020 2.05 2.25 2.20 2.65 9.15 around $9.15 per share in 2020. The five years hence, while their dividend yield Cal-QUARTERLY DIVIDENDS PAID B Full company’s larger agent base and more- fails to stand out from the crowd. In addi- endarMar.31 Jun.30 Sep.30 Dec.31 Year diverse distribution network should allow tion, this selection appears fully valued on 2015 .41 .41 .41 .46 1.69 for higher premiums over future quarters. a P/E basis, suggesting those looking for a 2016 .46 .46 .46 .50 1.88 Also, we look for THG’s revamped Prestige bargain will want to hold off, for now. All 2017 .50 .50 .50 .54 2.04 and Platinum offerings to gain further told, long-term accounts should wait for a 2018 .54 .54 .54 .60 2.22 traction with customers. In addition, in- better entry point to present itself. 2019 .60 .60 .60 dustry forecasts point to a return of more- Kenneth J. DeFranco, Jr. December 6, 2019 (A) Based on diluted earnings. Excludes capital $1.07. Extra. gain: ’06, 1¢. Excl. losses from (B) Initiated quarterly div’d 3/22/10. Div’d paid Company’s Financial Strength B++ gains and losses. Excludes nonrecurring gains disc. op. ’05, $7.44; ’06, 42¢; ’08, $1.64. Next in March, June, September, and December. Stock’s Price Stability 95 (losses): ’04, 77¢; ’06, (6¢); ’07, 36¢; ’08, earnings report due late January. (C) In millions. Price Growth Persistence 75 ($1.35). Excl. extraordinary charges: ’04, Earnings Predictability 40 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 28.7 RELATIVE DIV’D VALUE MARKEL CORP. NYSE-MKL PRICE 1115.00RATIO 25.2()Median: 29.0 P/E RATIO 1.42YLD Nil LINE 766 TIMELINESS 3 Lowered 11/22/19 High: 493.0 363.0 392.5 430.3 502.2 582.6 707.4 937.9 989.2 1157 1228 1216 Target Price Range Low: 234.2 208.8 320.7 337.5 398.7 435.0 527.2 660.1 805.0 887.4 954.4 950.2 2022 2023 2024 SAFETY 1 Raised 9/12/14 LEGENDS 1.5 x Book value p sh TECHNICAL Raised 11/29/19 .... Relative Price Strength 1 Options: Yes BETA .90 (1.00 = Market) Shaded area indicates recession 1250 18-Month Target Price Range Low-High Midpoint (% to Mid) 800 600 $1003-$1572 $1288 (15%) 500 2022-24 PROJECTIONS 400 Ann’l Total 300 Price Gain Return 250 High 1515 (+35%) 8% Low 1240 (+10%) 3% 200 % TOT. RETURN 10/19 150 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 15 to Buy 233 231 227 1 yr. 7.1 4.9 shares 10 3 yr. 33.5 30.2 to Sell 209 204 216 traded 5 Hld’s(000) 10518 10547 10532 5 yr. 69.5 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 189.32 208.57 197.83 218.56 212.65 206.05 184.93 178.12 223.74 247.27 253.67 301.15 273.89 276.93 305.61 339.24 364.30 392.85 P/C Prem Earned per sh 464.30 18.54 20.72 24.70 27.12 30.78 28.91 26.46 28.04 27.41 29.30 22.69 26.02 25.30 26.74 29.18 31.26 32.00 32.50 Investment Inc per sh 34.00 1.02 7.32 d1.21 28.41 26.55 1.49 8.79 6.16 d4.24 6.60 7.37 12.72 30.78 22.15 d14.76 6.78 29.15 35.35 Underwriting Inc per sh 51.05 9.56 16.12 13.25 35.05 36.84 20.78 26.85 24.84 12.92 25.53 18.86 18.70 33.73 25.58 1.54 d9.55 102.00 42.00 Earnings per sh A 55.00 ------Nil Nil Div’ds Decl’d per sh Nil 140.07 168.22 174.05 229.77 265.26 222.20 282.55 326.36 352.10 403.85 477.16 544.04 566.16 611.83 683.56 653.76 744.65 785.70 Book Value per sh F 821.45 9.85 9.85 9.80 9.99 9.96 9.81 9.82 9.72 9.62 9.63 13.99 13.96 13.96 13.96 13.90 13.89 14.00 14.00 Common Shs Outst’g B 14.00 176% 175% 192% 161% 182% 172% 107% 107% 113% 109% 109% 116% 143% 149% 148% 173% Bold figures are Price to Book Value 167% 25.8 18.2 25.3 10.6 13.1 18.4 11.2 14.1 30.7 16.9 27.6 33.8 23.8 35.4 NMF - - Value Line Avg Ann’l P/E Ratio 25.0 1.47 .96 1.35 .57 .70 1.11 .75 .90 1.93 1.08 1.55 1.78 1.20 1.86 NMF - - estimates Relative P/E Ratio 1.40 ------Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 D 1815.8 1730.9 2147.6 2381.2 3548.9 4204.1 3823.5 3865.9 4248.0 4712.0 5100 5500 P/C Premiums Earned 6500 54.7% 54.7% 61.1% 53.7% 56.2% 57.3% 50.7% 53.0% 67.5% 61.0% 55.0% 54.0% Loss to Prem Earned C 54.0% Total Debt $3897.0 mill. 40.6% 41.9% 40.9% 43.3% 40.6% 38.0% 38.1% 38.8% 37.4% 37.0% 37.0% 37.0% Expense to Prem Writ C 35.0% 4.8% 3.5% -2.1% 3.0% 3.2% 4.6% 11.2% 8.2% -4.8% 2.0% 8.0% 9.0% Underwriting Margin 11.0% (27% of Cap’l) Leases, Uncapitalized $48.9 mill. - - 10.6% 25.0% 17.5% 24.9% 30.1% 19.6% 32.7% 30.3% - - 21.0% 21.0% Income Tax Rate 21.0% Pension Assets-12/18 $187.0 mill. 263.6 243.0 125.2 253.4 235.5 271.0 470.0 375.6 55.4 d134.2 1430 590 Net Profit ($mill) 770 Oblig. $171.5 mill. 3.7% 3.6% 3.3% 3.4% 2.1% 2.2% 2.6% 2.5% 2.6% 3.5% 3.6% 3.7% Inv Inc/Total Inv 3.8% 10242 10826 11532 12557 23956 25200 24941 25875 32805 33306 37000 37500 Total Assets ($mill) 39500 2774.4 3187.7 3462.3 3975.3 6750.2 7594.8 7903.6 8541.1 9667.8 9080.7 10425 11000 Shr. Equity ($mill) DEF 11500 Common Stock 13,812,499 shs. as of 10/22/19 9.5% 7.7% 3.7% 6.5% 3.5% 3.6% 6.0% 4.4% .6% NMF 13.5% 5.5% Return on Shr. Equity 6.5% MARKET CAP: $15.4 billion (Large Cap) 9.5% 7.7% 3.7% 6.5% 3.5% 3.6% 6.0% 4.4% .6% NMF 13.5% 5.5% Retained to Com Eq 6.5% FINANCIAL POSITION 2017 2018 9/30/19 ------Nil Nil All Div’ds to Net Prof Nil ($MILL.) Bonds 9940.7 10043.2 10204.0 BUSINESS: Markel Corporation markets and underwrites specialty class: Property (25%); Casualty (23)%; Liability (26%); Other Stocks 5967.8 5720.9 6978.9 insurance products and programs to a variety of niche markets. The (26%). The company has approximately 17,400 employees. Of- Other 16896.5 17542.2 19853.3 company competes in three distinct areas of the specialty insurance ficers & directors own 2.3% of common stock (3/19 proxy). Co- Total Assets 32805.0 33306.3 37036.2 market. Excess & Surplus lines (E&S Market) accounted for 27% of CEO’s: Thomas S. Gayner & Richard R. Whitt, III. Incorporated: Unearned Prems 3308.8 3611.0 4224.1 gross premiums written in 2018; Specialty Admitted Market, 23%; Virginia. Address: 4521 Highwoods Parkway, Glen Allen, Virginia Reserves 13584.3 14276.5 14437.8 London Insurance Market, 23%; Alterra, 27%. Premium mix by 23060-6148. Tel.: 804-747-0136. Internet: www.markelcorp.com. Other 6244.1 6144.4 7573.8 Total Liab’ties 23137.2 24031.9 26235.7 Markel Corporation seems set to rec- static, for now, at $42.00. ANNUAL RATES Past Past Est’d ’16-’18 ord share net of $102.00 for 2019. In The recently purchased State Nation- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 that vein, the company’s solid September- al Program Services and Insurance- Premium Inc 3.0% 7.0% 7.0% interim performance prompted us to raise Linked Securities operations have Invest Income - - -1.0% 2.5% Earnings -3.5% -1.0% 45.5% our EPS mark for this year by $6.00. The performed well of late. Indeed, greater Dividends - - - - Nil story remains much the same here. On pricing momentum has fueled premiums Book Value 10.5% 11.5% 4.0% point, a mix of higher premiums, reduced at these divisions, most notably across the Cal-PREMIUMS EARNED ($ mill.) Full corporate taxes, and increased policy general, professional, and personal endarMar.31 Jun.30 Sep.30 Dec.31 Year retention levels has aided the bottom line. liability lines. Going forward, we expect a 2016 957.7 950.9 974.2 983.1 3865.9 Meanwhile, decreased risk exposure and climbing amount of assets under manage- 2017 982.6 1033.6 1099.9 1131.9 4248.0 tighter underwriting standards have ment to propel the company’s fee-based in- 2018 1151.0 1148.2 1185.3 1227.5 4712.0 largely mitigated a noticeable uptick in come. What’s more, less supply across the 2019 1204.0 1199.5 1300.0 1396.5 5100 catastrophe loss activity. Too, it appears P&C insurance market should enable in- 2020 1325 1350 1400 1425 5500 rising gross written premiums have more surers to garner meaningful rate hikes Cal-EARNINGS PER SHARE A Full than offset some weakness that is present during policy renewal season. endarMar.31 Jun.30 Sep.30 Dec.31 Year in the reinsurance space. All told, these This selection is still neutrally ranked 2016 9.05 4.18 3.64 8.71 25.58 trends will likely persist for the remainder for year-ahead relative price perform- 2017 3.90 10.31 d18.82 6.12 1.54 of this calendar year. ance. We think much of the positive news 2018 d4.25 19.97 28.50 d53.88 d9.55 The Markel Ventures arm should keep here is already baked into this issue’s 2019 42.76 36.07 13.95 9.22 102.00 this insurer moving in the right direc- recent quotation, reducing its long-term 2020 11.00 10.00 10.00 11.00 42.00 tion next year. Revenues in this segment capital appreciation potential accordingly. Cal-QUARTERLY DIVIDENDS PAID Full continue to advance at a near double-digit In addition, the absence of a traditional endarMar.31 Jun.30 Sep.30 Dec.31 Year pace, thanks to strategic acquisitions and cash dividend lessens this stock’s appeal 2015 a diverse product suite. Looking ahead, when compared to others in the P&C in- 2016 NO CASH DIVIDENDS management may attempt to further bol- dustry. All told, patient investors would be 2017 BEING PAID ster its various offerings in the consumer better-rewarded avoiding these shares for 2018 and building solutions categories. Our the time being, in our view. 2019 2020 earnings-per-share outlook remains Kenneth J. DeFranco, Jr. December 6, 2019 (A) Diluted egs. Excl. gain/(loss) in ’03 and pfd. (E) Reflects FASB 115 as of 1993. Company’s Financial Strength A thereafter. Next earnings report early February. (F) Assumes growth in equity portfolio. Stock’s Price Stability 100 EPS may not sum due to rounding. (B) In mil- Price Growth Persistence 90 lions. (C) GAAP ratios. (D) Incl. tax ded. trust Earnings Predictability 5 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 22.8 RELATIVE DIV’D VALUE MERCURY GENERAL NYSE-MCY PRICE 48.50RATIO 15.2()Median: 21.0 P/E RATIO 0.86YLD 5.2% LINE 767 TIMELINESS 3 Lowered 8/23/19 High: 62.0 46.1 46.7 46.6 46.8 51.0 59.7 60.3 61.2 64.5 61.8 65.2 Target Price Range Low: 36.1 22.5 37.4 33.8 36.0 36.0 41.7 45.1 43.0 51.9 41.4 46.7 2022 2023 2024 SAFETY 3 Lowered 3/8/19 LEGENDS 13.5 x Earnings p sh 128 TECHNICAL 2 Raised 11/8/19 .... Relative Price Strength Options: Yes 96 BETA .90 (1.00 = Market) Shaded area indicates recession 80 18-Month Target Price Range 64 Low-High Midpoint (% to Mid) 48 40 $39-$90 $65 (35%) 32 2022-24 PROJECTIONS 24 Ann’l Total Price Gain Return 16 High 95 (+95%) 21% Low 65 (+35%) 12% 12 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 15 to Buy 104 118 109 1 yr. -15.2 4.9 shares 10 3 yr. 1.3 30.2 to Sell 117 107 110 traded 5 Hld’s(000) 26347 24154 23839 5 yr. 14.1 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 39.41 46.38 52.15 54.82 54.70 51.29 47.92 46.83 46.78 46.88 49.08 50.73 53.62 56.64 57.75 60.87 65.45 68.20 P/C Prem Earned per sh 74.55 1.92 2.01 2.24 2.76 2.90 2.76 2.65 2.62 2.57 2.40 2.27 2.28 2.29 2.20 2.26 2.45 2.50 2.55 Investment Inc per sh 3.60 4.04 7.04 6.70 5.97 5.44 2.26 5.47 4.29 4.65 2.47 4.18 5.15 4.95 3.87 3.53 d.43 .65 5.45 Underwriting Inc per sh 7.45 3.25 4.94 4.43 3.74 4.08 2.12 3.23 2.09 2.79 2.13 2.18 2.28 2.34 1.73 1.63 1.80 2.80 3.95 Earnings per sh A 6.00 1.32 1.48 1.72 1.92 2.08 2.32 2.33 2.37 2.41 2.44 2.45 2.46 2.47 2.48 2.49 2.50 2.52 2.53 Div’ds Decl’d per sh B 2.91 23.07 26.77 29.44 31.54 34.02 27.28 32.33 32.75 33.86 33.55 33.15 34.02 33.01 31.70 31.83 29.23 30.90 32.00 Book Value per sh 38.20 54.42 54.51 54.61 54.67 54.73 54.76 54.78 54.80 54.86 54.92 54.98 55.12 55.16 55.29 55.33 55.34 55.00 55.00 Common Shs Outst’g C 55.00 186% 191% 192% 172% 156% 175% 108% 128% 119% 125% 132% 144% 164% 168% 179% 170% Bold figures are Price to Book Value 212% 13.2 10.4 12.8 14.5 13.0 22.6 10.8 20.1 14.5 19.6 20.1 21.5 23.1 31.0 34.8 27.6 Value Line Avg Ann’l P/E Ratio 13.5 .75 .55 .68 .78 .69 1.36 .72 1.28 .91 1.25 1.13 1.13 1.16 1.63 1.75 1.49 estimates Relative P/E Ratio .75 3.1% 2.9% 3.0% 3.5% 3.9% 4.8% 6.7% 5.6% 6.0% 5.8% 5.6% 5.0% 4.6% 4.7% 4.4% 5.0% Avg Ann’l Div’d Yield 3.6% CAPITAL STRUCTURE as of 9/30/19 2625.1 2566.7 2566.1 2574.9 2698.2 2796.2 2957.9 3131.8 3195.4 3368.4 3600 3750 P/C Premiums Earned 4100 Total Debt $372.0 mill. 67.9% 71.1% 71.3% 76.2% 72.7% 71.0% 72.5% 75.2% 76.5% 76.5% 75.0% 72.0% Loss to Prem Earned 71.0% (17% of Capital) 21.0% 19.8% 18.7% 18.0% 18.5% 18.5% 18.0% 18.0% 17.4% 24.2% 24.0% 20.0% Expense to Prem Writ 19.0% 11.1% 9.1% 10.0% 5.8% 8.7% 10.4% 9.5% 6.8% 6.1% -.7% 1.0% 8.0% Underwriting Margin 10.0% Leases, Uncapitalized Annual rentals $12.8 mill. 21.0% 20.9% 26.1% 13.6% 14.3% 35.6% 16.3% 9.2% 9.2% NMF 21.0% 21.0% Income Tax Rate 21.0% No Defined Benefit Pension Plan 177.9 114.4 152.8 116.9 119.8 125.7 129.1 95.3 90.5 99.8 155 220 Net Profit ($mill) 330 4.8% 4.8% 5.0% 4.6% 4.4% 4.1% 3.7% 3.4% 3.3% 3.7% 3.8% 4.0% Inv Inc/Total Inv 4.2% 4233 4203 4070 4190 4315 4600 4629 4789 5101 5434 5900 6000 Total Assets ($mill) 6300 Preferred Stock None 1770.9 1794.8 1857.5 1842.5 1822.5 1875.4 1820.9 1752.4 1761.4 1617.7 1700 1760 Shr. Equity ($mill) 2100 Common Stock 55,354,691 shares as of 10/24/19 10.0% 6.4% 8.2% 6.3% 6.6% 6.7% 7.1% 5.4% 5.1% 6.2% 9.0% 12.5% Return on Shr. Equity 15.5% MARKET CAP: $2.7 billion (Mid Cap) 2.8% NMF 1.1% NMF NMF NMF NMF NMF NMF NMF 1.0% 4.5% Retained to Com Eq 8.0% FINANCIAL POSITION 2017 2018 9/30/19 72% 114% 86% 115% 112% 108% 106% NMF NMF NMF 89% 63% All Div’ds to Net Prof 49% ($MILL.) Bonds 2892.8 2985.2 3139.4 BUSINESS: Mercury General is an insurance holding company that ginia, New York, New Jersey, Arizona, Pennsylvania, Michigan, and Stocks 537.2 529.6 657.1 writes private passenger (76% of ’18 premiums written) and com- Nevada. Employs about 4,400. Officers & directors own 34.2% of Other 1671.3 1918.9 2076.7 mercial auto insurance (6%), as well as other lines (homeowners, stock (George Joseph, 34.0%) (3/19 proxy). Chairman: George Total Assets 5101.3 5433.7 5873.2 etc.) (18%). Sells through about 10,200 independent agents. Most Joseph. President & CEO: Gabriel Tirador. Incorporated: CA. Ad- Unearned Premium 1101.9 1236.2 1384.0 business is in California (86% of ’18 premiums written), but Mercury dress: 4484 Wilshire Boulevard, Los Angeles, CA 90010. Tele- Reserves 1510.6 1829.4 1855.2 also operates in Georgia, Illinois, Oklahoma, Texas, Florida, Vir- phone: 323-937-1060. Internet: www.mercuryinsurance.com. Other 727.4 750.4 831.5 Total Liab. 3339.9 3816.0 4070.7 Mercury General’s combined ratio has ance sector, we think Mercury will take ANNUAL RATES Past Past Est’d ’16-’18 deteriorated some in recent months. greater advantage of new digital un- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Specifically, the company’s profits have derwriting software moving forward. Premium Inc .5% 3.5% 4.0% been reduced due to elevated loss activity These solutions will enable MCY to better Invest Income -1.5% -2.5% 7.5% Earnings -7.5% -4.0% 23.0% in its private passenger and commercial identify coverage shortfalls, speed up Dividends 2.5% .5% 2.5% auto business lines. In fact, MCY regis- claims service, trim costs, and lift custom- Book Value - - -.5% 3.5% tered a combined ratio north of 100% out- er retention levels. Cal-P/C PREMIUMS EARNED ($ mill.) Full side of California during the September A spike in catastrophe losses could endarMar.31 Jun.30 Sep.30 Dec.31 Year quarter, signaling that those operations mean sizable price increases are on 2016 767.1 779.3 790.9 794.5 3131.8 were running in a deficit. Though private tap. Several large wildfires that have 2017 789.8 797.7 801.2 806.7 3195.4 passenger severity trends in the Golden burned through various sections of Califor- 2018 808.1 834.0 858.1 868.2 3368.4 State have remained rather stable, core nia are likely to spur elevated claims ac- 2019 870.2 888.8 915.0 926 3600 commercial auto policies have been a dif- tivity ahead. Even so, these losses ought to 2020 920 925 940 965 3750 ferent story. Therefore, we have pared our reduce excess capacity and provide Mer- Cal-EARNINGS PER SHARE A Full 2019 earnings-per-share call by $0.40, to cury with greater leverage during the next endarMar.31 Jun.30 Sep.30 Dec.31 Year $2.80, reflecting the more-challenging op- policy renewal season. 2016 .13 .35 .67 .58 1.73 erating landscape. These shares maintain a Timeliness 2017 .20 .68 .60 .15 1.63 Our 2020 EPS estimate, however, con- rank of 3 (Average). Nonetheless, this is- 2018 .07 .88 1.11 d.26 1.80 tinues to sit unchanged, at $3.95. This sue offers long-term investors above- 2019 .87 .74 .78 .41 2.80 insurer should further reap the benefits of average total-return potential for the 2020 .85 1.15 1.35 .60 3.95 earlier rate hikes by next year. Meantime, stretch to the 2022-2024 timeframe. Cal-QUARTERLY DIVIDENDS PAID B Full we look for the top line to advance mod- Though the insurer will probably face endarMar.31 Jun.30 Sep.30 Dec.31 Year estly, with average premiums per policy short-term challenges on the bottom line, 2015 .6175 .6175 .6175 .62 2.47 and direct written premiums climbing in we think its ample market share, diverse 2016 .62 .62 .62 .623 2.48 tandem. Moreover, a mix of higher reten- product portfolio, and fortified underwrit- 2017 .623 .623 .623 .625 2.49 tion levels and favorable reserve develop- ing platform will mitigate any downturn 2018 .625 .625 .625 .628 2.50 ment ought to help bolster overall profita- that may arise. 2019 .628 .628 .628 .63 bility. Like most companies in the insur- Kenneth J. DeFranco, Jr. December 6, 2019 (A) Diluted egs. Next EPS report due mid- (C) In millions. Company’s Financial Strength B++ February. Stock’s Price Stability 70 (B) Dividends historically paid in March, June, Price Growth Persistence 25 September, and December. Earnings Predictability 55 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 15.2 RELATIVE DIV’D VALUE NMI HOLDINGS NDQ-NMIH PRICE 33.36RATIO 11.9()Median: NMF P/E RATIO 0.67YLD Nil LINE 768 TIMELINESS 2 Raised 5/3/19 High: 15.2 13.9 9.5 11.0 18.0 24.5 34.5 Target Price Range Low: 11.5 8.1 6.7 4.2 9.9 13.4 17.4 2022 2023 2024 SAFETY 3 New 3/8/19 LEGENDS 12.0 x Earnings p sh TECHNICAL Lowered 10/25/19 .... Relative Price Strength 80 3 Options: Yes BETA 1.10 (1.00 = Market) Shaded area indicates recession 60 50 18-Month Target Price Range 40 Low-High Midpoint (% to Mid) 30 25 $22-$51 $37 (10%) 20 2022-24 PROJECTIONS 15 Ann’l Total Price Gain Return 10 High 55 (+65%) 14% Low 35 (+5%) 2% 7.5 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 36 to Buy 101 108 127 1 yr. 38.4 4.9 shares 24 3 yr. 282.4 30.2 to Sell 89 87 87 traded 12 Hld’s(000) 60130 61134 62237 5 yr. 226.8 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 ------.04 .23 .77 1.87 2.74 3.89 5.25 6.10 P/C Prem Earned per sh 7.25 ------.08 .10 .12 .23 .27 .35 .45 .55 Investment Inc per sh .75 ------d1.01 .22 d.60 1.87 2.74 1.99 2.80 3.30 Underwriting Inc per sh 4.00 ------d.99 d.84 d.47 1.08 .35 1.60 2.40 3.00 Earnings per sh A 3.75 ------Nil Nil Div’ds Decl’d per sh Nil ------7.98 7.31 6.85 8.07 8.41 10.58 13.15 16.00 Book Value per sh 24.65 ------58.05 58.43 58.81 59.15 60.52 66.32 66.50 66.50 Common Shs Outst’g B 67.00 ------166% 142% 114% 83% 147% 177% Bold figures are Price to Book Value 183% ------6.2 35.3 12.2 Value Line Avg Ann’l P/E Ratio 12.0 ------.33 1.78 .66 estimates Relative P/E Ratio .65 ------Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 ------2.1 13.4 45.5 110.5 165.7 258.2 350 405 P/C Premiums Earned 485 Total Debt $146.0 mill. ------56.3% 48.9% 47.0% 46.0% Loss to Prem Earned 45.0% ------Expense to Prem Writ ------43.7% 51.1% 53.0% 54.0% Underwriting Margin 55.0% (14% of Cap’l) ------58.2% 20.6% 21.0% 21.0% Income Tax Rate 21.0% Leases, Uncapitalized Annual rentals $2.3 mill. ------d55.2 d48.9 d27.8 65.8 22.1 107.9 160 200 Net Profit ($mill) 255 ------1.8% 2.0% 2.1% 2.2% Inv Inc/Total Inv 2.7% No Defined Benefit Pension Plan ------481 463 662 840 895 1092 1300 1500 Total Assets ($mill) 2000 ------463.2 427.0 402.7 475.5 509.0 701.5 875 1065 Shr. Equity ($mill) 1650 Common Stock 67,980,992 shs. ------NMF NMF NMF 13.8% 4.3% 15.4% 18.5% 19.0% Return on Shr. Equity 15.5% MARKET CAP: $2.3 billion (Mid Cap) ------NMF NMF NMF 13.8% 4.3% 15.4% 18.5% 19.0% Retained to Com Eq 15.5% FINANCIAL POSITION 2017 2018 9/30/19 ------Nil Nil All Div’ds to Net Prof Nil ($MILL.) Bonds 715.9 911.5 1073.2 BUSINESS: NMI Holdings, Inc. provides mortgage insurance insurance in all 50 states, while Re One specializes in providing Stocks ------through its wholly owned subsidiaries, namely National Mortgage reinsurance on loans with coverage levels in excess of 25%, after Other 178.9 180.5 228.3 Insurance Corporation (NMIC) and National Mortgage Reinsurance giving effect to third-party reinsurance. Has 304 employees. Inc.: Total Assets 894.8 1092.0 1301.5 Inc. One (Re One). The company’s operating units are domiciled in Delaware. Chairman: Bradley M. Shuster. Chief Executive Officer: Unearned Prems 163.2 158.9 145.1 Wisconsin and principally regulated by the Wisconsin Office of the Claudia J. Merkle. Address: 2100 Powell Street, Emeryville, CA Reserves 8.8 12.8 20.5 Commissioner of Insurance. NMIC is approved to write mortgage 94608. Telephone: 855-530-6642. Internet: www.nationalmi.com. Other 213.8 218.8 262.4 Total Liab’ties 385.8 390.5 428.0 NMI Holdings should remain in cruise risk exposure, greater coverage accuracy, ANNUAL RATES Past Past Est’d ’16-’18 control for the duration of this year. A and loftier premiums. Therefore, our 2020 of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 favorable operating climate, coupled with earnings-per-share estimate has climbed Premium Inc - - - - 17.0% increased demand and higher origination by $0.20, as well, to $3.00. Invest Income - - - - 17.5% Earnings - - - - 24.5% volume, has boosted the top and bottom A stable regulatory landscape augurs Dividends - - - - Nil lines here. Elsewhere, it seems stricter un- well for this mortgage insurance pro- Book Value - - - - 18.0% derwriting criteria has led to reduced ex- vider. Federal lawmakers recently Cal-NET PREMIUMS EARNED Full penses and elevated underwriting income. released broad proposals for a U.S. hous- endarMar.31 Jun.30 Sep.30 Dec.31 Year Management has noted that a relatively ing finance system reform package. 2016 19.8 26.1 31.8 32.8 110.5 low interest-rate environment has helped Though it will probably take a good deal of 2017 33.2 37.9 44.5 50.1 165.7 spur refinancing activity and improved af- time before NMI receives clarity on which 2018 54.9 61.6 65.4 76.3 258.2 fordability/access to the real estate mar- elements are ultimately enacted, manage- 2019 73.9 83.2 92.4 100.5 350 ket, which is particularly important for ment thinks these plans will largely aid 2020 93.0 97.0 102 113 405 first-time homebuyers (a large part of the long-term viability of mortgage insur- Cal-EARNINGS PER SHARE A Full NMI’s customer base). To that end, we ance solutions. endarMar.31 Jun.30 Sep.30 Dec.31 Year have opted to lift our 2019 EPS mark by This equity garners a Timeliness rank 2016 d.07 .03 .10 1.01 1.08 $0.20, to $2.40. of 2 (Above Average). Even so, NMIH 2017 .09 .10 .20 d.04 .35 The insurer ought to take another has risen around 20% in value since our 2018 .34 .37 .36 .46 1.60 step forward in 2020. Our overall out- September review, diminishing its appreci- 2019 .48 .56 .69 .67 2.40 look for the mortgage insurance sector ation potential for the pull to 2022-2024. 2020 .72 .73 .74 .81 3.00 remains mostly positive. A combination of Too, this selection’s recent P/E multiple Cal-QUARTERLY DIVIDENDS PAID Full low unemployment statistics, healthier suggests that it is fairly valued at present. endarMar.31 Jun.30 Sep.30 Dec.31 Year wage growth, and decent home price ap- A new underwriting system, increased 2015 preciation should strengthen borrowing demand, and favorable operating funda- 2016 NO CASH DIVIDENDS fundamentals. Too, the company’s recently mentals should fuel premiums and earn- 2017 BEING PAID introduced Rate GPS platform ought to ings ahead. But patient accounts would do 2018 pave the way for increased policy retention well to wait for a better entry point. 2019 levels, wider underwriting margins, less Kenneth J. DeFranco, Jr. December 6, 2019 (A) Diluted earnings. Includes capital Company’s Financial Strength B+ gains/(losses). Egs. may not sum due to round- Stock’s Price Stability 35 ing. Next EPS report due mid-February. Price Growth Persistence 50 (B) In millions. Earnings Predictability 20 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 12.4 RELATIVE DIV’D VALUE OLD REPUBLIC INT’L NYSE-ORI PRICE 22.40RATIO 11.5()Median: NMF P/E RATIO 0.64YLD 3.6% LINE 769 TIMELINESS 3 Lowered 8/2/19 High: 17.3 12.9 15.5 13.9 11.2 17.5 17.3 19.1 20.0 21.6 23.0 24.1 Target Price Range Low: 6.8 7.2 10.0 7.1 7.8 10.7 13.4 13.6 16.5 17.9 19.5 19.7 2022 2023 2024 SAFETY 3 Lowered 9/19/08 LEGENDS 15.0 x Earnings p sh 120 TECHNICAL 2 Raised 12/6/19 .... Relative Price Strength 100 5-for-4 split 1/06 80 BETA .90 (1.00 = Market) Options: Yes Shaded area indicates recession 64 18-Month Target Price Range 48 Low-High Midpoint (% to Mid) 32 $20-$30 $25 (10%) 24 2022-24 PROJECTIONS 20 Ann’l Total 16 Price Gain Return High 60 (+170%) 30% 12 Low 40 (+80%) 19% % TOT. RETURN 10/19 8 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 18 to Buy 193 203 181 1 yr. 9.7 4.9 shares 12 3 yr. 54.7 30.2 to Sell 194 176 193 traded 6 Hld’s(000) 221411 223183 228885 5 yr. 92.9 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 11.37 12.29 13.34 13.65 14.70 12.99 12.93 12.44 14.25 15.58 17.11 17.04 18.16 18.53 18.87 17.71 18.25 20.50 P/C Prem Earned per sh 25.80 1.23 1.28 1.35 1.48 1.65 1.57 1.59 1.46 1.41 1.30 1.22 1.32 1.48 1.47 1.52 1.43 1.60 1.80 Investment Inc per sh 2.50 .00 d.11 .08 .25 d1.33 d3.86 d3.91 d3.15 d4.33 d3.93 d1.12 d1.72 d1.27 d1.12 d.37 d.59 .80 .85 Underwriting Inc per sh 1.80 1.95 1.75 1.99 1.94 .97 d.81 d.67 d.16 d.86 d.39 1.25 .84 1.28 1.47 1.11 1.88 1.85 1.95 Earnings per sh A 3.35 .36 .40 .51 .59 .63 .67 .68 .69 .70 .71 .72 .73 .74 .75 .76 .78 .80 .82 Div’ds Decl’d per sh B■ 1.10 15.65 16.94 17.53 18.91 19.71 15.55 16.17 15.90 14.55 13.86 14.49 15.04 14.81 17.02 17.58 17.00 18.75 19.65 Book Value per sh 25.80 227.01 228.20 229.58 231.05 230.47 240.52 240.69 259.22 259.33 259.49 260.46 260.95 262.05 262.72 269.24 302.72 304.00 305.00 Common Shs Outst’g C 310.00 110% 114% 114% 115% 100% 78% 66% 80% 76% 71% 97% 104% 108% 108% 114% 124% Bold figures are Price to Book Value 195% 8.8 11.0 10.1 11.2 20.3 ------11.2 18.6 12.5 12.6 18.0 11.2 Value Line Avg Ann’l P/E Ratio 15.0 .50 .58 .54 .60 1.08 ------.63 .98 .63 .66 .91 .60 estimates Relative P/E Ratio .85 2.1% 2.1% 2.6% 2.7% 3.2% 5.5% 6.4% 5.4% 6.3% 7.3% 5.1% 4.7% 4.6% 4.1% 3.8% 3.7% Avg Ann’l Div’d Yield 2.2% CAPITAL STRUCTURE as of 9/30/19 3111.5 3225.5 3695.5 4043.8 4456.6 4446.3 4758.8 4868.9 5080.2 5362.0 5550 6250 P/C Premiums Earned 8000 Total Debt $973.7 mill. Due in 5 Yrs $600.0 mill. 83.3% 69.9% 73.9% 67.9% 49.9% 56.2% 51.3% 47.9% 48.4% 45.5% 46.0% 47.0% Loss to Prem Earned 45.0% LT Debt $973.7 mill. LT Interest $21.0 mill. 46.7% 55.1% 56.1% 56.8% 56.3% 53.6% 55.3% 57.8% 53.2% 57.5% 50.0% 49.0% Expense to Prem Writ 48.0% (14% of Cap’l) -30.0% -25.0% -30.0% -24.7% -6.2% -9.8% -6.6% -5.7% -1.6% -3.0% 4.0% 4.0% Underwriting Margin 7.0% ------32.8% 31.0% 32.9% 32.9% 52.0% 25.0% 23.0% 22.0% Income Tax Rate 20.0% Leases, Uncapitalized Annual rentals $60.4 mill. d158.0 d39.8 d218.5 d99.7 352.5 232.7 362.9 422.4 348.2 558.8 565 595 Net Profit ($mill) 1040 Pension Assets-12/18 $430.2 mill. 4.3% 4.1% 4.0% 3.6% 3.3% 3.3% 3.7% 3.2% 3.2% 3.4% 3.5% 4.0% Inv Inc/Total Inv 5.5% Oblig. $530.1 mill. 14190 15883 16050 16227 16534 16988 17111 18592 19404 19327 21250 23000 Total Assets ($mill) 26000 Pfd Stock None 3891.4 4121.4 3772.5 3596.2 3775.0 3924.0 3880.8 4471.6 4733.3 5146.2 5700 6000 Shr. Equity ($mill) 8000 Common Stock 303,570,106 shs. NMF NMF NMF NMF 9.3% 5.9% 9.4% 9.4% 7.4% 10.9% 10.0% 10.0% Return on Shr. Equity 13.0% MARKET CAP: $6.8 billion (Large Cap) NMF NMF NMF NMF 4.4% 1.1% 4.4% 5.1% 3.2% 6.3% 5.5% 6.0% Retained to Com Eq 8.5% FINANCIAL POSITION 2017 2018 9/30/19 NMF NMF NMF NMF 52% 81% 53% 46% 57% 42% 43% 42% All Div’ds to Net Prof 33% ($MILL.) Bonds 10145.9 8118.8 8666.7 BUSINESS: Old Republic International Corp. is a multiple lines in- run-off unit, 1%; corp. & other, 1%. The company has approximate- Stocks 3265.5 3380.9 3770.6 surance holding company. Its subsidiaries market, underwrite, and ly 9,000 employees. Officers and directors own 1.9% of common Other 5992.1 7827.4 8744.5 manage a wide range of specialty and general insurance programs stock; BlackRock, 10.5%; The Vanguard Group, 9.0% (4/19 proxy). Total Assets 19403.5 19327.1 21181.8 in the property and liability, mortgage guaranty, title, and life and Chairman & CEO: Aldo C. Zucaro. Incorporated: Delaware. Ad- Unearned Prems 2176.3 2104.9 2408.6 disability insurance fields. Mix of operating revenues by segment as dress: 307 North Michigan Avenue, Chicago, IL 60601-5382. Tele- Reserves 9237.6 9669.9 9817.4 of 12/31/18: general insurance, 60%; title insurance, 38%; RFIG phone: 312-346-8100. Internet: www.oldrepublic.com. Other 3256.3 2406.1 3161.9 Total Liabilities 14670.2 14180.9 15387.9 Old Republic International will likely next year. (Many insurers under our ANNUAL RATES Past Past Est’d ’16-’18 struggle this year to outpace 2018. review had all their ducks in a row for the of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 During the September quarter, the top greater part of 2019 and thus will face Premium Inc 3.0% 3.5% 6.0% line, as measured by net premiums more-difficult comparisons next year.) One Invest Income -.5% 2.5% 9.0% Earnings 8.0% - - 14.5% earned, increased a modest 2.4%, while sector to keep an eye on is investment in- Dividends 2.0% 1.5% 6.5% paid claims advanced 7.1%. Net invest- come per share, which may be constrained Book Value -.5% 4.0% 7.0% ment income helped to counteract some of by reduced bond reinvestment rates. This Cal-NET PREMIUMS EARNED ($ mill.) D Full this pressure, as this line item climbed reflects the Federal Reserve’s recent endarMar.31 Jun.30 Sep.30 Dec.31 Year 3.7%, while title and escrow fees loosening measures. 2016 1150 1192 1238 1286 4868.9 catapulted nearly 19%. However, when all The company’s healthy financial 2017 1201 1239 1312 1327 5080.2 was said and done, the company earned ledger gives us increased confidence 2018 1231 1294 1389 1448 5362.0 $0.51 during the September quarter, a in our 3- to 5-year earnings projec- 2019 1263 1330 1423 1534 5550 nickel per share less than the previous tions. Management’s stringent underwrit- 2020 1540 1550 1570 1590 6250 year’s period. We believe the company will ing standards have resulted in a high- Cal-EARNINGS PER SHARE A Full enjoy a solid relative performance during quality book of business. This should help endarMar.31 Jun.30 Sep.30 Dec.31 Year the December period, against an easier facilitate solid annual earnings advances, 2016 .33 .34 .37 .43 1.47 year-over-year comparison. on average, out to 2022-2024. 2017 .36 .33 .09 .33 1.11 We look for a moderate bottom-line These shares have treaded water over 2018 .40 .47 .56 .45 1.88 advance next year, assuming the the past three months, despite the 2019 .40 .45 .51 .49 1.85 economy remains in growth mode. broader market averages reaching 2020 .42 .52 .50 .51 1.95 Though there are signs that the broader new heights. Also, while they are a mid- Cal-QUARTERLY DIVIDENDS PAID B■ Full P/C insurance market may be susceptible dling choice for the year ahead and the 18- endarMar.31 Jun.30 Sep.30 Dec.31 Year to a slowdown in the coming quarters, we month investment horizon, they are a 2015 .185 .185 .185 .185 .74 believe Old Republic has the wherewithal much-more-alluring option for the pull to 2016 .188 .188 .188 .188 .75 to push earnings higher next year. One 2022-2024 based on our earnings model. A 2017 .19 .19 .19 .19 .76 factor behind our optimism is that the good yield ought to attract the interest of 2018 .195 .195 .195 .195 .78 likely share-net decline in 2019, will prob- income-hungry investors. 2019 .20 .20 .20 ably make for a slightly easier comparison Alan G. House December 6, 2019 (A) Diluted earnings. Excl. cap. gains ’02 and (B) Div’d historically paid mid-Mar., June, (D) Quarters may not sum to annual total due Company’s Financial Strength B+ thereafter. Excl. n/r. gain: ’05, 20¢; ’16, 15¢; Sept., and Dec. Excl. spec’l div’d: 12/03, $.534; to rounding. Stock’s Price Stability 95 ’17, 81¢; ’18, (64¢). May not sum due to round- 12/05, $0.80. ■Div’d reinv. plan available. Price Growth Persistence 60 ing. Next earnings report due late Jan. (C) In millions, adjusted for stock div./splits. Earnings Predictability 25 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 13.4 RELATIVE DIV’D VALUE PROGRESSIVE CORP. NYSE-PGR PRICE 71.50RATIO 13.3()Median: 14.0 P/E RATIO 0.75YLD 0.6% LINE 770 TIMELINESS 2 Raised 3/8/19 High: 21.3 18.2 22.1 22.1 23.4 28.5 27.5 33.9 35.9 57.2 73.7 85.0 Target Price Range Low: 10.3 9.8 16.2 16.9 19.0 21.4 22.5 25.2 29.3 35.2 50.8 58.1 2022 2023 2024 SAFETY 2 Raised 12/13/13 LEGENDS 15.0 x Earnings p sh TECHNICAL Lowered 11/22/19 .... Relative Price Strength 160 2 4-for-1 split 5/06 BETA .85 (1.00 = Market) Options: Yes 120 Shaded area indicates recession 100 18-Month Target Price Range 80 Low-High Midpoint (% to Mid) 60 50 $61-$118 $90 (25%) 40 2022-24 PROJECTIONS 30 Ann’l Total Price Gain Return 20 High 130 (+80%) 16% Low 95 (+35%) 8% 15 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 24 to Buy 410 443 410 1 yr. 4.2 4.9 shares 16 3 yr. 139.7 30.2 to Sell 366 360 425 traded 8 Hld’s(000) 465483 461811 472155 5 yr. 202.2 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 12.32 15.44 16.15 18.87 20.40 20.15 20.83 21.61 24.31 26.49 28.71 31.30 34.10 38.76 44.23 53.04 60.80 67.45 P/C Prem Earned per sh A 78.65 .51 .57 .63 .87 1.00 .94 .75 .79 .78 .73 .71 .69 .78 .83 .97 1.41 1.15 1.30 Investment Inc per sh 1.85 1.57 2.30 1.92 2.51 1.51 1.09 1.75 1.62 1.71 1.14 1.40 2.78 2.57 1.90 2.92 5.61 5.75 6.70 Underwriting Inc per sh 9.10 1.41 1.85 1.75 2.10 1.65 d.10 1.57 1.51 1.48 1.15 1.58 1.92 2.01 1.70 2.65 5.01 5.30 5.60 Earnings per sh B 7.50 .03 .03 .03 .03 - - .15 .16 .40 .40 .41 .28 .49 .69 .89 .68 1.12 .40 .44 Div’ds Decl’d per sh C .60 5.47 6.05 7.17 9.15 7.26 6.23 8.55 9.13 9.47 9.94 10.39 11.79 13.29 14.56 15.96 17.71 23.10 27.95 Book Value per sh 33.35 920.40 852.80 852.40 748.00 680.20 676.50 672.60 662.40 613.00 604.60 595.80 587.80 583.60 579.90 581.70 583.20 584.00 585.00 Common Shs Outst’g D 585.00 308% 351% 345% 277% 296% 279% 179% 213% 208% 213% 246% 212% 218% 224% 278% 352% Price to Book Value 335% 11.9 11.5 14.2 12.1 13.0 - - 9.7 12.9 13.3 18.4 16.2 13.0 14.4 19.2 16.8 12.4 Bold figures are Avg Ann’l P/E Ratio 15.0 .68 .61 .76 .65 .69 - - .65 .82 .83 1.17 .91 .68 .73 1.01 .84 .67 Value Line Relative P/E Ratio .85 .1% .1% .1% .1% - - .8% 1.1% 2.0% 2.0% 1.9% 1.1% 2.0% 2.4% 2.7% 1.5% 1.8% estimates Avg Ann’l Div’d Yield .5% CAPITAL STRUCTURE as of 9/30/19 14013 14315 14903 16018 17103 18399 19899 22474 25730 30933 35500 39450 P/C Premiums Earned A 46000 Total Debt $4406.5 mill. Due in 5 Yrs Nil 70.7% 70.5% 71.4% 74.6% 72.9% 72.3% 72.1% 75.1% 73.1% 70.2% 72.0% 72.0% Loss to Prem Earned 71.0% LT Debt $4406.5 mill. LT Interest $265.0 mill. 20.9% 22.0% 21.6% 21.1% 22.2% 18.8% 20.4% 20.0% 20.3% 19.2% 19.0% 18.5% Expense to Prem Writ 18.0% (24% of Cap’l) 8.4% 7.5% 7.0% 4.3% 4.9% 8.9% 7.5% 4.9% 6.6% 10.6% 9.0% 9.5% Underwriting Margin 11.0% Leases, Uncapitalized Annual rentals $64.1 mill. No Defined Pension Benefit Plan 32.1% 32.6% 35.7% 30.5% 34.6% 32.0% 34.5% 30.2% 27.5% 7.1% 20.0% 20.0% Income Tax Rate 20.0% Pfd Stock None 1057.5 1002.1 956.0 702.3 916.9 1145.2 1177.4 995.9 1551.5 2939.7 3095 3275 Net Profit ($mill) 4400 3.7% 3.6% 3.3% 3.1% 2.5% 2.4% 2.4% 2.4% 2.3% 2.6% 2.7% 3.0% Inv Inc/Total Inv 4.0% Common Stock 584,630,089 shs. 20049 21150 21845 22695 24408 25788 29819 33428 38701 46575 40000 41000 Total Assets ($mill) 43000 as of 10/31/19 5748.6 6048.9 5806.7 6007.6 6189.5 6928.6 7754.3 8440.8 9284.8 10822 13500 16350 Shr. Equity ($mill) 19500 Market Cap: $41.8 billion (Large Cap) 18.4% 16.6% 16.5% 11.7% 14.8% 16.5% 15.2% 11.8% 16.7% 27.2% 23.0% 20.0% Return on Shr. Equity 22.5% FINANCIAL POSITION 2017 2018 9/30/19 18.4% 14.8% 11.9% 7.6% 12.0% 12.3% 10.0% 5.7% 12.5% 22.0% 21.0% 18.5% Retained to Com Eq 20.5% ($MILL.) - - 11% 28% 35% 19% 25% 34% 52% 25% 23% 8% 8% All Div’ds to Net Prof 8% Bonds 20201.7 28111.5 32812.7 Stocks 4203.6 3660.0 4294.6 BUSINESS: The Progressive Corp. is an insurance holding compa- states, 56.3%. Statutory surplus, $11.7 billion at 12/18. Has 37,346 Premiums Due 5422.5 6497.1 7687.2 ny that writes standard and nonstandard (i.e., high risk) private pas- employees. Off. and dir. control less than 1% of common stock; Other 8873.4 10587.1 9213.6 senger automobile coverage. Also writes recreational vehicle, The Vanguard Group, 7.5%; BlackRock, 7.0% (3/19 Proxy). Pres. Total Assets 38701.2 48850.3 54008.1 mobile home, nonstandard commercial vehicle, and credit-related and CEO: Tricia Griffith. Chairman: Glenn M. Renwick. Incorpo- Loss Reserves 13086.9 15400.8 17370.0 insurance. 2018 geographical premium breakdown: Florida, 14%; rated: OH. Address: 6300 Wilson Mills Road, Mayfield Village, OH Unearned Prems 8903.5 10686.5 12526.5 Other 6922.5 9665.9 9765.4 Texas, 10%; CA, 5.6%; NY, 5.2%; GA, 4.5%; MI, 4.4%; other 44143. Tel.: 440-461-5000. Internet: www.progressive.com. Total Liabilities 28912.7 35753.2 39661.9 Progressive registered flat results cember, Progressive should be able to post ANNUAL RATES Past Past Est’d ’16-’18 during the September period. Operat- a year-over-year bottom-line advance dur- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 ing earnings, which excludes capital gains ing the December period. We look for these Premium Inc 8.5% 11.5% 9.5% and losses from the investment portfolio, trends to continue next year, though in- Invest Income 1.5% 7.5% 9.5% Earnings 10.0% 17.5% 15.5% dialed in at $1.33, which matched the vestment income may be pressured by Dividends 31.5% 20.0% -6.5% previous-year tally. On a positive note, net recent Federal Reserve measures to cut in- Book Value 8.0% 10.0% 13.0% premiums earned increased 14% on a terest rates. Cal-NET PREM. EARNED ($ mill.) A Full year-over-year basis, to just north of $9 Earnings per share ought to increase endarMar.31 Jun.30 Sep.30 Dec.31 Year billion, reflecting new business wins and at a double-digit annual clip, on aver- 2016 5317 5562 5723 5872 22474 price increases on existing policies. On the age, over the 3 to 5 years ahead. Prog- 2017 6027 6313 6544 6846 25730 other hand, however, the combined ratio ressive has a strong niche position in the 2018 7174 7634 7931 8194 30933 ticked up 1.6%, to 91.9%. This is still a auto insurance market, and its nifty ad- 2019 8460 8825 9012 9203 35500 very profitable figure, though, and implies vertising campaign ought to help facilitate 2020 9500 9750 10000 10200 39450 that the company generated $8.10 in growth in the years ahead. Our earnings Cal-EARNINGS PER SHARE BE Full pretax income for every $100 in policies in- model is based on decent economic growth endarMar.31 Jun.30 Sep.30 Dec.31 Year sured. out to 2022-2024. 2016 .42 .29 .36 .63 1.70 We look for the auto insurer to post These shares are worthy of considera- 2017 .67 .59 .41 .98 2.65 solid bottom-line advances both this tion for investors with multiple in- 2018 1.29 1.15 1.33 1.24 5.01 year and next. It appears likely that the vestment horizons. Indeed, they are 2019 1.27 1.42 1.33 1.28 5.30 December quarter was a solid one for ranked to be market outperformers for the 2020 1.34 1.44 1.40 1.42 5.60 Progressive. The company reports results year ahead, based on our Timeliness Cal-QUARTERLY DIVIDENDS PAID C Full on a monthly as well as a quarterly basis. Ranking System. What’s more, they offer endarMar.31 Jun.30 Sep.30 Dec.31 Year Hence, during October net premiums compelling gains prospects for the 18 2015 .69 ------.69 earned advanced 13% on a year-over-year months ahead and the 3- to 5-year pull. 2016 .89 ------.89 basis to just north of $3.5 billion. Further- Conservative accounts should like the fact 2017 .68 ------.68 more, the combined ratio improved 190 that the stock’s Price Stability score is 2018 1.12 ------1.12 basis points, to 94%. Assuming these near the head of the pack. 2019 .10 .10 .10 .10 trends continue during November and De- Alan G. House December 6, 2019 (A) Incl. some D&O liab. insurance. (B) Dil. qrtly. egs report mid-Jan. (C) Beginning in terly payout policy effective 2019. Approx. pmt. Company’s Financial Strength B++ EPS starting in 2002. Inc. cap. gains/(losses): 2007, a variable div’d is considered once a dates: mid.-Jan, April, July, and Oct. (D) In mil- Stock’s Price Stability 90 ’08, $1.39; ’10, 10¢; ’11, 11¢; ’12, 33¢; ’13, year at yearend. Paid special div’ds of $1.00/sh lions, adjusted for stock splits. (E) Qtrs. may Price Growth Persistence 75 35¢; ’14, 23¢; ’15, 14¢; ’16, 6¢; ’18, (59¢). Next in 12/10, 11/12, and 2/14. Returned to quar- not sum due to change in sh. count. Earnings Predictability 55 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 42.0 RELATIVE DIV’D VALUE RLI CORP. NYSE-RLI PRICE 98.32RATIO 39.8()Median: 18.0 P/E RATIO 2.25YLD 0.9% LINE 771 TIMELINESS 1 Raised 9/20/19 High: 36.1 31.0 31.0 37.2 37.5 52.6 50.7 63.2 71.5 63.7 80.0 99.9 Target Price Range Low: 22.0 21.3 24.8 25.4 30.9 32.3 40.0 46.6 54.3 50.3 58.5 64.5 2022 2023 2024 SAFETY 3 Lowered 12/8/17 LEGENDS 22.0 x Earnings p sh TECHNICAL Lowered 10/4/19 .... Relative Price Strength 160 3 2-for-1 split 1/14 BETA .85 (1.00 = Market) Options: Yes 120 Shaded area indicates recession 100 18-Month Target Price Range 80 2-for-1 Low-High Midpoint (% to Mid) 60 50 $77-$115 $96 (0%) 40 2022-24 PROJECTIONS 30 Ann’l Total Price Gain Return 20 High 115 (+15%) 5% Low 75 (-25%) -5% 15 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 15 to Buy 107 100 114 1 yr. 34.9 4.9 shares 10 3 yr. 95.4 30.2 to Sell 87 86 93 traded 5 Hld’s(000) 39440 39587 39684 5 yr. 148.0 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 9.21 10.10 9.61 10.92 12.29 12.31 11.57 11.77 12.72 13.56 14.68 15.95 16.08 16.58 16.72 17.78 18.65 20.20 P/C Prem Earned per sh 27.80 .88 1.07 1.21 1.47 1.78 1.84 1.58 1.59 1.50 1.38 1.23 1.29 1.26 1.21 1.24 1.40 1.55 1.70 Investment Inc per sh 2.50 .74 .79 1.34 1.89 3.52 1.94 2.04 2.27 2.78 1.49 2.48 2.48 2.49 1.74 .60 .94 1.15 1.60 Underwriting Inc per sh 2.80 1.14 1.24 1.84 2.19 3.26 2.50 2.35 2.66 2.80 2.02 2.57 2.62 2.53 2.08 1.67 2.06 2.50 2.50 Earnings per sh A 4.35 .20 .26 .32 .38 .44 .49 .54 .57 .60 .63 .67 .71 .75 .79 .83 .87 .92 .95 Div’ds Decl’d per sh B■ 1.10 11.01 12.32 13.56 15.58 17.48 16.49 19.57 18.87 19.35 18.73 19.29 19.61 18.91 18.74 19.34 18.13 19.45 21.10 Book Value per sh 28.90 50.33 50.63 51.10 48.55 44.31 42.95 42.53 41.93 42.32 42.53 42.98 43.10 43.54 43.95 44.15 44.50 45.00 45.00 Common Shs Outst’g C 45.00 143% 154% 170% 166% 163% 163% 130% 146% 159% 182% 208% 230% 283% 346% 296% 379% Price to Book Value 330% 13.8 15.4 12.5 11.8 8.8 10.8 10.8 10.4 11.0 16.9 15.6 17.2 21.1 31.1 34.3 33.4 Bold figures are Avg Ann’l P/E Ratio 22.0 .79 .81 .67 .64 .47 .65 .72 .66 .69 1.08 .88 .91 1.06 1.63 1.73 1.80 Value Line Relative P/E Ratio 1.20 1.3% 1.3% 1.4% 1.5% 1.5% 1.8% 2.1% 2.1% 1.9% 1.8% 1.7% 1.6% 1.4% 1.2% 1.4% 1.3% estimates Avg Ann’l Div’d Yield 1.1% CAPITAL STRUCTURE as of 9/30/19 492.0 493.4 538.5 576.6 630.8 687.4 700.2 728.6 737.9 791.3 840 910 P/C Premiums Earned 1250 Total Debt $149.3 mill. Due in 5 Years Nil 41.3% 40.8% 37.2% 47.1% 41.2% 43.2% 42.7% 48.0% 54.4% 54.1% 54.0% 53.0% Loss to Prem Earned 53.0% 41.0% 39.9% 41.0% 41.9% 41.9% 41.3% 41.8% 41.5% 42.0% 40.6% 40.0% 39.0% Expense to Prem Writ 37.0% (13% of Cap’l) 17.7% 19.3% 21.8% 11.0% 16.9% 15.6% 15.5% 10.5% 3.6% 5.3% 6.0% 8.0% Underwriting Margin 10.0% Leases,Uncapitalized Annual rentals $5.9 million 31.0% 31.7% 27.6% 19.7% 21.4% 20.5% 30.7% 26.5% 8.8% 12.3% 10.0% 10.0% Income Tax Rate 10.0% No Defined Benefit Pension Plan 101.7 110.2 120.3 87.1 112.2 115.2 112.0 92.9 74.6 92.2 115 115 Net Profit ($mill) 195 Pfd Stock None 4.4% 3.8% 3.5% 3.3% 2.8% 2.9% 2.7% 2.6% 2.5% 2.8% 3.2% 3.5% Inv Inc/Total Inv 5.0% 2539 2515 2695 2645 2740 2776 2737 2778 2947 3105 3250 3400 Total Assets ($mill) 4400 Common Stock 44,836,488 shs. 832.3 791.4 818.9 796.4 829.0 845.1 823.5 823.6 853.6 806.8 875 950 Shr. Equity ($mill) 1300 as of 10/14/19 12.2% 13.9% 14.7% 10.9% 13.5% 13.6% 13.6% 11.3% 8.7% 11.4% 13.0% 12.0% Return on Shr. Equity 15.0% MARKET CAP: $4.4 billion (Mid Cap) 9.5% 10.1% 11.6% 7.6% 10.1% 10.0% 9.7% 7.1% 4.5% 6.6% 8.0% 7.5% Retained to Com Eq 11.0% FINANCIAL POSITION 2017 2018 9/30/19 22% 27% 21% 31% 26% 27% 29% 37% 49% 42% 37% 38% All Div’ds to Net Prof 25% ($MILL.) Bonds 1672.2 1760.5 1957.0 BUSINESS: RLI Corp., through its subsidiaries RLI Insurance and cense Express Services, Inc. Has 912 employees. BlackRock, Stocks 400.5 340.5 428.3 Mt. Hawley, writes multiple lines of insurance on an admitted basis owns 12.7% of common stock; State Street 12.2%; The Vanguard Other 874.5 1004.1 1119.8 in all 50 states. Also underwrites specialty property and casualty in- Group 10.6%; officers & directors, 5.0%. (3/19 proxy). President, Total Assets 2947.2 3105.1 3505.1 surance on an admitted basis and excess and surplus business on Chairman, and Chief Executive Officer: Jonathan E. Michael. Inc.: Unearned Prems 451.4 496.5 532.5 a non-admitted basis. Underwrites earthquake risks (in California). Illinois. Address: 9025 North Lindbergh Drive, Peoria, Illinois 61615. Reserves 1271.5 1461.3 1557.4 Other companies in the group include: Replacement Lens, Inc.; Li- Telephone: 309-692-1000. Internet: www.rlicorp.com. Other 340.7 340.4 415.5 Total Liab’ties 2093.6 2298.2 2505.4 RLI Corp. is on track for a solid What’s more, rate increases might well be- ANNUAL RATES Past Past Est’d ’16-’18 bottom-line performance this year. come tougher to come by in 2020, as this of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Looking at it with more granularity, oper- year’s hurricane season has been quite Premium Inc 3.5% 4.5% 8.5% ating share net, which excludes capital tame. Indeed, catastrophes can be a bit of Invest Income -3.0% -1.5% 12.0% Earnings -3.0% -4.5% 14.5% gains and losses from the investment port- a double-edged sword for insurers. While Dividends 7.0% 5.5% 5.0% folio, dialed in at $0.57, which represented they constrain the bottom line as claims Book Value 1.5% -.5% 7.5% a nearly 24% year-over-year advance. The filter in, they could also provide a shot in Cal-NET PREMIUMS EARNED ($ mill.) Full primary factor behind the relative out- the arm to prices during policy renewal endarMar.31 Jun.30 Sep.30 Dec.31 Year performance was a marked improvement season. What’s more, the string of 2016 176.9 180.2 183.6 187.9 728.6 in the combined ratio. Indeed, this item interest-rate cuts by the Fed bodes ill for 2017 183.3 184.3 182.0 188.3 737.9 decreased (a positive factor) by 2.6%, to bond reinvestment yields over the 12 to 18 2018 190.0 196.5 200.8 204.0 791.3 93.5%. This implies that the insurer gen- months ahead. That said, we believe man- 2019 204.7 207.5 211.3 216.5 840 erated $6.50 in pretax income for every agement’s stringent underwriting stan- 2020 220 225 230 235 910 $100 in policies insured. RLI also dards will enable the company to post flat Cal-EARNINGS PER SHARE A Full benefited from a 7.5% increase in net in- results next year against tough compari- endarMar.31 Jun.30 Sep.30 Dec.31 Year vestment income during the interim. This sons. 2016 .54 .61 .37 .56 2.08 is no small feat, given that the Federal These shares are well within our 3 to 2017 .44 .61 .04 .58 1.67 Reserve has reduced interest rates three 5 year Target Price Range at the 2018 .60 .60 .46 .40 2.06 times since the middle of the summer. The recent valuation. Hence, they aren’t an 2019 .71 .66 .57 .56 2.50 return on RLI’s investment portfolio was exciting choice for the pull to 2022-2024, 2020 .68 .66 .54 .62 2.50 1.9% during the third quarter and 9.6% for while prospects for the 18 months ahead Cal-QUARTERLY DIVIDENDS PAID B■ Full the year. aren’t enticing, either. However, RLI stock endarMar.31 Jun.30 Sep.30 Dec.31 Year We look for earnings to stabilize next is a favorable choice for the year ahead, 2015 .18 .19 .19 .19 .75 year, which we feel requires a bit of based on our momentum-based Timeliness 2016 .19 .20 .20 .20 .79 an explanation. Given our outlook for Ranking System. Conservative accounts 2017 .20 .21 .21 .21 .83 continued strong results for the fourth should also note the strong Price Stability 2018 .21 .22 .22 .22 .87 quarter, we believe that RLI will be faced score. 2019 .22 .23 .23 with difficult comparisons next year. Alan G. House December 6, 2019 (A) Dil. egs. Excl. nonrecurr. (net): ’07, 20¢; (B) Div’ds. paid late March, June, Sept., and $1.50/sh. paid 12/20/13; $3.00/sh. paid Company’s Financial Strength B++ ’08, (70¢); ’09, (19¢); ’10, 35¢; ’11, 25¢; 12, Dec. ■ Div’d. reinvest. plan avail. Excl. spec’l 12/22/14; $2.00/sh. paid 12/22/15; $2.00/sh. Stock’s Price Stability 80 38¢; ’13, 66¢; ’14, 47¢; ’15, 59¢; ’16, 48¢; 17, div’d.: $3.50/sh. paid on 12/29/10; $2.50/sh. paid 12/23/16; $1.75 paid 12/27/17; $1.00/sh. Price Growth Persistence 75 (69¢); ’18, (63¢). Next egs. report due late Jan. paid 12/20/11; $2.50/sh. paid 12/20/12; paid 12/27/18. (C) In mill., adj. for splits. Earnings Predictability 70 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 15.6 RELATIVE DIV’D VALUE SELECTIVE INSUR. NDQ-SIGI PRICE 66.06RATIO 15.5()Median: 14.0 P/E RATIO 0.88YLD 1.4% LINE 772 TIMELINESS 3 Lowered 11/22/19 High: 30.4 23.3 18.9 19.0 20.3 28.3 27.7 37.9 44.0 62.4 67.2 81.4 Target Price Range Low: 16.3 10.1 14.1 12.1 16.2 19.5 21.4 25.5 29.3 38.5 53.6 58.1 2022 2023 2024 SAFETY 3 New 7/27/90 LEGENDS 12.5 x Earnings p sh 128 TECHNICAL 1 Raised 11/15/19 .... Relative Price Strength 2-for-1 split 2/07 96 BETA .85 (1.00 = Market) Options: Yes 80 Shaded area indicates recession 18-Month Target Price Range 64 Low-High Midpoint (% to Mid) 48 40 $57-$100 $79 (20%) 32 2022-24 PROJECTIONS 24 Ann’l Total Price Gain Return 16 High 80 (+20%) 6% Low 55 (-15%) -3% 12 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 12 to Buy 111 113 115 1 yr. 7.8 4.9 shares 8 3 yr. 94.3 30.2 to Sell 92 99 106 traded 4 Hld’s(000) 46690 46619 47216 5 yr. 188.5 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 20.75 23.57 24.94 26.18 27.94 28.28 26.88 26.39 26.45 28.72 31.04 33.93 34.69 37.57 39.17 41.33 43.35 46.65 P/C Prem Earned per sh 49.25 2.10 2.15 2.39 2.74 3.21 2.48 2.23 2.71 2.71 2.39 2.41 2.54 2.12 2.29 2.77 3.31 3.35 3.40 Investment Inc per sh 3.50 d.49 .70 1.21 .97 .25 d.26 d.04 d.44 d1.94 d1.14 .61 1.29 2.64 2.74 2.72 2.07 3.10 3.75 Underwriting Inc per sh 4.45 1.05 1.80 2.24 2.30 2.22 1.43 1.39 1.35 .34 .59 1.65 2.17 2.70 2.75 3.12 3.66 4.15 4.40 Earnings per sh A 5.15 .31 .35 .40 .44 .49 .52 .52 .52 .52 .52 .52 .53 .57 .61 .66 .74 .83 .90 Div’ds Decl’d per sh B■ 1.04 13.73 15.77 17.26 18.81 19.81 16.84 18.83 19.96 20.39 19.77 20.63 23.36 24.37 26.77 29.28 30.40 33.65 36.65 Book Value per sh 41.55 54.60 55.94 56.86 57.27 54.31 52.88 53.24 53.68 54.41 55.16 55.92 54.59 57.36 57.21 58.50 58.95 59.00 60.00 Common Shs Outst’g C 65.00 99% 119% 142% 144% 122% 133% 80% 81% 80% 91% 117% 103% 124% 141% 172% 198% Bold figures are Price to Book Value 161% 13.0 10.5 10.9 11.8 10.9 15.7 10.8 12.0 48.1 30.5 14.6 11.1 11.2 13.5 16.2 16.4 Value Line Avg Ann’l P/E Ratio 13.0 .74 .55 .58 .64 .58 .94 .72 .76 3.02 1.94 .82 .58 .56 .71 .81 .89 estimates Relative P/E Ratio .70 2.3% 1.9% 1.6% 1.6% 2.0% 2.3% 3.5% 3.2% 3.2% 2.9% 2.2% 2.2% 1.9% 1.6% 1.3% 1.2% Avg Ann’l Div’d Yield 1.6% CAPITAL STRUCTURE as of 9/30/19 1431.0 1416.6 1439.3 1584.1 1736.1 1852.6 1989.9 2149.6 2291.0 2436.2 2600 2800 P/C Premiums Earned 3200 Total Debt $550.7 mill. Due in 5 Yrs $115.0 mill. 67.9% 69.3% 74.7% 70.8% 64.6% 62.5% 57.7% 57.4% 58.7% 61.5% 58.0% 58.0% Loss to Prem Earned 58.0% LT Debt $550.7 mill. LT Interest $32.5 mill. 32.2% 32.3% 32.6% 33.2% 33.4% 33.7% 34.7% 35.5% 34.4% 33.5% 35.0% 34.0% Expense to Prem Writ 33.0% -.1% -1.7% -7.3% -4.0% 2.0% 3.8% 7.6% 7.0% 6.9% 5.0% 7.0% 8.0% Underwriting Margin 9.0% (20% of Cap’l) Leases, Uncapitalized $7.6 million. 12.5% 17.0% - - - - 29.6% 27.0% 28.4% 28.1% 27.7% 19.0% 20.0% 20.0% Income Tax Rate 20.0% Pension Assets-12/18 $332 mill. Oblig. $335 mill. 74.5 73.9 19.1 32.1 86.7 124.5 157.1 161.7 184.9 218.4 260 275 Net Profit ($mill) 335 3.3% 3.9% 3.8% 3.2% 3.1% 3.0% 2.5% 2.5% 2.9% 3.0% 3.1% 3.2% Inv Inc/Total Inv 3.5% Pfd Stock None 5115 5232 5736 6794 6270 6582 6904 7356 7686 7953 9000 10000 Total Assets ($mill) 12500 Common Stock 59,401,565 shs. 1002.4 1071.1 1109.2 1090.6 1153.9 1275.6 1398.0 1531.4 1713.0 1791.8 1985 2200 Shr. Equity ($mill) 2700 as of 10/18/19 MARKET CAP: $3.9 billion (Mid Cap) 7.4% 6.9% 1.7% 2.9% 7.5% 9.8% 11.2% 10.6% 10.8% 12.2% 13.0% 12.5% Return on Shr. Equity 12.5% FINANCIAL POSITION 2017 2018 9/30/19 4.8% 4.5% NMF .5% 5.1% 7.5% 9.0% 8.4% 8.6% 9.8% 10.5% 10.0% Retained to Com Eq 10.0% ($MILL.) 35% 35% NMF 84% 32% 23% 20% 21% 20% 20% 19% 20% All Div’ds to Net Prof 20% Bonds 5204.7 5310.2 5957.2 Stocks 182.7 147.6 79.2 BUSINESS: Selective Insurance Group, Inc. is a holding company dustry (as percentage of total): automobile, 26%; general liability, Mortgages ------for five property/casualty insurance companies. (Main subsidiary: 32%; workers’ compensation, 17%; other, 25%. Has about 2,290 Other 2299.0 2494.9 2683.0 Selective Insurance Company of America.) Markets products pri- employees. Officers/directors own 2.0% of common stock; Black- Total Assets 7686.4 7952.7 8719.4 marily in the East and Midwest. New Jersey accounted for 19% of Rock, 14.2% (4/19 Proxy). Chairman, Pres. & CEO: John J. Mar- Unearned Prems 1349.6 1431.9 1570.2 premiums written in ’18. Mix of 2018 premiums written: personal chioni. Inc.: NJ Address: 40 Wantage Ave., Branchville, NJ 07890. Reserves 3771.2 3893.9 4055.6 Other 852.7 835.1 956.2 lines, 20%; commercial lines, 80%. Commercial premiums by in- Telephone: 973-948-3000. Internet: www.selective.com. Total Liab. 5973.5 6160.9 6582.0 Selective Insurance Group stock has The P&C insurance provider has ANNUAL RATES Past Past Est’d ’16-’18 cooled off over the last several boosted its quarterly cash dividend. of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 months. Indeed, the issue has dropped al- Indeed, it raised the payout by $0.03, or Premium Inc 3.5% 6.5% 4.0% most 20% in price since September, as in- 15%, to $0.23 a share. Management cited Invest Income -1.5% -2.0% 4.0% Earnings 2.5% 30.5% 8.5% vestor sentiment here has soured a tad its brighter 2020 outlook and ample busi- Dividends 3.5% 3.5% 7.5% and many thought it might be a good time ness prospects as reasons for the increase. Book Value 3.5% 6.0% 6.5% to take some profits. Meanwhile, the in- Selective has announced a change in Cal-NET PREM. EARNED ($ mill.) Full surer’s September-period performance the corner office. More specifically, it endarMar.31 Jun.30 Sep.30 Dec.31 Year failed to excite the Wall Street community, has named John J. Marchioni as the new 2016 522.5 531.9 542.4 552.8 2149.6 with profits dipping due to higher non- CEO, effective February 1, 2020. Current 2017 560.9 568.0 572.1 590.0 2291.0 catastrophe property losses and a spike in CEO Gregory E. Murphy will take on the 2018 591.8 604.8 614.3 625.3 2436.2 operating expenses. In response, we have role of executive chairman for one year in 2019 632.6 642.6 653.6 671.2 2600 shaved a dime from our 2019 share-net es- order to smooth out the transition. Mr. 2020 685 700 705 710 2800 timate, which now sits at $4.15. Marchioni has served as SIGI’s COO since Cal-EARNINGS PER SHARE A Full Nevertheless, we still look for the bot- 2013 and will likely employ many of his endarMar.31 Jun.30 Sep.30 Dec.31 Year tom line to clock in at $4.40 per share predecessor’s core growth strategies. 2016 .66 .72 .62 .75 2.75 next year. A mix of pure renewal price These shares have tumbled a couple 2017 .86 .68 .72 .86 3.12 hikes and more-normalized loss trends of notches on our Timeliness ranking 2018 .46 1.01 .99 1.20 3.66 ought to support improved profitability chart. They now hold a rank of 3 (Aver- 2019 .90 1.16 .97 1.12 4.15 ahead. In addition, a host of new distribu- age). The issue continues to trade well 2020 1.05 1.12 1.10 1.13 4.40 tion partners should bolster the company’s within our 3- to 5-year Target Price Range Cal-QUARTERLY DIVIDENDS PAID B■ Full market share and premium base. Despite (despite its recent pullback), limiting much endarMar.31 Jun.30 Sep.30 Dec.31 Year a greater focus on underwriting quality of its long-term capital appreciation poten- 2015 .14 .14 .14 .15 .57 and accuracy, SIGI has benefited from tial for that stretch. Moreover, the latest 2016 .15 .15 .15 .16 .61 elevated policy retention levels. Else- dividend hike did little to heighten the is- 2017 .16 .16 .16 .18 .66 where, a well-diversified investment port- sue’s overall appeal for accounts with in- 2018 .18 .18 .18 .20 .74 folio will probably generate good returns come as a primary goal. 2019 .20 .20 .20 .23 over future quarters. Kenneth J. DeFranco, Jr. December 6, 2019 (A) Diluted egs. Excludes cap’l gains/losses Dividends historically paid in early March, Company’s Financial Strength B+ beginning in 2003: ’05, 9¢. Excl. loss from dis- June, September, December. ■ Div’d reinvest- Stock’s Price Stability 85 continued ops.: ’08, 1¢; ’09, 15¢; ’10, 7¢; ’11, ment plan available. Price Growth Persistence 90 1¢. Next earnings report due late January. (B) (C) In mill., adj. for stock split. Earnings Predictability 60 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 16.1 RELATIVE DIV’D VALUE THE TRAVELERS CO NYSE-TRV PRICE 135.03RATIO 14.0()Median: 10.0 P/E RATIO 0.79YLD 2.4% LINE 773 TIMELINESS 3 Lowered 11/1/19 High: 58.6 54.5 57.6 64.2 74.7 91.7 107.9 116.5 123.1 138.0 150.5 155.1 Target Price Range Low: 28.9 33.1 47.3 46.0 55.9 72.5 79.9 95.2 101.2 113.8 111.1 115.1 2022 2023 2024 SAFETY 1 Raised 9/16/11 LEGENDS 15.0 x Earnings p sh 320 TECHNICAL Lowered 12/6/19 .... Relative Price Strength 3 Options: Yes BETA .85 (1.00 = Market) Shaded area indicates recession 200 18-Month Target Price Range 160 Low-High Midpoint (% to Mid) 120 100 $128-$190 $159 (20%) 80 2022-24 PROJECTIONS 60 Ann’l Total Price Gain Return 40 High 240 (+80%) 17% Low 200 (+50%) 12% % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 18 4Q2018 1Q2019 2Q2019 Percent 30 to Buy 429 455 464 1 yr. 7.2 4.9 shares 20 3 yr. 29.7 30.2 to Sell 527 513 490 traded 10 Hld’s(000) 211133 211169 213693 5 yr. 45.7 36.8 2003 2004 2005 2006F 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 30.72 28.40 29.34 30.61 34.20 36.88 41.16 49.31 56.24 59.24 64.04 73.60 80.68 87.75 94.63 102.61 108.65 113.20 P/C Prem Earned per sh A 124.55 4.89 3.97 4.56 5.19 5.99 4.77 5.34 7.04 7.33 7.66 7.68 8.65 8.04 8.23 8.83 9.38 10.15 11.30 Investment Inc per sh 13.00 d.86 d2.75 d.82 3.01 3.68 3.06 4.19 3.06 d3.59 1.10 6.54 7.44 8.43 4.98 1.99 .93 3.80 4.55 Underwriting Inc per sh 4.35 2.55 1.93 2.90 5.88 6.72 5.24 6.32 6.31 3.25 6.21 9.46 10.56 10.87 10.13 7.27 8.94 9.50 10.75 Earnings per sh B 14.65 1.16 .95 .91 1.01 1.13 1.19 1.26 1.44 1.64 1.79 1.96 2.15 2.38 2.68 2.83 3.03 3.23 3.28 Div’ds Decl’d per sh C■ 3.30 26.84 31.35 31.94 36.87 42.22 43.12 52.54 58.39 62.31 67.32 70.14 77.08 79.75 83.05 87.44 86.82 96.15 104.80 Book Value per sh D 128.30 229.11 670.30 693.40 678.30 627.80 585.10 520.30 434.60 392.80 377.40 353.50 322.20 295.90 279.60 271.40 263.70 260.00 260.00 Common Shs Outst’g E 265.00 131% 122% 127% 125% 124% 105% 84% 89% 91% 95% 119% 120% 132% 137% 143% 151% Price to Book Value 160% 13.8 19.9 14.0 7.8 7.8 8.7 7.0 8.2 17.4 10.3 8.8 8.8 9.7 11.2 17.2 14.7 Bold figures are Avg Ann’l P/E Ratio 15.0 .79 1.05 .75 .42 .41 .52 .47 .52 1.09 .66 .49 .46 .49 .59 .87 .79 Value Line Relative P/E Ratio .85 3.3% 2.5% 2.2% 2.2% 2.2% 2.6% 2.8% 2.8% 2.9% 2.8% 2.3% 2.3% 2.3% 2.4% 2.3% 2.3% estimates Avg Ann’l Div’d Yield 1.5% CAPITAL STRUCTURE as of 9/30/19 21418 21432 22090 22357 22637 23713 23874 24534 25683 27059 28250 30000 P/C Premiums Earned A 33000 Total Debt $6,558 mill. Due in 5 Yrs $2,555 mill. 57.9% 61.1% 73.7% 65.6% 58.8% 58.5% 57.5% 61.4% 67.2% 70.0% 68.0% 68.0% Loss to Prem Earned 70.0% (20% of Cap’l) 31.9% 32.7% 32.7% 32.5% 31.0% 31.4% 32.1% 32.9% 30.7% 29.1% 28.5% 28.0% Expense to Prem Writ 26.5% Leases, Uncapitalized $127 mill. 10.2% 6.2% -6.4% 1.9% 10.2% 10.1% 10.4% 5.7% 2.1% .9% 3.5% 4.0% Underwriting Margin 3.5% Pension Assets 12/18-$3,444 mill. Oblig. $3771 mill. 23.0% 24.1% - - 21.7% 25.7% 27.3% 27.6% 25.7% 24.1% 14.1% 20.0% 20.0% Income Tax Rate 18.0% Pfd Stock None 3616.4 3066.0 1379.2 2439.0 3549.5 3644.6 3429.7 2972.0 2039.7 2523.0 2470 2795 Net Profit ($mill) 3880 4.0% 4.6% 4.2% 4.1% 3.9% 4.0% 3.6% 3.5% 3.5% 3.6% 3.7% 4.0% Inv Inc/Total Inv 5.0% 109650 105181 104602 104938 103812 103078 100184 100245 103483 104233 105750 107000 Total Assets ($mill) 110000 Common Stock 258,112,771 shs. 27415 25445 24477 25405 24796 24836 23598 23221 23731 22894 25000 27250 Shr. Equity ($mill) 34000 as of 10/18/19 MARKET CAP: $34.9 billion (Large Cap) 13.2% 12.0% 5.6% 9.6% 14.3% 14.7% 14.5% 12.8% 8.6% 11.0% 10.0% 26.0% Return on Shr. Equity 11.5% FINANCIAL POSITION 2017 2018 9/30/19 10.7% 9.4% 2.9% 6.9% 11.4% 11.7% 11.4% 9.5% 5.3% 7.5% 6.5% 7.0% Retained to Com Eq 9.0% ($MILL.) 19% 22% 48% 28% 21% 20% 22% 25% 38% 32% 34% 31% All Div’ds to Net Prof 23% Fixed Maturities 62694 63464 68011 Stocks 453 368 412 BUSINESS: The Travelers Companies, Inc. (formerly St. Paul Officers and directors own approximately .7% of common stock out- Premiums Due 7144 7506 8122 Travelers) is a leading provider of commercial property/casualty in- standing; The Vanguard Group, 8.5%; BlackRock, 8.0%; State Other 33192 32895 33696 surance and asset management services. Following the April 1, Street Corporation, 6.7% (4/19 Proxy). Chief Executive Officer: Total Assets 103483 104233 110241 2004 acquisition of Travelers, the company is now a leading un- Alan D. Schnitzer. Chairman: John H. Dasburg. Incorporated: Min- Unearned Prems 12915 13555 14912 derwriter of homeowners insurance and automobile insurance nesota. Address: 485 Lexington Ave, New York, NY 10017. Tele- Reserves 49650 50668 51612 Other 17187 171116 18110 through independent agents. Has approximately 30,400 employees. phone: 917-778-6000. Internet: www.travelers.com. Total Liabilities 79752 81339 84634 Travelers reported somewhat unexcit- 2020 will be solid. Though there are ANNUAL RATES Past Past Est’d ’16-’18 ing results during the September signs that the broader P/C insurance mar- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 quarter. Specifically, earnings from oper- ket may be in for a slowdown following Premium Inc 11.0% 9.5% 4.5% ations, which excludes capital gains and several years of solid results, we believe Invest Income 5.0% 3.0% 6.5% Earnings 4.0% 7.0% 9.0% losses from the investment portfolio, Travelers will register a bottom-line ad- Dividends 10.0% 9.5% 2.5% clocked in at $1.43 a share, which marked vance, at least over the next year. A string Book Value 7.5% 5.0% 7.0% a significant decrease from the year- of interest-rate cuts by the Federal Cal-NET PREMIUMS EARNED ($ mill.) A Full earlier tally and our $2.45 expectation. Reserve will eventually result in reduced endarMar.31 Jun.30 Sep.30 Dec.31 Year The main reason for the relative underper- bond reinvestment rates. However, strong 2016 5981 6067 6209 6277 24534 formance was the combined ratio, which cash flow should enable Travelers to post 2017 6183 6351 6523 6626 25683 clocked in at 101.5%. Not only was this a advances in net investment income over 2018 6537 6695 6882 6945 27059 five percentage point deterioration from the next couple of years. 2019 6855 6988 7179 7228 28250 the previous-year tally, it also means that The company’s size, healthy balance 2020 7350 7475 7550 7625 30000 the insurer operated at an underwriting sheet, and strong management give it Cal-EARNINGS PER SHARE B Full loss for the period. However, dissecting a leg up on the competition, from our endarMar.31 Jun.30 Sep.30 Dec.31 Year things a bit further, the primary reason perspective. A healthy economy un- 2016 2.33 2.20 2.40 3.20 10.13 for the increase in the combined ratio was derpins our long-term projections. 2017 2.16 1.92 .91 2.28 7.27 a challenging tort environment. (A tort is a Though only neutrally ranked for 2018 2.46 1.81 2.54 2.13 8.94 wrongful act or infringement of a right, Timeliness, these shares have room to 2019 2.83 2.02 1.43 3.22 9.50 other than a contract, which leads to civil run over the 3 to 5 years ahead. An 2020 2.40 2.60 2.70 3.05 10.75 liability.) We view this as a ‘‘nonrecurring above-average dividend helps to sweeten Cal-QUARTERLY DIVIDENDS PAID C■ Full event’’ though it is included as part of the pot. Conservative accounts should note endarMar.31 Jun.30 Sep.30 Dec.31 Year Travelers’ operations. The underlying com- that these shares carry our Highest Safety 2015 .55 .61 .61 .61 2.38 bined ratio, which excludes events deemed score. Investors seeking an insurance hold- 2016 .67 .67 .67 .67 2.68 to be outside of the normal course of busi- ing to round out their otherwise diversified 2017 .67 .72 .72 .72 2.83 ness, was 94.1%, which was only a 1.1% portfolio would do well to consider this 2018 .72 .77 .77 .77 3.03 increase over the previous year’s tally. Dow component. 2019 .77 .82 .82 We believe the fourth quarter and Alan G. House December 6, 2019 (A) P/C only. (B) Dil. egs. Excl. cap gains and ’16, 15¢; ’17, 6¢. Excl. losses from disc. ops.: 21¢/sh. paid 3/04 and 4/04. ■ Div’d reinv. plan Company’s Financial Strength A++ losses after ’02. Excl. nonrec. (charges)/gains ’03, 7¢; ’04, 62¢. Excl. extra. losses: ’03, 9¢. avail. (D) Intang. ’18: $4,290 mill., $16.25/sh. Stock’s Price Stability 100 in ’06, 3¢; ’07, 14¢; ’08, (42¢); ’09, 1¢; ’10, 31¢; Next egs. rpt. late Jan. (C) Div’ds. paid in late (E) In mill. (F) St. Paul only until ’04. Price Growth Persistence 80 ’11, 11¢; ’12, 9¢; ’13, 28¢; ’14, 14¢; ’15, 3¢; March, June, Sept., Dec. Excl. spec. div’ds of Earnings Predictability 65 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. December 6, 2019 BANK (MIDWEST) INDUSTRY 774

The Bank (Midwest) Industry faces a difficult INDUSTRY TIMELINESS: 53 (of 95) year in 2020. Loan growth has slowed. The Federal Reserve’s interest-rate cuts are pressuring bank services, with some success. margins and net interest income. Credit Quality And Loan Loss Reserves Meanwhile, the credit-quality climate remains The midwestern banks’ problem credits and loan benign, but loan loss provisions probably will losses, on the whole, remain fairly low. They tightened increase under a new loan loss reserve accounting their lending standards after the 2008 financial down- method. All told, earnings growth looks likely to turn. Bank credit quality may not remain as strong, as moderate. some borrowers (including some retail store chains) The Bank (Midwest) Industry’s Timeliness rank appear to be struggling. Even so, we don’t look for continues to hover near the midpoint of the Value meaningful deterioration in bank credit quality in the Line universe of 95 industry groups. year ahead. Nonetheless, in 2020, banks are scheduled to adopt a new accounting method for reserving for problem loans. The Midwestern Economy And Loan Growth Currently, they make provisions for problem loans when Our review of the Bank (Midwest) Industry, with a they are fairly certain that a loan won’t be repaid. Under couple of exceptions, includes lenders headquartered in the new method, they will need to reserve, at the time the greater Midwestern region, that is, in five of the 12 that they make the loan, for expected loan losses over Federal Reserve Districts (the Chicago, Cleveland, Kan- the life of the loan, while taking into account the sas City, Minneapolis, and St. Louis Districts). The economic outlook. October edition of the Federal Reserve Board’s Beige The new reserve method will require an initial in- Book, an anecdotal account of economic activity in the 12 crease in bank loan loss reserves, and probably larger Districts, indicated that business activity in the region loan loss provisions going forward. It may take a while continued to expand at a modest pace during the Sep- before the new reserving method functions smoothly. tember to mid-October period, despite concerns about Banks differ in their economic forecasts, which will the possible negative effect of tariffs on parts of the influence their reserves under the new method. Too, manufacturing sector and some weakness in the agricul- long-dated loans, like mortgage loans, may require more tural arena. reserves than shorter-term commercial real estate cred- The still mostly favorable economic backdrop notwith- its. In any case, we assume loan loss provisions are likely standing, loan growth has been muted of late. Paydowns to increase in 2020. of existing loans have offset a good portion of new Expenses And Earnings commercial credits so far in 2019, as a lot of companies With revenue growth likely to be limited in the year have turned to the capital markets, rather than to ahead, and given the prospect of higher loan loss provi- banks, for funds. Banks also face intense competition sions, banks are trying to offset these pressures by from online lenders. Too, banks are treading carefully in slashing expenses. Some ought to realize savings as they commercial real estate lending, as competition has integrate recently acquired banks and financial service caused some to relax lending standards. firms. But the costs of building up promising businesses Meanwhile, mortgage loan originations were fairly and developing online banking capabilities may limit the strong during the 2019 home buying season, as falling industry’s ability to rein in expenses. In all, we look for interest rates have made home ownership more afford- only modest earnings growth in 2020. able. But a lot of banks collect fees for making mortgage Conclusion loans and then sell the home loans, rather than retain The Bank (Midwest) Industry includes a number of them on the balance sheet. Too, mortgage lending is selections for patient investors. Some of the issues seasonal and typically falls off in winter. reviewed here have attractive dividend yields (Hancock A Challenging Interest-Rate Environment Whitney and Huntington Bancshares). And a number The Federal Reserve has reduced its key fed funds may be of interest for their good 3- to 5-year total return rate by a quarter percentage point three times thus far potential (Comerica and First Midwest). in 2019. As rates have fallen, the pressure to lower the Theresa Brophy rates banks charge for loans has increased. The banks’ funding costs have fallen, but not as much as laon yields. Banks still pay near-zero interest rates for a lot of their Bank (Midwest) consumer deposits. And they may fear losing deposits to RELATIVE STRENGTH (Ratio of Industry to Value Line Comp.) competitors if they lower the deposit rates they pay businesses clients. 900 Some midwestern banks have been using swaps to mitigate the compression between the yields they earn 750 on loans and securities and the rates they pay for deposits and borrowed funds. Even so, bank margins 600 contracted in the September quarter, and may narrow further in the year ahead. Net interest income accounts for the bulk of the Bank (Midwest) Industry’s revenues (except for Northern 450 Trust, an asset servicing and management company). Should loan growth remain lackluster, and given the margin compression, net interest income may not in- crease much in 2020. As a result, banks are redoubling 300 their efforts to increase the fee-based revenues they 2013 2014 2015 2016 2017 2018 2019 collect from providing wealth management and other Index: June, 1967 = 100

© 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 10.9 RELATIVE DIV’D VALUE ASSOC. BANC-CORP NYSE-ASB PRICE 21.72RATIO 11.8()Median: 16.0 P/E RATIO 0.67YLD 3.3% LINE 775 TIMELINESS 3 Lowered 12/14/18 High: 32.0 21.6 16.3 15.6 14.7 17.7 19.4 21.0 25.4 26.7 29.0 23.8 Target Price Range Low: 14.3 8.9 10.9 8.7 11.2 12.6 15.5 16.5 15.5 21.0 18.5 18.5 2022 2023 2024 SAFETY 3 Lowered 9/19/08 LEGENDS 15.0 x Earnings p sh 64 TECHNICAL 5 Lowered 11/22/19 .... Relative Price Strength Options: Yes 48 BETA 1.15 (1.00 = Market) Shaded area indicates recession 40 18-Month Target Price Range 32 Low-High Midpoint (% to Mid) 24 20 $17-$28 $23 (5%) 16 2022-24 PROJECTIONS 12 Ann’l Total Price Gain Return 8 High 45 (+105%) 22% Low 30 (+40%) 11% 6 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 30 to Buy 109 117 101 1 yr. -10.4 4.9 shares 20 3 yr. 6.8 30.2 to Sell 143 120 139 traded 10 Hld’s(000) 124036 120968 120598 5 yr. 20.5 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 2.05 2.25 2.43 2.38 2.23 1.29 d1.26 d.18 .66 1.00 1.10 1.16 1.19 1.26 1.52 1.89 1.93 1.90 Earnings per sh A 2.40 .89 .98 1.06 1.14 1.22 1.27 .47 .04 .04 .23 .33 .37 .41 .45 .50 .62 .69 .76 Div’ds Decl’d per sh B .88 12.24 15.51 17.13 17.22 18.30 18.49 17.34 15.21 16.05 16.42 17.24 18.08 18.62 19.27 20.14 21.43 23.40 24.65 Book Value per sh 29.65 110.16 130.04 135.70 130.43 127.32 128.12 128.43 173.89 174.59 175.01 164.14 151.54 151.24 152.12 152.84 164.44 160.00 160.00 Common Shs Outst’g C 160.00 12.2 13.5 13.3 13.9 13.9 17.4 - - - - 19.3 13.0 14.2 15.3 15.9 15.1 16.1 13.5 Bold figures are Avg Ann’l P/E Ratio 15.0 .70 .71 .71 .75 .74 1.05 - - - - 1.21 .83 .80 .81 .80 .79 .81 .73 Value Line Relative P/E Ratio .85 3.6% 3.2% 3.3% 3.5% 3.9% 5.6% 3.6% .3% .3% 1.8% 2.1% 2.1% 2.2% 2.4% 2.0% 2.4% estimates Avg Ann’l Div’d Yield 2.4% CAPITAL STRUCTURE as of 9/30/19 22874 21786 21924 23488 24227 26822 27715 29139 30484 33648 33000 34000 Total Assets ($mill) 38000 13555 12140 13653 15114 15628 17328 18440 19776 20519 22702 22700 23400 Loans ($mill) 26500 Total Debt $3782.9 mill. 726.0 633.8 612.8 626.0 645.5 681.0 676.3 707.3 741.2 879.6 840 830 Net Interest Inc ($mill) 920 750.6 390.0 52.0 3.0 10.0 16.0 37.5 70.0 26.0 - - 20.0 25.0 Loan Loss Prov’n ($mill) 40.0 Leases, Uncapitalized: Annual rentals $10.2 mill. Pension Assets-12/18 $390.6 mill. 351.0 345.5 282.5 313.3 313.1 290.3 328.4 352.9 332.7 355.6 370 380 Noninterest Inc ($mill) 420 Oblig. $233.7 mill. 611.4 630.3 659.9 681.8 680.7 679.2 697.4 702.6 709.1 821.8 795 805 Noninterest Exp ($mill) 820 d131.9 d.9 139.7 179.0 188.7 190.5 188.3 200.3 244.3 333.6 310 305 Net Profit ($mill) 385 Pfd Stock $256.7 mill. Pfd. Div’d $10.8 mill. - - - - 23.8% 29.7% 29.6% 31.0% 30.2% 30.4% 27.9% 19.3% 20.0% 20.0% Income Tax Rate 20.0% NMF NMF .64% .76% .78% .71% .68% .69% .80% .99% .95% .90% Return on Total Assets 1.00% Common Stock 159,341,912 shares as of 10/25/19 1954.0 1413.6 1177.1 1015.3 3087.3 3930.1 2679.4 2761.8 3397.5 4370.0 3500 3500 Long-Term Debt ($mill) 3500 2738.6 3158.8 2865.8 2936.4 2891.3 2800.3 2937.2 3091.3 3237.4 3780.9 4000 4200 Shr. Equity ($mill) 5000 MARKET CAP: $3.5 billion (Mid Cap) 12.0% 14.5% 13.1% 12.5% 11.9% 10.4% 10.6% 10.6% 10.6% 11.2% 12.0% 12.5% Shr. Eq. to Total Assets 13.0% ASSETS($Mill.) 2017 2018 9/30/19 59.3% 55.7% 62.3% 64.3% 64.5% 64.6% 66.5% 67.9% 67.3% 67.5% 69.0% 69.0% Loans to Tot Assets 69.5% Loans (Net) 20519.1 22702.4 22540.3 NMF NMF 4.9% 6.1% 6.5% 6.8% 6.4% 6.5% 7.5% 8.8% 8.0% 7.5% Return on Shr. Equity 7.5% Funds Sold 32.7 148.3 .1 Securities 6491.6 6939.6 5859.2 NMF NMF 3.8% 4.7% 4.5% 4.6% 4.2% 4.2% 5.2% 6.2% 5.0% 4.5% Retained to Com Eq 5.0% Other Earning 199.7 221.2 236.0 - - - - 23% 25% 32% 33% 37% 38% 35% 35% 39% 43% All Div’ds to Net Prof 39% Other 3240.5 3636.4 3960.9 LIABILITIES($Mill.) BUSINESS: Associated Banc-Corp is a diversified bank holding mercial, 58%; consumer, 42%. Has about 4,655 employees. Of- Deposits 22786.0 24897.4 24422.6 company. Through its subsidiaries, it provides a broad array of ficers and directors own 2.7% of common stock; Vanguard Group, Funds Borrowed 676.3 157.1 108.4 banking and nonbanking services to individuals and businesses, 9.4%; BlackRock, 9.2%; Dimensional Fund Advisors, 6.5% (3/19 Long-Term Debt 3397.5 4370.0 3674.5 primarily within its three-state branch footprint of Wisconsin, Illinois, proxy). Chairman: William R. Hutchinson. President and CEO: Net Worth 3237.4 3780.9 3920.9 and Minnesota. As of 9/30/19: Net chargeoffs, .18% of loans; loss Philip B. Flynn. Inc.: WI. Addr.: 433 Main Street, Green Bay, WI. Other 386.4 442.5 470.1 Total 30483.6 33647.9 32596.5 reserve, .94%; nonperforming assets, .68%. Loan breakdown: com- 54301. Tel.: (920) 491-7500. Internet: www.associatedbank.com. Loan Loss Resrv. 265.9 238.0 214.4 Associated Banc-Corp turned in a million sale of residential mortgages and ANNUAL RATES Past Past Est’d ’16-’18 solid third-quarter showing. The bank the downsizing of the oil and gas portfolio. of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 reported earnings of $0.49 a share, a We have lowered our 2019 and 2020 Loans 1.0% 9.0% 4.0% Earnings -2.5% 11.0% 7.5% penny above our estimate and also the earnings estimates. The downward revi- Dividends -8.0% 21.0% 9.0% comparable year-ago period. The beat to sions largely reflect a reduced net interest Book Value 1.0% 4.0% 6.5% our target was fueled by improved credit income outlook, owing to the Federal Total Assets 1.5% 8.0% 3.5% quality trends, including a lower-than- Reserve’s recent shift in policy. In our Cal- NET LOANS ($ mill.) expected loan loss provision ($2 million view, the decision to cut rates three times endar Mar.31 Jun. 30 Sep. 30 Dec. 31 versus $8 million in Q2), and stronger in the second half of 2019 (reversing near- 2016 18950 19548 19574 19776 growth in fee revenues (+5%), owing to ly all of 2018’s increases) is likely to have 2017 19865 20502 20655 20519 continued momentum in the mortgage a meaningful impact on the bank’s earn- 2018 22553 22724 22631 22702 banking business (+16%). These drivers ings in Q4 and into 2020. On a side note, 2019 22913 23016 22540 22700 helped offset some softness in the net the Associated is taking action to mitigate the 2020 22900 23100 23200 23400 interest income category (-3%), where per- effects of the challenging interest rate en- Cal-EARNINGS PER SHARE A Full formance was negatively impacted by a vironment through several initiatives. As endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year challenging interest rate environment. a result, the company expects to incur 2016 .27 .31 .34 .34 1.26 Loan growth is likely to be a bit about $3 million in restructuring charges 2017 .35 .36 .41 .41 1.52 weaker than previously anticipated. during the fourth quarter. Altogether, we 2018 .40 .50 .48 .51 1.89 Loan balances dipped last quarter as mod- have reduced our 2019 share-earnings call 2019 .50 .49 .49 .45 1.93 est increases in the commercial real estate to $1.93 (previously $1.95) and our 2020 2020 .42 .48 .50 .50 1.90 and home equity portfolios were offset by estimate to $1.90 (previously $2.00). Cal-QUARTERLY DIVIDENDS PAID B Full decreases in commercial and business The stock is ranked 3 (Average) for endarMar.31 Jun.30 Sep.30 Dec.31 Year lending and the residential mortgage book. Timeliness. Based on our system, ASB 2015 .10 .10 .10 .11 .41 On the conference call, management indi- shares are currently pegged as market 2016 .11 .11 .11 .12 .45 cated that it now expects full-year loan performers in the year ahead. For longer- 2017 .12 .12 .12 .14 .50 growth to come in below its previous guid- term investors, total-return potential to 2018 .15 .15 .15 .17 .62 ance of 3%. The reduced expectation 2022-2024 is solid at recent price levels. 2019 .17 .17 .17 .18 reflects several factors, including a $240 Michael Ratty December 6, 2019 (A) Diluted earnings. May not sum due to (B) Dividends historically paid in mid-March, (C) In millions, adjusted for stock split. Company’s Financial Strength B+ rounding. Excludes nonreccurring loss of $0.10 June, September, and December. Stock’s Price Stability 75 a share in Q4, 2017. Next earnings report due Price Growth Persistence 60 late January. Earnings Predictability 90 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 12.0 RELATIVE DIV’D VALUE BOK FINANCIAL NDQ-BOKF PRICE 83.91RATIO 11.3()Median: 14.0 P/E RATIO 0.64YLD 2.4% LINE 776 TIMELINESS 3 Lowered 12/14/18 High: 61.4 48.8 56.1 56.6 60.0 69.4 71.1 75.2 85.0 94.0 107.0 93.7 Target Price Range Low: 36.4 22.5 42.6 43.8 50.9 54.7 56.9 53.0 44.1 73.4 70.0 72.3 2022 2023 2024 SAFETY 3 Lowered 3/11/16 LEGENDS 15.0 x Earnings p sh TECHNICAL 4 Raised 11/29/19 .... Relative Price Strength 200 Options: Yes 160 BETA 1.25 (1.00 = Market) Shaded area indicates recession 18-Month Target Price Range 100 Low-High Midpoint (% to Mid) 80 60 $66-$111 $89 (5%) 50 2022-24 PROJECTIONS 40 Ann’l Total Price Gain Return 30 High 150 (+80%) 17% Low 100 (+20%) 7% 20 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 12 to Buy 131 95 98 1 yr. -7.9 4.9 shares 8 3 yr. 16.0 30.2 to Sell 78 109 100 traded 4 Hld’s(000) 27840 27929 28682 5 yr. 26.9 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 2.38 2.68 3.01 3.16 3.34 2.27 2.96 3.61 4.17 5.13 4.59 4.22 4.21 3.53 5.29 6.63 7.35 7.25 Earnings per sh A 8.30 - - - - .30 .55 .75 .88 .95 .99 1.13 1.47 1.54 1.62 1.69 1.73 1.77 1.90 2.01 2.12 Div’ds Decl’d per sh C■ 2.45 20.60 23.25 22.99 25.05 27.86 26.42 31.37 35.61 38.45 43.29 43.86 47.78 49.03 50.12 53.45 61.45 69.00 73.95 Book Value per sh 90.15 58.92 59.50 66.96 68.70 69.47 69.88 70.31 70.82 71.53 68.33 68.86 69.11 65.89 65.34 65.40 72.12 71.00 71.00 Common Shs Outst’g B 71.00 14.7 15.6 14.9 15.7 15.7 21.6 13.6 13.5 12.4 11.0 13.7 15.5 15.1 18.0 15.8 14.3 Bold figures are Avg Ann’l P/E Ratio 15.0 .84 .82 .79 .85 .83 1.30 .91 .86 .78 .70 .77 .82 .76 .94 .79 .77 Value Line Relative P/E Ratio .85 - - - - .7% 1.1% 1.4% 1.8% 2.4% 2.0% 2.2% 2.6% 2.4% 2.5% 2.7% 2.7% 2.1% 2.0% estimates Avg Ann’l Div’d Yield 2.0% CAPITAL STRUCTURE as of 9/30/19 23517 23942 25494 28149 27015 29090 31476 32772 32272 38021 42000 43000 Total Assets ($mill) 47000 10988 10350 11016 12096 12607 14019 15716 16744 16923 21449 22500 23500 Loans ($mill) 26500 Total Debt $10511.3 mill. 710.4 709.1 691.5 704.3 674.5 665.2 703.4 747.2 841.7 984.9 1100 1090 Net Interest Inc ($mill) 1200 195.9 105.1 d6.1 d22.0 d27.9 ------d7.0 8.0 30.0 35.0 Loan Loss Prov’n ($mill) 40.0 Leases, Uncapitalized Annual rentals $25.8 mill. 480.5 516.4 528.6 632.1 603.8 621.3 659.0 674.0 695.1 616.8 670 700 Noninterest Inc ($mill) 760 684.3 748.7 777.9 815.6 830.0 856.2 930.7 1082.6 1018.5 1036.2 1100 1110 Noninterest Exp ($mill) 1180 200.6 246.8 285.9 351.2 316.6 292.4 288.6 232.7 346.3 446.4 520 515 Net Profit ($mill) 590 Pfd Stock None 34.3% 33.2% 35.4% 34.8% 33.0% 31.3% 32.3% 31.4% 33.0% 21.1% 20.0% 20.0% Income Tax Rate 20.0% .85% 1.03% 1.12% 1.25% 1.17% 1.01% .92% .71% 1.07% 1.17% 1.25% 1.20% Return on Total Assets 1.25% Common Stock 70,858,010 shares 2531.9 1232.3 473.4 999.4 1388.2 2481.8 5064.2 4990.7 5279.6 6400.3 7000 6700 Long-Term Debt ($mill) 6000 2205.8 2521.7 2750.5 2957.9 3020.0 3302.2 3230.6 3274.9 3495.4 4432.1 4900 5250 Shr. Equity ($mill) 6400 MARKET CAP: $5.9 billion (Large Cap) 9.4% 10.5% 10.8% 10.5% 11.2% 11.4% 10.3% 10.0% 10.8% 11.7% 11.5% 12.0% Shr. Eq. to Total Assets 13.5% ASSETS($Mill.) 2017 2018 9/30/19 46.7% 43.2% 43.2% 43.0% 46.7% 48.2% 49.9% 51.1% 52.4% 56.4% 53.5% 54.5% Loans to Tot Assets 56.5% Loans (Net) 16922.7 21449.3 22080.9 9.1% 9.8% 10.4% 11.9% 10.5% 8.9% 8.9% 7.1% 9.9% 10.1% 10.5% 10.0% Return on Shr. Equity 9.5% Funds Sold ------Securities 9246.0 11169.2 13004.0 6.2% 7.1% 7.6% 8.5% 7.0% 5.5% 5.4% 3.6% 6.6% 7.2% 7.5% 7.0% Retained to Com Eq 6.5% Other Earning ------32% 27% 27% 29% 33% 38% 40% 49% 34% 28% 27% 29% All Div’ds to Net Prof 29% Other 6103.5 5402.0 8042.3 LIABILITIES($Mill.) BUSINESS: BOK Financial Corporation is a bank holding company ma, Bank of Texas, and Colorado State Bank and Trust. Acquired Deposits 22061.3 25263.8 26167.1 offering a range of financial products and services in Oklahoma, CoBiz Bank (10/18). Has 5,313 full-time employees. Officers and Funds Borrowed 575.0 1018.4 3413.1 Texas, New Mexico, Northwest Arkansas, Colorado, Arizona, Kan- directors own 54.9% of common stock (3/19 proxy). Chairman: Long-Term Debt 5279.6 6400.3 7098.2 sas, and Missouri. As of 12/31/18, it had total consolidated assets George B. Kaiser. President and CEO: Steven G. Bradshaw. Inc.: Net Worth 3495.4 4432.1 4829.0 of $38 billion. Seven banking divisions include Bank of Albuquer- OK. Addr.: Bank of Oklahoma Tower, Boston Ave. at Second St., Other 860.9 905.9 1619.8 Total 32272.2 38020.5 43127.2 que, Bank of Arizona, Bank of Arkansas, Mobank, Bank of Oklaho- Tulsa, OK 74192. Tel.: 918-588-6000. Internet: www.bokf.com. Loan Loss Resrv. 230.7 207.5 204.4 BOK Financial posted solid third- mid-single-digit loan growth target for the ANNUAL RATES Past Past Est’d ’16-’18 quarter results. The bank reported earn- year. We look for much of the improve- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 ings of $2.00 a share, ahead of our $1.92 ment to come from the energy and Loans 5.0% 9.5% 6.5% Earnings 6.0% 2.0% 8.5% estimate and up from $1.79 in the com- healthcare portfolios, which have ex- Dividends 9.5% 5.5% 5.5% parable year-ago period. The beat to our panded nicely thus far in 2019. Book Value 7.5% 5.5% 8.5% target was driven primarily by higher fee Comparisons are likely to be more dif- Total Assets 5.5% 5.5% 5.5% revenues (+5.7% sequentially), highlighted ficult in 2020. BOK held up relatively Cal- NET LOANS ($ mill.) by continued momentum in the brokerage well last quarter, but the Federal endar Mar.31 Jun.30 Sep.30 Dec.31 & trading (+8.2%) and mortgage banking Reserve’s recent policy change is likely to 2016 15789 16163 16220 16744 (+7.3%) segments. This helped to mitigate put some increased pressure on net inter- 2017 16743 16934 16959 16923 softness in net interest income (-2.2%), est income during Q4 and into 2020. After 2018 17114 17789 18139 21449 owing in part to the increasingly challeng- hiking its benchmark rate four times in 2019 21554 22053 22081 22500 ing interest rate environment, and a 2018, the Central Bank recently pivoted to 2020 22600 23000 23100 23500 higher-than-anticipated loan loss provision an easing stance that has resulted in three Cal-EARNINGS PER SHARE A Full ($12 million versus $5 million in Q2). All interest rate cuts since late July. While we endarMar.31 Jun.30 Sep.30 Dec.31 Year told, it represented the second earnings anticipate management will combat these 2016 .64 1.00 1.13 .76 3.53 beat in as many quarters for BOK Finan- pressures with an increased focus on cost 2017 1.35 1.35 1.31 1.29 5.29 cial. The stock has risen about 14% in control, we don’t believe it will be enough 2018 1.61 1.75 1.79 1.50 6.63 value since our last report. to fully mitigate the near-term impact. As 2019 1.54 1.93 2.00 1.88 7.35 The company is well positioned to a result, we have slashed our 2020 earn- 2020 1.75 1.80 1.84 1.86 7.25 achieve mid-single-digit loan growth ings call to $7.25 a share (from $7.65). Cal-QUARTERLY DIVIDENDS PAID C■ Full in 2019. Pay downs in the public finance The stock is ranked 3 (Average) for endarMar.31 Jun.30 Sep.30 Dec.31 Year and manufacturing segments late in the Timeliness. Based on our system, BOKF 2015 .42 .42 .42 .43 1.69 third quarter, along with loan sales, re- shares are currently pegged as market 2016 .43 .43 .43 .44 1.73 sulted in period-end loans being relatively performers in the year ahead. For longer- 2017 .44 .44 .44 .45 1.77 flat on a sequential basis. Despite missing term investors, price appreciation poten- 2018 .45 .45 .50 .50 1.90 expectations, management expressed con- tial to 2022-2024 is slightly above average. 2019 .50 .50 .50 .51 fidence that it would still be able to hit its Michael Ratty December 6, 2019 (A) Diluted earnings. May not sum due to (B) In millions. Company’s Financial Strength B+ rounding. Excludes nonrecurring loss of $0.18 (C) Dividends historically paid in late Feb., Stock’s Price Stability 65 a share in Q4, 2017. Next earnings report due May, Aug., and Nov.■ Div’d reinvest plan avail. Price Growth Persistence 40 late January. Earnings Predictability 70 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 8.9 RELATIVE DIV’D VALUE COMERICA NYSE-CMA PRICE 70.51RATIO 9.6()Median: 16.0 P/E RATIO 0.54YLD 3.8% LINE 777 TIMELINESS 4 Lowered 8/23/19 High: 54.0 32.3 45.8 43.5 34.0 48.7 53.5 53.4 70.4 88.2 102.7 89.0 Target Price Range Low: 15.0 11.7 29.6 21.5 26.3 30.7 42.7 39.5 30.5 64.0 63.7 58.5 2022 2023 2024 SAFETY 3 Lowered 6/20/08 LEGENDS 15.0 x Earnings p sh TECHNICAL 4 Raised 11/29/19 .... Relative Price Strength 200 Options: Yes 160 BETA 1.30 (1.00 = Market) Shaded area indicates recession 18-Month Target Price Range 100 Low-High Midpoint (% to Mid) 80 60 $53-$101 $77 (10%) 50 2022-24 PROJECTIONS 40 Ann’l Total Price Gain Return 30 High 150 (+115%) 23% Low 100 (+40%) 12% 20 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 45 to Buy 283 295 241 1 yr. -16.8 4.9 shares 30 3 yr. 34.4 30.2 to Sell 302 285 325 traded 15 Hld’s(000) 132383 129155 131496 5 yr. 52.4 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 3.75 4.36 5.11 4.81 4.43 1.29 d.80 .78 2.09 2.67 2.85 3.16 2.84 2.68 4.75 7.20 7.80 7.30 Earnings per sh A 8.30 2.00 2.08 2.20 2.36 2.56 2.31 .20 .25 .40 .55 .68 .79 .83 .89 1.09 1.84 2.68 2.76 Div’ds Decl’d per sh B■ 3.00 28.59 28.56 29.31 32.70 34.12 33.38 32.27 32.82 34.80 36.87 39.24 41.35 43.03 44.47 46.07 46.89 50.70 53.55 Book Value per sh 62.15 178.74 178.74 172.90 157.57 149.99 150.49 151.18 176.54 197.33 188.28 182.30 179.02 175.71 175.31 172.86 160.08 142.00 140.00 Common Shs Outst’g C 140.00 12.3 13.2 11.4 11.8 12.6 24.6 - - 48.2 15.3 11.4 13.9 15.4 16.0 17.0 15.4 12.7 Bold figures are Avg Ann’l P/E Ratio 15.0 .70 .70 .61 .64 .67 1.48 - - 3.07 .96 .73 .78 .81 .81 .89 .77 .69 Value Line Relative P/E Ratio .85 4.3% 3.6% 3.8% 4.2% 4.6% 7.3% .9% .7% 1.3% 1.8% 1.7% 1.6% 1.8% 2.0% 1.5% 2.0% estimates Avg Ann’l Div’d Yield 2.4% CAPITAL STRUCTURE as of 9/30/19 59249 53667 61008 65359 65227 69190 71877 72978 71567 70818 72500 73500 Total Assets ($mill) 78000 41176 39335 41953 45428 44872 47999 48450 48358 48461 49492 51300 52300 Loans ($mill) 55500 Total Debt $7362 mill. 1567.0 1646.0 1653.0 1728.0 1672.0 1655.0 1689.0 1797.0 2061.0 2352.0 2330 2250 Net Interest Inc ($mill) 2420 1082.0 480.0 153.0 79.0 46.0 27.0 147.0 248.0 74.0 d1.0 90.0 110 Loan Loss Prov’n ($mill) 150 Leases, Uncapitalized Annual rentals $67 mill. 1050.0 789.0 792.0 818.0 826.0 868.0 1050.0 1051.0 1107.0 976.0 1000 1000 Noninterest Inc ($mill) 1050 Pension Assets-12/18 $2458 mill. 1650.0 1640.0 1762.0 1757.0 1722.0 1626.0 1842.0 1930.0 1860.0 1794.0 1750 1780 Noninterest Exp ($mill) 1840 Oblig. $1901 mill. 16.0 260.0 393.0 521.0 541.0 593.0 521.0 477.0 850.0 1235.0 1180 1070 Net Profit ($mill) 1170 - - 17.5% 25.8% 26.6% 25.9% 31.8% 30.5% 28.8% 31.1% 19.5% 21.0% 21.0% Income Tax Rate 21.0% Pfd Stock None .03% .48% .64% .80% .83% .86% .72% .65% 1.19% 1.74% 1.65% 1.45% Return on Total Assets 1.50% Common Stock 144,154,334 shares 11060 6138.0 4944.0 4720.0 3543.0 2679.0 3058.0 5160.0 4622.0 6463.0 7000 6800 Long-Term Debt ($mill) 6200 as of 10/25/19 7029.0 5793.0 6868.0 6942.0 7153.0 7402.0 7560.0 7796.0 7963.0 7507.0 7200 7500 Shr. Equity ($mill) 8700 MARKET CAP: $10.2 billion (Large Cap) 11.9% 10.8% 11.3% 10.6% 11.0% 10.7% 10.5% 10.7% 11.1% 10.6% 10.0% 10.0% Shr. Eq. to Total Assets 11.0% ASSETS($Mill.) 2017 2018 9/30/19 69.5% 73.3% 68.8% 69.5% 68.8% 69.4% 67.4% 66.3% 67.7% 69.9% 71.0% 71.0% Loans to Tot Assets 71.0% Loans (Net) 48461 49492 50839 .2% 4.5% 5.7% 7.5% 7.6% 8.0% 6.9% 6.1% 10.7% 16.5% 16.5% 14.5% Return on Shr. Equity 13.5% Funds Sold ------Securities 12204 12045 12429 NMF 1.6% 4.7% 6.1% 5.8% 6.2% 4.9% 4.2% 8.4% 12.9% 11.0% 9.0% Retained to Com Eq 8.5% Other Earning 4407 3171 2888 NMF 64% 19% 19% 23% 23% 28% 32% 21% 21% 32% 36% All Div’ds to Net Prof 36% Other 6495 6110 6692 LIABILITIES($Mill.) BUSINESS: Comerica Inc. is a financial services company head- 18%; real constr., 6%; cons., 5%; res. mort., 4%; int’l, 2%; lease Deposits 57903 55561 56809 quartered in Dallas, Texas. It operates in three primary geographic fin., 1%. Has 7,573 employees. Off/dirs. own less than 1% of com- Funds Borrowed 10 44 51 markets - Texas, California, Michigan, as well as in Arizona and mon stock; Vanguard, 11.5%; BlackRock, 7.4%; State Street, 5.1% Long-Term Debt 4622 6463 7311 Florida, with select businesses in several other states, and in Cana- (3/19 proxy). Chairman: Ralph W. Babb, Jr. CEO: Curtis C. Farmer. Shr. Equity 7963 7507 7200 da and Mexico. Loan loss reserve, 1.27% of loans at 9/30/19; non- Inc.: DE. Addr.: Comerica Bank Tower, 1717 Main St., Dallas, TX Other 1069 1243 1477 Total 71567 70818 72848 perf. assets, .45%. Loan breakdown: comm., 64%; comm. mort., 75201. Tel.: 214-462-6831. Internet: www.comerica.com. Loan Loss Resrv. 712 671 652 Comerica posted better-than-expected pense forecast to ‘‘stable’’ (excluding last ANNUAL RATES Past Past Est’d ’16-’18 third-quarter results. The bank year’s restructuring charges), compared to of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 reported earnings of $1.96 a share, mark- previous guidance calling for a 3% decline. Loans -1.0% 4.5% 2.0% Earnings 3.5% 14.0% 9.5% ing decent improvement on both a sequen- We have reduced our 2019 and 2020 Dividends -6.0% 18.5% 15.5% tial and year-over-year basis. Management profit expectations. The downward revi- Book Value 3.0% 4.5% 5.0% highlighted broad-based fee income growth sions largely reflect lower modeled net in- Total Assets .5% 4.5% 1.5% and solid credit quality trends as key cata- terest income. Indeed, Comerica remains Cal-NET LOANS ($Mill.) Full lysts during the period, which helped one of the more asset-sensitive banks un- endarMar.31 Jun.30 Sep.30 Dec.31 Year mitigate headwinds tied to the increasing- der our coverage, so the Fed’s recent pivot 2016 48653 49651 48547 48358 ly challenging interest rate environment on rates is likely to have a more sig- 2017 47595 48703 48497 48461 (more below). Altogether, the Q3 earnings nificant impact on performance versus 2018 48542 49115 48346 49492 tally beat consensus expectations looking some of its industry peers. While we anti- 2019 49655 51144 50839 51300 for about $1.90 on average, with much of cipate management will focus heavily on 2020 51400 52000 51800 52300 the upside coming from the fee business. cost control to help offset these pressures, Cal-EARNINGS PER SHARE A Full However, comparisons are likely to be noninterest expenses are apt to rise a bit endarMar.31 Jun.30 Sep.30 Dec.31 Year more difficult going forward. While next year, due in part to continued invest- 2016 .34 .58 .84 .92 2.68 Comerica performed well in Q3, we antici- ment in technology upgrades. All told, we 2017 1.11 1.13 1.26 1.24 4.75 pate operating conditions will be a bit have lowered our 2019 earnings call to 2018 1.59 1.87 1.86 1.88 7.20 more challenging in Q4 and into 2020. A $7.80 a share (previously $8.00) and our 2019 2.11 1.94 1.96 1.79 7.80 big part of this stems from the Federal 2020 estimate to $7.30 (previously $8.30). 2020 1.74 1.84 1.85 1.87 7.30 Reserve’s recent shift in policy, which in- The stock is ranked 4 (Below Average) Cal-QUARTERLY DIVIDENDS PAID B■ Full cluded three cuts to its benchmark inter- for Timeliness. Based on our system, endarMar.31 Jun.30 Sep.30 Dec.31 Year est rate during the second half of 2019 (re- CMA shares are currently pegged to un- 2015 .20 .21 .21 .21 .83 versing nearly all of 2018’s hikes). As a re- derperform the broader market in the year 2016 .21 .22 .23 .23 .89 sult, management is now targeting net in- ahead. For longer-term investors, our 2017 .23 .26 .30 .30 1.09 terest income to be stable to down 1% this projections reflect attractive recovery 2018 .30 .34 .60 .60 1.84 year, versus its previous forecast of 2% potential out to 2022-2024. 2019 .67 .67 .67 .67 growth. It also upped its operating ex- Michael Ratty December 6, 2019 (A) Diluted earnings. Excludes nonrecurring (B) Dividends historically paid in early January, (C) In millions. Company’s Financial Strength B+ gain/(loss): ’06, 68¢; ’17, (61¢). May not sum April, July, and October. Stock’s Price Stability 60 due to rounding. Next earnings report due Jan- ■ Dividend reinvestment plan available. Price Growth Persistence 60 uary 21st. Earnings Predictability 55 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 17.9 RELATIVE DIV’D VALUE COMMERCE BANCSH. NDQ-CBSH PRICE 63.90RATIO 17.5()Median: 16.0 P/E RATIO 0.99YLD 1.6% LINE 778 TIMELINESS 3 Lowered 4/19/19 High: 30.9 26.0 26.5 28.4 28.9 34.2 35.6 38.8 51.2 52.5 65.8 64.3 Target Price Range Low: 20.3 16.3 21.5 21.3 24.5 25.2 29.8 31.0 30.8 44.8 49.8 52.0 2022 2023 2024 SAFETY 1 New 7/27/90 LEGENDS 15.5 x Earnings p sh 120 TECHNICAL 3 Raised 11/29/19 .... Relative Price Strength 100 Options: Yes 80 BETA 1.00 (1.00 = Market) Shaded area indicates recession 64 18-Month Target Price Range 48 Low-High Midpoint (% to Mid) 32 $52-$83 $68 (0%) 24 2022-24 PROJECTIONS 20 Ann’l Total 16 Price Gain Return High 80 (+25%) 8% 12 Low 65 (Nil) 2% % TOT. RETURN 10/19 8 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 12 to Buy 274 159 128 1 yr. 8.1 4.9 shares 8 3 yr. 56.8 30.2 to Sell 116 155 176 traded 4 Hld’s(000) 74187 73107 76096 5 yr. 98.0 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 1.35 1.49 1.60 1.64 1.57 1.45 1.27 1.62 1.91 2.06 2.03 2.05 2.11 2.25 2.62 3.60 3.57 3.70 Earnings per sh A 4.30 .34 .42 .46 .49 .53 .56 .56 .58 .59 .63 .64 .67 .71 .74 .78 .85 .99 1.04 Div’ds Decl’d per sh B 1.20 10.04 9.98 10.92 11.83 12.15 13.93 15.04 16.49 16.83 17.18 17.75 18.73 19.99 21.86 23.93 27.55 30.70 Book Value per sh D 39.70 148.36 142.07 134.01 132.07 129.09 129.78 135.37 134.54 131.58 128.79 128.66 123.11 118.35 117.63 117.65 116.45 112.00 111.00 Common Shs Outst’g C 111.00 13.6 14.7 15.3 15.6 15.9 16.7 16.6 14.7 13.5 12.8 15.0 16.4 16.6 17.6 18.7 16.0 Bold figures are Avg Ann’l P/E Ratio 16.5 .78 .78 .81 .84 .84 1.01 1.11 .94 .85 .81 .84 .86 .84 .92 .94 .86 Value Line Relative P/E Ratio .90 1.8% 1.9% 1.9% 1.9% 2.1% 2.3% 2.7% 2.4% 2.3% 2.4% 2.1% 2.0% 2.0% 1.9% 1.6% 1.5% estimates Avg Ann’l Div’d Yield 1.7% CAPITAL STRUCTURE as of 9/30/19 18120 18502 20649 22160 23072 23994 24605 25641 24833 25464 27000 28000 Total Assets ($mill) 33500 9950.8 9213.4 8992.9 9658.9 10795 11313 12293 13257 13824 13980 14500 15500 Loans ($mill) 17500 LT Debt $257.4 mill. LT Interest $15 mill. 635.5 645.9 646.1 639.9 619.4 620.2 634.3 680.0 733.7 823.8 830 850 Net Interest Inc ($mill) 940 Due In 5 Years $1.0 mill. 160.7 100.0 51.5 27.3 20.4 29.5 28.7 36.3 45.2 42.7 55.0 65.0 Loan Loss Prov’n ($mill) 85.0 Pension Assets-12/18 $112.1 mill. 389.4 403.3 403.7 404.5 414.0 450.1 453.9 474.3 511.7 500.9 540 560 Noninterest Inc ($mill) 620 Oblig.$99.4 mill. 622.1 631.1 617.2 618.5 629.6 657.8 675.9 717.1 769.7 737.8 790 800 Noninterest Exp ($mill) 840 169.1 221.7 256.3 269.3 261.0 261.8 263.7 275.4 319.4 433.5 410 425 Net Profit ($mill) 490 Pfd Stock $144.8 mill. Pfd. Div’d $9.0 mill. 30.5% 30.3% 31.9% 31.9% 31.9% 31.4% 30.4% 31.0% 25.7% 19.5% 22.0% 22.0% Income Tax Rate 23.0% .93% 1.20% 1.24% 1.22% 1.13% 1.09% 1.07% 1.07% 1.29% 1.70% 1.50% 1.50% Return on Total Assets 1.45% Common Stock 107,314,511 shs. as of 10/30/19 1236.1 112.3 111.8 103.7 107.3 104.1 103.8 102.0 1.8 8.7 100 50.0 Long-Term Debt ($mill) 100 1885.9 2023.5 2170.4 2167.1 2210.6 2330.2 2362.0 2495.8 2716.6 2931.3 3230 3550 Shr. Equity ($mill) 4550 MARKET CAP: $6.9 billion (Large Cap) 10.4% 10.9% 10.5% 9.8% 9.6% 9.7% 9.6% 9.7% 10.9% 11.5% 12.0% 12.5% Shr. Eq. to Total Assets 13.5% 54.9% 49.8% 43.6% 43.6% 46.8% 47.1% 50.0% 51.7% 55.7% 54.9% 53.5% 55.5% Loans to Tot Assets 52.0% ASSETS($Mill.) 2017 2018 9/30/19 9.0% 11.0% 11.8% 12.4% 11.8% 11.2% 11.2% 11.0% 11.8% 14.8% 12.5% 12.0% Return on Shr. Equity 11.0% Loans 13824.1 13980.4 14301.9 Funds Sold 21.4 20.7 20.1 5.0% 7.1% 8.2% 8.7% 8.1% 7.9% 7.7% 7.6% 8.5% 11.6% 9.5% 9.0% Retained to Com Eq 8.0% Securities 8893.3 8698.7 8847.7 44% 35% 31% 30% 31% 34% 36% 35% 32% 25% 27% 27% All Div’ds to Net Prof 27% Other Earning 730.6 1393.2 1197.0 Other 1364.0 1370.8 1509.8 BUSINESS: Commerce Bancshares, Inc. has 552 bank/ATM loca- 12/31/18, had 4,570 full-time equivalent employees. Directors & of- LIABILITIES($Mill.) tions in Missouri, Illinois, Kansas, Oklahoma, & Colorado. Net loan ficers own 3.6% of stock; Commerce Bank in trust capacities, 6.8%; Deposits 20425.4 20323.7 20310.2 losses, about .30% of average loans in ’18. Loan loss reserve, Vanguard, 9.8%; BlackRock, 8.4%; State Street, 5.1% (proxy 3/19). Funds Borrowed 1507.1 1956.4 1641.3 1.11% of loans on 9/30/19. Problem & past-due assets, .09% of C.E.O.: David W. Kemper. Incorporated: MO. Address: 1000 Wal- Long-Term Debt 1.8 8.7 257.4 loans & OREO. Loans (12/31/18): commercial, 31%; commercial nut, P.O. Box 13686, Kansas City, MO 64199. Telephone: 816-234- Net Worth 2716.6 2931.3 3102.6 Other 182.5 243.7 565.0 real estate, 21%; residential mortgage, 24%; consumer, 24%. On 2000. Internet: www.commercebank.com. Total 24833.4 25463.8 25876.5 Commerce Bancshares has not limit earnings growth potential for at least Loan Loss Resrv. 159.5 159.9 160.7 achieved bottom-line growth yet in the next couple of quarters. ANNUAL RATES Past Past Est’d ’16-’18 any period this year. The third-quarter Creditworthiness remains a bright of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 share-net tally missed our call by a couple spot. Last quarter, charge-offs were $12 Loans 4.0% 9.0% 7.0% Earnings 6.0% 7.0% 8.0% of cents, coming in flat with the 2018 com- million, up from $10 million last year. Dividends 4.0% 5.0% 8.0% parison at $0.93. The main culprit for the That was still very low, at only 0.32% of Book Value 6.5% 5.5% 11.0% lack of earnings expansion is the interest- average loans on an annualized basis. Al- Total Assets 5.5% 5.0% 5.0% rate backdrop. Last year, the company was most all of the charge-offs were related to Cal- LOANS ($ mill.) capitalizing on rising interest rates but, personal banking, while commercial endar Mar.31 Jun.30 Sep.30 Dec.31 nowadays, it is repricing its assets creditworthiness was excellent. With a 2016 12545 12938 13076 13257 downward. More than half of CBSH’s loan loss provision of $11 million, the al- 2017 13415 13469 13588 13824 loans are of the floating-rate variety, lowance for loan losses stood at $161 mil- 2018 13734 13795 13796 13980 which leaves it susceptible to interest-rate lion at the close of the quarter, represent- 2019 13960 14099 14302 14500 fluctuations. Moreover, the yield curve is ing 1.11% of period-end loans. This seems 2020 14900 15100 15300 15500 unhelpful. Banks borrow at the short end plentiful, considering tight lending stan- Cal-EARNINGS PER SHARE A Full and lend at longer durations, so a shallow dards and decent economic health. endarMar.31 Jun.30 Sep.30 Dec.31 Year curve limits spread opportunities. These shares have gained significant 2016 .54 .58 .56 .58 2.26 Noninterest income results were value since our September report 2017 .59 .64 .62 .77 2.62 solid. In the September interim, fee in- despite lackluster results. At the recent 2018 .84 .91 .93 .92 3.60 come jumped 7% on bank card, trust, and quotation, we see limited capital appreci- 2019 .81 .91 .93 .92 3.57 loan fees, to 39% of overall revenue. Mean- ation upside to 2022-2024. The yield is be- 2020 .85 .95 .95 .95 3.70 while, Commerce slightly grew its average low the Value Line median, but it’s a safe Cal-QUARTERLY DIVIDENDS PAID B Full loan balance thanks to healthy commercial bet that dividend growth will exceed infla- endarMar.31 Jun.30 Sep.30 Dec.31 Year and industrial business loan activity. How- tion for the foreseeable future. CBSH 2015 .176 .176 .176 .176 .70 ever, net interest income weakened due to declares a 5% stock dividend annually, 2016 .185 .185 .185 .185 .74 pricing pressure in floating-rate commer- while either maintaining or raising the 2017 .194 .194 .194 .194 .78 cial loans. Moreover, we expect the decline cash distribution. 2018 .213 .213 .213 .213 .85 in broader interest rates to continue to Jeffrey Hirt December 6, 2019 2019 .248 .248 .248 (A) Based on diluted shares outstanding. May cember. Plus stock dividend: 5% in ’03, ’04, millions, adjusted for stock dividends. (D) Incl. Company’s Financial Strength A not sum due to rounding. Next earnings report ’05, ’06, ’07, ’08, ’09, ’10, ’11, ’12, ’13, ’14, ’15, intangibles: As of 12/31/18, $147.7 mill., $1.33 Stock’s Price Stability 90 due mid-January. (B) Dividends historically ’16, ’17, ’18, ’19. Excludes special div’d of a share. Price Growth Persistence 65 paid in late March, June, September, and De- $1.2958 a share payable Dec. 17, 2012. (C) In Earnings Predictability 85 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 10.9 RELATIVE DIV’D VALUE FIFTH THIRD BANCORP NDQ-FITB PRICE 30.33RATIO 10.6()Median: 10.0 P/E RATIO 0.60YLD 3.3% LINE 779 TIMELINESS 3 Raised 2/1/19 High: 28.6 11.2 16.0 15.8 16.2 21.1 23.9 21.9 27.9 31.8 34.7 30.9 Target Price Range Low: 6.3 1.0 9.8 9.1 12.0 15.2 17.7 17.1 13.8 23.2 22.1 23.1 2022 2023 2024 SAFETY 3 Raised 9/16/11 LEGENDS 11.5 x Earnings p sh TECHNICAL Raised 11/29/19 .... Relative Price Strength 80 3 Options: Yes BETA 1.20 (1.00 = Market) Shaded area indicates recession 60 50 18-Month Target Price Range 40 Low-High Midpoint (% to Mid) 30 25 $21-$36 $29 (-5%) 20 2022-24 PROJECTIONS 15 Ann’l Total Price Gain Return 10 High 50 (+65%) 16% Low 35 (+15%) 7% 7.5 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 45 to Buy 254 418 314 1 yr. 11.6 4.9 shares 30 3 yr. 44.8 30.2 to Sell 384 255 354 traded 15 Hld’s(000) 538649 601604 570358 5 yr. 66.5 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 2.97 2.68 2.77 2.12 1.99 d3.94 .67 .63 1.18 1.66 2.02 1.66 2.01 1.93 2.65 2.55 2.80 2.90 Earnings per sh A 3.60 1.13 1.31 1.46 1.58 1.70 .75 .04 .04 .28 .36 .47 .51 .52 .53 .60 .74 .94 1.02 Div’ds Decl’d per sh B■ 1.26 15.03 15.99 16.98 18.00 17.18 13.57 12.44 13.09 13.97 15.10 15.85 17.35 18.48 19.82 21.67 23.07 28.65 30.55 Book Value per sh D 37.25 566.69 557.65 555.62 556.25 532.67 577.39 795.07 796.27 919.80 882.15 855.31 824.05 785.08 750.48 693.80 646.63 710.00 670.00 Common Shs Outst’g C 620.00 18.7 19.6 15.2 18.4 18.4 - - 10.5 20.3 10.6 8.5 8.9 12.6 9.9 10.0 10.1 11.7 Bold figures are Avg Ann’l P/E Ratio 11.5 1.07 1.04 .81 .99 .98 - - .70 1.29 .66 .54 .50 .66 .50 .52 .51 .63 Value Line Relative P/E Ratio .65 2.0% 2.5% 3.5% 4.1% 4.6% 4.5% .6% .3% 2.2% 2.5% 2.6% 2.4% 2.6% 2.7% 2.2% 2.5% estimates Avg Ann’l Div’d Yield 3.0% CAPITAL STRUCTURE as of 9/30/19 113380 111007 116967 121894 130443 138706 141082 142177 142193 146069 172000 175000 Total Assets ($mill) 195000 73030 74487 78763 83928 87032 88762 91310 90845 90774 94162 108500 110000 Loans ($mill) 125000 LT Debt $14.474 bill. Due in 5 Yrs $10.119 bill. 3354.0 3604.0 3557.0 3595.0 3561.0 3579.0 3533.0 3615.0 3825.0 4140.0 4750 4950 Net Interest Inc ($mill) 5700 LT Interest $512 mill. 3543.0 1538.0 423.0 303.0 229.0 315.0 396.0 343.0 261.0 237.0 450 575 Loan Loss Prov’n ($mill) 800 Pension Assets-12/18 $164 mill. Oblig. $181 mill. 4782.0 2729.0 2455.0 2999.0 3227.0 2473.0 3003.0 2696.0 3224.0 2256.0 2725 2850 Noninterest Inc ($mill) 3100 3826.0 3855.0 3758.0 4081.0 3961.0 3709.0 3775.0 3903.0 3922.0 3864.0 4365 4475 Noninterest Exp ($mill) 4900 Pfd Stock $1.770 bill. Pfd Div’d $100 mill. 737.0 753.0 1297.0 1576.0 1836.0 1481.0 1712.0 1564.0 2036.0 1823.0 2075 2150 Net Profit ($mill) 2400 3.9% 19.9% 29.1% 28.8% 29.7% 26.9% 27.9% 24.5% 29.0% 20.6% 22.0% 22.0% Income Tax Rate 22.0% .65% .68% 1.11% 1.29% 1.41% 1.07% 1.21% 1.10% 1.43% 1.25% 1.20% 1.25% Return on Total Assets 1.25% Common Stock 718,583,000 shs. 10507 9558.0 9682.0 7085.0 9633.0 14967 15844 14388 14904 14426 14450 18000 Long-Term Debt ($mill) 22000 MARKET CAP: $21.8 billion (Large Cap) 13497 14080 13251 13716 14589 15626 15839 16205 16365 16250 22100 22250 Shr. Equity ($mill) 24850 11.9% 12.7% 11.3% 11.3% 11.2% 11.3% 11.2% 11.4% 11.5% 11.1% 13.0% 12.5% Shr. Eq. to Total Assets 12.5% ASSETS($mill.) 2017 2018 9/30/19 64.4% 67.1% 67.3% 68.9% 66.7% 64.0% 64.7% 63.9% 63.8% 64.5% 63.0% 63.0% Loans to Tot Assets 64.0% Loans 90774 94162 108266 5.5% 5.3% 9.8% 11.5% 12.6% 9.5% 10.8% 9.7% 12.4% 11.2% 9.5% 9.5% Return on Shr. Equity 9.5% Funds Sold 2753 1825 3235 Securities 32706 33135 38232 4.9% 4.9% 7.7% 9.1% 10.3% 6.9% 8.4% 7.5% 10.1% 8.4% 6.5% 6.5% Retained to Com Eq 6.5% Other Earning - - 1059 1223 34% 31% 24% 23% 24% 33% 29% 29% 25% 31% 36% 37% All Div’ds to Net Prof 37% Other 15960 15888 20123 LIABILITIES($mill.) BUSINESS: Fifth Third Bancorp owns banks in OH, KY, IN, MI, IL, 10%; residential, 21%; consumer, 14%. On 9/30/19, 19,478 FTE Deposits 103162 108835 125347 FL, GA, TN, WV, PA, MS, & NC. Lead bank is Fifth Third Bank, employees. Officers & directors own less than 1% of common Funds Borrowed 4186 2498 4922 Cincinnati. On 9/30/19, had 1,143 offices. Net loan losses, .35% of stock; T.Rowe Price Associates, 10.5%; Vanguard Group, 8.6%; Long-Term Debt 14904 14426 14474 average loans in ’18. On 9/30/19, loan loss reserve, 1.04% of BlackRock, 6.6%. (Proxy, 3/19). Chairman, President, & CEO: G.D. Shr. Equity 16365 16250 21404 loans; nonperforming assets & 90 day past-due loans, .59%. Carmichael. Inc.: OH. Address: Fifth Third Center, Cincinnati, OH Other 3576 4060 4932 Total 142193 146069 171079 Loans: commercial, 50%; construction, 5%; commercial mortgage, 45263. Tel.: 513-579-5300. Internet: www.53.com. Loan Loss Resrv. 1196 1103 1143 Fifth Third enjoyed exceptionally rather than retaining them. ANNUAL RATES Past Past Est’d ’16-’18 strong growth in noninterest income But Fifth has taken measures to pro- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 in the September quarter. The tect its margin and net interest in- Loans -.5% 7.0% 7.0% Earnings NMF 8.0% 7.0% consecutive-period outperformance was come. Hedge positions will start paying Dividends -7.5% 11.0% 12.5% powered mainly by a 23% increase in cor- off in the final quarter of 2019. And the Book Value 3.0% 7.5% 9.0% porate banking fees and a 51% rise in company’s deposit costs ought to decline, Total Assets .5% 8.0% 7.0% mortgage banking revenues. Fifth is bene- reflecting recent Fed rate reductions. Cal- LOANS ($mill.) fiting from investments in a number of fee We still expect Fifth to earn $2.80 a endar Mar.31 Jun.30 Sep.30 Dec.31 income-generating operations in the past share in 2019. But we have trimmed our 2016 92310 92610 91879 90845 couple of years, as well as the acquisition share-net estimate for 2020 by a nickel, to 2017 90390 90220 90678 90774 of Chicago-based MB Financial in mid- $2.90. Mortgage revenue is seasonal and is 2018 90832 90855 92352 94162 March. The strength in fee-based revenue likely to decline in the December quarter. 2019 108727 108168 108266 108500 offset a 1% sequential-quarter decline in And in 2020, fee-based revenues probably 2020 108800 109100 109500 110000 net interest income, hurt by lower short- can’t continue to grow at the strong 2019 Cal-EARNINGS PER SHARE A Full term interest rates and elevated cash pace. Too, loan loss provisions likely will endarMar.31 Jun.30 Sep.30 Dec.31 Year balances. Expenses matched the June- increase under a new accounting method 2016 .40 .40 .65 .49 1.93 period tally. Fifth’s problem loans for loan loss reserves that takes effect in 2017 .38 .45 1.35 .67 2.65 declined, but the company is conservative the new year. However, Fifth expects to 2018 .57 .63 .64 .69 2.55 and made a larger loan loss provision. Our realize the full $255 million of expense 2019 .63 .71 .75 .71 2.80 presentation for the quarter excludes savings related to the MB Financial pur- 2020 .68 .72 .74 .76 2.90 $0.04 a share of nonoperating costs. chase by the end of the opening quarter of Cal-QUARTERLY DIVIDENDS PAID B■ Full Loan growth in the next several 2020, which will help it rein in expenses. endarMar.31 Jun.30 Sep.30 Dec.31 Year quarters is apt to be muted. Paydown Fifth Third’s dividend yield is attrac- 2015 .13 .13 .13 .13 .52 activity has been offsetting new commer- tive. But the stock has strengthened a bit 2016 .13 .13 .13 .13 .52 cial loans. Economic uncertainty may be recently, and doesn’t stand out for total re- 2017 .14 .14 .14 .16 .58 restraining credit-line utilization. Con- turn potential to 2022-2024. It is also 2018 .16 .16 .18 .18 .68 sumer loan demand appears healthy, but ranked only 3 (Average) for Timeliness. 2019 .22 .22 .24 .24 the company is selling mortgage loans Theresa Brophy December 6, 2019 (A) Based on diluted shares. Quarterly earn- report due mid-Jan. (B) Dividends historically $5.4 billion, $7.52 a share. Company’s Financial Strength B+ ings may not sum in all years due to rounding paid mid-January, April, July, and October. ■ Stock’s Price Stability 65 or change in shares. Excludes unusual net Dividend reinvestment plan available. (C) In Price Growth Persistence 80 gains: In ’18. $0.51; ’19, $0.31. Next earnings millions (D) Incl. intangibles: As of 9/30/19, Earnings Predictability 65 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 12.3 RELATIVE DIV’D VALUE FIRST HORIZON NATL. NYSE-FHN PRICE 16.15RATIO 11.5()Median: NMF P/E RATIO 0.65YLD 3.7% LINE 780 TIMELINESS 3 Lowered 11/8/19 High: 18.7 13.7 15.1 12.7 11.0 12.7 14.0 16.3 20.8 20.9 20.8 17.4 Target Price Range Low: 3.8 6.1 9.2 5.4 7.4 9.5 11.0 12.0 11.5 15.8 12.3 13.0 2022 2023 2024 SAFETY 3 Raised 3/20/09 LEGENDS 15.0 x Earnings p sh TECHNICAL 3 Raised 11/29/19 .... Relative Price Strength 40 Options: Yes 32 BETA 1.15 (1.00 = Market) Shaded area indicates recession 24 18-Month Target Price Range Low-High Midpoint (% to Mid) 16 12 $13-$21 $17 (5%) 10 2022-24 PROJECTIONS 8 Ann’l Total Price Gain Return 6 High 30 (+85%) 20% Low 20 (+25%) 9% 4 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 60 to Buy 159 140 142 1 yr. 2.6 4.9 shares 40 3 yr. 12.1 30.2 to Sell 154 168 163 traded 20 Hld’s(000) 284710 277926 265724 5 yr. 39.1 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 3.02 2.95 2.85 1.63 d1.16 d.97 d1.35 d.22 .47 d.11 .10 .90 .34 .94 .99 1.65 1.35 1.45 Earnings per sh A 1.70 1.08 1.36 1.45 1.50 1.50 .33 - - - - .04 .04 .20 .20 .24 .28 .36 .48 .56 .60 Div’ds Decl’d per sh B .72 12.61 13.76 15.26 16.43 14.08 10.63 10.60 10.17 10.43 9.09 8.93 9.39 9.42 9.91 12.82 13.79 15.05 15.90 Book Value per sh D 18.60 149.86 148.30 151.53 149.90 151.70 234.81 236.10 263.37 257.47 243.60 236.37 234.22 238.59 233.62 326.74 318.57 312.00 315.00 Common Shs Outst’g C 320.00 11.6 12.5 11.8 20.4 ------19.6 - - NMF 13.4 42.8 15.7 18.8 10.9 Bold figures are Avg Ann’l P/E Ratio 15.0 .66 .66 .63 1.10 ------1.23 - - NMF .71 2.15 .82 .95 .59 Value Line Relative P/E Ratio .85 3.1% 3.7% 4.3% 4.5% 5.3% 3.3% - - - - .4% .4% 1.8% 1.7% 1.7% 1.9% 1.9% 2.7% estimates Avg Ann’l Div’d Yield 2.8% CAPITAL STRUCTURE as of 9/30/19 26069 24699 24789 25520 23790 25673 26195 28555 41423 40832 44500 47500 Total Assets ($mill) 56000 17227 16118 16013 16432 15135 15998 17476 19387 27469 27355 31500 33500 Loans ($mill) 38000 LT Debt $1195.1 mill. Due in 5 Yrs $900.4 mill. 776.5 730.8 700.8 688.7 637.4 627.7 653.7 729.1 842.3 1220.3 1195 1185 Net Interest Inc ($mill) 1350 LT Interest $55.0 mill. 880.0 270.0 44.0 78.0 55.0 27.0 9.0 11.0 11.0 7.0 55.0 65.0 Loan Loss Prov’n ($mill) 100 Pension Assets-12/18 $731 mill. Oblig. $765 mill. 1233.5 955.7 786.0 671.3 584.6 550.0 517.3 552.4 490.2 722.8 640 680 Noninterest Inc ($mill) 760 1550.5 1367.1 1293.0 1383.7 1158.6 841.2 1053.8 925.2 1023.7 1222.0 1210 1200 Noninterest Exp ($mill) 1300 Pfd Stock $95.6 mill. Pfd. Div’d $6.2 mill. d245.6 57.1 122.6 d27.9 29.1 219.5 97.3 238.5 259.0 545.0 445 470 Net Profit ($mill) 560 - - - - 10.6% - - - - 25.4% 10.1% 30.9% 16.2% 22.4% 22.0% 21.0% Income Tax Rate 21.0% Common Stock 311,180,000 shs. NMF .23% .49% NMF .12% .86% .37% .84% .63% 1.33% 1.00% 1.00% Return on Total Assets 1.00% MARKET CAP: $5.0 billion (Mid Cap) 2891.1 3228.1 2481.7 2226.5 1739.9 1880.1 1315.2 1040.7 1218.1 1171.0 1200 1250 Long-Term Debt ($mill) 2000 3302.5 2678.0 2684.6 2214.0 2205.3 2295.5 2344.2 2409.7 4285.1 4489.9 4785 5100 Shr. Equity ($mill) 6050 ASSETS($MILL.) 2017 2018 9/30/19 12.7% 10.8% 10.8% 8.7% 9.3% 8.9% 8.9% 8.4% 10.3% 11.0% 11.0% 10.5% Shr. Eq. to Total Assets 11.0% 66.1% 65.3% 64.6% 64.4% 63.6% 62.3% 66.7% 67.9% 66.3% 67.0% 71.0% 70.5% Loans to Tot Assets 68.0% Loans 27469.4 27355.1 31067.7 NMF 2.1% 4.6% NMF 1.3% 9.6% 4.2% 9.9% 6.0% 12.1% 9.5% 9.0% Return on Shr. Equity 9.5% Funds Sold 812.9 624.0 746.0 Securities 6596.6 6084.6 5820.9 NMF NMF 4.2% NMF NMF 7.5% 1.5% 7.3% 4.0% 8.7% 5.5% 5.5% Retained to Com Eq 5.5% Other Earning 1884.9 1956.8 919.3 - - NMF 8% - - NMF 24% 65% 29% 35% 30% 41% 41% All Div’ds to Net Prof 42% Other 4659.6 4812.6 5163.8 LIABILITIES($MILL.) BUSINESS: First Horizon National owns First Tennessee Bank loans (9/30/19); problem assets, .71%. Had 5,116 avg. full-time Deposits 30629.2 32682.9 31944.7 N.A. Has about 290 offices in and around TN, and FTN Financial equivalent employees on 9/30/19. Directors & officers own 1.9% of Funds Borrowed 4312.3 1469.3 4668.0 Group offices in the U.S. and overseas engaged in fixed-income common stock; Vanguard, 9.5%; BlackRock, 9.1%; FMR, 8.2%; Long-Term Debt 1218.1 1170.9 1195.1 sales and trading. Average loans in ’18: commercial, 58%; commer- Fuller & Thaler Asset Management, 5.2% (proxy 3/19). Chairman & Net Worth 4285.1 4481.5 4700.6 Other 978.7 1028.5 1209.3 cial real estate, 15%; consumer R.E.,24%; consumer, 3%. Net loan CEO: D.B. Jordan. Inc.: TN. Address: 165 Madison Ave., Memphis, Total 41423.4 40833.1 43717.7 losses in ’18, .06% of average loans. Loan loss reserve, .62% of TN 38103. Tel.: 901-523-4444. Internet: www.firsthorizon.com. Loan Loss Resrv. 189.6 180.4 193.1 First Horizon has agreed to merge nues from lower interest rates. Lower ANNUAL RATES Past Past Est’d ’16-’18 with Louisiana-based IBERIABANK. rates drive fixed-income volume. They also of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 The combined company will have about boost mortgage loan originations that, Loans -4.0% 5.5% 6.0% Earnings - - NMF 6.0% $75 billion of assets and strong market along with further penetration of key mar- Dividends -10.5% NMF 11.5% shares in many of the fastest-growing kets and growth in lending to borrowers in Book Value -1.0% 5.0% 7.5% parts of the southeastern United States. certain industries, should support decent Total Assets -5.0% 4.5% 5.5% IBERIABANK shares will each be ex- loan growth. Even so, lower rates probably Cal- QUARTERLY LOANS ($ mill.) changed for 4.584 shares of First Hori- will depress loan yields and net interest endar Mar.31 Jun.30 Sep.30 Dec.31 zon common stock, in a deal valued at income. Too, accretion income from past 2016 17371 18390 19354 19387 over $4 billion. First Horizon stock- acquisitions will decline. 2017 18888 19792 19971 27469 holders will own 56% of the company. The In addition to the merger savings, the 2018 27063 27516 27164 27355 merger is subject to approvals by regu- company has taken measures to cut 2019 27805 29694 31068 31500 latory agencies and shareholders of both expenses by $80 million. Costs of im- 2020 30000 30500 31000 33500 companies, and is expected to be com- plementing these initiatives reduced Cal-EARNINGS PER SHARE A Full pleted in the June quarter of 2020. September-quarter share net by $0.08. endarMar.31 Jun.30 Sep.30 Dec.31 Year The combined company intends to First Horizon plans to reinvest some of the 2016 .20 .24 .27 .23 .94 reduce its expenses by $170 million, potential savings in its businesses. It may 2017 .23 .38 .28 .10 .99 with 25% realized in 2020 and 75% in put stock repurchases on pause due to the 2018 .27 .25 .83 .30 1.65 2021. There isn’t a lot of overlap in the pending merger. Excluding a $0.49-a- 2019 .31 .35 .35 .34 1.35 two banks’ branches but, excluding an es- share gain in the 2018 September period, 2020 .35 .36 .36 .38 1.45 timated $440 million of one-time merger we look for core earnings to advance 15% Cal-QUARTERLY DIVIDENDS PAID B Full costs, management expects the deal to re- in 2019 and at a slower pace in 2020. endarMar.31 Jun.30 Sep.30 Dec.31 Year sult in double-digit earnings accretion in Good-yielding First Horizon shares 2015 .05 .06 .06 .06 .23 2021. We won’t factor IBERIABANK into have worthwhile total return poten- 2016 .06 .07 .07 .07 .27 our estimates until the transaction closes. tial to 2022-2024. But investors may need 2017 .07 .09 .09 .09 .34 On its own, First Horizon’s counter- to be patient, as the company assimilates 2018 .09 .12 .12 .12 .45 cyclical fixed-income business should IBERIABANK. 2019 .12 .14 .14 .14 offset some of the pressure on reve- Theresa Brophy December 6, 2019 (A) Based on diluted shares. Next earnings (B) Div’ds paid early Jan., Apr., Jul., and Oct. (C) In millions. Company’s Financial Strength B report due mid-Jan. Quarterly EPS may not Following July, ’08 cash div’d, paid in stock (D) Incl. intangibles.: (9/30/19) $1.569.2 bill., Stock’s Price Stability 70 sum due to change in shares. Includes unusual worth $0.20 a share. Cash div’d reinstated $5.04/sh. Price Growth Persistence 45 income: ’18, $0.24. 3/11. Earnings Predictability 35 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 12.4 RELATIVE DIV’D VALUE FIRST MIDWEST BANC NDQ-FMBI PRICE 21.62RATIO 11.7()Median: 21.0 P/E RATIO 0.66YLD 2.7% LINE 781 TIMELINESS 3 Lowered 5/4/18 High: 40.1 20.3 18.0 13.5 13.6 18.5 18.2 19.8 25.6 25.9 27.7 23.7 Target Price Range Low: 13.6 5.9 9.3 6.9 9.4 11.6 15.0 15.3 14.6 20.5 18.1 18.3 2022 2023 2024 SAFETY 3 Lowered 6/20/08 LEGENDS 16.0 x Earnings p sh 64 TECHNICAL 4 Raised 12/6/19 .... Relative Price Strength Options: Yes 48 BETA 1.15 (1.00 = Market) Shaded area indicates recession 40 18-Month Target Price Range 32 Low-High Midpoint (% to Mid) 24 20 $17-$29 $23 (5%) 16 2022-24 PROJECTIONS 12 Ann’l Total Price Gain Return 8 High 45 (+110%) 21% Low 30 (+40%) 10% 6 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 30 to Buy 134 114 121 1 yr. -8.2 4.9 shares 20 3 yr. 12.8 30.2 to Sell 82 87 77 traded 10 Hld’s(000) 87391 86920 91789 5 yr. 35.0 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 1.97 2.12 2.21 2.37 1.62 1.00 d.71 d.27 .35 d.28 1.06 .92 1.05 1.14 1.22 1.52 1.80 1.85 Earnings per sh A 2.40 .79 .90 1.02 1.14 1.20 1.24 .04 .04 .04 .04 .16 .31 .36 .36 .39 .45 .54 .59 Div’ds Decl’d per sh B■† .70 11.22 11.55 11.99 15.01 14.94 14.78 13.71 12.43 12.93 12.57 13.34 14.17 14.70 15.46 18.16 19.32 21.55 22.90 Book Value per sh C 27.45 46.58 46.07 45.39 50.03 48.45 48.63 54.79 74.10 74.44 74.84 75.07 77.70 77.95 81.33 102.72 106.38 109.00 108.00 Common Shs Outst’g D 113.00 14.7 16.2 16.1 15.4 21.7 23.7 - - - - 30.8 - - 13.7 18.2 17.0 16.7 19.1 16.4 Bold figures are Avg Ann’l P/E Ratio 16.0 .84 .86 .86 .83 1.15 1.43 - - - - 1.93 - - .77 .96 .86 .88 .96 .88 Value Line Relative P/E Ratio .90 2.7% 2.6% 2.9% 3.1% 3.4% 5.2% .4% .3% .4% .3% 1.1% 1.9% 2.0% 1.9% 1.7% 1.8% estimates Avg Ann’l Div’d Yield 1.8% CAPITAL STRUCTURE as of 9/30/19 7710.7 8147.0 7973.6 8099.8 8253.4 9445.1 9732.7 11423 14077 15506 18300 19500 Total Assets ($mill) 22500 LT Debt $233.7 mill. Due in 5 Years None 5058.4 5100.6 5229.2 5288.1 5628.9 6664.2 7088.1 8168.1 10342 11345 12800 13500 Loans ($mill) 15500 LT Interest $14.4 mill. 251.5 279.3 281.6 265.7 260.1 276.9 311.6 349.7 472.0 516.6 590 640 Net Interest Inc ($mill) 760 215.7 147.3 80.6 158.1 16.3 19.2 21.2 31.0 31.3 47.9 50.0 60.0 Loan Loss Prov’n ($mill) 85.0 Pension Assets-12/18 $76.2 mill. 123.0 108.6 101.9 109.9 140.9 126.6 136.6 159.3 163.1 144.6 160 165 Noninterest Inc ($mill) 195 Oblig. $58.3 mill. 234.8 278.8 261.9 267.5 256.7 283.8 307.2 339.5 415.9 416.3 437 470 Noninterest Exp ($mill) 510 d25.8 d9.7 36.6 d21.1 79.3 69.3 82.1 92.3 125.0 157.9 197 205 Net Profit ($mill) 270 Pfd Stock None - - - - 11.0% - - 38.1% 31.0% 31.5% 33.3% 33.5% 19.9% 25.0% 25.0% Income Tax Rate 25.0% NMF NMF .46% NMF .96% .73% .84% .81% .89% 1.02% 1.10% 1.05% Return on Total Assets 1.20% Common Stock 109,970,000 shares 137.7 137.7 252.2 214.8 190.9 200.9 201.2 194.6 195.2 203.8 235 235 Long-Term Debt ($mill) 600 MARKET CAP: $2.4 billion (Mid Cap) 941.5 1112.0 962.6 940.9 1001.4 1100.8 1146.3 1257.1 1864.9 2055.0 2350 2475 Shr. Equity ($mill) C 3100 12.2% 13.6% 12.1% 11.6% 12.1% 11.7% 11.8% 11.0% 13.2% 13.3% 13.0% 12.5% Shr. Eq. to Total Assets 14.0% ASSETS($Mill.) 2017 2018 9/30/19 65.6% 62.6% 65.6% 65.3% 68.2% 70.6% 72.8% 71.5% 73.5% 73.2% 70.0% 69.0% Loans to Tot Assets 69.0% Loans 10342.1 11344.6 12664.3 NMF NMF 3.8% NMF 7.9% 6.3% 7.2% 7.3% 6.7% 7.7% 8.5% 8.5% Return on Shr. Equity 8.5% Funds Sold ------Securities 1918.4 2302.9 2969.0 NMF NMF 2.6% NMF 6.7% 4.2% 4.7% 5.0% 4.7% 5.4% 6.0% 5.5% Retained to Com Eq 6.0% Other Earning 223.5 158.4 314.9 - - - - 32% - - 15% 34% 34% 32% 30% 30% 30% 32% All Div’ds to Net Prof 29% Other 1593.1 1699.7 2065.3 LIABILITIES($Mill.) BUSINESS: First Midwest Bancorp, Inc., owns First Midwest Bank, About 1,800 FTE employees. Officers & directors own 1.1% of Deposits 11053.3 12084.1 13440.9 which provides banking, wealth mgt., and related fin’l services. Has stock; BlackRock, 13.8%; Vanguard Group, 10.1%; Wellington Funds Borrowed 714.9 906.1 1653.5 over 130 offices, mainly in Chicago area. Net loan losses: .38% of Management, 7.0%; Dimensional Fund Advisors, 6.6% (4/19 Long-Term Debt 195.2 203.8 233.7 average loans in ’18. As of 9/30/19, nonperforming assets .85% of proxy). Chairman: R.P. O’Meara. Pres. & CEO: M.L. Scudder. Inc.: Net Worth 1864.9 2054.9 2339.6 loans & ORE; loan loss reserve, .85% of loans. Loans: comm. R.E., DE. Address: 8750 West Bryn Mawr Avenue, Suite 1300, Chicago, Other 248.8 256.7 345.8 Total 14077.1 15505.6 18013.5 39%; home eq. & mort., 17%; comm. & ag., 40%; installment, 4%; IL 60631. Tel: (630) 875-7450. Internet: www.firstmidwest.com. Loan Loss Resrv. 95.7 102.2 109.0 First Midwest continues to build its due to the May acquisition, modestly ANNUAL RATES Past Past Est’d ’16-’18 business via acquisitions of small and diluted earnings per share. of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 midsized banks and financial services We expect the going to get more diffi- Loans - - 7.5% 5.0% Earnings -2.5% NMF 11.0% companies. In August, it agreed to pur- cult in the next several quarters. First Dividends -10.5% NMF 10.0% chase Bankmanagers Corp., a Milwaukee- Midwest’s margin and net interest income Book Value 1.5% 6.5% 7.5% based bank with about $1 billion of assets. are likely to remain under pressure in the Total Assets -2.0% 5.5% 6.0% The deal is First Midwest’s 10th in the low interest-rate environment. Too, it’s un- Cal- LOANS ($ mill.) past six years. It is offering 29.9675 shares clear whether capital markets and mort- endar Mar.31 Jun. 30 Sep. 30 Dec. 31 of First Midwest stock and $623.02 in cash gage revenues will remain quite as strong 2016 7745 7899 8086 8168 for each Bankmanagers share, in a trans- as in the September term. In addition, 2017 9966 10140 10296 10342 action valued at $195 million. The merger loan loss provisions are expected to in- 2018 10582 10795 10951 11345 is subject to approval by Bankmanagers crease under a new forward-looking ac- 2019 11465 12414 12664 12800 stockholders and bank regulatory agen- counting method scheduled to take effect 2020 12900 13100 13300 13500 cies, and is expected to be completed in in 2020. And share repurchases are on Cal-EARNINGS PER SHARE A Full January. The combination should facilitate hold until First Midwest completes its pur- endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year growth in the southern Wisconsin market. chase of Bankmanagers Corp. 2016 .23 .31 .35 .25 1.14 The sequential-period earnings ad- Assuming First Midwest makes more 2017 .23 .34 .37 .28 1.22 vance in the September quarter was progress marketing its products to 2018 .33 .29 .52 .39 1.52 largely supported by higher fee-based customers of recently purchased 2019 .43 .43 .49 .45 1.80 revenues and lower expenses. Net in- banks and integrating the acquired 2020 .45 .46 .49 .45 1.85 terest income increased slightly, with the operations, it should have more earn- Cal-QUARTERLY DIVIDENDS PAID B†■ Full positive impact of an acquisition that ings power a few years hence. First endarMar.31 Jun.30 Sep.30 Dec.31 Year closed in May, decent loan growth, and Midwest’s dividend yield exceeds the 2015 .08 .09 .09 .09 .35 securities purchases mostly offset by high- Value Line median, and the stock has good 2016 .09 .09 .09 .09 .36 er funding costs. The loan loss provision total return potential to 2022-2024. But in 2017 .09 .09 .10 .10 .38 also rose a tad. Compared to the 2018 Sep- the meantime, investors may need to be 2018 .10 .11 .11 .11 .43 tember term, net income in the recent patient. 2019 .12 .12 .14 .14 quarter rose 2%, but a higher share count, Theresa Brophy December 6, 2019 (A) Diluted earnings. May not sum due to ment plan available. †Stock Purchase plan mill., $7.97 a share. Company’s Financial Strength B+ rounding. Next earnings report due late Jan. available. (D) In millions. Stock’s Price Stability 75 (B) Dividends historically paid in mid-January, (C) Includes intangibles: as of 9/30/19, $876.2 Price Growth Persistence 70 April, July, and October. ■ Dividend reinvest- Earnings Predictability 25 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 10.9 RELATIVE DIV’D VALUE HANCOCK WHITNEY NDQ-HWC PRICE 41.17RATIO 10.9()Median: 15.0 P/E RATIO 0.62YLD 2.6% LINE 782 TIMELINESS 4 Lowered 10/25/19 High: 68.4 45.6 45.9 35.7 36.7 37.1 38.5 33.0 45.5 53.3 56.4 44.7 Target Price Range Low: 33.3 22.5 26.8 25.4 28.0 25.0 28.7 23.3 20.0 41.1 32.6 33.6 2022 2023 2024 SAFETY 3 New 6/8/18 LEGENDS 15.0 x Earnings p sh 128 TECHNICAL 4 Raised 12/6/19 .... Relative Price Strength Options: Yes 96 BETA 1.30 (1.00 = Market) Shaded area indicates recession 80 18-Month Target Price Range 64 Low-High Midpoint (% to Mid) 48 40 $30-$54 $42 (0%) 32 2022-24 PROJECTIONS 24 Ann’l Total Price Gain Return 16 High 85 (+105%) 22% Low 55 (+35%) 10% 12 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 24 to Buy 122 115 109 1 yr. -4.4 4.9 shares 16 3 yr. 24.5 30.2 to Sell 141 108 113 traded 8 Hld’s(000) 66969 66878 68942 5 yr. 26.9 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 1.65 1.77 1.64 2.67 2.35 2.05 2.26 1.40 2.00 2.15 2.22 2.32 1.77 1.87 2.71 3.72 3.70 4.10 Earnings per sh A 4.70 .44 .58 .72 .90 .96 .96 .96 .96 .96 .96 .96 .96 .96 .96 .96 1.02 1.08 1.16 Div’ds Decl’d per sh B 1.40 12.95 14.32 14.78 17.09 17.71 19.19 22.74 23.22 27.95 28.91 29.49 30.74 31.14 32.29 33.86 35.98 41.85 45.20 Book Value per sh D 53.75 31.03 32.44 32.30 32.67 31.29 31.77 36.84 36.89 84.71 84.85 82.24 80.43 77.50 84.24 85.20 85.64 86.00 83.00 Common Shs Outst’g C 80.00 14.9 17.1 20.7 18.8 17.4 20.8 15.7 25.6 15.6 14.9 14.2 14.6 16.2 15.6 17.3 13.0 Bold figures are Avg Ann’l P/E Ratio 15.0 .85 .90 1.10 1.02 .92 1.25 1.05 1.63 .98 .95 .80 .77 .82 .82 .87 .70 Value Line Relative P/E Ratio .85 1.8% 1.9% 2.1% 1.8% 2.4% 2.2% 2.7% 2.7% 3.1% 3.0% 3.0% 2.8% 3.4% 3.3% 2.0% 2.1% estimates Avg Ann’l Div’d Yield 2.0% CAPITAL STRUCTURE as of 9/30/19 8697.1 8138.3 19774 19464 19009 20747 22839 23975 27336 28236 31000 32000 Total Assets ($mill) 36000 5048.1 4875.2 11052 11442 12191 13767 15522 16523 18787 19832 21000 22000 Loans ($mill) 25000 Total Debt $2355.4 mill. 228.4 270.2 521.2 710.9 680.7 654.7 625.2 659.1 792.3 848.8 880 870 Net Interest Inc ($mill) 970 54.6 66.0 38.7 54.2 32.7 33.8 73.0 110.7 59.0 36.1 45.0 45.0 Loan Loss Prov’n ($mill) 70.0 Leases, Uncapitalized Annual rentals $18.5 mill. Pension Assets-12/18 $542.6 mill. 157.3 136.9 206.3 253.7 246.1 228.0 237.3 250.8 267.8 285.1 310 330 Noninterest Inc ($mill) 360 Oblig. $492.0 mill. 233.5 279.3 507.2 667.3 648.4 581.1 603.4 612.3 692.7 715.7 760 750 Noninterest Exp ($mill) 800 74.8 52.2 133.2 185.7 187.2 194.1 142.1 149.3 235.1 323.8 320 340 Net Profit ($mill) 380 Pfd Stock None 23.5% 15.7% 26.7% 23.6% 23.8% 27.5% 23.6% 20.1% 23.8% 15.3% 17.0% 17.0% Income Tax Rate 17.0% .86% .64% .67% .95% .98% .94% .62% .62% .86% 1.15% 1.05% 1.05% Return on Total Assets 1.05% Common Stock 87,214,220 shares as of 10/31/19 .7 .4 353.9 396.6 385.8 374.4 496.0 436.3 305.5 225.0 250 250 Long-Term Debt ($mill) 250 837.7 856.5 2367.2 2453.3 2425.1 2472.4 2413.1 2719.8 2884.9 3081.3 3600 3750 Shr. Equity ($mill) 4300 MARKET CAP: $3.6 billion (Mid Cap) 9.6% 10.5% 12.0% 12.6% 12.8% 11.9% 10.6% 11.3% 10.6% 10.9% 11.5% 11.5% Shr. Eq. to Total Assets 12.0% ASSETS($Mill.) 2017 2018 9/30/19 58.0% 59.9% 55.9% 58.8% 64.1% 66.4% 68.0% 68.9% 68.7% 70.2% 68.0% 69.0% Loans to Tot Assets 69.5% Loans (Net) 18786.9 19831.9 20840.4 8.9% 6.1% 5.6% 7.6% 7.7% 7.9% 5.9% 5.5% 8.2% 10.5% 9.0% 9.0% Return on Shr. Equity 9.0% Funds Sold .2 .5 1.9 Securities 5888.4 5670.6 6404.7 5.1% 1.9% 2.6% 4.2% 4.4% 4.6% 2.7% 2.7% 5.3% 7.6% 6.5% 6.5% Retained to Com Eq 6.5% Other Earning 92.2 110.6 47.6 43% 68% 53% 45% 44% 41% 54% 51% 35% 27% 29% 28% All Div’ds to Net Prof 29% Other 2568.4 2622.3 3248.9 LIABILITIES($Mill.) BUSINESS: Hancock Whitney Corporation is a financial services investment management offices in Texas, New York, and New Jer- Deposits 22253.2 23150.2 24201.3 company that provides a network of full service financial choices to sey. Has 3,933 employees. Officers and directors own 1.0% of Funds Borrowed 1703.9 1589.1 2108.8 the Gulf South region through its bank subsidiary, Whitney Bank. It common stock; BlackRock, 11.7%; Vanguard, 9.8% (3/19 proxy). Long-Term Debt 305.5 225.0 246.6 operates under two brands, Hancock Bank in Mississippi, Alabama, Chrmn.: James B. Estabrook, Jr. Pres./CEO: John M. Hairston. Inc: Shr. Equity 2884.9 3081.3 3586.4 and Florida, and Whitney Bank in Louisiana and Texas. Also opera- MS. Addr.: Hancock Whitney Plaza, 2510 14th St., Gulfport, MS Other 188.6 190.3 400.4 Total 27336.1 28235.9 30543.5 tes a loan production office in Nashville, TN. and separate trust and 39501. Tel.: 228-868-4000. Internet: www.hancockwhitney.com. Loan Loss Resrv. 217.3 194.5 195.6 Hancock Whitney completed its acqui- the improvement came from the MidSouth ANNUAL RATES Past Past Est’d ’16-’18 sition of MidSouth Bancorp. The two addition, management also highlighted of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 sides agreed to link up earlier this year in solid organic loan production, including Loans 6.5% 9.5% 5.5% Earnings 1.5% 5.5% 9.0% a stock-for-stock deal that valued Mid- gains across most of its regions and Dividends .5% .5% 6.0% South at $12.75 a share (roughly $213 mil- specialty lines. In our view, the pipeline Book Value 6.5% 3.5% 8.0% lion). The transaction was wrapped up on appears healthy and Hancock seems well Total Assets 4.5% 6.0% 5.0% September 21st, along with a simulta- positioned to hit its mid-single-digit loan Cal-NET LOANS ($ mill.) Full neous systems conversion. With about $1.7 growth target for this year. endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year billion in assets and 42 banking locations We are likely to see some buybacks in 2016 15760 15810 15835 16523 across Louisiana and Texas, the addition the coming quarters. The board ap- 2017 17991 18252 18563 18787 provides a nice boost to Hancock’s proved an increase and extension to its ex- 2018 18882 19156 19329 19832 southern presence. Management expects isting stock-buyback program that was set 2019 19918 19980 20840 21000 the deal to be accretive to earnings per to expire at the end of this year. These ac- 2020 21100 21300 21500 22000 share in the first quarter of 2020, and add- tions (announced in September) increased Cal-EARNINGS PER SHARE AD Full ing $0.13-$0.15 once fully phased in. Hancock’s repurchase authorization to 5.5 endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year Third-quarter results were weighed million shares and extended the expiration 2016 .05 .59 .59 .64 1.87 down by merger-related expenses. date to December 31, 2020. In late Octo- 2017 .57 .60 .68 .86 2.71 Hancock reported Q3 GAAP earnings of ber, management announced an ac- 2018 .83 .82 .96 1.10 3.72 $0.77 a share, but this figure included celerated share-repurchase agreement to 2019 .91 1.01 .77 1.01 3.70 $28.8 million in one-time costs tied to the buyback $180 million of common stock. 2020 .98 1.01 1.04 1.07 4.10 MidSouth acquisition. When we back these The stock’s Timeliness rank has been Cal-QUARTERLY DIVIDENDS PAID B Full out, adjusted earnings came in at $1.03 a downgraded to 4 (Below Average). endarMar.31 Jun.30 Sep.30 Dec.31 Year share, which was in line with our call and Based on our system, HWC shares are cur- 2015 .24 .24 .24 .24 .96 a few pennies ahead of the consensus. rently pegged to underperform the broader 2016 .24 .24 .24 .24 .96 The bank continues to target mid- market in the year ahead. Our longer-term 2017 .24 .24 .24 .24 .96 single-digit loan growth in 2019. The projections reflect solid total-return poten- 2018 .24 .24 .27 .27 1.02 portfolio posted a strong sequential gain tial out to 2022-2024. 2019 .27 .27 .27 .27 last quarter ($860 million). While a bulk of Michael Ratty December 6, 2019 (A) Diluted earnings. Excludes nonrecurring (B) Dividends historically paid in mid-March, (D) Quarterly earnings may not sum due to Company’s Financial Strength B++ gains (losses): ’04, 10¢; ’11, (85¢); ’12, (40¢); June, September, and December. rounding. Stock’s Price Stability 50 ’13, (29¢); ’14, (22¢); ’15, (13¢); ’17, (23¢). (C) In millions. Price Growth Persistence 25 Next earnings report due mid-January. Earnings Predictability 50 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 11.6 RELATIVE DIV’D VALUE HUNTINGTON BANC. NDQ-HBAN PRICE 14.91RATIO 11.3()Median: 13.0 P/E RATIO 0.64YLD 4.2% LINE 783 TIMELINESS 3 Lowered 12/21/18 High: 14.9 8.0 7.4 7.7 7.3 9.7 10.7 11.9 13.6 14.9 16.6 15.2 Target Price Range Low: 4.4 1.0 3.6 4.5 5.5 6.5 8.7 9.6 7.8 12.1 11.1 11.7 2022 2023 2024 SAFETY 3 Raised 6/13/14 LEGENDS 13.0 x Earnings p sh TECHNICAL 3 Raised 11/29/19 .... Relative Price Strength 40 Options: Yes 32 BETA 1.20 (1.00 = Market) Shaded area indicates recession 24 18-Month Target Price Range Low-High Midpoint (% to Mid) 16 12 $10-$18 $14 (-5%) 10 2022-24 PROJECTIONS 8 Ann’l Total Price Gain Return 6 High 25 (+70%) 17% Low 18 (+20%) 9% 4 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 45 to Buy 321 312 310 1 yr. 2.9 4.9 shares 30 3 yr. 46.9 30.2 to Sell 332 320 316 traded 15 Hld’s(000) 823420 795922 796853 5 yr. 65.2 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 1.67 1.71 1.77 1.92 .25 d.44 d6.14 .19 .59 .71 .72 .72 .81 .70 .89 1.20 1.30 1.35 Earnings per sh A 1.70 .67 .75 .85 1.00 1.06 .66 .04 .04 .10 .16 .19 .21 .25 .29 .35 .50 .58 .62 Div’ds Decl’d per sh B■ .70 9.93 10.96 11.41 12.80 16.24 14.61 5.10 5.35 5.82 6.41 6.88 7.31 7.80 8.51 9.09 9.43 10.50 11.20 Book Value per sh C 13.60 229.01 231.61 224.11 235.47 366.26 366.06 715.76 863.32 864.41 842.81 830.96 811.45 794.93 1085.7 1072.0 1046.8 1030.00 1015.00 Common Shs Outst’g D 950.00 12.1 13.6 13.4 12.5 NMF - - - - 29.8 10.2 8.9 11.1 13.5 13.6 14.3 15.1 12.5 Bold figures are Avg Ann’l P/E Ratio 13.0 .69 .72 .71 .67 NMF - - - - 1.90 .64 .57 .62 .71 .68 .75 .76 .67 Value Line Relative P/E Ratio .70 3.3% 3.2% 3.6% 4.2% 5.3% 7.2% 1.1% .7% 1.7% 2.5% 2.4% 2.2% 2.3% 2.9% 2.6% 3.3% estimates Avg Ann’l Div’d Yield 3.2% CAPITAL STRUCTURE as of 9/30/19 51555 53820 54451 56153 59476 66298 71045 99714 104185 108781 109500 112000 Total Assets ($mill) 130000 35308 36857 37959 39959 42473 47051 49743 66324 69426 74128 74500 76500 Loans ($mill) 89000 LT Debt $9874.0 mill. Due in 5 Yrs $7777.0 mill. 1424.3 1618.8 1629.2 1710.5 1704.6 1837.1 1950.7 2369.3 3002.0 3189.0 3225 3275 Net Interest Inc ($mill) 3800 LT Interest $344.0 mill. 2074.7 634.5 174.1 147.4 90.0 81.0 100.0 190.8 201.0 235.0 300 350 Loan Loss Prov’n ($mill) 500 1005.6 1041.9 980.6 1097.9 998.0 979.2 1038.7 1149.7 1307.0 1321.0 1475 1525 Noninterest Inc ($mill) 1650 Pension Assets-12/18 $828 mill. Oblig. $821 mill. 4033.4 1673.8 1728.5 1835.9 1758.0 1882.3 1975.9 2408.5 2714.0 2647.0 2700 2725 Noninterest Exp ($mill) 2900 d3094 312.3 542.6 641.0 638.7 632.4 693.0 711.8 1063.0 1393.0 1435 1465 Net Profit ($mill) 1750 - - 11.3% 23.3% 22.3% 25.3% 25.9% 24.2% 22.6% 23.7% 14.4% 15.5% 15.0% Income Tax Rate 15.0% Pfd Stock $1203.0 mill. Pfd Div’d $72.0 mill. NMF .58% 1.00% 1.14% 1.07% .95% .98% .71% 1.02% 1.28% 1.30% 1.30% Return on Total Assets 1.35% Common Stock 1,032,755,207 shs. 3802.7 3813.8 3097.9 2364.8 4258.3 4336.0 7067.6 8309.2 9206.0 8625.0 10000 12000 Long-Term Debt ($mill) 18000 5336.0 4980.5 5418.1 5790.2 6099.3 6328.2 6594.6 10308 10814 11102 12025 12550 Shr. Equity ($mill) 14125 MARKET CAP: $15.4 billion (Large Cap) 10.4% 9.3% 10.0% 10.3% 10.3% 9.5% 9.3% 10.3% 10.4% 10.2% 11.0% 11.0% Shr. Eq. to Total Assets 11.0% ASSETS 2017 2018 9/30/19 68.5% 68.5% 69.7% 71.2% 71.4% 71.0% 70.0% 66.5% 66.6% 68.1% 68.0% 68.5% Loans to Tot Assets 68.5% Loans 69426 74128 74109 NMF 6.3% 10.0% 11.1% 10.5% 10.0% 10.5% 6.9% 9.8% 12.5% 12.0% 11.5% Return on Shr. Equity 12.5% Funds Sold ------Securities 24678 23015 23421 NMF 4.1% 8.5% 8.7% 8.0% 7.2% 7.4% 4.0% 6.2% 7.9% 7.0% 6.5s% Retained to Com Eq 7.5% Other Earning 47 1617 740 - - 40% 22% 26% 29% 32% 33% 48% 43% 44% 47% 48% All Div’ds to Net Prof 43% Other 10034 10021 10465 LIABILITIES BUSINESS: Huntington Bancshares had 868 offices in OH, IL,IN, 41%; comm. real estate, 10%; residential, 27%; consumer, 22%. Deposits 77041 84774 82395 KY, MI, PA, and WV on 6/30/19. Has mortgage banking, equipment Had 15,659 full-time equivalent employees on 9/30/19. Directors & Funds Borrowed 5056 2017 2173 leasing, investment management, trust, brokerage, and insurance officers own 1.0% of common stock; Vanguard Group, 11.3%; Long-Term Debt 9206 8625 9874 operations. Net loan losses, .20% of avg. loans in ’18. Loan loss FMR, 7.6%; BlackRock, 7.0% (Proxy, 3/19). Chairman & CEO: S.D. Net Worth 10814 11102 11909 reserve, 1.05% of loans (9/30/19); problem assets & past due (incl. Steinour. Inc.: MD. Address: 41 South High St., Columbus, OH Other 2068 2263 2384 Total 104185 108781 108735 guaranteed), .86% of loans & O.R.E. Loans (9/30/18): commercial, 43287. Tel.: 614-480-8300. Internet: www.huntington-ir.com. Loan Loss Resrv. 691 772 783 Huntington Bancshares says it recent- from the strength of the consumer sector ANNUAL RATES Past Past Est’d ’16-’18 ly has seen a slowdown in commercial stateside. Commercial income should be of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 borrowing. Manufacturers in its region driven by growth in the treasury manage- Loans -5.0% 6.5% 6.0% Earnings 5.0% 6.5% 10.5% apparently have become more cautious in ment business and new products. Dividends -8.5% 20.5% 10.5% their investment and expansion plans. But Given the more challenging revenue Book Value -4.5% 7.0% 7.0% residential mortgage and recreational outlook, Huntington took actions to Total Assets -4.0% 8.0% 6.0% vehicle/marine loans are growing at a rein in expense growth. The plan in- Cal- LOANS ($ mill.) brisk pace, offsetting some of the more cludes reducing personnel by 200 and pos- endar Mar.31 Jun.30 Sep.30 Dec.31 measured growth in commercial credits. sible reductions in offices. 2016 50926 51920 65688 66324 We expect Huntington’s loan portfolio to Under a new, more forward-looking 2017 66426 67391 67912 69426 expand at a low single-digit pace in 2020. accounting method, loan loss provi- 2018 70442 71665 72609 74128 Net interest income in the new year is sions probably will increase. Loan 2019 74315 74259 74109 74500 likely to track loan growth. We assume losses aren’t especially high, but in the 2020 74700 75300 75900 76500 Huntington’s margin will contract slightly, September quarter included two loans to Cal-EARNINGS PER SHARE A Full as the expiration of promotional deposit energy industry companies. But the sector endarMar.31 Jun.30 Sep.30 Dec.31 Year pricing and hedging intiatives partly offset makes up only 2% of Huntington’s loans. 2016 .20 .19 .11 .18 .70 pressure on loan yields, reflecting recent After its strong run in the past few 2017 .17 .23 .23 .26 .89 declines in interest rates. years, we look for only modest share- 2018 .28 .30 .33 .29 1.20 Noninterest revenues probably will net growth in 2020. Earnings per share 2019 .32 .33 .34 .31 1.30 increase at a somewhat slower pace may get some help from stock repurchases. 2020 .33 .34 .35 .33 1.35 than in 2019. Low interest rates should Huntington shares have rebounded Cal-QUARTERLY DIVIDENDS PAID B■ Full continue to support housing activity, but nicely in recent months. Nonetheless, endarMar.31 Jun.30 Sep.30 Dec.31 Year mortgage revenue may not remain quite the stock has decent 3- to 5-year total re- 2015 .06 .06 .06 .06 .24 as strong as in the September term. Too, turn potential, enhanced by a well-above- 2016 .07 .07 .07 .07 .28 an acquisition in late 2018 accounted for average dividend yield. Investors may 2017 .08 .08 .08 .08 .32 much of the growth in underwriting in- need to be patient, however, as the issue is 2018 .11 .11 .11 .14 .47 come in the past year. But service charge ranked only 3 (Average) for Timeliness. 2019 .14 .14 .14 .15 and payments revenues ought to benefit Theresa Brophy December 6, 2019 (A) Diluted shares. Next earnings report due (B) Dividends historically paid in early Jan., Company’s Financial Strength B mid-Jan. Quarterly EPS may not equal totals Apr., July, and Oct. ■ Dividend reinvestment Stock’s Price Stability 65 due to change in shares & other factors. Ex- plan. (C) Incl. intangibles: 9/30/19, $2.445 bill., Price Growth Persistence 90 cludes $0.11/sh. tax benefit in Q4 ’17. $2.37/sh. (D) In millions. Earnings Predictability 70 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 16.0 RELATIVE DIV’D VALUE NORTHERN TRUST NDQ-NTRS PRICE 107.46RATIO 15.6()Median: 18.0 P/E RATIO 0.88YLD 2.6% LINE 784 TIMELINESS 3 Raised 5/3/19 High: 88.9 66.1 59.4 56.9 50.5 62.0 70.8 79.3 91.0 101.5 115.6 108.4 Target Price Range Low: 33.9 43.3 45.3 33.2 39.9 49.3 58.3 61.1 54.4 81.9 76.0 81.8 2022 2023 2024 SAFETY 3 Lowered 10/31/08 LEGENDS 17.0 x Earnings p sh TECHNICAL 4 Raised 11/29/19 .... Relative Price Strength 200 Options: Yes 160 BETA 1.25 (1.00 = Market) Shaded area indicates recession 18-Month Target Price Range 100 Low-High Midpoint (% to Mid) 80 60 $77-$127 $102 (-5%) 50 2022-24 PROJECTIONS 40 Ann’l Total Price Gain Return 30 High 170 (+60%) 14% Low 115 (+5%) 5% 20 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 24 to Buy 265 267 262 1 yr. 8.9 4.9 shares 16 3 yr. 46.5 30.2 to Sell 355 322 294 traded 8 Hld’s(000) 170536 171654 174963 5 yr. 66.6 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 1.95 2.33 2.64 3.00 3.24 3.47 3.16 2.74 2.47 2.81 2.99 3.32 3.99 4.32 4.69 6.64 6.65 7.10 Earnings per sh A 8.40 .68 .76 .84 .94 1.03 1.12 1.12 1.12 1.12 1.18 1.23 1.30 1.41 1.48 1.60 1.94 2.60 2.84 Div’ds Decl’d per sh B 3.08 13.88 15.04 16.51 18.03 20.44 22.36 26.50 28.54 29.53 31.51 33.34 34.54 36.27 38.88 41.20 43.95 48.20 50.55 Book Value per sh 60.10 220.12 219.07 218.13 218.70 220.61 218.60 238.19 239.37 241.01 238.92 237.32 233.39 229.29 228.61 226.13 219.01 210.00 210.00 Common Shs Outst’g C 210.00 20.3 19.0 18.1 18.7 20.4 19.5 17.5 18.7 18.2 16.3 18.7 19.4 18.0 16.2 19.3 15.4 Bold figures are Avg Ann’l P/E Ratio 17.0 1.16 1.00 .96 1.01 1.08 1.17 1.17 1.19 1.14 1.04 1.05 1.02 .91 .85 .97 .83 Value Line Relative P/E Ratio .95 1.7% 1.7% 1.8% 1.7% 1.6% 1.7% 2.0% 2.2% 2.5% 2.6% 2.2% 2.0% 2.0% 2.1% 1.8% 1.9% estimates Avg Ann’l Div’d Yield 2.2% CAPITAL STRUCTURE as of 9/30/19 82142 83844 100224 97464 102947 109947 116750 123927 138591 132213 126000 127000 Total Assets ($mill) 135000 27497 27812 28769 29207 29107 31373 32987 33661 32461 32377 31000 31500 Loans ($mill) 34000 Total Debt $12035.0 mill. 999.8 918.7 1009.1 990.3 933.1 1005.5 1070.1 1234.9 1429.2 1622.7 1670 1660 Net Interest Inc ($mill) 1850 215.0 160.0 55.0 25.0 20.0 6.0 d43.0 d26.0 d28.0 d14.5 d10.0 5.0 Loan Loss Prov’n ($mill) 50.0 Leases, Uncapitalized Annual rentals $98.8 mill. 2787.1 2729.0 2760.8 2905.8 3156.2 3325.7 3632.5 3726.9 3946.1 4337.5 4360 4550 Noninterest Inc ($mill) 5100 Pension Assets-12/18 $1546.8 mill. 2316.7 2497.9 2831.2 2878.8 2993.8 3135.0 3280.6 3470.7 3769.4 4016.9 4160 4270 Noninterest Exp ($mill) 4600 Oblig. $1275.5 mill. 864.2 669.5 603.6 687.3 731.3 811.8 973.8 1032.5 1145.9 1556.4 1430 1490 Net Profit ($mill) 1770 31.2% 32.4% 31.7% 30.7% 32.0% 31.8% 33.5% 31.9% 29.9% 20.5% 23.0% 23.0% Income Tax Rate 23.0% Pfd Stock $882.0 mill. Pfd Div’d $46.4 mill. 1.05% .80% .60% .71% .71% .74% .83% .83% .83% 1.18% 1.15% 1.15% Return on Total Assets 1.30% Common Stock 211,881,616 shs. 4666.4 4902.3 4536.9 4104.4 3982.9 3389.3 3146.0 3104.9 3224.3 3401.3 4000 3800 Long-Term Debt ($mill) 3500 6312.1 6830.3 7117.3 7527.0 7912.0 8448.9 8705.9 9770.4 10216 10508 11000 11500 Shr. Equity ($mill) 13500 MARKET CAP: $22.8 billion (Large Cap) 7.7% 8.1% 7.1% 7.7% 7.7% 7.7% 7.5% 7.9% 7.4% 7.9% 8.5% 9.0% Shr. Eq. to Total Assets 10.0% ASSETS($Mill.) 2017 2018 9/30/19 33.5% 33.2% 28.7% 30.0% 28.3% 28.5% 28.3% 27.2% 23.4% 24.5% 24.5% 25.0% Loans to Tot Assets 25.0% Loans (Net) 32461.0 32377.4 30738.5 13.7% 9.8% 8.5% 9.1% 9.2% 9.6% 11.2% 10.6% 11.2% 14.8% 13.0% 13.0% Return on Shr. Equity 13.0% Funds Sold 1324.3 1165.2 535.0 Securities 46791.6 51243.1 50409.3 8.0% 5.8% 4.6% 5.3% 5.5% 6.0% 7.1% 7.6% 7.9% 11.5% 8.0% 8.0% Retained to Com Eq 8.5% Other Earning 46091.0 34344.4 26463.1 36% 41% 45% 42% 41% 40% 37% 35% 35% 29% 41% 43% All Div’ds to Net Prof 39% Other 11923.1 13082.9 16210.1 LIABILITIES($Mill.) BUSINESS: Northern Trust Corporation is a financial holding com- 12/31/18, it had total assets of $132.2 billion and stockholders’ Deposits 112391 104497 97264.2 pany that provides wealth management, asset servicing, asset equity of $10.5 billion. Off/dirs. own 1.2% of common stock; Funds Borrowed 8337.2 10495.9 8000.1 management and banking solutions for corporations, institutions, Vanguard, 7.1%; The Northern Trust Company, 6.5%; BlackRock, Long-Term Debt 3224.3 3401.3 4034.9 families, and individuals worldwide. The corporation has offices in 6.3%; Wellington, 6.2% (3/19 proxy). Chairman/President/CEO: Shr. Equity 10216.2 10508.3 10811.3 20 U.S. states, Washington, D.C., and 23 international locations in Michael G. O’Grady. Inc.: DE. Addr.: 50 South La Salle St., Chica- Other 4422.3 3310.5 4245.5 Total 138591 132213 124356 Canada, Europe, the Middle East, and the Asia Pacific region. At go, IL. 60603. Tel.: 312-630-6000. Internet: www.northerntrust.com. Loan Loss Resrv. 131.2 112.6 105.7 Northern Trust performed well in the quarters, Northern is better positioned to ANNUAL RATES Past Past Est’d ’16-’18 third quarter. The bank reported earn- deal with the change given that more than of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 ings of $1.69 a share, ahead of our $1.66 70% of its revenue is generated through its Loans 2.0% 4.0% .5% Earnings 5.0% 13.5% 8.5% estimate and up from $1.58 in the com- fee businesses. All that said, we have Dividends 5.0% 7.5% 10.5% parable year-ago period. The beat to our trimmed our 2020 earnings call by a dime, Book Value 7.5% 5.5% 6.5% target was fueled by better-than-expected to $7.10 a share, mainly reflective of lower Total Assets 6.0% 7.0% .5% growth in noninterest income (+2.8% modeled net interest income. Cal- NET LOANS ($Mill.) quarter to quarter), highlighted by a 2.1% Cost-control initiatives should help to endar Mar.31 Jun.30 Sep.30 Dec.31 gain in Northern’s core trust and invest- partially offset revenue headwinds. 2016 33949 34365 33232 33661 ment services business and double-digit Over the past few years, Northern has 2017 33310 33345 33186 32461 upticks in security commissions (+24%) been realigning its expense base with the 2018 31984 32346 31234 32377 and other operating income (+16%). This goal of reaching $250 million in run-rate 2019 30506 30872 30739 31000 helped to mitigate some softness in net in- savings by 2020. The program, dubbed 2020 31000 31500 30900 31500 terest income, where growth was ‘‘Value for Spend’’, has been effective in Cal-EARNINGS PER SHARE A Full hampered by an increasingly challenging bringing down certain expenditures and endarMar.31 Jun.30 Sep.30 Dec.31 Year low interest rate environment. improving profitability. Management 2016 1.03 1.10 1.08 1.11 4.32 The Fed’s recent policy change should noted that its third-quarter results 2017 1.09 1.12 1.20 1.28 4.69 have less of an impact on Northern reflected $56 million in cost savings, 2018 1.58 1.68 1.58 1.80 6.64 relative to its banking peers. One of reducing the year-over-year expense 2019 1.48 1.75 1.69 1.73 6.65 the most talked about topics surrounding growth rate by 2.5 points. 2020 1.62 1.85 1.75 1.88 7.10 the banking industry is how lower interest The stock is ranked 3 (Average) for Cal-QUARTERLY DIVIDENDS PAID B Full rates will affect profitability in 2020. In- Timeliness. Based on our system, NTRS endarMar.31 Jun.30 Sep.30 Dec.31 Year deed, after hiking for much of 2018, the shares are currently pegged as market 2015 .33 .36 .36 .36 1.41 Central Bank shifted to an easing stance performers in the year ahead. For longer- 2016 .36 .36 .38 .38 1.48 in July that has resulted in three interest term investors, total-return potential to 2017 .38 .38 .42 .42 1.60 rate cuts in the back half of 2019. While 2022-2024 is below average, due in part to 2018 .42 .42 .55 .55 1.94 this will certainly pressure net interest in- a 27% surge in price since our last report. 2019 .60 .60 .70 .70 come growth for most banks in the coming Michael Ratty December 6, 2019 (A) Diluted earnings. Excludes nonrecurring (B) Dividends historically paid in the first week (C) In millions. Company’s Financial Strength B++ gain of $0.23 a share in Q4, 2017. Quarterlies of January, April, July, and October. Stock’s Price Stability 70 may not sum due to rounding. Next earnings Price Growth Persistence 75 report due late January. Earnings Predictability 90 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 13.3 RELATIVE DIV’D VALUE OLD NAT’L BANCORP NDQ-ONB PRICE 18.23RATIO 12.7()Median: 14.0 P/E RATIO 0.72YLD 2.9% LINE 785 TIMELINESS 3 Lowered 3/1/19 High: 28.2 18.4 14.4 12.2 14.2 15.8 15.5 15.0 18.5 19.0 21.0 18.7 Target Price Range Low: 12.0 8.9 9.1 8.7 10.9 11.7 12.0 12.8 10.7 15.4 14.5 15.2 2022 2023 2024 SAFETY 3 Lowered 6/20/08 LEGENDS 14.0 x Earnings p sh TECHNICAL 3 Raised 10/4/19 .... Relative Price Strength 40 Options: Yes 32 BETA 1.05 (1.00 = Market) Shaded area indicates recession 24 18-Month Target Price Range Low-High Midpoint (% to Mid) 16 12 $15-$24 $20 (5%) 10 2022-24 PROJECTIONS 8 Ann’l Total Price Gain Return 6 High 30 (+65%) 16% Low 18 (Nil) 3% 4 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 30 to Buy 93 106 92 1 yr. 3.9 4.9 shares 20 3 yr. 33.8 30.2 to Sell 102 93 91 traded 10 Hld’s(000) 111699 111462 112259 5 yr. 45.3 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 1.00 .97 1.15 1.20 1.14 .95 .14 .44 .76 .95 1.00 .95 1.00 1.05 .92 1.22 1.42 1.50 Earnings per sh A 1.65 .69 .72 .76 .84 .88 .92 .44 .28 .28 .36 .40 .44 .48 .52 .52 .52 .52 .52 Div’ds Decl’d per sh B■ .68 10.24 10.15 9.61 9.66 9.86 9.55 9.68 10.08 10.92 11.81 11.64 12.54 13.04 13.42 14.17 15.35 16.75 18.00 Book Value per sh D 21.50 69.90 69.29 67.65 66.50 66.21 66.32 87.18 87.18 94.65 101.18 99.86 116.85 114.31 135.20 152.06 175.16 170.00 168.00 Common Shs Outst’g C 165.00 20.5 23.5 18.5 16.5 14.8 17.7 NMF 25.2 14.1 13.1 13.9 14.7 14.1 12.8 18.8 14.9 Bold figures are Avg Ann’l P/E Ratio 14.0 1.17 1.24 .99 .89 .79 1.07 NMF 1.60 .88 .83 .78 .77 .71 .67 .95 .80 Value Line Relative P/E Ratio .80 3.3% 3.2% 3.6% 4.2% 5.2% 5.5% 3.8% 2.5% 2.6% 2.9% 2.9% 3.1% 3.4% 3.9% 3.0% 2.9% estimates Avg Ann’l Div’d Yield 3.2% CAPITAL STRUCTURE as of 9/30/19 8005.3 7263.9 8609.7 9543.6 9581.7 11648 11992 14860 17518 19728 20700 21500 Total Assets ($mill) 24250 3765.9 3671.1 4709.1 5141.8 5035.8 6270.4 6896.2 8960.7 11068 12188 12400 13450 Loans ($mill) 15500 LT Debt $2253.8 mill. Due in 5 Yrs $812.0 mill. 231.4 218.4 272.9 308.8 317.4 366.4 366.1 402.7 437.2 537.6 555 570 Net Interest Inc ($mill) 610 LT Interest $110.0 mill. 63.3 30.8 7.5 5.0 d2.3 3.1 2.9 1.0 3.1 7.0 8.0 10.0 Loan Loss Prov’n ($mill) 20.0 No Defined Benefit Pension Plan 163.5 170.2 182.9 189.8 184.8 165.1 230.6 252.8 183.4 195.3 285 295 Noninterest Inc ($mill) 315 339.0 314.3 348.5 365.8 362.0 386.4 430.9 454.1 448.8 517.3 525 525 Noninterest Exp ($mill) 550 13.7 38.2 72.5 91.7 100.9 103.7 116.7 134.3 130.0 190.8 245 255 Net Profit ($mill) 275 Pfd Stock None - - 12.1% 27.4% 28.3% 29.2% 27.0% 28.3% 33.0% 22.9% 8.6% 21.0% 22.0% Income Tax Rate 22.0% .17% .53% .84% .96% 1.05% .89% .97% .90% .74% .97% 1.20% 1.20% Return on Total Assets 1.15% Common Stock 170,031,000 shs. 699.1 421.9 290.8 237.5 556.4 920.1 1291.7 1572.0 1858.4 1861.4 1600 1500 Long-Term Debt ($mill) 1300 MARKET CAP: $3.1 billion (Mid Cap) 843.8 878.8 1033.6 1194.6 1162.6 1465.8 1491.2 1814.4 2154.4 2689.6 2845 3025 Shr. Equity ($mill) 3550 10.5% 12.1% 12.0% 12.5% 12.1% 12.6% 12.4% 12.2% 12.3% 13.6% 13.5% 14.0% Shr. Eq. to Total Assets 14.5% ASSETS($mill.) 2017 2018 9/30/19 47.0% 50.5% 54.7% 53.9% 52.6% 53.8% 57.5% 60.3% 63.2% 61.8% 60.0% 62.5% Loans to Tot Assets 64.0% Loans 11067.7 12188.4 11960.7 1.6% 4.3% 7.0% 7.7% 8.7% 7.1% 7.8% 7.4% 6.0% 7.1% 8.5% 8.5% Return on Shr. Equity 7.5% Funds Sold ------Securities 4017.9 4787.6 5488.4 NMF 1.6% 4.4% 4.8% 5.2% 3.8% 4.1% 3.7% 2.7% 4.0% 5.5% 5.5% Retained to Com Eq 4.5% Other Earning 8.8 3.2 99.4 NMF 64% 37% 38% 40% 46% 48% 50% 56% 43% 36% 34% All Div’ds to Net Prof 41% Other 2423.9 2749.2 2890.3 LIABILITIES($mill.) BUSINESS: Old National Bancorp is a regional bank holding com- performing assets to total assets, .82%. As of 12/31/18, had 2,892 Deposits 12605.7 14349.9 14448.4 pany with operations mainly in Indiana, Kentucky, Michigan, Wis- full-time equivalent employees. Officers & directors own 1.4% of Funds Borrowed 719.8 632.4 578.2 consin, and Minnesota. Loans as of 12/31/18: commercial, 26%; stock; BlackRock, 14.6%; The Vanguard Group, 10.5% (Proxy, Long-Term Debt 1858.4 1861.4 2253.8 commercial & agricultural real estate, 40%; residential real estate, 3/19). Chairman: Robert G. Jones. CEO: James C. Ryan III. In- Net Worth 2154.4 2689.6 2832.5 18%; consumer, 16%. Net loan losses, .02% of average loans in corporated: Indiana. Address: 1 Main St., Evansville, IN 47708. Tel- Other 180.0 195.1 325.9 Total 17518.3 19728.4 20438.8 2018. As of 9/30/19, loan loss reserve, .47% of loans; under- ephone: 812-464-1366. Internet: www.oldnational.com. Loan Loss Resrv. 50.4 55.5 56.9 The middle innings of 2019 have been declined slightly, while commercial real ANNUAL RATES Past Past Est’d ’16-’18 remarkably strong for Old National estate loans remained a bright spot. Mean- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Bancorp. In the third quarter, net income while, the period-end deposit total in- Loans - - 6.5% 8.0% Earnings -.5% 3.5% 7.5% surged 36%, year over year, while per- creased 2% on an annualized basis, and Dividends -5.0% 8.5% 4.5% share earnings increased 21%, to $0.41. deposit costs continue to be miniscule (just Book Value 4.0% 4.5% 7.0% Much of the overall growth, as well as the 52 basis points). Total Assets -.5% 3.5% 4.5% disparity between these two figures, is at- Creditworthiness is strong here. The Cal- LOANS ($ mill.) tributable to its November, 2018 acquisi- company recorded a loan loss provision of endar Mar.31 Jun. 30 Sep. 30 Dec. 31 tion of Minnesota-based KleinBank and $1.4 million, while net charge-offs of $0.8 2016 6956 8778 8853 8961 the resulting increased share count, since million represented just 0.03% of total 2017 9081 9181 9348 11068 the company issued stock in the transac- loans, on an annualized basis. At the close 2018 11188 11241 11240 12188 tion. That said, the company has been of the quarter, the allowance for loan 2019 12013 11990 11961 12400 buying back stock thereafter, including 2.2 losses was $57 million. At 0.47% of total 2020 13000 13200 13300 13450 million shares in the September interim. loans, that is not much on an absolute Cal-EARNINGS PER SHAREA Full The yield curve may not be inverted basis but has been adequate, given strict endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year anymore, but there’s no denying in- lending standards and economic resilience. 2016 .24 .31 .25 .25 1.05 terest rates are a headwind. Banks These shares may appeal to conserva- 2017 .27 .28 .29 .10 .92 typically borrow at the front of the curve tive investors or income-seekers. It is 2018 .31 .29 .34 .28 1.22 and lend further out, so shallow curves difficult to envision rapid bottom-line 2019 .32 .36 .41 .33 1.42 can be detrimental to interest margins. growth in the near future, given the low- 2020 .35 .35 .45 .35 1.50 Plus, the Federal Open Market Committee rate environment. The company’s conser- Cal-QUARTERLY DIVIDENDS PAID B ■ Full shifted from rate hikes last year to cuts. In vative business practices may sacrifice endarMar.31 Jun.30 Sep.30 Dec.31 Year the third quarter, the net-interest margin growth potential in favor of high-quality 2015 .12 .12 .12 .12 .48 receded nine basis points, to 3.57%. This earnings metrics. But ONB has done well 2016 .13 .13 .13 .13 .52 environment may restrict earnings growth managing expenses and improving income 2017 .13 .13 .13 .13 .52 potential going forward. generation where possible. Plus, the yield 2018 .13 .13 .13 .13 .52 The loan picture is mixed. Commercial, is above average at the recent quotation. 2019 .13 .13 .13 industrial, and consumer loans all Jeffrey Hirt December 6, 2019 (A) Based on diluted egs./sh. Excl. nonrecur- in mid-March, June, Sept. and Dec. Plus stock 12/31/18, $1,113.3 mill., $6.36/sh. Company’s Financial Strength B+ ring gains or (losses); ’05, ($0.22); ’17, ($0.23). div’ds: 5% in ’02, ’03, ’04, ’05. ■Div’d reinvest- Stock’s Price Stability 80 May not sum due to rounding. Next earnings ment plan available. (C) In millions, adjusted Price Growth Persistence 35 report late January. (B) Div’ds historically paid for stock dividends. (D) Incl. intangibles: as of Earnings Predictability 80 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 15.5 RELATIVE DIV’D VALUE PARK NATIONAL CORP ASE-PRK PRICE 101.20RATIO 14.5()Median: 15.0 P/E RATIO 0.82YLD 4.0% LINE 786 TIMELINESS 3 Raised 2/2/18 High: 84.3 71.4 74.8 74.7 72.8 86.0 89.8 104.6 122.9 120.7 119.0 103.7 Target Price Range Low: 43.9 39.3 51.9 49.0 60.8 64.8 70.5 79.5 79.0 92.4 79.3 84.6 2022 2023 2024 SAFETY 2 Raised 12/11/15 LEGENDS 16.0 x Earnings p sh TECHNICAL 4 Lowered 11/15/19 .... Relative Price Strength 200 Options: Yes 160 BETA 1.00 (1.00 = Market) Shaded area indicates recession 18-Month Target Price Range 100 Low-High Midpoint (% to Mid) 80 60 $79-$128 $104 (0%) 50 2022-24 PROJECTIONS 40 Ann’l Total Price Gain Return 30 High 155 (+55%) 14% Low 115 (+15%) 7% 20 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 12 to Buy 51 47 58 1 yr. 15.8 4.9 shares 8 3 yr. 17.4 30.2 to Sell 47 42 33 traded 4 Hld’s(000) 6597 6647 6867 5 yr. 47.0 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 5.97 6.32 6.64 6.74 4.07 2.98 4.82 4.51 4.95 4.88 5.01 5.46 5.26 5.59 5.55 7.07 6.60 6.90 Earnings per sh A 8.40 3.21 3.41 3.62 3.69 3.73 3.77 3.76 3.76 3.76 3.76 3.76 3.76 3.76 3.76 3.76 3.82 4.04 4.12 Div’ds Decl’d per sh B 4.36 37.57 39.29 39.62 37.49 41.53 39.15 41.71 42.12 41.82 42.20 42.29 45.39 46.53 48.38 49.46 53.03 57.50 61.25 Book Value per sh 71.90 14.46 14.32 14.09 15.22 13.96 13.97 14.88 15.40 15.41 15.41 15.41 15.39 15.33 15.34 15.29 15.70 16.00 16.00 Common Shs Outst’g C 16.00 17.3 18.6 16.7 15.1 21.2 22.3 12.2 14.1 12.6 13.8 14.8 14.4 16.6 16.9 19.1 14.8 Bold figures are Avg Ann’l P/E Ratio 16.0 .99 .98 .89 .82 1.13 1.34 .81 .90 .79 .88 .83 .76 .84 .89 .96 .80 Value Line Relative P/E Ratio .90 3.1% 2.9% 3.3% 3.6% 4.3% 5.7% 6.4% 5.9% 6.0% 5.6% 5.1% 4.8% 4.3% 4.0% 3.6% 3.7% estimates Avg Ann’l Div’d Yield 3.2% CAPITAL STRUCTURE as of 9/30/19 7040.3 7298.4 6972.2 6642.8 6638.3 7003.3 7311.4 7467.6 7537.6 7804.3 8800 8900 Total Assets ($mill) 9200 4523.7 4611.3 4248.7 4394.8 4561.0 4775.3 5011.6 5221.2 5322.5 5640.6 6400 6500 Loans ($mill) 6800 Total Debt $498.3 mill. 273.5 274.0 273.2 235.3 221.0 225.0 227.6 238.1 243.8 266.9 280 280 Net Interest Inc ($mill) 320 68.8 64.9 63.3 35.4 3.4 d7.3 5.0 d5.1 8.6 7.9 10.0 10.0 Loan Loss Prov’n ($mill) 15.0 Leases, Uncapitalized: Annual rentals $2.8 mill. Pension Assets-12/18 $177.1 mill. 81.2 77.5 94.9 92.4 73.3 75.5 77.6 78.7 80.6 101.1 100 105 Noninterest Inc ($mill) 115 Oblig. $123.5 mill. 188.7 187.1 188.3 188.0 188.5 195.2 186.6 199.0 197.4 228.8 245 245 Noninterest Exp ($mill) 260 74.2 74.2 82.1 78.6 77.2 84.1 81.0 86.1 85.4 110.4 105 110 Net Profit ($mill) 135 Pfd Stock: None 23.6% 25.4% 29.5% 24.6% 24.6% 25.4% 28.7% 29.9% 27.9% 15.9% 16.0% 16.0% Income Tax Rate 16.0% 1.05% 1.02% 1.18% 1.18% 1.16% 1.20% 1.11% 1.15% 1.13% 1.41% 1.20% 1.25% Return on Total Assets 1.45% Common Stock 16,346,446 shares as of 11/1/19 729.6 712.0 823.2 781.7 810.5 786.6 783.1 739.3 515.0 415.0 300 300 Long-Term Debt ($mill) 300 717.3 745.8 742.4 650.4 651.7 698.6 713.4 742.2 756.1 832.5 920 980 Shr. Equity ($mill) 1150 MARKET CAP: $1.7 billion (Mid Cap) 10.2% 10.2% 10.6% 9.8% 9.8% 10.0% 9.8% 9.9% 10.0% 10.7% 10.5% 11.0% Shr. Eq. to Total Assets 12.5% ASSETS($Mill.) 2017 2018 9/30/19 64.3% 63.2% 60.9% 66.2% 68.7% 68.2% 68.5% 69.9% 70.6% 72.3% 72.5% 73.0% Loans to Tot Assets 74.0% Loans (Net) 5322.5 5640.6 6347.8 10.3% 10.0% 11.1% 12.1% 11.8% 12.0% 11.4% 11.6% 11.3% 13.3% 11.5% 11.0% Return on Shr. Equity 11.5% Funds Sold ------Securities 1512.8 1411.1 1328.9 2.6% 1.9% 3.0% 2.8% 3.0% 3.8% 3.3% 3.8% 3.7% 5.7% 4.5% 4.5% Retained to Com Eq 5.5% Other Earning 37.2 25.3 182.4 78% 84% 77% 77% 75% 69% 71% 67% 67% 57% 62% 60% All Div’ds to Net Prof 52% Other 665.1 727.3 864.5 LIABILITIES($Mill.) BUSINESS: Park National Corporation, through its subsidiaries, credit and commercial leasing. As of 12/31/18, operated 113 bank- Deposits 5817.3 6260.9 7168.3 engages in the commercial banking and trust business in Ohio, ing offices and a network of 135 ATMs. Has 1,782 full-time employ- Funds Borrowed 391.3 222.0 185.8 Kentucky, and North Carolina. It offers deposits for demand, sav- ees. Off/dirs. own 2.4% of common stock; Vanguard, 7.6%; Black- Long-Term Debt 515.0 415.0 312.5 ings, and time accounts, as well as services for these accounts. Rock, 6.2% (3/19 proxy). Chairman/CEO: David L. Trautman. Inc.: Net Worth 756.1 832.5 956.1 Also offers commercial, industrial, consumer, and real estate lend- OH. Addr.: 50 North Third St., P.O. Box 3500, Newark, OH. 43055. Other 57.9 73.9 100.9 Total 7537.6 7804.3 8723.6 ing, including installment loans, credit cards, home equity lines of Tel.: 740-349-8451. Internet: www.parknationalcorp.com. Loan Loss Resrv. 50.0 51.5 55.9 Park National posted better-than- sion primarily reflects lower modeled net ANNUAL RATES Past Past Est’d ’16-’18 expected third-quarter results. The interest income, stemming from the Feder- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 bank reported earnings of $1.89 a share, al Reserve’s recent change in policy. After Loans 2.0% 4.0% 4.0% Earnings 3.0% 4.0% 5.5% ahead of our $1.69 estimate and up from raising its benchmark interest rate four Dividends - - - - 2.5% $1.56 in the comparable year-ago period. times in 2018, the Central Bank shifted to Book Value 2.5% 3.5% 6.0% The beat to our target was driven primari- an easing stance in July that has resulted Total Assets 1.0% 2.5% 3.0% ly by stronger growth in the other income in three cuts over the back half of 2019. Cal- NET LOANS ($ mill.) category (+23.3% quarter to quarter), with The low rate environment is expected to endar Mar.31 Jun. 30 Sep. 30 Dec. 31 much of the upside coming from a $3.3 challenge net interest income growth over 2016 5005 5069 5133 5221 million gain on equity securities. Improved the balance of 2019 and in 2020. As such, 2017 5264 5312 5311 5323 operating cost control (-6.3%) provided fur- we have lowered our 2020 earnings call by 2018 5243 5276 5575 5641 ther support to the bottom-line com- $0.30 a share, to $6.90. 2019 5687 6323 6348 6400 parison, helping to mitigate some softness The dividend remains a draw. The 2020 6400 6450 6450 6500 in the net interest income segment, where stock yields an attractive 4.0%, well above Cal-EARNINGS PER SHARE A Full growth was dampened by an increasingly the Value Line and industry averages. endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year challenging interest rate environment. Couple this with solid scores for Safety 2016 1.21 1.30 1.78 1.30 5.59 The CAB addition should provide a and Price Stability, and we continue to 2017 1.31 1.24 1.44 1.56 5.55 nice boost. Park completed its acquisition view Park as a decent lower-risk income 2018 2.02 1.83 1.56 1.67 7.07 of Carolina Alliance Bank earlier this year play in the regional bank space. 2019 1.62 1.33 1.89 1.76 6.60 in a cash-and-stock deal valued at about The stock holds a rank of 3 (Average) 2020 1.65 1.70 1.75 1.80 6.90 $142 million. The purchase helped expand for Timeliness. Based on our system, Cal-QUARTERLY DIVIDENDS PAID B Full the company’s presence in the southeast PRK shares are currently pegged to mirror endarMar.31 Jun.30 Sep.30 Dec.31 Year region, as CAB had a sizable customer the broader market in the year ahead. For 2015 .94 .94 .94 .94 3.76 base across South Carolina and western longer-term investors, total-return poten- 2016 .94 .94 .94 .94 3.76 North Carolina. The core systems integra- tial to 2022-2024 is below average, due in 2017 .94 .94 .94 .94 3.76 tion was completed in October. part to a 13% increase in share price since 2018 .94 .96 .96 .96 3.82 We have reduced our profitability ex- our last report. 2019 1.01 1.01 1.01 1.01 pectation for 2020. The downward revi- Michael Ratty December 6, 2019 (A) Diluted earnings. Excludes nonrecurring (B) Dividends historically paid in mid-February, (C) In millions. Company’s Financial Strength B++ loss of $0.08 a share in Q4, 2017. May not sum May, August, and November. Excludes special Stock’s Price Stability 80 due to rounding. Next earnings report due late dividends; ’17, 25¢; ’18, 25¢; ’19, 20¢. Price Growth Persistence 40 January. Earnings Predictability 85 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: NMF RELATIVE DIV’D VALUE TCF FINANCIAL NYSE-TCF PRICE 42.07RATIO 13.6()Median: NMF P/E RATIO 0.77YLD 3.3% LINE 787 TIMELINESS – D High: 43.5 Target Price Range Low: 36.0 2022 2023 2024 SAFETY 3 New 9/6/19 LEGENDS .... Relative Price Strength 128 TECHNICAL – D Options: Yes Shaded area indicates recession 96 BETA NMF (1.00 = Market) 80 18-Month Target Price Range 64 Low-High Midpoint (% to Mid) 48 40 $N/A-$N/A $N/A (N/A%) 32 2022-24 PROJECTIONS 24 Ann’l Total Price Gain Return 16 High 95 (+125%) 25% Low 60 (+45%) 12% 12 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 18 to Buy 000 1 yr. — 4.9 shares 12 3 yr. — 30.2 to Sell 000traded 6 Hld’s(000) 000 000 000 5 yr. — 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020 © VALUE LINE PUB. LLC 22-24 ------1.15 4.20 Earnings per sh A 5.20 ------.70 1.40 Div’ds Decl’d per sh B 1.68 ------36.40 39.70 Book Value per sh 51.50 ------152.00 152.00 Common Shs Outst’g C 152.00 ------Bold figures are Avg Ann’l P/E Ratio 15.0 ------Value Line Relative P/E Ratio .85 ------estimates Avg Ann’l Div’d Yield 2.2% CAPITAL STRUCTURE as of 9/30/19 ------46000 48000 Total Assets ($mill) 54000 ------34500 36000 Loans ($mill) 40000 Total Debt $3467.8 mill. ------720 1620 Net Interest Inc ($mill) 1900 ------40.0 60.0 Loan Loss Prov’n ($mill) 100 Leases, Uncapitalized: Annual rentals N/A Pension Assets-12/18 N/A ------190 500 Noninterest Inc ($mill) 750 Oblig. N/A ------650 1240 Noninterest Exp ($mill) 1550 ------175 640 Net Profit ($mill) 790 Pfd Stock $169.3 mill. Pfd. Div’d $11.6 mill. ------20.0% 22.0% Income Tax Rate 22.0% ------.40% 1.35% Return on Total Assets 1.45% Common Stock 153,406,792 shares as of 11/8/19 ------1000 1100 Long-Term Debt ($mill) 1500 ------5700 6200 Shr. Equity ($mill) 8000 MARKET CAP: $6.4 billion (Mid Cap) ------12.5% 13.0% Shr. Eq. to Total Assets 15.0% ASSETS($Mill.) 2017 2018 9/30/19 ------75.0% 75.0% Loans to Tot Assets 74.0% Loans (Net) - - - - 33389.5 ------3.0% 10.5% Return on Shr. Equity 10.0% Funds Sold ------Securities - - - - 5723.8 ------1.0% 7.0% Retained to Com Eq 6.5% Other Earning - - - - 737.0 ------67% 35% All Div’ds to Net Prof 34% Other - - - - 5842.2 LIABILITIES($Mill.) BUSINESS: TCF Financial Corporation is a diversified bank holding had roughly $47 billion in assets, $35 billion in deposits, and more Deposits - - - - 35286.1 company. Through its subsidiaries, it provides a broad array of than 500 branches across nine states, including four of the top ten Funds Borrowed - - - - 2607.3 banking and nonbanking services to individuals and businesses, Midwest markets (Chicago, Detroit, Minneapolis, and Milwaukee. Long-Term Debt - - - - 860.5 primarily in the Midwest. The company was formed August 1, 2019 Chairman: Gary Torgow. President and CEO: Craig Dahl. Inc.: MI. Net Worth - - - - 5670.1 through a ‘‘merger of equals’’ transaction between legacy TCF Fi- Address: 333 West Fort Street, Suite 1800, Detroit, MI. 48226. Tel- Other - - - - 1268.5 Total - - - - 45692.5 nancial and Chemical Financial. Upon closing, the combined entity ephone: (800) 867-9757. Internet: www.tcfbank.com. Loan Loss Resrv. - - - - 121.2 TCF Financial’s integration activities in line with consensus expectations. ANNUAL RATES Past Past Est’d ’16-’18 remain on track. TCF Financial and We have lowered our 2020 estimates. of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Chemical Financial completed their The downward revision mainly reflects the Loans - - - - NMF Earnings - - - - NMF ‘‘merger of equals’’ transaction on August Federal Reserve’s policy change, as recent Dividends - - - - NMF 1st (all-stock deal valued at about $3.6 bil- rate cuts have significantly dampened net Book Value - - - - NMF lion). Under the terms, TCF was technical- interest income growth projections over Assets - - - - NMF ly merged into Chemical, but the combined the next several quarters. On a positive Cal- NET LOANS ($ mill.) entity retained the former’s nameplate. On note, this impact should be partially offset endar Mar.31 Jun. 30 Sep. 30 Dec. 31 the third-quarter conference call, manage- by merger-related cost synergies, as man- 2016 ------ment indicated that the integration was agement is targeting about $180 million in 2017 ------progressing on schedule and it was prepar- savings by the fourth quarter of next year. 2018 ------ing for the first wave of system conversion All told, we have reduced our 2020 earn- 2019 - - - - 33390 34500 work streams. The company expects to ings call by $0.45 a share, to $4.20. 2020 34800 35300 35500 36000 combine its banking technology platforms The stock is unranked for Timeliness Cal-EARNINGS PER SHARE A Full by mid-2020. due to its short trading history. In endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year Third-quarter results were weighed regard to the merger, we anticipate the in- 2016 ------down by merger-related costs and tegration to be relatively smooth, as each 2017 ------other non-core items. The bank reported side’s respective operations appear to be 2018 ------GAAP earnings of $0.15 a share, which in- mostly complementary with limited over- 2019 -- -- .15 1.00 1.15 cluded a $19.3 million loss from the trans- lap. With 500 branches across nine states, 2020 .95 1.00 1.10 1.15 4.20 fer of Legacy TCF Auto to held-for-sale, a including four of the top-10 Midwest mar- Cal-QUARTERLY DIVIDENDS PAID B Full loss of $17.3 million related to the kets (Chicago, Detroit, Minneapolis, and endarMar.31 Jun.30 Sep.30 Dec.31 Year termination of interest rate swaps, a $4.5 Milwaukee), the new TCF should benefit 2015 ------million impairment on loan servicing nicely from increased scale and capabil- 2016 ------rights, and a $5.9 million gain on the sale ities. Based on our long-term projections, 2017 ------of investment securities. When we back total-return potential to 2022-2024 is 2018 ------these items out, adjusted earnings came in above average. 2019 - - - - .35 .35 at $0.98 a share. This figure was relatively Michael Ratty December 6, 2019 (A) Diluted earnings. May not sum due to (B) Dividends historically paid in early-March, (C) In millions. Company’s Financial Strength B+ rounding. Next earnings report due late Janu- June, September, and December. (D) Unranked due to short trading history. Stock’s Price Stability NMF ary. (E) Completed merger with Chemical Financial Price Growth Persistence NMF (8/1/19). Earnings Predictability NMF © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 13.8 RELATIVE DIV’D VALUE U.S. BANCORP NYSE-USB PRICE 59.82RATIO 13.8()Median: 13.0 P/E RATIO 0.78YLD 2.9% LINE 788 TIMELINESS 2 Raised 11/30/18 High: 42.2 25.6 28.4 28.9 35.5 40.8 46.1 46.3 52.7 56.6 58.5 60.5 Target Price Range Low: 20.2 8.1 20.4 20.1 27.2 32.0 38.1 38.8 37.1 49.5 43.1 45.1 2022 2023 2024 SAFETY 1 Raised 9/8/17 LEGENDS 14.5 x Earnings p sh 120 TECHNICAL 3 Lowered 11/8/19 .... Relative Price Strength 100 Options: Yes 80 BETA 1.05 (1.00 = Market) Shaded area indicates recession 64 18-Month Target Price Range 48 Low-High Midpoint (% to Mid) 32 $46-$67 $57 (-5%) 24 2022-24 PROJECTIONS 20 Ann’l Total 16 Price Gain Return High 80 (+35%) 10% 12 Low 65 (+10%) 5% % TOT. RETURN 10/19 8 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 18 to Buy 594 663 626 1 yr. 12.5 4.9 shares 12 3 yr. 37.6 30.2 to Sell 724 651 696 traded 6 Hld’s(000)120059311889501204714 5 yr. 51.7 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 1.92 2.18 2.42 2.61 2.43 1.61 .97 1.73 2.46 2.84 3.00 3.08 3.16 3.24 3.42 4.14 4.30 4.35 Earnings per sh A 5.15 .86 1.02 1.23 1.39 1.63 1.70 .20 .20 .50 .78 .89 .97 1.01 1.07 1.16 1.34 1.58 1.72 Div’ds Decl’d per sh B■ 2.00 10.01 10.52 11.07 11.45 11.60 10.47 13.15 14.78 16.95 18.31 19.92 21.69 23.28 24.63 26.35 28.01 30.65 32.55 Book Value per sh C 40.60 1922.9 1857.6 1815.0 1764.7 1727.9 1755.0 1912.9 1920.9 1909.8 1869.4 1824.7 1785.7 1745.2 1696.9 1655.6 1608.3 1560.0 1520.0 Common Shs Outst’g D 1475.0 12.4 13.0 12.2 12.3 13.8 19.2 19.8 14.0 10.3 11.1 12.0 13.7 13.7 13.2 15.4 12.6 Bold figures are Avg Ann’l P/E Ratio 14.5 .71 .69 .65 .66 .73 1.16 1.32 .89 .65 .71 .67 .72 .69 .69 .77 .68 Value Line Relative P/E Ratio .80 3.6% 3.6% 4.2% 4.3% 4.9% 5.5% 1.0% .8% 2.0% 2.5% 2.5% 2.3% 2.3% 2.5% 2.2% 2.6% estimates Avg Ann’l Div’d Yield 2.7% CAPITAL STRUCTURE as of 9/30/19 281176 307786 340122 353855 364021 402529 421853 445964 462040 467374 490000 510000 Total Assets ($mill) 590000 190329 191751 205082 218905 230985 243812 256986 269394 276507 282837 293000 305000 Loans ($mill) 350000 LT Debt $41.274 bill. Due in 5 Yrs $27.292 bill. 8518.0 9579.0 10123 10745 10604 10775 11001 11528 12241 12919 13100 13400 Net Interest Inc ($mill) 15700 LT Interest $1.260 bill. 5557.0 4356.0 2343.0 1882.0 1340.0 1229.0 1132.0 1324.0 1390.0 1379.0 1525 1650 Loan Loss Prov’n ($mill) 2000 Pension Assets-12/18 $4.936 bill. Oblig. $5.507 7952.0 8360.0 8760.0 9319.0 8774.0 9164.0 9092.0 9577.0 9611.0 9602.0 9975 9850 Noninterest Inc ($mill) 11000 bill. 8281.0 9383.0 9911.0 10456 10274 10715 10931 11676 12120 12464 12600 12800 Noninterest Exp ($mill) 14700 2237.0 3317.0 4872.0 5647.0 5836.0 5851.0 5933.0 5888.0 6068.0 7096.0 7170 7050 Net Profit ($mill) 8000 Pfd Stock $5.984 bill. Pfd Div’d $348 mill. 15.0% 22.3% 27.8% 28.9% 26.2% 26.1% 26.1% 26.7% 26.8% 17.9% 20.0% 20.0% Income Tax Rate 20.0% .80% 1.08% 1.43% 1.60% 1.60% 1.45% 1.41% 1.32% 1.31% 1.52% 1.45% 1.40% Return on Total Assets 1.35% Common Stock 1,571,000,000 shs. 32580 31537 31953 25516 20049 32260 32078 33323 32259 41340 41000 46000 Long-Term Debt ($mill) 55000 MARKET CAP: $94.0 billion (Large Cap) 26661 30322 34971 38998 41113 43479 46131 47298 49040 51029 53800 55450 Shr. Equity ($mill) 65900 9.5% 9.9% 10.3% 11.0% 11.3% 10.8% 10.9% 10.6% 10.6% 10.9% 11.0% 11.0% Shr. Eq. to Total Assets 11.0% ASSETS($mill.) 2017 2018 9/30/19 67.7% 62.3% 60.3% 61.9% 63.5% 60.6% 60.9% 60.4% 59.8% 60.5% 60.0% 60.0% Loans to Tot Assets 59.5% Loans 276507 282837 290631 8.4% 10.9% 13.9% 14.5% 14.2% 13.5% 12.9% 12.4% 12.4% 13.9% 13.5% 12.5% Return on Shr. Equity 12.0% Funds Sold ------Securities 112499 112165 121079 5.8% 10.0% 11.7% 11.5% 10.9% 10.0% 9.6% 9.0% 8.8% 10.3% 9.0% 8.0% Retained to Com Eq 8.0% Other Earning ------34% 14% 22% 30% 32% 34% 34% 36% 37% 35% 40% 43% All Div’ds to Net Prof 41% Other 73034 72372 75961 LIABILITIES($mill.) BUSINESS: U.S. Bancorp is the parent company of U.S. Bank Na- due loans, 0.54% of loans & other RE. About 73,000 empl. Direc- Deposits 347215 345475 359715 tional Association. Has about 3,000 offices in 25 states. Loan port- tors & officers own less than 1% of common; Berkshire Hathaway, Funds Borrowed 16651 14139 14579 folio: commercial, 35%; comm. real estate, 14%; residential, 28%; 9.2%; Vanguard, 7.1%; BlackRock, 6.4% (proxy, 3/19). Executive Long-Term Debt 32259 41340 41274 consumer, 23% In ’18, net loan losses: .62% of avg. loans. At Chairman: R.Davis. President & CEO, A. Cecere. Inc.: DE. Ad- Net Worth 49040 51029 53517 9/30/19, incl. assets covered by loss-sharing agreements with dress: 800 Nicollet Mall, Minneapolis, MN 55402-4302. Tel.: 651- Other 16875 15391 18586 Total 462040 467374 487671 FDIC: loan loss reserve, 1.36% of loans; problem assets & past- 466-3000. Internet: www.usbank.com. Loan Loss Resrv. 3925 3973 4007 U.S. Bancorp turned in an impressive be a more difficult one for the compa- ANNUAL RATES Past Past Est’d ’16-’18 September-quarter earnings advance. ny. Prospects for net interest income will of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Noninterest revenues rose 8% year to depend on interest rates, which we assume Loans 6.5% 7.5% 6.0% Earnings 5.0% 5.5% 6.0% year, powered by a 56% surge in mortgage will hover below 2019 levels in 2020, and Dividends -3.0% 10.5% 9.0% loan origination and sales income, reflect- loan growth, which we expect to proceed at Book Value 9.0% 7.5% 7.0% ing higher refinancing activity in the low a mid-single-digit pace. Mortgage income, Total Assets 7.5% 8.0% 6.5% interest-rate climate. Commercial products also interest-rate sensitive, may not Cal- LOANS ($mill.) income increased 11%. But net interest in- remain as strong as in 2019. But pay- endar Mar.31 Jun.30 Sep.30 Dec.31 come ticked up only slightly, limited by ments, corporate trust, and capital mar- 2016 260669 264715 267492 269394 margin pressure. Expense growth of 3.3% kets revenues ought to continue to grow. 2017 269761 273427 274811 276507 (largely variable compensation costs in the However, it may be hard to rein in ex- 2018 273993 276257 277507 282837 mortgage and capital markets businesses) pense growth as revenue momentum mod- 2019 283709 288009 290631 293000 lagged revenue growth of 3.9%. The loan erates. Too, banks are scheduled to adopt 2020 295000 298000 302000 305000 loss provision has remained fairly stable in a new accounting method in 2020 that is Cal-EARNINGS PER SHARE A Full the past few quarters. likely to result in larger loan loss provi- endarMar.31 Jun.30 Sep.30 Dec.31 Year Revenue growth probably will moder- sions. 2016 .76 .83 .84 .82 3.24 ate in the final period of 2019. Mort- We look for earnings growth to pick 2017 .82 .85 .88 .87 3.42 gage activity typically falls off in the up beyond 2020. Investments in the com- 2018 .96 1.02 1.06 1.10 4.14 winter months. A reduction in processing pany’s businesses and digital initiatives 2019 1.00 1.09 1.15 1.06 4.30 days in the December term will crimp ought to pay off more substantially in 2020 1.04 1.08 1.10 1.13 4.35 credit card revenues. Moreover, manage- stronger revenue growth and lower Cal-QUARTERLY DIVIDENDS PAID B■ Full ment looks for net interest income to expense-to-revenue ratios a few years endarMar.31 Jun.30 Sep.30 Dec.31 Year decline modestly. We’ve lowered our share- hence. U.S. Bancorp’s decent dividend 2015 .245 .245 .255 .255 1.00 net estimate for the December quarter yield may appeal to income investors. The 2016 .255 .255 .255 .28 1.05 slightly, but have raised our full-year 2019 stock is also ranked favorably for Timeli- 2017 .28 .28 .28 .30 1.14 call by a nickel, owing to the September- ness. But the issue has less-than-average 2018 .30 .30 .30 .37 1.27 period outperformance. 3- to 5-year total return potential. 2019 .37 .37 .37 .42 Meanwhile, the new year is likely to Theresa Brophy December 6, 2019 (A) Diluted earnings per share. Excludes posi- report due mid-Jan. 9/30/19: $12,615 mill., $8.03/sh. (D) In millions. Company’s Financial Strength A tive effect of implementing tax reform: ’17. (B) Dividends historically paid in mid-January, Stock’s Price Stability 95 $0.09. Quarterly earnings per share may not April, July, and October. ■ Div’d reinvestment Price Growth Persistence 80 sum in all years due to rounding. Next earnings plan available. (C) Includes intangibles. As of Earnings Predictability 100 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 11.3 RELATIVE DIV’D VALUE WINTRUST FIN. CORP. NDQ-WTFC PRICE 67.12RATIO 10.8()Median: 16.0 P/E RATIO 0.61YLD 1.5% LINE 789 TIMELINESS 3 Raised 11/8/19 High: 44.9 33.9 44.9 37.3 39.8 47.8 50.0 55.8 73.9 86.8 100.0 78.3 Target Price Range Low: 15.4 9.7 27.8 24.3 28.6 34.6 42.0 41.0 38.0 64.1 61.5 59.3 2022 2023 2024 SAFETY 3 New 9/16/11 LEGENDS 15.0 x Earnings p sh TECHNICAL Lowered 11/1/19 .... Relative Price Strength 160 4 Options: Yes BETA 1.15 (1.00 = Market) Shaded area indicates recession 120 100 18-Month Target Price Range 80 Low-High Midpoint (% to Mid) 60 50 $53-$100 $77 (15%) 40 2022-24 PROJECTIONS 30 Ann’l Total Price Gain Return 20 High 130 (+95%) 19% Low 85 (+25%) 7% 15 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 36 to Buy 168 163 147 1 yr. -15.1 4.9 shares 24 3 yr. 21.8 30.2 to Sell 177 149 153 traded 12 Hld’s(000) 51551 51379 50711 5 yr. 44.5 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 1.98 2.34 2.75 2.56 2.24 .76 2.18 1.02 1.67 2.31 2.75 2.98 2.93 3.66 4.26 5.86 6.15 6.10 Earnings per sh A 7.10 .16 .20 .24 .28 .32 .36 .27 .18 .18 .18 .18 .40 .44 .48 .56 .76 1.00 1.04 Div’ds Decl’d per sh B 1.08 17.43 21.81 26.23 30.38 31.56 32.27 34.64 39.77 41.51 44.18 38.47 41.52 43.42 47.11 50.96 55.71 60.10 62.50 Book Value per sh 72.90 20.07 21.73 23.94 25.46 23.43 23.76 24.21 34.86 35.98 36.86 46.12 46.81 48.38 51.88 55.97 56.41 57.00 58.00 Common Shs Outst’g C 60.00 17.4 22.1 19.0 20.0 18.9 36.8 9.6 32.7 18.8 15.3 14.5 15.4 17.1 14.2 17.5 14.6 Bold figures are Avg Ann’l P/E Ratio 15.0 .99 1.17 1.01 1.08 1.00 2.21 .64 2.08 1.18 .97 .81 .81 .86 .75 .88 .79 Value Line Relative P/E Ratio .85 .5% .4% .5% .5% .8% 1.3% 1.3% .5% .6% .5% .5% .9% .9% .9% .8% .9% estimates Avg Ann’l Div’d Yield 1.0% CAPITAL STRUCTURE as of 9/30/19 12216 13980 15894 17520 18098 20011 22917 25669 27916 31245 35000 37000 Total Assets ($mill) 41000 8589.2 10192 11049 12268 13136 14542 17158 19638 21503 23668 25700 27300 Loans ($mill) 31000 Total Debt $1674.9 mill. 311.9 415.8 461.4 519.5 550.6 598.6 641.5 722.2 832.1 964.9 1040 1030 Net Interest Inc ($mill) 1180 167.9 124.7 102.6 76.4 46.0 20.5 32.9 34.1 29.8 34.8 45.0 45.0 Loan Loss Prov’n ($mill) 60.0 Leases, Uncapitalized: Annual rentals $15.1 mill. 317.6 147.9 189.7 226.1 222.4 215.2 271.6 325.4 319.5 356.2 375 400 Noninterest Inc ($mill) 450 344.1 338.3 420.4 489.0 502.6 546.8 628.4 681.7 731.8 826.1 905 920 Noninterest Exp ($mill) 1000 Pfd Stock $125.0 mill. Pfd. Div’d $8.2 mill. 73.1 63.3 77.6 111.2 137.2 151.4 156.7 206.9 250.1 343.2 350 355 Net Profit ($mill) 425 Series D - 5,000,000 shs., liqu val. $25 37.8% 37.2% 39.4% 38.3% 38.9% 38.6% 37.7% 37.7% 35.9% 25.4% 25.0% 25.0% Income Tax Rate 25.0% .60% .45% .49% .63% .76% .76% .68% .81% .90% 1.10% 1.00% .95% Return on Total Assets 1.05% Common Stock 57,072,339 shares as of 10/31/19 988.9 1584.6 1855.5 955.1 1225.4 1322.8 1471.1 808.9 1218.4 1213.0 1600 1500 Long-Term Debt ($mill) 1200 1138.6 1436.5 1543.5 1804.7 1900.6 2069.8 2352.3 2695.6 2976.9 3267.6 3550 3750 Shr. Equity ($mill) 4500 MARKET CAP: $3.8 billion (Mid Cap) 9.3% 10.3% 9.7% 10.3% 10.5% 10.3% 10.3% 10.5% 10.7% 10.5% 10.0% 10.0% Shr. Eq. to Total Assets 11.0% ASSETS($Mill.) 2017 2018 9/30/19 70.3% 72.9% 69.5% 70.0% 72.6% 72.7% 74.9% 76.5% 77.0% 75.7% 73.5% 74.0% Loans to Tot Assets 75.5% Loans (Net) 21502.9 23667.9 25548.4 6.4% 4.4% 5.0% 6.2% 7.2% 7.3% 6.7% 7.7% 8.4% 10.5% 10.0% 9.5% Return on Shr. Equity 9.5% Funds Sold .1 .1 .1 Securities 2631.1 3229.9 3415.2 6.1% 2.9% 4.5% 5.9% 6.9% 6.5% 5.9% 6.9% 7.3% 9.3% 8.5% 8.0% Retained to Com Eq 8.0% Other Earning 1063.2 1099.6 2260.8 30% 36% 13% 14% 11% 16% 20% 19% 16% 15% 19% 19% All Div’ds to Net Prof 17% Other 2718.7 3247.4 3687.4 LIABILITIES($Mill.) BUSINESS: Wintrust Financial Corporation, through its fifteen ment (8%). Has 4,727 full-time employees. Loan loss reserve .63% Deposits 23183.3 26094.7 28710.4 wholly owned banking subsidiaries, provides community-oriented, of loans as of 6/30/19. Officers and directors own 1.6% of common Funds Borrowed ------personal and commercial banking services to customers located in stock; BlackRock, 10.0%; Vanguard, 9.4% (4/19 proxy). Chairman: Long-Term Debt 1218.4 1213.0 1674.9 the Chicago metropolitan area, southern Wisconsin and northwest H. Patrick Hackett Jr. President/CEO: Edward Joseph Wehmer. Net Worth 2976.9 3267.6 3540.3 Indiana. Three operating segments: Community Banking (77% of Inc.: IL. Addr.: 9700 West Higgins Road Suite 800, Rosemont, IL Other 537.4 669.6 986.3 Total 27916.0 31244.9 34911.9 2018 revenues), Specialty Finance (15%), and Wealth Manage- 60018. Tel.: 847-939-9000. Internet: www.wintrust.com. Loan Loss Resrv. 137.9 152.8 161.8 Wintrust Financial posted better- these last few quarters is likely to have a ANNUAL RATES Past Past Est’d ’16-’18 than-expected third-quarter results. significant impact on net interest income of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 The bank reported earnings of $1.69 a growth in Q4 and 2020. The reduced out- Loans 3.0% 5.0% 6.0% Earnings 9.5% 15.5% 7.5% share, ahead of our $1.65 estimate and up look for this year was mostly offset by Dividends 6.5% 27.0% 10.5% from $1.57 in the comparable year-ago pe- Wintrust’s solid Q3 results, so our 2019 Book Value 5.0% 4.5% 6.0% riod. The beat to our target was driven pri- earnings call is largely unchanged at $6.15 Total Assets 2.5% 3.5% 6.5% marily by better-than-expected growth in a share. However, our 2020 estimate has Cal- NET LOANS ($ mill.) fee revenues (+17.3% sequentially), with been lowered to $6.10 (previously $6.60). endar Mar.31 Jun. 30 Sep. 30 Dec. 31 much of the upside coming from the mort- Management sees 2019 loan growth in 2016 17473 18163 19078 19638 gage banking business (+36%). Perform- the mid to high-single-digit range. The 2017 19856 20663 20826 21503 ance in this segment benefited from con- portfolio has expanded nicely in 2019 2018 21923 22467 22974 23668 tinued momentum in refinancing activity, through a combination of solid organic 2019 24056 25144 25548 25700 which management said accounted for growth trends and acquisitions. While 2020 26000 26500 26800 27300 more than half of origination volume dur- commercial balances (32% of total loans) Cal-EARNINGS PER SHARE AD Full ing the quarter. All told, it was a solid experienced a modest sequential dip last endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year showing for Wintrust, despite increased quarter, the impact was more than offset 2016 .90 .90 .92 .94 3.66 headwinds from the challenging interest by gains in the commercial real estate and 2017 1.00 1.11 1.12 1.03 4.26 rate environment (more below). The stock residential real estate portfolios. In our 2018 1.40 1.53 1.57 1.35 5.86 is up 10% in price since our last report. view, healthy pipelines should allow the 2019 1.52 1.38 1.69 1.56 6.15 The Federal Reserve’s recent shift in bank to close out 2019 on solid footing. We 2020 1.44 1.52 1.56 1.58 6.10 policy is likely to pressure comps over are targeting annual loan growth of 9%. Cal-QUARTERLY DIVIDENDS PAID B Full the balance of 2019 and into 2020. The The stock is ranked 3 (Average) for endarMar.31 Jun.30 Sep.30 Dec.31 Year Central Bank cut its benchmark interest Timeliness. Based on our system, WTFC 2015 .11 .11 .11 .11 .44 rate three times over the back half of shares are currently pegged as market 2016 .12 .12 .12 .12 .48 2019, reversing nearly all of last year’s in- performers in the year ahead. For longer- 2017 .14 .14 .14 .14 .56 creases. While Chairman Powell signaled term investors, our projections reflect solid 2018 .19 .19 .19 .19 .76 a pause in cuts at its most recent meeting, total-return potential out to 2022-2024. 2019 .25 .25 .25 .25 the easing that was implemented over Michael Ratty December 6, 2019 (A) Fully diluted. Excludes nonrecurring gain of gust, and November. (D) Earnings may not sum due to rounding. Company’s Financial Strength B+ $0.14 a share in Q4, 2017. Next earnings (C) In millions, adjusted for stock split. Stock’s Price Stability 65 report due late January. Price Growth Persistence 70 (B) Dividends paid in mid-February, May, Au- Earnings Predictability 90 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. December 6, 2019 MEDICAL SERVICES INDUSTRY 790

As we approach the close of the 2019 calendar INDUSTRY TIMELINESS: 18 (of 95) year, the Medical Services Industry has charged into the top-20 of our rankings. As recently as just pulling ahead in the polling associated with key states. three months ago, this sector was hovering On top of this, Elizabeth Warren announced that she around the 50th position, but a highly successful was still all-in on Medicare For All, piggybacking on the third-quarter earnings cycle, coupled with toned system pushed by Bernie Sanders. However, Mrs. War- down rhetoric on the political front, has cast an ren stated that the implementation of this wholesale increasingly positive light on the medical insur- change would not be done in earnest until the third year ers, health maintenance organizations, hospitals, of her term. This news gave the industry a breather, as labs, and the like, that inhabit this space. The the time line would be pushed back a few years if she dramatic change in the industry’s outlook is most were to win. Stocks in this arena rose when this com- notable among its sole Dow-30 member, United- mentary hit the wire. Health Group. This blue chip has risen sharply Separately, the Trump Administration released new over the past three months, as the above men- transparency rules that would go into effect in 2021. The tioned positives factored directly into that compa- basis of the legislation is that hospitals and medical ny’s view through the eyes of the investment com- insurers would need to post and disclose the negotiated munity. rates/charges they have worked out with each other. The Much of the sector’s misfortune through the first goal is to lower medical costs overall, but the jury is still seven months of the year had little to do with the out on if that will be the case, and a coalition of these numbers that the respective companies were put- entities is already preparing legal action to thwart these ting up, and more to do with what Democratic proceedings. candidates for the 2020 Presidential election were saying. The Medical Services Industry took its Better Days May Lead To Consolidation considerable lumps, and went about its business. Then, the September-quarter earnings started to Laboratory Corporation of America has turned its roll in and the financials were overwhelmingly fortunes around by adding a contract research arm and positive. Too, fears of the implementation of a then building upon it. Now, more drugs and medical single-payer healthcare system have been placed devices are being pushed to market than in any time in on the back burner, as the Democratic nomination history, with the goal being to strike gold on a product or is still very much up in the air, and the broader two. Medpace Holdings and Syneos Health are two market averages touch fresh all-time highs. examples of contract research organizations that have been performing well of late and could be acquisition The Barometer is UnitedHealth Group targets of larger entities. The M&A boom appeared to reach a pause when political pressures mounted earlier With a market capitalization north of $250 billion, a in 2019, but we envision a return to deal making sooner leading position in medical insurance, and its ground rather than later, and particularly once the election- breaking Optum branches that have redefined health- related woes dissipate. care coverage/services in the United States, UNH is the bellwether for this sector. That said, its incline over the Conclusion last few months has propelled the industry’s resurgence of late. The Medical Services Industry is back en vogue. In fact, the CVS Health/Aetna merger that closed Subscribers will note that many stocks under this um- earlier this year was in direct response to United- brella are now carrying favorable Timeliness rankings. Health’s success. Pharmacy benefits is one of the major Also, capital appreciation prospects out to 2022-2024 are pieces of the pie that several medical services entities worthwhile or better for a number of other selections. We are missing, and UNH thrives in this area, thus afford- advise investors to peruse each of the following pages to ing it a premium versus its peers. see which vehicle best fits into their financial objective. This leading designation, however, can sometimes be a double-edged sword. When this sector comes under pres- Erik M. Manning sure, this company takes the brunt of the hit. When Medicare For All threatens to upset the apple cart that is Medical Services the U.S. healthcare system, investors cycle out of high RELATIVE STRENGTH (Ratio of Industry to Value Line Comp.) flying stocks like this one in a hurry. That aside, the 1200 company’s operating performance has been exemplary thus far in 2019. 960 720 Political Chatter Playing A Big Part 600 Heading into an election year, many stocks in the 480 Medical Services Industry may stray from trading on fundamentals. We have seen this in the earlier parts of 360 the year, where headlines about a potential Democratic candidate’s views on healthcare send the sector lower. A 240 bit of good news is that this topic seems to be shifting to the back burner for now. In the most recent debate, healthcare was brushed over when a question was 120 posed. In-fighting among the candidates was rampant, 2013 2014 2015 2016 2017 2018 2019 and many of the headlines centered around who was Index: June, 1967 = 100

© 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 37.3 RELATIVE DIV’D VALUE AMEDISYS, INC. NDQ-AMED PRICE 163.29RATIO 33.8()Median: 21.0 P/E RATIO 1.91YLD Nil LINE 791 TIMELINESS 2 Raised 10/11/19 High: 68.0 53.3 64.3 38.9 16.0 18.7 30.5 48.3 55.2 65.9 140.9 163.7 Target Price Range Low: 33.3 25.2 22.8 9.1 9.4 8.8 12.9 24.8 31.2 42.1 49.8 106.6 2022 2023 2024 SAFETY 3 Raised 6/9/17 LEGENDS 17.0 x ″Cash Flow″ psh 320 TECHNICAL Lowered 10/25/19 .... Relative Price Strength 3 4-for-3 split 12/06 BETA 1.10 (1.00 = Market) Options: Yes 200 Shaded area indicates recession 18-Month Target Price Range 160 Low-High Midpoint (% to Mid) 120 100 $129-$271 $200 (20%) 80 2022-24 PROJECTIONS 60 Ann’l Total Price Gain Return 40 High 190 (+15%) 4% Low 130 (-20%) -5% % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 18 4Q2018 1Q2019 2Q2019 Percent 60 to Buy 183 178 152 1 yr. 16.8 4.9 shares 40 3 yr. 197.1 30.2 to Sell 117 150 177 traded 20 Hld’s(000) 28822 27653 28930 5 yr. 392.4 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 8.98 11.13 18.02 20.98 26.47 43.84 53.69 55.91 51.24 47.86 38.19 35.77 38.10 42.79 45.32 51.99 59.70 65.90 Revenues per sh 77.25 .72 1.21 1.75 1.87 2.83 3.95 5.82 5.03 3.26 2.37 1.29 1.55 2.05 2.14 2.74 4.23 5.00 5.80 ‘‘Cash Flow’’ per sh 7.25 .62 1.13 1.41 1.72 2.32 3.22 4.89 3.95 2.13 1.08 .16 .73 1.48 1.55 2.21 3.63 4.45 5.30 Earnings per sh A 6.65 ------Nil Nil Div’ds Decl’d per sh Nil .11 .26 .96 1.13 1.09 1.05 1.29 2.19 1.55 1.55 1.28 .36 .64 .47 .32 .20 .30 .45 Cap’l Spending per sh .50 3.24 7.28 9.10 14.11 16.95 20.73 26.08 30.03 18.08 14.55 11.38 11.79 12.19 13.70 15.16 15.04 18.20 22.75 Book Value per sh B 40.90 15.87 20.41 21.17 25.80 26.37 27.08 28.19 29.23 28.69 31.09 32.72 33.67 33.61 33.60 33.98 32.01 33.00 33.00 Common Shs Outst’g C 33.00 9.5 17.6 19.0 17.0 16.0 14.9 7.9 10.3 11.4 11.4 NMF 25.3 24.0 29.3 23.8 24.8 Bold figures are Avg Ann’l P/E Ratio 24.0 .54 .93 1.01 .92 .85 .90 .53 .66 .72 .73 NMF 1.33 1.21 1.54 1.20 1.34 Value Line Relative P/E Ratio 1.35 ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 1513.5 1634.3 1470.4 1487.9 1249.3 1204.6 1280.5 1437.5 1540.2 1664.3 1970 2175 Revenues ($mill) 2550 Total Debt $240.7 mill. Due in 5 Yrs $10.0 mill. 17.1% 14.0% 10.0% 6.7% 3.4% 5.8% 7.3% 7.1% 10.2% 10.3% 11.0% 12.0% Operating Margin 13.0% 28.3 34.6 38.6 39.9 36.9 28.3 20.0 19.7 17.1 13.3 15.0 16.0 Depreciation ($mill) 20.0 LT Debt $231.7 mill. LT Interest $15.0 mill. (Total interest coverage: 23.1x) (28% of Capital) 135.8 112.6 54.8 33.6 5.2 23.9 48.9 52.2 75.9 122.1 150 175 Net Profit ($mill) 220 39.2% 39.0% - - 64.9% 50.6% 37.4% 39.5% 39.0% 46.3% 24.5% 26.0% 25.0% Income Tax Rate 25.0% Leases, Uncapitalized Annual rentals $23.3 mill. 9.0% 6.9% 3.7% 2.3% .4% 2.0% 3.8% 3.6% 4.9% 7.3% 7.6% 8.0% Net Profit Margin 8.6% No Defined Benefit Pension Plan d11.3 77.6 10.3 1.0 d107.1 d26.7 .1 33.5 96.1 1.6 50.0 60.0 Working Cap’l ($mill) 300 Preferred Stock None 170.9 144.7 111.6 66.9 33.0 104.4 95.0 87.8 78.2 5.8 310 285 Long-Term Debt ($mill) 285 Common Stock 32,255,257 shares 735.2 877.9 518.9 452.3 372.2 397.2 409.6 460.2 515.3 481.6 600 750 Shr. Equity ($mill) 1350 as of 10/25/19 15.6% 11.4% 9.2% 7.5% 1.8% 5.6% 10.8% 10.0% 13.2% 25.8% 17.5% 17.5% Return on Total Cap’l 14.0% 18.5% 12.8% 10.6% 7.4% 1.4% 6.0% 11.9% 11.3% 14.7% 25.4% 25.0% 23.5% Return on Shr. Equity 16.5% MARKET CAP: $5.3 billion (Large Cap) 18.5% 12.8% 10.6% 7.4% 1.4% 6.0% 11.9% 11.3% 14.7% 25.4% 25.0% 23.5% Retained to Com Eq 16.5% CURRENT POSITION 2017 2018 9/30/19 ------Nil Nil All Div’ds to Net Prof Nil ($MILL.) Cash Assets 86.4 20.2 20.8 BUSINESS: Amedisys, Inc. provides home healthcare nursing health agencies and 84 hospice agencies in 34 states. Has about Receivables 201.2 189.0 254.7 services in the U.S. These include infusion and respiratory therapy, 21,000 employees. Officers and directors own 2.9% of common Other 23.6 14.9 24.0 and hospice services for terminally ill patients and families. stock, BlackRock, 15.7%; The Vanguard Group, 11.6% (4/19 Current Assets 311.2 224.1 299.5 Amedisys offers disease-management programs for wound care, proxy). President & C.E.O.: Paul B. Kusserow. Inc.: DE. Addr.: Accts Payable 25.4 28.5 35.9 Debt Due 10.6 1.6 9.0 diabetes, pneumonia, cancer, pulmonary/respiratory, and car- 3854 American Way, Suite A, Baton Rouge, LA 70816. Tel.: 225- Other 179.1 192.4 269.8 diovascular health issues. It operates 323 Medicare-certified home 292-2031. Internet: www.amedisys.com. Current Liab. 215.1 222.5 314.7 Shares of Amedisys are on a roll. Earn- able to mitigate the effect on productivity ANNUAL RATES Past Past Est’d ’16-’18 ings have been on a tremendous growth using lessons learned from the prior con- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 trajectory since 2014, thanks to a version. Now that Compassion is fully Revenues 4.5% .5% 9.0% ‘‘Cash Flow’’ .5% 5.5% 15.5% hospitable industry backdrop and top- switched over to this system, it should Earnings - - 17.0% 18.0% notch execution. AMED shares have ap- realize better clinician utilization and Dividends - - - - Nil preciated over 11x over that span. They other cost benefits going forward. Manage- Book Value -1.5% - - 18.5% paused a bit over the last 12 months, ment also expects to unlock additional Cal-QUARTERLY REVENUES ($ mill.) Full bumping into resistance of about $140 a merger cost synergies over the next few endarMar.31 Jun.30 Sep.30 Dec.31 Year share several times, but have now cleared quarters. 2016 348.8 360.7 361.7 366.3 1437.5 that threshold. These shares have improved one 2017 370.5 378.8 386.7 404.2 1540.2 The company reported strong third- notch in Timeliness, to 2 (Above Aver- 2018 399.3 413.3 417.3 434.4 1664.3 quarter results. Earnings of $1.15 a age). We have added $0.15 to our full-year 2019 467.3 493.0 494.6 515.1 1970 share (up 21% year over year) blew past bottom-line target, to $4.45 per share. 2020 535 540 540 560 2175 Wall Street’s $0.90 consensus estimate, as That is above the company’s guidance Cal-EARNINGS PER SHARE A Full well as our more-optimistic $1.00-per- range of $4.32-$4.39 per share. Guidance endarMar.31 Jun.30 Sep.30 Dec.31 Year share call. The Hospice division was the has proved overly conservative in recent 2016 .33 .42 .36 .44 1.55 main growth driver in the quarter. The periods, and it implies flattish year-over- 2017 .47 .62 .56 .56 2.21 company added scale with the $340 mil- year earnings at best in the fourth 2018 .79 1.00 .95 .91 3.63 lion acquisition of Compassion Care quarter, which we view as a low hurdle, 2019 1.11 1.21 1.15 .98 4.45 Hospice earlier in the year, and the in- given strong operating momentum. 2020 1.30 1.40 1.35 1.25 5.30 tegration seems to be progressing quite The company’s long-term prospects Cal-QUARTERLY DIVIDENDS PAID Full well. Over the last two quarters, Amedisys look bright. The aging population is a endarMar.31 Jun.30 Sep.30 Dec.31 Year has been transitioning Compassion to an tailwind, and the balance sheet is in 2015 industry-standard operating system that strong enough shape to support additional 2016 NO CASH DIVIDENDS it, itself, migrated to just a couple of years acquisitions. The stock is pricy, though, 2017 BEING PAID ago. The transition impacted profitability which largely discounts the company’s 2018 some (through slack staff utilization and good long-term growth prospects. 2019 elevated training costs), but AMED was Jeffrey Hirt December 6, 2019 (A) Diluted earnings. Excludes nonrecurring changes in shares outstanding. Next report due (C) In millions. Company’s Financial Strength B++ gains or (losses): ’07, 16¢; ’13, ($3.24); ’14; early March. Stock’s Price Stability 35 (33¢); ’15, ($1.57); ’16, (45¢); ’17, ($1.33); ’19, (B) Includes intangibles. In 2018: $712.3 mill., Price Growth Persistence 60 (47¢). May not sum due to rounding or $22.26 per share. Earnings Predictability 30 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 16.3 RELATIVE DIV’D VALUE ANTHEM, INC. NYSE-ANTM PRICE 293.89RATIO 13.4()Median: 11.0 P/E RATIO 0.76YLD 1.1% LINE 792 TIMELINESS 3 Lowered 11/1/19 High: 90.0 60.9 70.0 81.9 74.7 94.4 130.0 173.6 148.3 236.4 300.6 318.0 Target Price Range Low: 27.5 29.3 46.5 56.6 52.5 58.8 81.8 122.9 114.9 140.5 215.5 227.2 2022 2023 2024 SAFETY 2 Raised 3/13/15 LEGENDS 12.0 x ″Cash Flow″ psh 640 TECHNICAL 5 Lowered 11/15/19 .... Relative Price Strength Options: Yes 480 BETA .95 (1.00 = Market) Shaded area indicates recession 400 18-Month Target Price Range 320 Low-High Midpoint (% to Mid) 240 200 $214-$421 $318 (10%) 160 2022-24 PROJECTIONS 120 Ann’l Total Price Gain Return 80 High 590 (+100%) 20% Low 440 (+50%) 12% 60 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 36 to Buy 421 490 488 1 yr. -1.2 4.9 shares 24 3 yr. 129.6 30.2 to Sell 472 486 493 traded 12 Hld’s(000) 228687 225504 231712 5 yr. 128.8 36.8 Anthem, Inc. was formed in 1996, when 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 WellPoint merged with Blue Cross of Cali- 135.24 154.04 178.89 202.52 251.45 276.90 303.01 321.76 352.10 357.83 401.00 455.70 Revenues per sh 579.30 fornia. WellPoint’s Class A shareholders 6.52 9.29 9.68 11.15 12.03 12.82 13.27 12.82 14.18 20.71 23.50 27.80 ‘‘Cash Flow’’ per sh 38.00 received .667 of a WellPoint Health 4.95 6.94 7.25 8.18 8.20 8.98 9.38 9.21 10.21 15.89 19.45 23.25 Earnings per sh A 32.20 Network’s share (13 million shares) for each - - - - 1.00 1.15 1.50 1.75 2.50 2.60 2.70 3.00 3.20 3.70 Div’ds Decl’d per sh B 5.70 share owned. The holders of its 80 million .84 1.20 1.53 1.79 2.29 2.68 2.44 2.21 3.13 4.69 4.80 5.45 Cap’l Spending per sh 6.35 Class B shares (Blue Cross of California) 55.28 63.41 68.62 78.11 87.68 90.90 88.21 95.17 103.64 110.88 126.05 147.05 Book Value per sh C 224.30 received 53.36 million shares of the new 449.79 375.51 339.37 304.72 282.46 266.79 261.24 263.75 255.72 257.40 260.00 257.00 Common Shs Outst’g D 250.00 stock. WellPoint Health Networks sub- 9.6 8.2 9.5 7.8 9.6 12.1 15.7 14.5 18.1 15.7 Bold figures are Avg Ann’l P/E Ratio 16.0 sequently merged with Anthem, Inc. on .64 .52 .60 .50 .54 .64 .79 .76 .91 .85 Value Line Relative P/E Ratio .90 11/30/04 to form Anthem, Inc. - - - - 1.5% 1.8% 1.9% 1.6% 1.7% 2.0% 1.5% 1.2% estimates Avg Ann’l Div’d Yield 1.1% CAPITAL STRUCTURE as of 9/30/19 60829 57844 60711 61712 71024 73874 79157 84863 90039 92105 104260 117120 Revenues ($mill) 144820 Total Debt $19520.0 mill. Due in 5 Yrs $5725 mill. 8.5% 8.1% 8.3% 8.3% 7.3% 7.9% 8.1% 7.5% 6.7% 8.6% 8.5% 9.0% Operating Margin 10.0% LT Debt $18820.0 mill. LT Interest $753.0 mill. 553.5 600.8 637.2 740.7 908.8 851.0 907.9 911.9 890.4 1132.0 1045 1170 Depreciation ($mill) 1450 (Total interest coverage: 9.0x) (38% of Cap’l) 2377.0 2887.1 2646.7 2655.5 2489.7 2569.7 2560.0 2469.8 2734.5 4199.0 5060 5980 Net Profit ($mill) 8050 35.9% 33.7% 33.1% 31.3% 32.6% 41.3% 44.7% 45.8% 31.0% 25.7% 23.0% 23.0% Income Tax Rate 23.0% Leases, Uncapitalized Annual rentals $192.0 mill. 3.9% 5.0% 4.4% 4.3% 3.5% 3.5% 3.2% 2.9% 3.0% 4.6% 4.9% 5.1% Net Profit Margin 5.6% Pension Assets-12/18 $1818 mill. 13397 12131 11272 12431 13394 13476 11769 13021 12907 12356 15640 16400 Working Cap’l ($mill) 19550 Oblig. $1743 mill. 8338.3 8147.8 8420.9 14171 13574 14127 15325 14359 17382 17217 18680 17380 Long-Term Debt ($mill) 14580 24863 23813 23288 23803 24765 24251 23044 25100 26503 28541 32770 37790 Shr. Equity ($mill) 56070 Preferred Stock None 7.8% 9.6% 9.0% 7.6% 7.0% 7.5% 7.5% 7.2% 7.1% 10.0% 10.5% 11.5% Return on Total Cap’l 12.0% Common Stock 253,563,697 shares 9.6% 12.1% 11.4% 11.2% 10.1% 10.6% 11.1% 9.8% 10.3% 14.7% 15.5% 16.0% Return on Shr. Equity 14.5% as of 10/16/19 9.6% 12.1% 9.8% 9.6% 8.2% 8.6% 8.3% 7.1% 7.7% 12.0% 13.0% 13.5% Retained to Com Eq 12.0% MARKET CAP: $74.5 billion (Large Cap) - - - - 14% 14% 18% 19% 26% 28% 26% 18% 16% 16% All Div’ds to Net Prof 18% CURRENT POSITION 2017 2018 9/30/19 ($MILL.) BUSINESS: Anthem, Inc. is a managed-care organization that op- ment Business (61%, 34%). Acq’d. Cerulean, 3/01; RightCHOICE, Cash Assets E 3608.9 3934.0 4190.0 erates Health Maintenance Organizations (HMOs), Preferred Pro- 1/02; merged with WellChoice, 12/05. Has about 56,000 employ- Receivables 6184.9 6743.0 7337.0 vider Organizations (PPOs), and specialty products, including den- ees. BlackRock, Inc. owns 9.1% of stock; Officers and Directors, Other 26469.0 23644.0 27977.0 tal, vision, mental health, and life insurance. Had 39.9 million mem- less than 1% (4/19 Proxy). Chairman & CEO: Gail Boudreaux. In- Current Assets 36262.8 34321.0 39504.0 bers as of 12/31/18. Commercial Business accounted for 39% of corporated: DE. Address: 220 Virginia Avenue, Indianapolis, IN Accts Payable 6412.0 6301.0 4445.0 Debt Due 1274.6 849.0 700.0 operating revenue and 66% of operating profits in 2018; Govern- 46204. Telephone: 317-488-6000. Internet: www.anthem.com. Other 15669.4 14815.0 18089.0 Anthem reported solid third-quarter has also grown more difficult to quantify, Current Liab. 23356.0 21965.0 23234.0 results driven by broad-based enroll- and so Medicaid may remain a headwind ANNUAL RATES Past Past Est’d ’16-’18 ment growth. The managed-care organi- deep into 2020. of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Revenues 12.5% 10.5% 9.0% zation generated adjusted share earnings The company ought to benefit from a ‘‘Cash Flow’’ 9.5% 7.5% 15.5% of $4.87 on total revenues of $26.67 billion, series of tailwinds heading into next Earnings 9.0% 8.5% 18.5% compared to our top- and bottom-line es- year. For one, Anthem’s pharmacy busi- Dividends - - 18.0% 13.0% Book Value 9.5% 5.5% 14.0% timates of $26.2 billion and $4.80 per ness is on track to have all of its members share. It experienced an 864,000 life in- transferred over to the IngenioRX platform Cal-QUARTERLY REVENUES ($ mill.) Full crease in enrollment through its Govern- by the beginning of the term. IngenioRX’s endarMar.31 Jun.30 Sep.30 Dec.31 Year ment vertical, supported by growth in first full year in action ought to combine 2016 20289 21456 21404 21714 84863 Medicare and Medicaid. Meanwhile, a rise with recovering Medicaid margins, enroll- 2017 22526 22407 22426 22680 90039 in National and Individual business enrol- ment growth, and internal capital invest- 2018 22537 22944 23251 23373 92105 lees offset a modest decline in the Local ments to drive margin expansion and a 2019 24666 25466 26674 27454 104260 group to bring Commercial & Specialty high double-digit earnings increase over 2020 28190 29380 29525 30025 117120 business enrollment up by 219,000 lives. that time frame. At present, resumption of Cal-EARNINGS PER SHARE A Full The medical loss ratio (MLR) remains the ACA industry fee, which ought to endarMar.31 Jun.30 Sep.30 Dec.31 Year pretty high. This is particularly true in shave about $0.50 off of earnings, 2016 2.63 2.91 2.30 1.37 9.21 Medicaid, which represented somewhat of represents what is likely to be the largest 2017 3.72 3.16 2.80 .53 10.21 a headwind for Anthem in the third detriment to the company’s performance. 2018 5.41 4.25 3.81 2.44 15.89 quarter. On a year-over-year basis, mar- However, broad-based enrollment growth, 2019 6.03 4.64 4.87 3.91 19.45 2020 7.35 5.85 5.50 4.55 23.25 gins there expanded roughly 60 basis and expansion in Medicare Advantage, points, but we were looking for a stronger ought to keep stock price momentum on Cal-QUARTERLY DIVIDENDS PAID B Full recovery after they contracted some 180 the rise. endarMar.31 Jun.30 Sep.30 Dec.31 Year basis points through the first six months Anthem stock has maintained an up- 2015 .625 .625 .625 .625 2.50 of the year. This resulted in an MLR of ward trajectory in recent months. 2016 .65 .65 .65 .65 2.60 87.2%, and it led management to raise its That said, we think these shares still have 2017 .65 .65 .70 .70 2.70 outlook for MLR in 2019 by 15-25 basis room to run over the long haul. 2018 .75 .75 .75 .75 3.00 2019 .80 .80 .80 points. The timetable on rate negotiations Robert J. Scrudato December 6, 2019 (A) Diluted earnings. Next earnings report due share count. (B) Dividend initiated in 2011. His- (D) In millions, adjusted for stock split. Company’s Financial Strength A late January. Excludes nonrecurring gain of torically paid in March, June, Sep., and Dec. (E) Excludes investments. Stock’s Price Stability 75 $4.93 a share in ’09; $4.14, ’17. Quarterlies (C) Includes intangibles. In ’18: $29.5 billion; Price Growth Persistence 85 may not sum to total due to changes in the $114.82/share. Earnings Predictability 70 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: NMF RELATIVE DIV’D VALUE BROOKDALE SENIOR NYSE-BKD PRICE 7.19RATIO NMF()Median: NMF P/E RATIO NMFYLD Nil LINE 793 TIMELINESS 4 Lowered 8/9/19 High: 28.3 20.7 22.2 28.3 26.1 30.7 37.0 39.9 19.7 16.3 10.4 8.8 Target Price Range Low: 3.0 2.5 12.7 11.0 15.0 24.4 26.1 16.6 10.6 8.8 6.1 6.0 2022 2023 2024 SAFETY 5 Lowered 9/6/19 LEGENDS 8.0 x ″Cash Flow″ psh TECHNICAL 3 Lowered 12/6/19 .... Relative Price Strength 40 Options: Yes 32 BETA 1.35 (1.00 = Market) Shaded area indicates recession 24 18-Month Target Price Range Low-High Midpoint (% to Mid) 16 12 $3-$9 $6 (-20%) 10 2022-24 PROJECTIONS 8 Ann’l Total Price Gain Return 6 High 20 (+180%) 29% Low 12 (+65%) 13% 4 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 60 to Buy 79 82 62 1 yr. -17.7 4.9 shares 40 3 yr. -49.1 30.2 to Sell 87 93 98 traded 20 Hld’s(000) 178669 171927 174750 5 yr. -78.2 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 - - 10.18 12.16 12.94 18.04 18.32 16.42 17.80 18.39 19.30 20.48 18.22 22.50 22.86 20.67 18.87 17.75 17.65 Revenues per sh G 19.80 - - .66 d.02 .79 1.35 1.16 1.67 1.96 1.60 1.47 2.13 2.11 1.46 .63 d.48 d.43 1.05 1.40 ‘‘Cash Flow’’ per sh F 2.15 - - d.15 d.78 d1.34 d1.60 d1.51 d.60 d.41 d.56 d.54 d.03 d1.01 d2.48 d2.18 d3.07 d2.82 d1.25 d.95 Earnings per sh A d.50 - - - - .25 1.55 1.95 1.25 ------Nil Nil Div’ds Decl’d per sh B Nil - - .58 9.15 20.11 3.35 1.80 .95 .75 1.28 1.65 2.07 1.66 2.18 1.80 1.15 1.21 1.20 1.20 Cap’l Spending per sh 1.35 - - .62 9.70 17.42 13.93 9.13 8.82 8.53 8.30 7.91 8.21 15.70 13.06 11.21 8.20 5.46 4.20 3.35 Book Value per sh C 1.35 - - 64.90 65.01 101.26 101.94 105.26 123.21 124.32 125.35 126.69 124.35 183.51 188.34 185.45 186.57 186.60 187.00 187.00 Common Shs Outst’g D 187.00 ------Bold figures are Avg Ann’l P/E Ratio NMF ------Value Line Relative P/E Ratio NMF ------3.7% 4.7% 6.7% ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 2023.1 2213.3 2305.4 2445.1 2546.2 3343.5 4237.3 4239.4 3856.0 3521.2 3315 3300 Revenues ($mill) G 3700 Total Debt $4432.0 mill. Due in 5 Yrs $2016 mill. 15.5% 16.8% 16.2% 14.4% 16.2% 13.5% 13.4% 11.5% 5.5% NMF 13.0% 14.5% Operating Margin 16.0% LT Debt $4025.6 mill. LT Interest $215.0 mill. 271.9 292.3 268.5 252.3 268.8 537.0 733.2 520.4 482.1 447.5 425 440 Depreciation ($mill) 500 (Interest not earned) (84% of Cap’l) Leases, Uncapitalized Annual rentals $310.3 mill. d66.3 d48.9 d68.2 d65.7 d3.6 d149.0 d457.5 d404.4 d571.4 d528.3 d230 d175 Net Profit ($mill) d95.0 ------NMF NMF Income Tax Rate NMF No Defined Pension Benefit Plan NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF Net Profit Margin NMF d371.9 d278.3 d340.1 d812.5 d575.9 d263.0 d342.3 d111.6 d193.9 .7 170 220 Working Cap’l ($mill) 320 Pfd Stock None 2459.3 2498.6 2416.0 2169.8 2434.6 5993.7 6196.8 5829.9 4539.8 4197.1 3900 3650 Long-Term Debt ($mill) 3225 Common Stock 185,594,591 shs. 1086.6 1060.0 1040.2 1002.7 1020.9 2881.7 2458.9 2078.0 1530.7 1018.9 790 625 Shr. Equity ($mill) 250 as of 11/1/19 NMF .5% NMF NMF 1.7% NMF NMF NMF NMF NMF NMF NMF Return on Total Cap’l NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF Return on Shr. Equity NMF MARKET CAP: $1.3 billion (Mid Cap) NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF Retained to Com Eq NMF CURRENT POSITION 2017 2018 9/30/19 ------Nil Nil All Div’ds to Net Prof Nil ($MILL.) Cash Assets 514.4 413.2 291.2 BUSINESS: Brookdale Senior Living Incorporated, through its sub- sisted living facilities. Has about 43,200 full-time employees as of Receivables 129.0 133.9 140.7 sidiaries, operates senior living facilities in the United States. These 12/31/18. All directors and executive officers jointly own 1.2% of E Other 258.5 226.9 196.6 facilities offer residents a supportive home-like setting and as- common stock (8/19 Proxy). Chairman: Lee Wielansky. President & Current Assets 901.9 774.0 628.5 sistance with activities of daily living. Also provides licensed nursing CEO: Lucinda Baier. Incorporated: Delaware. Address: 111 Accts Payable 91.8 95.0 106.1 Debt Due 602.5 317.5 406.4 services. Acquired Emeritus Corporation (7/14). The company Westwood Place, Suite 400, Brentwood, TN 37027. Telephone: Other 401.5 360.8 545.6 owns 892 communities in 45 states, including independent and as- 615-221-2250. Internet: www.brookdaleliving.com. Current Liab. 1095.8 773.3 1058.1 Brookdale Senior Living seems to be community revenue per occupied unit in- ANNUAL RATES Past Past Est’d ’16-’18 nearing the end of a multiyear foot- creased 3%, year over year, to $4,880. of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 print reduction phase. Back in 2014, However, occupancy remains a challenge, Revenues 2.5% 1.5% -1.0% ‘‘Cash Flow’’ - - - - NMF the company closed an acquisition of an- and this metric declined 80 basis points, to Earnings - - - - NMF other large senior care company, but with 84.5%. Meanwhile, facility-level overhead Dividends - - - - Nil a problematic integration, its financials increased almost 8%, despite the smaller Book Value -5.0% .5% -26.0% have been under stress ever since. The footprint. Higher employee wages and ben- Cal-QUARTERLY REVENUES ($ mill.) AG Full company has used asset sales to reduce efits were the chief reason, while elevated endarMar.31 Jun.30 Sep.30 Dec.31 Year balance sheet leverage and has also ceased marketing, insurance premium, and prop- 2016 1078 1073 1058 1030 4239.4 operations at numerous underperforming erty remediation charges also factored in. 2017 1032.8 956.5 941.0 925.7 3856.0 care centers. Through 12 months ending On the other hand, corporate overhead 2018 924.9 913.0 858.7 824.5 3521.2 September 30th, BKD disposed of 77 com- was trimmed some due to reduced stock- 2019 825.2 817.3 814.8 857.7 3315 munities via sales and lease terminations. based compensation. 2020 800 825 825 850 3300 Going into the final stanza of 2019, These shares remain untimely. The Cal-EARNINGS PER SHARE A Full Brookdale had six communities clas- majority of monetization efforts are sup- endarMar.31 Jun.30 Sep.30 Dec.31 Year sified as held for sale. The divestitures posed to wrap up soon. Afterwards, BKD 2016 d.26 d.19 d.28 d1.45 d2.18 should bring in about $60 million, or $30 hopes it can get back on a growth trajec- 2017 d.68 d.25 d2.22 .08 d3.07 million after associated debt is paid off. tory by opening new locations and pursu- 2018 d2.45 d.88 d.20 .70 d2.82 The company is also selling its interest in ing acquisitions. The hospice industry 2019 d.23 d.30 d.42 d.30 d1.25 a joint venture that will result in it gain- backdrop is also highly favorable; census 2020 d.25 d.25 d.25 d.20 d.95 ing ownership of 18 communities that are has broadly increased ever since Medicare Cal-QUARTERLY DIVIDENDS PAID Full currently leased, and should produce net changes permitted curative treatment endarMar.31 Jun.30 Sep.30 Dec.31 Year proceeds of $208 million. We expect this alongside traditional hospice services. 2015 windfall to be used primarily on debt re- Recovery potential is substantial here, but 2016 NO CASH DIVIDENDS duction. we think that most investors would prefer 2017 BEING PAID Operating results have shown only to remain on the sidelines until the funda- 2018 modest improvement. Resident fees im- mentals look healthier. 2019 proved 2% last quarter, as same- Jeffrey Hirt December 6, 2019 (A) Diluted earnings. May not sum due to 2009. (C) Includes intangibles: In ’18: $205.6 Target Price Range based on 8.0x Cash Flow Company’s Financial Strength C+ rounding. Excludes non-recurring gains and million, $1.10 a share. (D) In millions. (E) Incl. per share. (G) Revenues exclude reimbursed Stock’s Price Stability 20 (losses): ’08, ($2.16). Next earnings report due current restr. cash assets: ’17, $37.2 mill.; ’18, costs incurred on behalf of managed com- Price Growth Persistence 20 mid-February. (B) Dividends suspended in $27.7 mill.; 9/30/19, $33.3 mill. (F) Projected munities. Earnings Predictability 20 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 14.0 RELATIVE DIV’D VALUE CENTENE CORP. NYSE-CNC PRICE 61.17RATIO 13.2()Median: 16.0 P/E RATIO 0.75YLD Nil LINE 794 TIMELINESS 3 Lowered 4/12/19 High: 7.1 5.6 6.6 10.2 12.7 17.0 27.1 41.5 37.8 52.3 74.5 69.2 Target Price Range Low: 3.3 3.8 4.4 6.3 6.1 10.1 13.8 25.5 23.7 28.0 48.8 41.6 2022 2023 2024 SAFETY 3 New 3/13/15 LEGENDS 12.0 x ″Cash Flow″ psh TECHNICAL Lowered 11/29/19 .... Relative Price Strength 160 5 2-for-1 split 2/15 BETA 1.05 (1.00 = Market) 2-for-1 split 2/19 120 Options: Yes 2-for-1 100 18-Month Target Price Range Shaded area indicates recession 80 Low-High Midpoint (% to Mid) 60 2-for-1 50 $39-$97 $68 (10%) 40 2022-24 PROJECTIONS 30 Ann’l Total Price Gain Return 20 High 115 (+90%) 17% Low 80 (+30%) 7% 15 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 45 to Buy 349 670 373 1 yr. -18.5 4.9 shares 30 3 yr. 69.9 30.2 to Sell 356 148 378 traded 15 Hld’s(000) 373092 374958 406941 5 yr. 129.1 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 4.78 6.06 8.76 13.14 16.71 19.57 22.50 22.41 26.25 41.41 49.09 73.54 94.56 119.41 139.49 145.75 179.70 190.35 Revenues per sh 221.30 .25 .33 .40 .17 .40 .70 .71 .72 .86 .41 1.03 1.59 1.94 2.95 3.60 4.62 6.05 6.45 ‘‘Cash Flow’’ per sh 8.20 .22 .26 .31 .05 .24 .48 .49 .45 .56 .09 .72 1.12 1.45 2.22 2.52 3.54 4.45 4.85 Earnings per sh A 6.50 ------Nil Nil Div’ds Decl’d per sh Nil .12 .15 .16 .29 .31 .38 .46 .32 .36 .39 .31 .46 .62 .90 1.22 1.64 1.65 1.65 Cap’l Spending per sh 1.75 1.37 1.64 2.05 1.88 2.38 2.92 3.40 4.00 4.60 4.55 5.58 7.74 8.96 17.34 19.75 26.47 30.20 34.45 Book Value per sh B 50.25 161.06 165.26 171.95 173.48 174.67 171.95 182.37 198.47 203.46 209.32 221.28 225.18 240.69 340.06 346.86 412.47 414.00 415.00 Common Shs Outst’g C 418.00 14.4 19.0 23.5 NMF 23.4 10.3 9.7 12.3 14.6 NMF 18.4 17.0 22.3 14.2 16.1 17.3 Bold figures are Avg Ann’l P/E Ratio 15.0 .82 1.00 1.25 NMF 1.24 .62 .65 .78 .92 NMF 1.03 .89 1.12 .75 .81 .93 Value Line Relative P/E Ratio .85 ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 4102.9 4448.3 5340.6 8667.6 10863 16560 22760 40607 48382 60116 74400 79000 Revenues ($mill) 92500 Total Debt $7041 mill. Due in 5 Yrs $2626 mill. 4.4% 4.7% 4.7% .8% 3.2% 3.3% 3.6% 4.4% 3.8% 4.4% 4.2% 4.5% Operating Margin 5.0% LT Debt $6975 mill. LT Interest $250 mill. 44.0 52.0 58.3 65.9 67.4 89.0 111.0 278.0 361.0 495.0 630 635 Depreciation ($mill) 675 Includes $47 mill. in capital leases (Total interest coverage: 7.0x) (36% of Cap’l) 86.1 90.9 116.7 20.1 161.2 268.0 356.0 726.0 889.0 1411.0 1870 2050 Net Profit ($mill) 2750 35.5% 38.8% 37.9% 57.8% 39.8% 42.9% 48.6% 48.1% 39.1% 30.9% 25.0% 26.0% Income Tax Rate 26.0% Leases, Uncapitalized Annual rentals $174.0 mill. 2.1% 2.0% 2.2% .2% 1.5% 1.6% 1.6% 1.8% 1.8% 2.3% 2.5% 2.6% Net Profit Margin 3.0% No Defined Benefit Pension Plan d99.8 d108.5 102.4 176.5 241.1 134.0 d24.0 d258.0 d629.0 27.0 100 100 Working Cap’l ($mill) 200 307.1 327.8 348.3 535.5 665.7 888.0 1216.0 4651.0 4695.0 6648.0 6800 6800 Long-Term Debt ($mill) 7000 Pfd Stock None 619.4 793.9 935.6 953.1 1234.0 1744.0 2157.0 5895.0 6850.0 10917 12500 14300 Shr. Equity ($mill) B 21000 Common Stock 413,796,072 shs. 10.2% 8.9% 9.9% 2.0% 9.2% 10.8% 11.2% 7.8% 8.8% 9.0% 10.5% 10.5% Return on Total Cap’l 10.5% as of 10/11/19 13.9% 11.5% 12.5% 2.1% 13.1% 15.4% 16.5% 12.3% 13.0% 12.9% 15.0% 14.5% Return on Shr. Equity 13.0% MARKET CAP: $25.3 billion (Large Cap) 13.9% 11.5% 12.5% 2.1% 13.1% 15.4% 16.5% 12.3% 13.0% 12.9% 15.0% 14.5% Retained to Com Eq 13.0% CURRENT POSITION 2017 2018 9/30/19 ------Nil Nil All Div’ds to Net Prof Nil ($MILL.) Cash Assets 4603 6064 7019 BUSINESS: Centene Corporation provides services to government- rectional healthcare services, and pharmacy benefits management. Receivables 3413 5150 5606 sponsored healthcare programs targeting under-insured and Acquired Fidelis Care, 7/18; Health Net, 3/16. Has about 47,300 Other 687 784 832 uninsured individuals. It offers health plan coverage through employees. Officers & directors own 2.5% of common stock; Current Assets 8703 11998 13457 government-subsidized programs such as Medicaid, Medicare, and Vanguard, 10.1%; BlackRock, 8.8% (3/19 Proxy). Chairman & Accts Payable 4165 4051 4010 Debt Due 4 38 66 state-sponsored programs. Centene also provides specialty serv- CEO: Michael Neidorff. Inc.: DE. Address: 7700 Forsyth Boulevard, Other 5163 7882 9204 ices including behavioral health, care management software, cor- St. Louis, MO 63105. Tel: 314-725-4477. Web: www.centene.com. Current Liab. 9332 11971 13280 Centene’s acquisition of WellCare fee in 2019 and a one-time benefit last ANNUAL RATES Past Past Est’d ’16-’18 Health Plans is moving forward. In year from an expired contract. Earnings of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 March, the company agreed to buy Well- per share increased 8%, to $0.96. Revenues 23.5% 28.0% 8.5% ‘‘Cash Flow’’ 24.5% 37.0% 14.0% Care for $17 billion, to be paid in a mix of Management reaffirmed its 2019 guid- Earnings 27.0% 43.5% 15.5% cash and stock. The purchase would create ance. The company continues to look for Dividends - - - - Nil a market leader in government-sponsored revenue of $73.6 billion to $74.2 billion, Book Value 24.5% 34.0% 15.5% healthcare programs, expanding Centene’s suggesting $18.1 billion in the final Cal-QUARTERLY REVENUES ($ mill.) Full reach to all 50 states. We think WellCare, quarter, a 10% improvement. The HBR is endarMar.31 Jun.30 Sep.30 Dec.31 Year with its strength in Medicare Advantage expected to range from 86.6% to 87.1%, a 2016 6953 10897 10846 11911 40607 and Part D, is a good complement to the rise from 85.9% last year, mostly from the 2017 11724 11954 11898 12806 48382 company’s business. Conditional approval suspension of the health insurer fee. Earn- 2018 13194 14181 16182 16559 60116 has been obtained from nearly all the state ings per share remain on track to reach 2019 18444 18356 18976 18624 74400 regulatory bodies, and Centene recently $4.29 to $4.49, implying $0.70 at the mid- 2020 19600 19600 19800 20000 79000 priced $7 billion in senior notes to help point for the December period. Our fourth- Cal-EARNINGS PER SHARE A Full fund the cash portion of the purchase. The quarter revenue and earnings estimates endarMar.31 Jun.30 Sep.30 Dec.31 Year deal is on track to close in the first half of are little changed at $18.6 billion and 2016 .37 .65 .58 .60 2.22 2020. Our financial presentation reflects $0.76 per share. Centene’s preliminary 2017 .56 .79 .68 .49 2.52 the company in its current configuration. guidance for 2020 includes $79 million in 2018 1.09 .90 .89 .69 3.54 Meanwhile, Centene reported strong revenue and $4.79 in earnings per share. 2019 1.39 1.34 .96 .76 4.45 third-quarter results. Revenue rose 17% As a result, we remain comfortable with 2020 1.50 1.40 1.10 .85 4.85 to $19.0 billion, driven by growth in the our 2020 revenue and earnings estimates Cal-QUARTERLY DIVIDENDS PAID Full health insurance marketplace business. In of $79 billion and $4.85, representing an- endarMar.31 Jun.30 Sep.30 Dec.31 Year the September quarter, membership ad- nual growth of 6% and 9%. 2015 vanced 6%, to 15.3 million individuals. This stock is neutrally ranked for 2016 NO CASH DIVIDENDS Costs grew faster than the top line, with year-ahead performance. However, ap- 2017 BEING PAID the health benefits ratio (HBR) rising from preciation potential out to 2022-2024 is 2018 86.3% to 88.2%. Most of the increase was above the Value Line median. 2019 due to the suspension of the health insurer Christopher Joseph, CFA December 6, 2019 (A) Diluted earnings. Excludes nonrecurring rounding or change in shares outstanding. Next (C) In millions, adjusted for splits. Company’s Financial Strength B++ gains/(losses): ’06, $1.22; ’11, (11¢); ’12, earnings report due early February. Stock’s Price Stability 45 (34¢); ’16, ($1.02); ’17, (34¢); ’18, ($2.49); ’19, (B) Includes intangibles. In 2018, $9.3 billion, Price Growth Persistence 95 ($1.04). Qly figures may not sum to total due to $22.44/share. Earnings Predictability 40 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 13.4 RELATIVE DIV’D VALUE CIGNA CORPORATION NYSE-CI PRICE 203.87RATIO 11.4()Median: 11.0 P/E RATIO 0.64YLD Nil LINE 795 TIMELINESS 2 Raised 12/6/19 High: 57.0 38.1 39.3 52.9 54.5 88.6 105.7 170.7 149.0 212.5 227.1 205.2 Target Price Range Low: 8.0 12.7 29.1 36.8 39.0 53.9 73.5 100.7 115.0 133.5 163.0 142.0 2022 2023 2024 SAFETY 3 Lowered 6/7/19 LEGENDS 10.0 x ″Cash Flow″ psh 640 TECHNICAL 5 Lowered 11/1/19 .... Relative Price Strength 3-for-1 split 6/07 480 BETA 1.00 (1.00 = Market) Options: Yes 400 Shaded area indicates recession 18-Month Target Price Range 320 Low-High Midpoint (% to Mid) 240 200 $128-$254 $191 (-5%) 160 2022-24 PROJECTIONS 120 Ann’l Total Price Gain Return 80 High 390 (+90%) 18% Low 260 (+30%) 7% 60 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 45 to Buy 976 463 398 1 yr. -16.5 4.9 shares 30 3 yr. 50.3 30.2 to Sell 239 690 605 traded 15 Hld’s(000) 331517 335206 333987 5 yr. 79.5 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 36.61 35.95 37.67 46.09 53.68 59.72 58.49 67.65 70.52 91.94 103.75 118.82 131.98 137.66 152.37 127.72 371.30 389.35 Revenues per sh A 447.35 2.17 3.21 3.48 4.29 4.78 4.38 4.98 5.77 6.55 8.05 9.06 9.79 11.07 10.55 13.26 11.16 27.00 28.55 ‘‘Cash Flow’’ per sh 36.60 1.58 2.52 2.68 3.15 3.96 3.42 3.98 4.64 5.21 5.99 6.78 7.43 8.66 8.10 10.46 14.22 16.95 18.65 Earnings per sh B 24.85 .44 .14 .03 .03 .04 .05 .04 .04 .04 .04 .04 .04 .04 .04 .04 .04 .04 .05 Div’ds Decl’d per sh C■ .05 ------.46 .94 .95 1.12 1.10 1.56 1.43 1.89 1.79 1.99 1.79 1.93 1.39 2.15 2.25 Cap’l Spending per sh 2.50 10.71 13.14 14.74 14.63 16.98 13.24 19.80 24.51 30.82 34.30 37.83 40.83 46.91 53.40 56.30 107.71 123.30 140.00 Book Value per sh 202.65 421.77 396.02 363.57 295.96 279.59 271.31 274.26 271.88 270.69 284.82 279.30 263.89 256.54 257.05 243.97 380.92 373.00 375.00 Common Shs Outst’g D 380.00 10.1 8.7 12.7 12.1 12.8 10.5 6.2 7.4 8.6 7.8 10.6 12.1 15.5 16.4 16.3 13.3 Bold figures are Avg Ann’l P/E Ratio 13.0 .58 .46 .68 .65 .68 .63 .41 .47 .54 .50 .60 .64 .78 .86 .82 .72 Value Line Relative P/E Ratio .70 2.7% .6% .1% .1% .1% .1% .2% .1% .1% .1% .1% NMF NMF NMF NMF NMF estimates Avg Ann’l Div’d Yield NMF CAPITAL STRUCTURE as of 9/30/19 16041 18393 19089 26187 28976 31355 33859 35386 37174 48650 138500 146000 Revenues ($mill) 170000 33.7% 29.7% 31.1% 28.6% 24.8% 27.8% 26.6% 32.5% 31.8% 12.0% 10.3% 10.5% Operating Margin 11.0% Total Debt $38753 mill. Due in 5 Yrs $22226 mill. 268.0 292.0 345.0 560.0 597.0 588.0 585.0 610.0 566.0 695.0 3630 3660 Depreciation ($mill) 4400 LT Debt $34041 mill. LT Interest $490 mill. (Total interest coverage: 6.0x) (43% of Capital) 1097.0 1277.0 1428.0 1734.0 1933.0 1996.0 2256.0 2103.0 2668.0 3557.0 6450 7050 Net Profit ($mill) 9500 32.4% 28.6% 30.9% 33.0% 26.5% 36.6% 37.6% 37.3% 35.0% 22.5% 22.0% 24.0% Income Tax Rate 24.0% Leases, Uncapitalized Annual rentals $199.0 mill. 6.8% 6.9% 7.5% 6.6% 6.7% 6.4% 6.7% 5.9% 7.2% 7.3% 4.7% 4.8% Net Profit Margin 5.6% Pension Assets-12/18 $4.2 bill. Oblig. $5.0 bill. d3378 d3156 d206.0 d1855 d656.0 d1882 d409.0 d428.0 d460.0 d11465 d10000 d12000 Working Cap’l ($mill) d15000 2436.0 2288.0 4990.0 4986.0 5014.0 5005.0 5020.0 4756.0 5199.0 39523 34000 30000 Long-Term Debt ($mill) 30000 Pfd Stock None 5429.0 6663.0 8344.0 9769.0 10567 10774 12035 13727 13735 41028 46000 52500 Shr. Equity ($mill) 77000 Common Stock 373,425,371 shs. 15.0% 15.2% 11.4% 12.6% 13.2% 13.5% 13.9% 12.0% 14.7% 4.7% 8.0% 8.5% Return on Total Cap’l 9.0% as of 10/15/19 20.2% 19.2% 17.1% 17.8% 18.3% 18.5% 18.7% 15.3% 19.4% 8.7% 14.0% 13.5% Return on Shr. Equity 12.5% MARKET CAP: $76.1 billion (Large Cap) 20.0% 19.0% 17.0% 17.6% 18.2% 18.4% 18.7% 15.2% 19.4% 8.6% 14.0% 13.5% Retained to Com Eq 12.5% CURRENT POSITION 2017 2018 9/30/19 1% 1% 1% 1% 1% 1% NMF 1% NMF NMF NMF NMF All Div’ds to Net Prof NMF ($MILL.) Cash Assets 2972 3855 4577 BUSINESS: Cigna Corporation provides insurance products and were 16% of ’18 revenues. Acquired Express Scripts, 12/18. Has Receivables 3380 10473 11719 services, including medical, dental, disability, and life insurance, about 73,800 employees. Officers and directors own .8% of com- Inventory (FIFO) - - 2821 2160 Other - - 3281 2712 through employer-based, government-sponsored, and individual- mon stock; Vanguard, 7.5%; T. Rowe Price, 7.2% (3/19 proxy). Current Assets 6352 20430 21168 coverage arrangements. U.S. health insurance products (65%) and Chairman: Isaiah Harris, Jr. President & CEO: David M. Cordani. Accts Payable 6572 4366 4502 pharmacy benefit management (14%) accounted for nearly 80% of Inc.: DE. Address: 900 Cottage Grove Road, Bloomfield, CT 06002. Debt Due 240 2955 4712 ’18 revenues. Premiums and fees from the U.S. government (CMS) Telephone: 215-761-3516. Internet: www.cigna.com. Other - - 24574 25233 Current Liab. 6812 31895 34447 Cigna posted strong results for the number of medical customers is likely to third quarter. The top line climbed on a grow a modest 1.0%-1.5%, on weakness in ANNUAL RATES Past Past Est’d ’16-’18 mix of organic growth and the addition of large commercial accounts. Meanwhile, of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Revenues 10.0% 9.5% 21.5% Express Scripts, the pharmacy benefit medical costs remain on target to rise ‘‘Cash Flow’’ 10.0% 8.0% 21.0% manager Cigna purchased late last year. 3.5%-4.5%. New earnings guidance of Earnings 12.0% 13.0% 14.5% Health Services revenue was $24.9 billion $16.80-$17.00 per share is up $0.15 at the Dividends -.5% - - 4.0% Book Value 17.0% 16.0% 18.5% against $1.1 billion in 2018, reflecting the midpoint. We have raised our share-net acquisition and 2.4 million more pharmacy call $0.15, to $16.95. We were encouraged Cal-QUARTERLY REVENUES ($ mill.) A Full customers. Revenue in the U.S. health in- to hear management project a strong 97% endarMar.31 Jun.30 Sep.30 Dec.31 Year surance business grew 12%, to $9.1 billion, retention rate in Health Services custom- 2016 8947 8851 8761 8827 35386 driven by a 1% rise in medical customers, ers for next year. Our 2020 earnings es- 2017 9326 9202 9234 9412 37174 to 15.5 million, premium increases, and timate of $18.65 per share continues to re- 2018 11413 11480 11457 14300 48650 the inclusion of Express’ Medicare Part D flect a 10% annual gain. 2019 33429 34375 35833 34863 138500 2020 36000 36500 36500 37000 146000 business. As for costs, the medical care Cigna has been paying down debt. The ratio rose a couple of percentage points to company took on more than $20.0 billion Cal-EARNINGS PER SHARE B Full 80.5%, reflecting the effect of the suspen- in debt to buy Express. In the nine months endarMar.31 Jun.30 Sep.30 Dec.31 Year sion of the health insurance tax in 2019. through October, Cigna paid off $3.7 bil- 2016 2.32 1.98 1.94 1.87 8.10 Net income improved 82% to $1.7 billion. lion in debt and expects to repay another 2017 2.77 2.91 2.83 1.94 10.46 But on the higher share base from the $500 million by yearend, in an effort to 2018 4.11 3.89 3.84 2.46 14.22 2019 3.90 4.30 4.54 4.21 16.95 equity financing portion of the Express ac- bring the ratio of debt to total capital un- 2020 4.55 4.65 4.85 4.60 18.65 quisition, share net rose 18%, to $4.54. der 40% by 2020’s end. We figure leverage Management lifted its 2019 financial is likely to fall to 33% by then, which is C■ Cal-QUARTERLY DIVIDENDS PAID Full outlook. The company now looks for reve- more in line with pre-acquisition levels. endarMar.31 Jun.30 Sep.30 Dec.31 Year nue of $138 billion, up $1.5 billion from This stock is favorably ranked for 2015 -- .04 -- -- .04 earlier guidance. Pharmacy scripts remain year-ahead performance. Plus, appreci- 2016 -- .04 -- -- .04 on track to hit 1.2 billion, suggesting a 3% ation potential out to 2022-2024 is above 2017 -- .04 -- -- .04 sequential rise to 322 million in the fourth the Value Line median. 2018 -- .04 -- -- .04 2019 -- .04 -- quarter. In the insurance business, the Christopher Joseph, CFA December 6, 2019 (A) Before ’18, premiums and fees only. $1.50; ’06, 28¢; ’07, (8¢); ’08, ($2.37); ’09, 75¢; ‘08, 1¢. Qly. figs. may not add due to change in Company’s Financial Strength A (B) Incl. cap. gains/(losses): ’03, 23¢. Begin- ’10, 25¢; ’11, (37¢); ’12, (38¢); ’13, ($1.60); ’14, shs. out’g. Next egs. report due February 6th. Stock’s Price Stability 60 ning with ’04, adj. inc. from cont. ops., ex. cap. 40¢; ’15, (62¢); ’16, (91¢), ’17, ($1.69); ’18, (C) Div’d payable annually in Q2. ■ DRIP avail. Price Growth Persistence 95 gains/(losses) and nonrec. items: ‘04, 96¢; ’05, ($3.68);’19, ($1.91). Excl. disc. ops.: ‘07, (1¢); (D) In millions. Earnings Predictability 85 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: NMF RELATIVE DIV’D VALUE COMMUNITY HEALTH NYSE-CYH PRICE 3.37RATIO NMF()Median: 16.0 P/E RATIO NMFYLD Nil LINE 796 TIMELINESS – Suspended 7/5/19 High: 40.1 38.0 42.3 42.5 32.7 51.3 57.7 65.0 27.3 10.5 6.4 5.4 Target Price Range Low: 10.5 13.0 25.6 14.6 16.4 30.9 34.6 24.5 4.1 3.9 2.5 1.8 2022 2023 2024 SAFETY 5 Lowered 6/8/18 LEGENDS 2.0 x ″Cash Flow″ psh 64 TECHNICAL – Suspended 7/5/19 .... Relative Price Strength Options: Yes 48 BETA 1.85 (1.00 = Market) Shaded area indicates recession 40 18-Month Target Price Range 32 Low-High Midpoint (% to Mid) 24 20 $1-$5 $3 (-10%) 16 2022-24 PROJECTIONS 12 Ann’l Total Price Gain Return 8 High 9 (+165%) 28% Low 5 (+50%) 10% 6 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 90 to Buy 79 74 69 1 yr. 12.0 4.9 shares 60 3 yr. -33.0 30.2 to Sell 70 79 79 traded 30 Hld’s(000) 117245 115769 115854 5 yr. -93.6 36.8 Community Health Systems was formed in 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 1985 and incorporated in Delaware in 1996. 130.14 140.14 150.45 141.70 136.80 159.68 172.38 161.91 133.91 121.77 111.05 110.20 Revenues per sh 112.00 In 1996 the stock was purchased by Af- 8.68 9.60 10.59 11.33 10.60 13.30 12.74 d5.32 d13.83 d.76 2.15 3.45 ‘‘Cash Flow’’ per sh 5.15 filiates of Forstmann Little & Co. The com- 2.65 3.01 3.33 3.56 2.40 3.29 2.29 d15.28 d21.89 d6.99 d3.10 d1.50 Earnings per sh A .75 pany went public on June 9, 2000, offering ------Nil Nil Div’ds Decl’d per sh Nil 18.75 million shares priced at $13.00 each. 6.20 7.20 8.58 8.36 6.46 7.31 8.45 6.53 4.92 4.53 3.85 4.70 Cap’l Spending per sh 5.00 The IPO, which raised approximately $245 21.66 24.28 27.21 30.41 32.29 34.29 35.64 14.18 d6.69 d13.20 d16.00 d17.65 Book Value per sh C d16.65 million, was underwritten by Merrill Lynch. A 93.04 92.67 90.57 91.95 95.01 116.73 112.76 113.88 114.65 116.25 117.50 117.50 Common Shs Outst’g B 120.00 second offering of 10 million shares was 9.8 11.4 8.1 7.0 17.8 13.9 20.8 - - NMF NMF Bold figures are Avg Ann’l P/E Ratio 9.0 completed on October 30, 2000. .65 .73 .51 .45 1.00 .73 1.05 - - NMF NMF Value Line Relative P/E Ratio .50 estimates CAPITAL STRUCTURE as of 9/30/19 ------Avg Ann’l Div’d Yield Nil Total Debt $13604 mill. Due in 5 Yrs $1826 mill. 12108 12987 13626 13029 12998 18639 19437 18438 15353 14155 13050 12950 Revenues ($mill) D 13450 LT Debt $13286 mill. LT Interest $1040.0 mill. 13.5% 13.3% 13.1% 14.5% 13.8% 15.0% 12.6% 11.4% 7.2% 6.4% 10.0% 11.0% Operating Margin 12.0% (Total interest coverage: Interest not covered) 566.2 609.8 657.7 725.6 782.7 1181.0 1172.0 1100.0 861.0 700.0 610 580 Depreciation ($mill) 530 (over 100% of Cap’l) 241.6 280.0 301.9 316.4 224.7 371.0 264.0 d1706 d2447 d788.0 d355 d175 Net Profit ($mill) 90.0 Leases, Uncapitalized: Annual rentals $188.0 31.7% 31.5% 29.4% 32.7% 31.9% 30.9% 30.5% - - 30.5% NMF NMF NMF Income Tax Rate 20.0% mill. 2.0% 2.2% 2.2% 2.4% 1.7% 2.0% 1.4% NMF NMF NMF NMF NMF Net Profit Margin .7% 1217.2 1229.2 935.0 1275.9 1290.5 1977.0 2094.0 1779.0 1712.0 1157.0 1075 875 Working Cap’l ($mill) 575 8844.6 8808.4 8782.8 9451.4 9286.5 16681 16822 14789 13880 13392 13200 12750 Long-Term Debt ($mill) 11700 2015.4 2250.4 2464.4 2796.5 3067.8 4003.0 4019.0 1615.0 d767.0 d1535 d1900 d2075 Shr. Equity ($mill) d2000 Pfd Stock None 5.2% 5.5% 5.5% 5.1% 4.3% 4.1% 3.6% NMF NMF NMF NMF NMF Return on Total Cap’l 5.5% Common Stock 117,858,473 shs. 12.0% 12.4% 12.3% 11.3% 7.3% 9.3% 6.6% NMF NMF NMF NMF NMF Return on Shr. Equity NMF MARKET CAP: $400 million (Small Cap) 12.0% 12.4% 12.3% 11.3% 7.3% 9.3% 6.6% NMF NMF NMF NMF NMF Retained to Com Eq NMF CURRENT POSITION 2017 2018 9/30/19 ------Nil Nil All Div’ds to Net Prof Nil ($MILL.) Cash Assets 563 196 157 BUSINESS: Community Health Systems engages in the ownership, about 87,000 employees. Off./dir. own 4.5% of common shares out- Receivables 2384 2352 2269 leasing, and operation of general acute care hospitals in non-urban standing; Shanda Asset Management, 23.3%; Blackrock, 14.4%; Inventory (FIFO) 444 402 376 Other 677 599 580 communities in the U.S. As of 3/31/19 it operated 106 hospitals in Vanguard Group, 7.6%; Saba Capital Management, 5.2% (4/19 Current Assets 4068 3549 3382 18 states. Its hospitals offer a wide range of inpatient and outpatient Proxy). Chrmn. & CEO: Wayne T. Smith. President: Tim L. Accts Payable 967 887 743 medical services. Acquired Triad, 7/07; Forum Health, 10/10; Hingtgen. Inc.: DE. Address: 4000 Meridian Boulevard, Franklin, TN Debt Due 33 204 318 Health Management Associates, 1/14. Spun off QHC, 4/16. Has 37067. Telephone: (615) 465-7000. Internet: www.chs.net. Other 1356 1301 1294 Current Liab. 2356 2392 2355 Community Health is getting close to revenues were up 4.1% in the September wrapping up its divestiture program. interim, as volume growth remained ANNUAL RATES Past Past Est’d ’16-’18 of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 A couple of years ago, it set out to create a strong with admissions increasing 2.4% Revenues 11.5% 1.5% -3.5% stronger portfolio of more-profitable hospi- year over year. ‘‘Cash Flow’’ - - - - Nil tals in areas with better growth potential. Net losses should narrow considerab- Earnings - - - - NMF Dividends - - - - Nil Through the first nine months of 2019, it ly this year. Community reported a Book Value -2.0% -12.0% NMF sold 11 facilities (matching last year’s fig- deficit of $0.15 per share in the third ure), representing about $2 billion in net quarter, versus a loss of $2.88 the year be- Cal-QUARTERLY REVENUES ($ mill.) Full revenue. Since the end of the third fore. Based on this better-than-expected endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year quarter, the company divested another showing, we’ve trimmed our full-year loss 2016 4999 4590 4380 4469 18438 hospital, and it has a definitive agreement estimate by $0.40, to a deficit of $3.10. As 2017 4484 4144 3666 3059 15353 2018 3689 3562 3451 3453 14155 to sell three more. Community is pursuing the company’s various initiatives gain fur- 2019 3376 3302 3246 3126 13050 additional interests for sales transactions, ther traction, we expect the red ink will be 2020 3250 3225 3225 3250 12950 and management anticipates completing cut by about half in 2020. the program by mid-2020. The stock has jumped more than 70% Cal-EARNINGS PER SHARE A Full endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year The company has also been investing in value since our early September in various growth and efficiency in- review. However, the move is less im- 2016 .11 d12.79 d.69 d1.91 d15.28 2017 d1.79 d1.17 d.98 d17.95 d21.89 itiatives. These include increasing access pressive considering that it came after the 2018 d.22 d.98 d2.88 d2.91 d6.99 points and strengthening hospital-based stock hit its lowest point in over a decade. 2019 d1.04 d1.47 d.15 d.44 d3.10 inpatient and outpatient services, such as The move serves to illustrate the elevated 2020 d.45 d.40 d.35 d.30 d1.50 urgent care facilities and walk-in clinics. risk and substantial upside potential of Work on the cost side includes supply taking a position here. Overall, the compa- Cal-QUARTERLY DIVIDENDS PAID Full endarMar.31 Jun.30 Sep.30 Dec.31 Year chain and vendor spend reductions, ny’s leaner and stronger portfolio should reorganization of certain nonclinical areas, support a return to profitability in a 2015 and other expense-saving efforts. couple of years. Although we still think 2016 NO CASH DIVIDENDS 2017 BEING PAID As a result of these initiatives, key the shares have room to run, they remain 2018 metrics have continued to improve. best suited to speculative investors. 2019 On a same-hospital basis, net operating Mario Ferro December 6, 2019 (A) Diluted earnings. Excludes nonrecurring (51¢); ’15, (31¢); ’16, (9¢). Quarterly earnings $39.23/share. (D) After provision for bad debts Company’s Financial Strength C+ losses: ’11, 46¢; ’12, (59¢); ’13, (89¢); ’14, may not sum due to rounding. Next earnings beginning in 2012. (E) Ranks suspended Stock’s Price Stability 5 ($1.97); ’15, (61¢). Excludes discontinued op- report due mid-February. (B) In millions. (C) In- 7/5/19 due to low share price. Price Growth Persistence NMF erations: ’09, 1¢; ’11, (64¢); ’12, (1¢); ’14, cludes intangibles: In 2018: $4.56 billion, Earnings Predictability 5 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 16.8 RELATIVE DIV’D VALUE DAVITA INC. NYSE-DVA PRICE 73.39RATIO 13.3()Median: 17.0 P/E RATIO 0.75YLD Nil LINE 797 TIMELINESS 2 New 12/6/19 High: 30.1 31.0 37.3 44.9 58.3 65.7 78.5 85.2 78.8 72.9 80.7 73.4 Target Price Range Low: 20.5 20.6 28.3 29.6 38.3 52.8 62.5 67.3 54.5 52.5 48.3 43.4 2022 2023 2024 SAFETY 3 Lowered 3/9/18 LEGENDS 10.0 x ″Cash Flow″ psh TECHNICAL New 12/6/19 .... Relative Price Strength 160 4 2-for-1 split 9/13 BETA 1.05 (1.00 = Market) Options: Yes 120 Shaded area indicates recession 100 18-Month Target Price Range 2-for-1 80 Low-High Midpoint (% to Mid) 60 50 $34-$72 $53 (-30%) 40 2022-24 PROJECTIONS 30 Ann’l Total Price Gain Return 20 High 135 (+85%) 17% Low 90 (+25%) 6% 15 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 30 to Buy 189 222 167 1 yr. -13.0 4.9 shares 20 3 yr. -0.0 30.2 to Sell 278 210 235 traded 10 Hld’s(000) 142477 145999 147091 5 yr. -24.9 36.8 DaVita, once a subsidiary of Tenet 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 Healthcare, went public in 8/94 through the 29.60 33.58 37.28 38.80 55.19 59.34 65.70 75.79 59.61 68.54 87.85 88.85 Revenues per sh 113.85 sale of 6 mill. sh. at $15.50 ea. DLJ was the 3.16 3.57 4.00 4.52 6.32 6.09 6.98 7.76 6.92 7.20 9.80 10.30 ‘‘Cash Flow’’ per sh 12.75 lead underwriter. After merging with RTC in 2.03 2.19 2.50 3.13 3.81 3.66 3.82 3.85 3.44 3.56 5.15 5.55 Earnings per sh A 6.95 a stock-for-stock transaction in 1998, the ------Nil Nil Div’ds Decl’d per sh Nil company became the second largest pro- 1.33 1.43 2.14 2.61 2.90 2.97 3.38 4.26 4.96 5.93 5.60 5.75 Cap’l Spending per sh 6.30 vider of dialysis in the U.S.. After purchasing 10.34 10.30 11.43 17.84 20.79 23.98 23.22 23.89 25.70 22.26 23.05 26.90 Book Value per sh B 40.40 HealthCare Partners in late 2012, the com- 206.40 192.00 187.28 211.00 213.16 215.64 209.75 194.55 182.46 166.39 130.00 130.00 Common Shs Outst’g C 130.00 pany changed its name to Davita Healthcare 12.5 14.9 15.6 15.2 15.6 19.4 20.2 17.9 18.5 19.2 Bold figures are Avg Ann’l P/E Ratio 16.0 Partners. In March of 2017, the moniker was .83 .95 .98 .97 .88 1.02 1.02 .94 .93 1.03 Value Line Relative P/E Ratio .90 simplified to DaVita Inc. ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 6108.8 6447.4 6982.2 8186.3 11764 12795 13782 14745 10877 11405 11420 11550 Revenues ($mill) 14800 Total Debt $8135.9 mill. Due in 5 Yrs $3500.0 21.7% 21.6% 20.2% 21.2% 20.3% 18.9% 18.2% 17.0% 17.3% 18.2% 19.5% 20.0% Operating Margin 21.0% mill. 229.0 234.4 266.6 342.0 528.7 590.9 638.0 720.3 596.1 591.0 605 620 Depreciation ($mill) 760 LT Debt $8014.5 mill. LT Interest $440.0 mill. (72% of Cap’l) 422.7 451.0 481.6 612.6 817.6 723.1 825.7 789.7 666.0 606.1 670 720 Net Profit ($mill) 900 36.7% 35.3% 35.4% 35.5% 35.7% 34.1% 23.1% 31.7% 40.5% 24.9% 25.0% 26.0% Income Tax Rate 26.0% Leases, Uncap.: Annual rentals $375.0 mill. 6.9% 7.0% 6.9% 7.5% 6.9% 5.7% 6.0% 5.4% 6.1% 5.3% 5.9% 6.2% Net Profit Margin 6.1% No Defined Benefit Pension Plan 1255.6 1698.5 1128.5 860.6 1010.2 1788.1 2104.2 1283.7 5703.2 3533.0 1800 2500 Working Cap’l ($mill) 4300 3532.2 4233.9 4417.6 8326.5 8141.2 8383.3 9001.3 8947.3 9158.0 8172.8 8000 7500 Long-Term Debt ($mill) 6500 Pfd Stock None Common Stock 129,700,000 shs. 2135.1 1978.4 2141.1 3763.1 4432.5 5170.5 4870.8 4648.0 4690.0 3703.4 3000 3500 Shr. Equity ($mill) 5250 as of 11/1/19 9.1% 8.7% 9.1% 6.2% 8.2% 6.8% 7.4% 7.3% 6.3% 6.9% 8.0% 8.5% Return on Total Cap’l 9.0% MARKET CAP: $9.5 billion (Large Cap) 19.8% 22.8% 22.5% 16.3% 18.4% 14.0% 17.0% 17.0% 14.2% 16.4% 22.5% 20.5% Return on Shr. Equity 17.0% CURRENT POSITION 2017 2018 9/30/19 19.8% 22.8% 22.5% 16.3% 18.4% 14.0% 17.0% 17.0% 14.2% 16.4% 22.5% 20.5% Retained to Com Eq 17.0% ($MILL.) ------Nil Nil All Div’ds to Net Prof Nil Cash Assets 551.8 418.4 1457.9 Receivables 1714.7 1858.6 1901.2 BUSINESS: DaVita Inc. provides dialysis services for patients with dialysis rev./treatment, $350. ’18 reimbursement: Inventory 181.8 107.4 98.6 chronic kidney failure through outpatient facilities and hospitals in Medicare/Medicaid, 65%; other gov. 4%, Commercial 31%. Berk- Other 6296.1 6039.8 541.0 the U.S. It offers ancillary services, including lab/pharmacy serv- shire Hathaway owns 23.2% of common; Vanguard, 8.1%; Black- Current Assets 8744.4 8424.2 3998.7 ices, physician network management, transplant services, vascular Rock, 7.8%; Offs. and dirs. less than 1.0% (4/19 proxy). CEO: Accts Payable 509.1 463.3 332.1 Debt Due 178.2 1929.4 121.4 access management, and clinical research. Purchased HealthCare Javier Rodriguez. Inc.: DE. Address: 2000 16th Street, Denver, CO Other 2353.9 2498.5 1753.1 Partners 11/12, sale to UnitedHealth Group now pending. Avg. 80202. Tel.: 303-405-2100. Web: www.davita.com. Current Liab. 3041.2 4891.2 2206.6 DaVita shares have rallied 30%-plus in year. For 2020, we think revenues will ANNUAL RATES Past Past Est’d ’16-’18 value since our September report. only grow by around $130 million versus of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Revenues and earnings for the September the expected 2019 figure. Also, the cal- Revenues 10.5% 9.0% 9.0% ‘‘Cash Flow’’ 11.5% 8.0% 10.0% quarter beat expectations by handsome cimimetics positives will be fading. DVA’s Earnings 9.0% 3.0% 12.0% amounts, and robust share repurchases ability to buy the drugs at low prices and Dividends - - - - Nil have led us to increase our full-year make a gain were amplified in the pass- Book Value 12.0% 7.5% 9.0% bottom-line estimate by $0.35 a share, to through period, which is ending. With Cal-QUARTERLY REVENUES ($ mill.)D Full $5.15. The positive shuffling of a good por- that, comparisons, particularly late in the endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year tion of the company’s debt to the long term year, likely will not bowl anyone over. Too, 2016 3581 3717 3730 3715 14745 (debt due was $3.6 billion just three management is worried about a deteriora- 2017 2631 2699 2765 2780 10876 months ago) was also applauded by the in- tion in the commercial mix. 2018 2849 2887 2847 2821 11405 vestment community, as the effects of a Regulatory headwinds are once again 2019 2743 2843 2904 2930 11420 new credit deal, coupled with the sale of blowing in the Golden State. In 2018, 2020 2775 2875 2940 2960 11550 the medical group to UnitedHealth Group, DVA was able to dodge a bullet. Sub- Cal-EARNINGS PER SHAREAD Full began to be seen. Still, it appears DVA is scribers will recall that Prop 8 (fair pricing endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year simply squeezing all it can out of the cal- for dialysis) was rejected by California 2016 .92 1.01 .95 .97 3.85 cimimetics situation. Calcimimetics are a voters. Now, momentum is growing to add 2017 .79 .92 .81 .92 3.44 drug class used by patients with end-stage a ballot initiative to the November, 2020 2018 1.05 1.05 .56 .90 3.56 renal disorder and for 2018 are included in election docket, which would be amended 2019 .91 1.02 1.53 1.69 5.15 DaVita’s payment under Medicare Part B. from the 2018 proposition but be similar in 2020 1.25 1.05 1.55 1.70 5.55 Previously, the reimbursement fell under its ability to inflict some damage on Cal-QUARTERLY DIVIDENDS PAID Full Part D and traditional pharmacies were dialysis providers. endarMar.31 Jun.30 Sep.30 Dec.31 Year involved. Long story short, costs per treat- This timely selection is also a 2015 ment are down $10 and the vast majority worthwhile choice for capital appreci- 2016 NO CASH DIVIDENDS of that figure is tied to this drug class. ation for the pull to 2022-2024. We cau- 2017 BEING PAID Next year will likely bring more top- tion, though, that risks are elevated at 2018 line stagnation accompanied by a this juncture. 2019 share net gain below 10% year over Erik M. Manning December 6, 2019 (A) Diluted egs. Excludes nonrecurring (C) In mill., adj. for stock splits and div’d. (D) Qtrly. eps. or revs. may not sum to total Company’s Financial Strength B++ gains/(losses): ’10, 22¢; ’16, 44¢; ’17, 3¢. Next due to rounding or change in shares outstand- Stock’s Price Stability 65 earnings report due mid-February. (B) Incl. in- ing. Price Growth Persistence 40 tangibles, in 2018: $7.0 bill., $42.06/share. Earnings Predictability 95 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 19.3 RELATIVE DIV’D VALUE ENCOMPASS HEALTH NYSE-EHC PRICE 71.78RATIO 17.3()Median: 16.0 P/E RATIO 0.98YLD 1.6% LINE 798 TIMELINESS 2 Raised 11/8/19 High: 21.7 20.0 22.2 28.5 25.0 37.0 42.4 48.4 43.4 50.4 82.5 72.9 Target Price Range Low: 7.2 6.7 16.2 13.6 16.5 21.5 29.8 32.6 30.3 38.2 49.2 56.7 2022 2023 2024 SAFETY 3 New 12/13/13 LEGENDS 10.0 x ″Cash Flow″ psh 128 TECHNICAL 3 Raised 11/15/19 .... Relative Price Strength Options: Yes 96 BETA 1.05 (1.00 = Market) Shaded area indicates recession 80 18-Month Target Price Range 64 Low-High Midpoint (% to Mid) 48 40 $54-$99 $77 (5%) 32 2022-24 PROJECTIONS 24 Ann’l Total Price Gain Return 16 High 115 (+60%) 14% Low 80 (+10%) 4% 12 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 45 to Buy 218 209 175 1 yr. -3.2 4.9 shares 30 3 yr. 68.6 30.2 to Sell 220 210 224 traded 15 Hld’s(000) 88444 88806 88953 5 yr. 75.6 36.8 Encompass Health Corp. was originally 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 founded in 1984. It went public on the NAS- 20.48 21.41 21.29 22.59 25.83 27.50 35.09 41.69 40.47 43.32 47.35 51.30 Revenues per sh 60.35 DAQ under the ticker symbol HSRC. In Au- 1.47 2.20 2.23 2.49 3.20 3.63 3.56 4.73 4.55 5.50 6.15 6.90 ‘‘Cash Flow’’ per sh 8.65 gust ’06, the company announced a restruc- .75 1.42 1.42 1.65 2.09 2.24 1.92 2.59 2.75 3.43 3.85 4.45 Earnings per sh A 5.70 turing plan that included the sale, divesti------.18 .78 .88 .94 .98 1.04 1.09 1.16 Div’ds Decl’d per sh D 1.40 ture, and spin off of its surgery, outpatient .77 .76 1.05 1.47 2.22 1.95 1.74 2.28 2.30 2.58 2.35 2.55 Cap’l Spending per sh 2.70 and diagnostic divisions, along with a 1-for-5 d10.64 d1.12 1.03 2.87 4.07 5.41 6.78 8.28 12.04 12.93 15.45 18.70 Book Value per sh C 29.60 stock split. The stock was relisted in Octo- 93.30 93.40 95.20 95.70 87.99 87.49 90.13 88.93 98.14 98.74 97.00 95.00 Common Shs Outst’g B 92.00 ber ’06 on the NYSE under the ticker HLS. 17.8 13.2 15.3 13.0 14.4 16.3 21.8 15.0 16.3 19.2 Bold figures are Avg Ann’l P/E Ratio 17.0 Changed ticker to EHC in January ’18. 1.19 .84 .96 .83 .81 .86 1.10 .79 .82 1.04 Value Line Relative P/E Ratio .95 ------.6% 2.1% 2.1% 2.4% 2.2% 1.6% estimates Avg Ann’l Div’d Yield 1.4% CAPITAL STRUCTURE as of 9/30/19 1911.1 1999.3 2026.9 2161.9 2273.2 2405.9 3162.9 3707.2 3971.4 4277.3 4595 4875 Revenues ($mill) 5550 Total Debt $3399.1 mill. Due in 5 yrs $618.5 mill. 21.9% 21.9% 23.6% 24.2% 25.9% 25.7% 21.7% 22.2% 21.0% 20.6% 22.0% 22.5% Operating Margin 23.0% LT Debt $2961.9 mill. LT Interest $125 mill. 70.9 76.4 78.8 82.5 94.7 107.7 139.7 172.6 183.8 199.7 215 225 Depreciation ($mill) 255 (Total interest coverage: 4.7x) (69% of Cap’l) 92.7 154.8 159.9 180.5 209.7 216.5 184.0 247.6 262.5 343.2 380 430 Net Profit ($mill) 540 - - 4.1% 15.3% 31.9% 32.3% 28.6% 35.9% 34.0% 31.2% 21.8% 27.0% 28.0% Income Tax Rate 28.0% Leases, Uncapitalized Annual rentals $71.4 mill. 4.9% 7.7% 7.9% 8.3% 9.2% 9.0% 5.8% 6.7% 6.6% 8.0% 8.3% 8.8% Net Profit Margin 9.7% No Defined Benefit Pension Plan 34.8 46.9 77.8 335.9 268.8 322.3 172.3 178.9 184.7 d10.4 370 425 Working Cap’l ($mill) 715 1641.0 1496.8 1235.8 1239.9 1505.2 2110.8 3134.7 2979.3 2545.4 2478.6 2850 2750 Long-Term Debt ($mill) 2700 Preferred Stock None d586.6 302.2 504.4 633.8 451.3 566.4 611.4 735.9 1181.7 1276.7 1500 1775 Shr. Equity ($mill) 2725 Common Stock 98,600,036 shares 14.4% 12.1% 12.6% 12.1% 13.3% 10.1% 6.8% 9.0% 9.1% 11.1% 10.5% 11.5% Return on Total Cap’l 11.5% as of 10/23/19 - - 51.2% 31.7% 28.5% 46.5% 38.2% 30.1% 33.6% 22.2% 26.9% 25.5% 24.0% Return on Shr. Equity 20.0% - - - - NMF 56.7% 47.8% 30.5% 17.0% 22.3% 14.5% 19.0% 18.5% 18.0% Retained to Com Eq 15.0% MARKET CAP: $7.1 billion (Large Cap) 28% 17% 16% 14% 18% 33% 44% 34% 35% 29% 28% 26% All Div’ds to Net Prof 24% CURRENT POSITION 2017 2018 9/30/19 ($MILL.) BUSINESS: Encompass Health Corporation provides post-acute vantage, 9.2%; Managed Care, 10.3%; Medicaid, 3.0%; Other, Cash Assets 54.4 69.2 422.0 healthcare services in the United States. The company operates in- 4.2%. Has 30,060 employees. Officers & directors own 1.6% of Receivables 472.1 467.7 516.9 patient rehabilitation hospitals and long-term acute care hospitals, shares; The Vanguard Group, 9.7%; BlackRock, 9.5% (4/19 proxy). Other 175.7 125.2 138.5 which provide treatment on both an inpatient and outpatient basis. C.E.O. & President: Mark Tarr. Incorporated: Delaware. Address: Current Assets 702.2 662.1 1077.4 Also operates home health agencies and hospice agencies. 2018 9001 Liberty Parkway, Birmingham, AL 35242. Telephone: 205- Accts Payable 78.4 90.0 101.4 Debt Due 32.3 35.8 437.2 inpatient rehabilitation revenue: Medicare, 73.3%; Medicare Ad- 967-7116. Internet: www.healthsouth.com. Other 406.8 546.7 570.0 Encompass Health had a solid third- Third-quarter earnings of $0.98 compared Current Liab. 517.5 672.5 1108.6 quarter performance. After it opened favorably to $0.89 a share last year, ANNUAL RATES Past Past Est’d ’16-’18 two new inpatient rehabilitation hospitals thanks to top-line leverage and cost man- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 and closed the acquisition of Alacare Home agement. SG&A expenses were down 40 Revenues 7.0% 12.5% 6.5% ‘‘Cash Flow’’ 5.5% 13.5% 10.0% Health & Hospice, revenues swelled 9%, to basis points relative to the top line, to Earnings 4.5% 11.0% 12.0% $1.16 billion. Inpatient Rehabilitation seg- 2.6%, mostly because the company was Dividends - - - - 6.0% Book Value - - 33.0% 18.0% ment discharges were up nearly 6%, while working through a large-scale rebranding an uptick in reimbursement rates lifted effort in the previous year. Cal-QUARTERLY REVENUES ($ mill.) Full revenue per discharge 1%, to $18,226. In- The debt leverage ratio has ticked endarMar.31 Jun.30 Sep.30 Dec.31 Year creased salaries and benefits outlays as a back up. After the copmany financed the 2016 909.8 920.7 926.8 949.9 3707.2 percentage of revenue held back profitabil- Alacare deal, debt-to-trailing-12-month 2017 974.8 981.3 995.6 1019.7 3971.4 ity expansion, though. That was related to EBITDA was back up to 3.6x at the close 2018 1046.0 1067.7 1067.6 1096.0 4277.3 ramping new locations. Indeed, ramping of the September interim. However, it also 2019 1124.0 1135.0 1161.6 1174.4 4595 new hospitals tends to be very expensive redeemed $400 million of senior notes in 2020 1200 1225 1225 1225 4875 in the short run. Aside from training staff early November, which brings the effective Cal-EARNINGS PER SHARE A Full and stabilizing the location, the company leverage ratio down to a decent 3.2x. endarMar.31 Jun.30 Sep.30 Dec.31 Year is required to treat a minimum of 30 This stock is timely. In the short run, we 2016 .61 .65 .64 .68 2.59 patients for zero revenue as part of the think a favorable hospice backdrop should 2017 .70 .70 .67 .67 2.75 Medicare certification process. continue to buoy top- and bottom-line tal- 2018 .85 .92 .89 .78 3.43 The Home Health & Hospice division lies. The industry is in a secular expan- 2019 1.04 .92 .98 .91 3.85 continues to grow at a rapid pace. Ad- sion, as Medicare now provides patients 2020 1.10 1.15 1.10 1.10 4.45 missions were up 23%, mostly thanks to curative treatment alongside traditional Cal-QUARTERLY DIVIDENDS PAID D Full added locations. But organic results were hospice services. Encompass’ top capital endarMar.31 Jun.30 Sep.30 Dec.31 Year strong, too, with 10% same-site admission priority is growth, and we think additional 2015 .21 .21 .21 .23 .86 growth. Pricing, meanwhile, took a small deals in this arena are likely. Following a 2016 .23 .23 .23 .24 .94 step back, attributable to the patient mix recent price run-up, though, 3- to 5-year 2017 .24 .24 .24 .25 .97 at acquired Alacare locations. capital gains potential is unspectacular. 2018 .25 .25 .25 .27 1.02 2019 .27 .27 .27 .28 The bottom line returned to growth. Jeffrey Hirt December 6, 2019 (A) Diluted earnings. Figures may not sum due ruary. (D) Dividends paid in mid-January, April, July, Company’s Financial Strength B to rounding. Excludes nonrecurring gain/(loss): (B) In millions. and October Stock’s Price Stability 70 ’08, $0.76; ’10, $6.87; ’13, $0.48; ’17, ($0.06); (C) Includes intangibles: In ’18 $2544.2 mill., Price Growth Persistence 90 ’18, ($0.52). Next earnings report due late Feb- $25.96/share. Earnings Predictability 75 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: NMF RELATIVE DIV’D VALUE EXACT SCIENCES NDQ-EXAS PRICE 81.72RATIO NMF()Median: NMF P/E RATIO NMFYLD Nil LINE 799 TIMELINESS 2 Raised 11/8/19 High: 4.3 3.4 9.2 9.4 12.3 14.7 30.0 32.8 22.8 63.6 82.9 123.3 Target Price Range Low: 0.2 0.5 3.2 4.9 7.9 6.9 10.7 6.8 4.7 13.0 37.4 60.9 2022 2023 2024 SAFETY 4 Lowered 9/6/19 LEGENDS .... Relative Price Strength 320 TECHNICAL Lowered 11/1/19 Options: Yes 2 Shaded area indicates recession BETA 1.05 (1.00 = Market) 200 18-Month Target Price Range 160 Low-High Midpoint (% to Mid) 120 100 $66-$211 $139 (70%) 80 2022-24 PROJECTIONS 60 Ann’l Total Price Gain Return 40 High 155 (+90%) 17% Low 95 (+15%) 4% % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 18 4Q2018 1Q2019 2Q2019 Percent 75 to Buy 161 225 238 1 yr. 22.4 4.9 shares 50 3 yr. 458.4 30.2 to Sell 194 174 200 traded 25 Hld’s(000) 111949 111503 117075 5 yr. 261.4 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 .15 .19 .16 .18 .07 d.03 .13 .10 .07 .06 .06 .02 .41 .90 2.21 3.69 6.20 9.45 Revenues per sh E 20.75 d1.33 d.64 d.49 d.43 d.42 d.35 d.25 d.22 d.50 d.80 d.63 d1.09 d1.55 d1.41 d.83 d1.26 d1.45 d.80 ‘‘Cash Flow’’ per sh 3.00 d1.50 d.73 d.55 d.49 d.44 d.36 d.28 d.29 d.54 d.88 d.69 d1.25 d1.71 d1.63 d.99 d1.43 d1.65 d1.00 Earnings per sh A 2.50 ------Nil Nil Div’ds Decl’d per sh Nil .13 .01 .01 .01 - - - - .01 .01 .04 .01 .13 .14 .21 .13 .40 1.22 1.55 1.25 Cap’l Spending per sh 1.25 .64 1.45 .93 .56 .23 d.09 .17 1.53 1.47 1.54 1.90 3.26 3.38 3.04 4.32 5.53 5.40 4.90 Book Value per sh B 8.50 19.25 26.20 26.35 26.86 27.14 27.52 35.52 52.16 56.62 63.91 71.07 88.63 96.67 110.24 120.50 123.19 130.00 132.00 Common Shs Outst’g C 140.00 ------Bold figures are Avg Ann’l P/E Ratio NMF ------Value Line Relative P/E Ratio NMF ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 4.8 5.3 4.2 4.1 4.1 1.8 39.4 99.4 266.0 454.5 805 1250 Revenues ($mill) 2900 Total Debt $792.1 mill. Due in 5 Yrs $315.6 mill. NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF Operating Margin 16.0% D LT Debt $476.5 mill. LT Interest $9.0 mill. .1 .2 .4 1.0 1.4 3.7 7.6 11.3 14.5 20.5 25.0 30.0 Depreciation ($mill) 50.0 Incl.: $415.1 mill. 1.0s of 2025 ea. note conv. into 13.2569 com. shs; $747.5 mill. .375s of 2027 ea. d9.1 d11.6 d28.7 d52.4 d46.5 d100.0 d157.8 d167.2 d114.4 d175.1 d210 d135 Net Profit ($mill) 375 note conv. into 8.9554 com. shs. (Face values.) ------NMF NMF NMF NMF Income Tax Rate NMF (38% of Cap’l) NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF Net Profit Margin 12.9% Leases, Uncapitalized Annual rentals $3.9 mill. 18.8 88.5 86.4 97.2 127.7 274.2 299.4 302.9 419.1 1091.5 1100 975 Working Cap’l ($mill) 1200 No Defined Benefit Pension Plan 1.0 1.0 1.0 1.7 1.4 1.0 5.9 5.3 4.4 697.0 850 850 Long-Term Debt ($mill) 1000 B Common Stock 129,832,089 shs. 6.1 79.8 83.5 98.6 135.3 289.0 326.9 335.3 520.4 680.9 700 650 Shr. Equity ($mill) 1200 as of 10/28/19 NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF Return on Total Cap’l 18.5% NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF Return on Shr. Equity 31.5% MARKET CAP: $10.6 billion (Large Cap) NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF Retained to Com Eq 31.5% CURRENT POSITION 2017 2018 9/30/19 ------Nil Nil All Div’ds to Net Prof Nil ($MILL.) Cash Assets 424.7 1124.2 1160.5 BUSINESS: Exact Sciences Corp. is a molecular diagnostics com- developing colon cancer. The company is working on developing Receivables 26.4 44.2 82.2 pany currently focused on the early detection and prevention of non-invasive tests for other types of cancer. Employed 1,977 Inventories 26.0 39.1 53.7 Other 10.1 20.6 23.6 some of the deadliest forms of cancer. Cologuard(R), an accurate, (12/31/18). Stock owners: The Vanguard Group, 8.4%; T. Rowe Current Assets 487.2 1228.1 1320.0 non-invasive, patient-friendly screening test for the early detection Price, 7.6%, Off. & dir., 2.2% (4/19 proxy). Chrmn & CEO: Kevin T. Accts Payable 16.1 28.1 19.2 of colorectal cancer and pre-cancer, is currently indicated for the Conroy. Inc.: DE. Addr.: 441 Charmany Drive, Madison, WI 53719. Debt Due .2 - - 315.6 screening of adults 50 years or older considered at average risk for Tel.: (608) 284-5700. Internet: www.exactsciences.com. Other 51.8 108.5 145.9 Current Liab. 68.1 136.6 480.7 Exact Sciences’ commercialization of how the transaction would aid the com- Cologuard continues to move forward mercialization of Cologuard, which is of ANNUAL RATES Past Past Est’d ’16-’18 rapidly. The number of screenings for keen interest to investors. Moreover, Ex- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Revenues 41.5% 103.0% 44.5% colon cancer grew 89%, to 456,000, in the act’s guidance for the combination’s reve- ‘‘Cash Flow’’ - - - - NMF September period, and we estimate that nue and gross profit for 2020 ($1.6 billion Earnings - - - - NMF screenings may reach 1.675 million in and $1.2 billion, respectively), suggests a Dividends - - - - Nil Book Value 34.0% 21.0% 12.0% 2019, an advance of 79%. Meanwhile, the marked narrowing of Exact’s gross margin average revenue and gross profit per test and a likely reduction in the growth of Cal-QUARTERLY REVENUES ($ mill.) Full have not changed appreciably from the es- gross profit. On point, on a stand-alone endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year tablished trend, coming in at $480 and basis, we estimate that Exact’s gross mar- 2016 14.8 21.2 28.1 35.8 99.4 $364, respectively, in the third quarter. gin would expand 250 basis points in 2020, 2017 48.4 57.6 72.6 87.4 266.0 Taken together, the metrics suggest that to 77%, versus the 75% implied by the 2018 90.3 102.9 118.3 143.0 454.5 revenues and gross profit should both ad- above guidance, with gross profits expand- 2019 162.0 199.9 218.8 224.3 805 2020 265 315 325 345 1250 vance at least 78% this year. Still, ex- ing some 60%. Meanwhile, to be fair, the penses related to R&D and Cologuard recent transaction to acquire Genomic Cal-EARNINGS PER SHARE A Full commercialization will keep the bottom Health has the potential to advance R&D endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year line in the red. Our estimates and projec- efforts with respect to cancer screening, 2016 d.47 d.46 d.36 d.34 d1.63 tions for 2020 and beyond, which do no yet and it required a meaningful issuance of 2017 d.31 d.27 d.23 d.18 d.99 include the recent acquisition of Genomic equity on the part of Exact, which, all else 2018 d.32 d.30 d.37 d.44 d1.43 2019 d.66 d.30 d.31 d.38 d1.65 Health, suggest that the commercializa- equal, tended to weigh on the share price. 2020 d.40 d.25 d.25 d.10 d1.00 tion of Cologuard will remain rapid, as What about Exact stock? Although the market penetration deepens. future for Cologuard seems bright, with its Cal-QUARTERLY DIVIDENDS PAID Full Exact Sciences stock has not fared commercialization to continue progressing endarMar.31 Jun.30 Sep.30 Dec.31 Year well since our September report. As rapidly, the Genomic Health acquisition 2015 mentioned in that review, EXAS share- muddies the shares’ prospects, in our view. 2016 NO CASH DIVIDENDS holders were not overly enthused regard- New commitments are best considered by 2017 BEING PAID ing the company’s decision to acquire risk-tolerant subscribers. 2018 2019 Genomic Health. On point, it was not clear Charles Clark December 6, 2019 (A) Diluted earnings. Next earnings report due (C) In millions. (E) Target Price Range based on 6.0x Reve- Company’s Financial Strength B+ late January. (D) Cash interest only, does not include effect nues per sh. for 2020-2024. Stock’s Price Stability 5 (B) Includes intangibles. At 12/31/18: $46.3 of amortization of debt discount associated Price Growth Persistence 80 mill., $0.38/sh. with convertible notes. Earnings Predictability 50 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 15.8 RELATIVE DIV’D VALUE FRESENIUS MED (ADR) NYSE-FMS PRICE 36.99RATIO 14.3()Median: 19.0 P/E RATIO 0.81YLD 1.8% LINE 800 TIMELINESS 3 Raised 11/8/19 High: 29.6 27.7 32.1 40.0 39.1 36.2 37.7 45.8 47.5 53.0 57.9 42.8 Target Price Range Low: 19.8 17.2 23.6 27.6 31.8 30.7 31.3 35.7 38.1 39.5 31.2 31.0 2022 2023 2024 SAFETY 2 Raised 3/10/17 LEGENDS 14.0 x ″Cash Flow″p ADR 128 TECHNICAL 4 Lowered 11/15/19 .... Relative Price Strength 2-for-1 split 12/12 96 BETA 1.00 (1.00 = Market) Options: Yes 80 Shaded area indicates recession 18-Month Target Price Range 64 Low-High Midpoint (% to Mid) 48 40 $26-$46 $36 (-5%) 32 2022-24 PROJECTIONS 24 Ann’l Total Price Gain Return 16 High 75 (+105%) 21% Low 55 (+50%) 12% 12 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 3 to Buy 82 69 64 1 yr. -6.1 4.9 shares 2 3 yr. -7.5 30.2 to Sell 133 96 88 traded 1 Hld’s(000) 11414 8959 9143 5 yr. 4.0 36.8 Fresenius Medical Care AG & Co. was 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 founded in 1996 from a merger of Fresenius 19.02 20.21 21.31 22.79 24.23 26.08 27.41 29.15 29.02 30.73 32.00 34.60 Revenues per ADR 39.25 Worldwide Dialysis and National Medical 2.28 2.48 2.71 2.96 2.92 2.87 2.86 3.29 3.29 3.54 4.05 4.45 ‘‘Cash Flow’’ per ADR 5.00 Care. In 2006, it acquired the U.S. dialysis 1.50 1.62 1.76 1.94 1.83 1.73 1.69 2.03 2.08 2.20 2.35 2.65 Earnings per ADR A 3.20 care provider Renal Care Group, Inc. Its .39 .38 .46 .44 .48 .53 .43 .43 .53 .62 .65 .76 Div’ds Decl’d per ADR .90 shares are listed on the Frankfurt and New .97 .88 1.00 1.12 1.24 1.53 1.56 1.68 1.54 1.96 1.95 2.05 Cap’l Spending per ADR 2.15 York stock exchanges. 11.53 12.37 13.16 14.77 15.32 15.55 16.19 17.59 17.67 23.96 24.20 25.75 Book Value per ADR C 31.80 B CAPITAL STRUCTURE as of 6/30/19 591.49 596.56 600.33 605.48 602.89 607.11 610.63 614.44 612.90 613.76 605.00 590.00 Equiv ADRs Outst’g 585.00 Total Debt $10707.5 mill. Due in 5 Yrs $7450 mill. 15.1 17.2 19.5 18.1 18.5 20.1 24.3 21.1 22.2 21.8 Bold figures are Avg Ann’l P/E Ratio 20.0 LT Debt $6752.0 mill. LT Interest $540.0 mill. 1.01 1.09 1.22 1.15 1.04 1.06 1.22 1.11 1.12 1.18 Value Line Relative P/E Ratio 1.10 1.7% 1.4% 1.3% 1.3% 1.4% 1.5% 1.1% 1.0% 1.1% 1.3% estimates Avg Ann’l Div’d Yield 1.4% (Total interest coverage: 4.8x) (34% of Cap’l) 11247 12053 12795 13800 14610 15832 16738 17911 17783 18863 19375 20400 Revenues ($mill) D 22945 19.7% 20.1% 20.3% 20.8% 19.6% 18.5% 18.0% 18.7% 17.0% 17.4% 17.5% 18.0% Operating Margin 18.5% 457.1 503.2 557.3 602.9 648.2 699.3 717.3 775.9 735.5 826.3 1000 1025 Depreciation ($mill) 1040 Leases, Uncapitalized: Annual rentals $937.1 891.1 978.5 1071.2 1186.8 1109.9 1045.3 1029.4 1243.3 1279.8 1348.9 1440 1590 Net Profit ($mill) 1880 mill. Pension Assets-12/18 $362.0 mill. 33.7% 35.2% 33.8% 31.3% 32.0% 31.7% 32.1% 30.6% 22.6% 21.0% 22.0% 23.0% Income Tax Rate 25.0% Oblig. $960.6 mill. 7.9% 8.1% 8.4% 8.6% 7.6% 6.6% 6.2% 6.9% 7.2% 7.2% 7.4% 7.8% Net Profit Margin 8.2% 2118.1 1362.9 1432.4 2957.5 2732.7 3247.4 2798.7 2276.7 1074.4 1165.1 d35.0 d155 Working Cap’l ($mill) 1175 Pfd Stock None 5084.0 4309.7 5494.8 7841.9 7746.9 9080.3 7853.5 7202.5 5794.9 5751.9 6750 6700 Long-Term Debt ($mill) 6550 6820.9 7377.3 7901.6 8942.5 9234.6 9443.3 9887.1 10809 10828 14708 14635 15185 Shr. Equity ($mill) 18600 Common Stock 302,831,675 shs. (equiv. to 605.7 million ADRs) 8.8% 9.7% 9.3% 8.5% 7.9% 7.0% 7.2% 8.2% 8.9% 7.8% 8.0% 8.5% Return on Total Cap’l 8.5% MARKET CAP: $22.4 billion (Large Cap) 13.1% 13.3% 13.6% 13.3% 12.0% 11.1% 10.4% 11.5% 11.8% 9.2% 10.0% 10.5% Return on Shr. Equity 10.0% CURRENT POSITION 2017 2018 6/30/19 9.7% 10.1% 10.0% 10.2% 8.8% 7.7% 7.7% 8.9% 9.1% 6.6% 7.0% 7.5% Retained to Com Eq 7.5% ($MILL.) 26% 24% 26% 23% 27% 30% 26% 22% 23% 28% 28% 29% All Div’ds to Net Prof 28% Cash Assets 978.6 2446.0 1051.2 Receivables 3331.0 3910.6 4081.5 BUSINESS: Fresenius Medical Care AG is the world’s largest pro- various products and equipments for dialysis treatment, such as Inventory 1290.8 1649.4 1923.7 vider of products and services for individuals with renal diseases. It hemodialysis machines, dialyzers, peritoneal dialysis products, and Other 773.9 545.0 1114.1 primarily provides kidney dialysis services, clinical laboratory test- related disposable products. Sells its products primarily to clinics, Current Assets 6374.3 8551.0 8170.5 ing, and renal diagnostic services. Also provides inpatient dialysis hospitals, and specialized treatment centers. Has about 119,630 Accts Payable 737.8 795.1 775.5 services, therapeutic apheresis, hemoperfusion, and other services employees. Chairman and CEO: Rice Powell. Addr.: 61352 Bad Debt Due 883.5 2850.8 3955.5 Other 3678.6 3499.9 3501.3 under contract to hospitals in the U.S. It also mfrs. and distributes Homburg v.d.H, Germany. Internet: www.fmc-ag.com. Current Liab. 5299.9 7145.8 8232.3 Fresenius Medical Care posted posi- recently launched its 408A dialysis ma- ANNUAL RATES Past Past Est’d ’16-’18 tive year-over-year comparisons for chine there, which is specifically designed of change (per ADR) 10 Yrs. 5 Yrs. to ’22-’24 the September quarter. On a currency- to cut operating costs for healthcare sys- Revenues 1.0% 4.5% 5.5% ‘‘Cash Flow’’ 3.0% 5.0% 5.5% neutral basis, earnings per ADR were up tems. In the meantime, it also continues to Earnings 3.5% 6.0% 4.5% 18% in the period, off of a 9% increase in increase its production capacity and R&D Dividends 4.5% 3.0% 9.5% the top line. Revenues in the Health Care activity, and strengthen its services busi- Book Value 2.0% 4.5% 10.0% Services segment advanced 7%, to just ness. Over the next five years, the compa- Cal-QUARTERLY REVENUES ($ mill.) Full over $3.8 billion. The gains were largely ny plans to create a network of about 100 endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year fueled by volume growth in same-market renal facilities throughout China. 2016 4205 4420 4598 4687 17910 treatments and acquisitions. Meanwhile, Altogether, Fresenius should close the 2017 4548 4471 4335 4429 17783 the Health Care Products division did year out in decent form, and appears 2018 4532 4804 4625 4902 18863 even better, with revenues up 16%, to well positioned for 2020. Our bottom- 2019 4607 4953 4817 4998 19375 $1.01 billion. The increase was led by line estimate continues to call for ADR-net 2020 4900 5175 5125 5200 20400 higher sales of hemodialysis products, to be up 6% to 8% this year, off of a low Cal-EARNINGS PER ADR A Full dialyzers, and hemodialysis solutions and single-digit advance in revenues. For next endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year concentrates. year, we look for earnings to increase at 2016 .38 .48 .54 .63 2.03 The company is reporting record an even greater pace, supported by 2017 .50 .44 .51 .63 2.08 growth in the number of home Fresenius’ growth initiatives in the U.S. 2018 .51 .50 .53 .66 2.20 dialysis patients in North America. and China, as well as its ongoing cost- 2019 .58 .48 .60 .69 2.35 The gains are being supported by the roll- optimization efforts. 2020 .62 .67 .65 .71 2.65 out of the NxStage product range (ac- These good-quality ADRs remain a Cal-QUARTERLY DIVIDENDS PAID Full quired earlier in the year) as well as in- solid choice for conservative, long- endarMar.31 Jun.30 Sep.30 Dec.31 Year vestments in training facilities, education, term investors. Although they are 2015 - - .432 - - - - .432 and distribution. neutrally ranked for year-ahead relative 2016 - - .452 - - - - .452 Fresenius is also taking more steps to performance, price appreciation potential 2017 - - .530 - - - - .530 expand in China. The nation represents out to 2022-2024 is above average, and the 2018 - - .620 - - - - .620 a significant growth opportunity, as it has issue also offers a decent yield. 2019 - - .652 - - the most dialysis patients worldwide. FMS Mario Ferro December 6, 2019 All figures translated from euros to dollars at report due mid-February. (C) Includes intangibles: In 2018: $14.7 billion, Company’s Financial Strength B++ period-end rate. (A) Diluted earnings. Excludes (B) In millions. $23.94/ADR. Stock’s Price Stability 80 nonrecurring gain, ’18, $1.37. Two ADRs cor- Price Growth Persistence 30 respond to one ordinary share. Next earnings Earnings Predictability 60 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 13.6 RELATIVE DIV’D VALUE HCA HEALTHCARE NYSE-HCA PRICE 141.54RATIO 12.6()Median: NMF P/E RATIO 0.71YLD 1.1% LINE 801 TIMELINESS 3 Lowered 8/9/19 High: 35.4 34.3 49.5 75.8 95.5 83.7 91.0 147.4 147.0 Target Price Range Low: 17.0 20.3 30.7 46.0 43.9 60.1 71.2 84.9 110.3 2022 2023 2024 SAFETY 3 New 12/14/12 LEGENDS 9.0 x ″Cash Flow″ psh 320 TECHNICAL Lowered 11/1/19 .... Relative Price Strength 3 Options: Yes BETA .95 (1.00 = Market) Shaded area indicates recession 200 18-Month Target Price Range 160 Low-High Midpoint (% to Mid) 120 100 $105-$205 $155 (10%) 80 2022-24 PROJECTIONS 60 Ann’l Total Price Gain Return 40 High 215 (+50%) 12% Low 145 (Nil) 2% % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 18 4Q2018 1Q2019 2Q2019 Percent 30 to Buy 351 335 276 1 yr. 1.2 4.9 shares 20 3 yr. 78.3 30.2 to Sell 294 309 369 traded 10 Hld’s(000) 242047 240568 243391 5 yr. 94.8 36.8 HCA Holdings, Inc. completed its initial 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 public offering on March 9, 2011. At that - - - - 67.85 74.49 77.76 87.80 99.51 112.09 124.65 136.33 150.45 159.30 Revenues per sh E 200.40 time, 145.13 million shares were sold to the - - - - 6.58 7.41 7.53 9.36 10.72 12.65 13.34 16.79 20.00 21.40 ‘‘Cash Flow’’ per sh 17.75 public at an average price of $30.00 per - - - - 2.85 3.71 3.41 4.70 5.56 6.87 6.82 9.77 10.55 11.75 Earnings per sh A 15.65 share. The underwriting syndicate included ------1.40 1.60 1.80 Div’ds Decl’d per sh C 2.40 Bank of America. - - - - 3.84 4.20 4.42 5.18 5.96 7.46 8.62 10.44 10.55 11.30 Cap’l Spending per sh 13.05 - - - - d18.88 d21.80 d18.81 d18.77 d19.06 d19.73 d19.45 d14.46 d5.35 4.55 Book Value per sh B 41.30 - - - - 437.48 443.20 439.60 420.48 398.74 370.15 349.90 342.38 340.00 338.00 Common Shs Outst’g D 320.00 - - - - 9.5 7.5 11.8 12.7 13.9 10.9 12.0 11.7 Bold figures are Avg Ann’l P/E Ratio 11.5 - - - - .60 .48 .66 .67 .70 .57 .60 .63 Value Line Relative P/E Ratio .65 CAPITAL STRUCTURE as of 9/30/19 estimates Total Debt $34.2 bill. Due in 5 Yrs $13.3 bill. ------1.2% Avg Ann’l Div’d Yield 1.3% LT Debt $34.1 bill. LT Interest $1.8 bill. 26776 28035 29682 33013 34182 36918 39678 41490 43614 46677 51150 53845 Revenues ($mill) E 64130 (Total interest coverage: 3.6x) (Over 100% of Capital) 24.9% 28.3% 18.8% 18.7% 18.5% 19.7% 19.7% 19.3% 19.5% 18.4% 19.0% 19.5% Operating Margin 20.0% 1425.0 1421.0 1465.0 1679.0 1753.0 1820.0 1904.0 1966.0 2131.0 2278.0 2505 2640 Depreciation ($mill) 3200 Leases, Uncapitalized Annual rentals $320.0 mill. 1054.0 1207.0 1413.0 1605.0 1556.0 2116.7 2372.0 2718.0 2538.0 3470.0 4295 4595 Net Profit ($mill) 5685 31.3% 29.5% 30.1% 30.7% 32.2% 31.8% 31.9% 29.7% 34.8% 18.9% 23.0% 23.0% Income Tax Rate 23.0% No Defined Benefit Pension Plan 3.9% 4.3% 4.8% 4.9% 4.6% 5.7% 6.0% 6.6% 5.8% 7.4% 8.4% 8.5% Net Profit Margin 8.9% Preferred StockNone 2264.0 2650.0 1679.0 1591.0 2342.0 3450.0 3716.0 3252.0 3819.0 2644.0 3835 3900 Working Cap’l ($mill) 4490 24824 27633 25645 27495 27590 29307 30255 31160 32858 32033 33050 38525 Long-Term Debt ($mill) 30525 Common Stock 339,178,300 shares d8839 d11785 d8258 d9660 d8270 d7894 d7599 d7302 d6806 d4950 d1825 1535 Shr. Equity ($mill) B 13215 as of 10/31/19 12.6% 14.0% 13.0% 13.7% 12.7% 13.9% 14.1% 15.0% 13.0% 16.1% NMF NMF Return on Total Cap’l 43.0% ------NMF NMF NMF Return on Shr. Equity 43.0% MARKET CAP: $48.0 billion (Large Cap) ------NMF NMF NMF Retained to Com Eq 37.0% CURRENT POSITION 2017 2018 9/30/19 ($MILL.) ------14% 13% 13% All Div’ds to Net Prof 13% Cash Assets 732 502 559 BUSINESS: HCA Healthcare, Inc. provides healthcare services In 2017, roughly 22% of revenues were derived from Medicare. Receivables 6501 6789 7131 Inventory (FIFO) 1573 1732 1769 throughout the United States and England. At 12/31/16, it operated Employs approximately 233,000 individuals. Chairman, CEO & Other 1171 1190 1310 170 hospitals, comprised of 166 general, acute care facilities; three Pres.: R. Milton Johnson. Officers/directors own 2.7% of the com- Current Assets 9977 10213 10769 psychiatric hospitals; and one rehabilitation center. HCA also mon stock; Hercules Holding, 20.1%; BlackRock, 5.9% (4/19 Accts Payable 2606 2577 2610 managed 116 freestanding surgery centers. Has 43,778 licensed proxy). Inc.: DE. Address: One Park Plaza, Nashville, TN 37203. Debt Due 200 788 148 beds. Its facilities are located in 20 states and the United Kingdom. Telephone: 615-344-9551. Internet: www.hcahealthcare.com. Other 3352 4204 4366 Current Liab. 6158 7569 7124 HCA generated a bounce-back per- planned service line expansions, advance- ANNUAL RATES Past Past Est’d ’16-’18 formance in the third quarter. The ment of its hospital acquisition strategy, of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 hospital operator’s top line advanced 11% and subsequent margin improvement gen- Revenues - - 11.0% 8.5% on a year-over-year basis, and it beat our erated through the integration of new ‘‘Cash Flow’’ - - 14.5% 3.5% flat share-earnings estimate by $0.07. The properties. That said, these factors may be Earnings - - 18.5% 12.5% Dividends - - - - 31.5% performance was driven not only by one able to provide it with a more-material Book Value - - - - NMF extra business day being present during boost to operating income in the near the quarter, but also by strong volumes term, due to the improved performance of Cal-QUARTERLY REVENUES ($ mill.) E Full endarMar.31 Jun.30 Sep.30 Dec.31 Year and market-share gains established hospitals acquired over the last two years. 2016 10260 10319 10270 10641 41490 through recent acquisitions. Same-store This adjustment has led us to boost our 2017 10623 10733 10696 11562 43614 and equivalent admissions were up 3.2% share-earnings estimate for HCA by $0.45, 2018 11423 11529 11451 12274 46677 and 4.2%, respectively, while revenue per to $11.75. We also remind investors that 2019 12517 12602 12694 13337 51150 equivalent admission rose 2% in its own the company continues to generate strong 2020 13160 13310 13345 14030 53845 right. Also, same-store inpatient and out- cash flow, and it should further pursue the Cal-EARNINGS PER SHARE A Full patient surgeries increase 2.2% and 2.6%, purchase of new locations despite being endarMar.31 Jun.30 Sep.30 Dec.31 Year while emergency room visits were up 4.1%. highly leveraged at this time. 2016 1.71 1.66 1.61 1.89 6.87 In all, this broad-based recovery, following Stock of HCA has grown expensive, in 2017 1.73 1.75 1.21 2.13 6.82 a second quarter in which commercial ad- our view. The company’s operational per- 2018 2.33 2.29 2.16 2.99 9.77 missions were lower than expected, sug- formances, of late, have been exemplary, 2019 2.97 2.21 2.23 3.14 10.55 gested to investors that HCA has gotten and we believe that its strong cash flows 2020 3.15 2.70 2.50 3.40 11.75 right back on track. Consequently, since will provide it with the wherewithal to pe- Cal-QUARTERLY DIVIDENDS PAID C Full the release, stock of the company is up riodically raise it’s dividend while simulta- endarMar.31 Jun.30 Sep.30 Dec.31 Year about 10% in value. neously advance its acquisition growth 2015 ------Management is looking for operating strategy. That said, the low double-digit 2016 ------income to exceed their long-term tar- earnings growth that we anticipate here 2017 ------get in 2020. Most recently, HCA has come over the coming 3 to 5 years fails to justify 2018 .35 .35 .35 .35 1.40 to anticipate long-term EBITDA growth the recent value of the stock. 2019 .40 .40 .40 ranging from 4% to 6%. This is based on Robert J. Scrudato December 6, 2019 (A) Dil. egs. Excludes non-recurring items: ’11, count. Next egs. report due early February. Dividend initiated in March of 2018. Historically Company’s Financial Strength B+ $2.12; ’12, (23¢); ’13, (4¢); ’14, (54¢); ’15, (B) Includes intangibles. In 2018, $8.0 billion, paid in March, June, September, and Decem- Stock’s Price Stability 65 (57¢); ’16, 43¢; ’17, (87¢). Quarterly egs. may or $23.37 per share. (C) Paid special cash ber (D) In millions. (E) Revenues include provi- Price Growth Persistence 90 not sum due to rounding and changes in sh. dividends: On 2/29/12, $2.00; 11/16/12, $2.50. sion for doubtful accounts. Earnings Predictability 80 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 18.9 RELATIVE DIV’D VALUE HUMANA INC. NYSE-HUM PRICE 344.82RATIO 19.0()Median: 14.0 P/E RATIO 1.07YLD 0.7% LINE 802 TIMELINESS 2 Raised 9/6/19 High: 88.1 46.2 61.3 90.9 96.5 105.8 151.5 219.8 217.8 264.6 355.9 345.2 Target Price Range Low: 22.3 18.6 43.1 54.6 59.9 65.9 91.0 137.5 150.0 186.3 248.0 225.6 2022 2023 2024 SAFETY 3 New 7/7/95 LEGENDS 13.0 x ″Cash Flow″ psh 640 TECHNICAL 5 Lowered 11/29/19 .... Relative Price Strength Options: Yes 480 BETA .90 (1.00 = Market) Shaded area indicates recession 400 18-Month Target Price Range 320 Low-High Midpoint (% to Mid) 240 200 $242-$483 $363 (5%) 160 2022-24 PROJECTIONS 120 Ann’l Total Price Gain Return 80 High 515 (+50%) 11% Low 340 (Nil) 1% 60 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 30 to Buy 316 338 324 1 yr. -7.4 4.9 shares 20 3 yr. 75.2 30.2 to Sell 380 376 396 traded 10 Hld’s(000) 127060 125253 126664 5 yr. 119.3 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 75.52 81.77 88.34 128.46 148.75 171.43 181.88 200.94 224.58 247.07 268.21 324.18 366.07 368.07 390.53 419.81 488.30 537.90 Revenues per sh A 615.40 2.27 2.44 2.84 3.70 5.99 5.58 7.58 8.08 10.30 9.76 11.18 10.05 10.29 12.04 15.12 17.86 21.60 22.40 ‘‘Cash Flow’’ per sh 28.10 1.47 1.68 2.07 2.79 4.91 4.31 6.21 6.47 8.46 7.65 8.72 7.51 7.75 9.57 11.71 14.55 17.75 18.70 Earnings per sh B 23.75 ------.75 1.03 1.07 1.11 1.15 1.16 1.60 2.00 2.15 2.35 Div’ds Decl’d per sh C 3.00 .63 .71 1.02 1.16 1.41 1.55 1.09 1.32 2.11 2.59 2.86 3.53 3.53 3.53 3.82 4.51 4.90 4.90 Cap’l Spending per sh 5.75 11.34 13.04 15.16 18.32 23.70 26.40 33.93 41.08 49.16 55.87 60.48 64.48 69.76 71.56 71.49 74.95 86.80 101.50 Book Value per sh D 150.00 161.89 160.27 163.22 166.72 170.02 168.86 170.23 168.55 164.00 158.36 154.03 149.61 148.30 149.32 137.68 135.57 132.50 132.00 Common Shs Outst’g E 130.00 10.3 12.0 19.3 19.8 13.3 11.0 5.5 7.7 8.8 10.2 9.8 16.3 22.7 18.7 19.7 20.7 Bold figures are Avg Ann’l P/E Ratio 18.0 .59 .63 1.03 1.07 .71 .66 .37 .49 .55 .65 .55 .86 1.14 .98 .99 1.12 Value Line Relative P/E Ratio 1.00 ------1.0% 1.3% 1.3% .9% .7% .6% .7% .7% estimates Avg Ann’l Div’d Yield .7% CAPITAL STRUCTURE as of 9/30/19 30960 33868 36832 39126 41313 48500 54289 54962 53767 56912 64700 71000 Revenues ($mill) A 80000 6.3% 6.3% 7.1% 6.0% 6.4% 5.6% 5.3% 6.1% 7.4% 6.3% 6.5% 7.0% Operating Margin 7.5% Total Debt $6337 mill. Due in 5 Yrs $3094 mill. 250.3 262.9 270.0 295.0 333.0 333.0 355.0 354.0 378.0 405.0 460 460 Depreciation ($mill) 500 LT Debt $5365 mill. LT Interest $215 mill. (Total interest coverage: 13.0x) (32% of Cap’l) 1039.7 1099.4 1419.0 1251.0 1388.6 1170.4 1171.7 1444.0 1704.0 2016.0 2400 2500 Net Profit ($mill) 3150 35.1% 37.2% 36.5% 36.1% 35.8% 47.0% 50.4% 48.8% 46.5% 30.8% 24.0% 32.0% Income Tax Rate 32.0% Leases, Uncapitalized Annual rentals $147 mill. 3.4% 3.2% 3.9% 3.2% 3.4% 2.4% 2.2% 2.6% 3.2% 3.5% 3.7% 3.5% Net Profit Margin 3.9% No Defined Benefit Pension Plan 3992.8 4393.1 5125.0 5335.0 5977.0 7357.0 7559.0 8368.0 7996.0 6871.0 8000 8200 Working Cap’l ($mill) 8500 1678.2 1668.8 1659.0 2611.0 2600.0 3825.0 3821.0 3792.0 4770.0 4375.0 5400 5500 Long-Term Debt ($mill) 5500 Pfd Stock None 5776.0 6924.1 8063.0 8847.0 9316.0 9646.0 10346 10685 9842.0 10161 11500 13400 Shr. Equity ($mill) 19500 Common Stock 132,426,045 shs. 14.6% 13.4% 15.2% 11.4% 12.2% 9.4% 8.9% 10.6% 12.5% 14.6% 15.0% 14.0% Return on Total Cap’l 13.0% 18.0% 15.9% 17.6% 14.1% 14.9% 12.1% 11.3% 13.5% 17.3% 19.8% 21.0% 18.5% Return on Shr. Equity 16.0% MARKET CAP: $45.7 billion (Large Cap) 18.0% 15.9% 16.6% 12.3% 13.1% 10.4% 9.7% 11.9% 15.1% 17.2% 18.5% 16.5% Retained to Com Eq 14.0% CURRENT POSITION 2017 2018 9/30/19 - - - - 6% 13% 12% 15% 15% 12% 13% 13% 12% 12% All Div’ds to Net Prof 12% Cash Assets 13599 12369 15957 BUSINESS: Humana Inc. is one of the nation’s largest publicly of premiums and services revenue were from contracts with the Receivables 854 1015 848 traded health benefits companies. At the end of 2018, it had ap- federal government. Has approximately 43,600 employees. Offs. & Other 2949 3564 3519 proximately 16.6 million medical members and an additional 6.1 dirs. own 0.5% of common stock; FMR LLC, 9.1%; BlackRock, Current Assets 17402 16948 20324 million in specialty products. Humana is a full-service benefits solu- 8.9% (3/19 proxy). Chrmn.: Kurt J. Hilzinger. Pres. & CEO: Bruce Accts Payable F 8737 7929 9860 Debt Due 150 1865 972 tions company, offering an array of health and benefit plans for gov- Broussard. Inc.: DE. Addr.: 500 W. Main Street, Louisville, KY Other 519 283 274 ernment programs, employer groups, and individuals. In ’18, 81% 40202. Tel.: 502-580-1000. Internet: www.humana.com. Current Liab. 9406 10077 11106 Humana’s third-quarter earnings beat ance. The new outlook reflects better ANNUAL RATES Past Past Est’d ’16-’18 expectations. Revenue of $16.2 billion membership numbers in Medicare Ad- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 rose 14%, driven by growth in the compa- vantage. Our revenue estimate has in- Revenues 10.0% 10.0% 8.0% ‘‘Cash Flow’’ 11.5% 7.5% 11.0% ny’s Medicare Advantage business, where creased from $64.3 billion to $64.7 billion, Earnings 11.5% 7.5% 12.0% members climbed 15% for the year, to 4.1 on the stronger membership numbers. As Dividends - - 11.0% 11.0% million. The health benefit ratio (HBR) of for earnings, management looks for share Book Value 12.5% 5.5% 13.0% 85.0% was up three percentage points, on net of $17.75 for the year, up $0.15 from Cal-QUARTERLY REVENUES ($ mill.) A Full the effect of the health insurance industry previous guidance. This suggest $2.19 for endarMar.31 Jun.30 Sep.30 Dec.31 Year fee (HIF) moratorium in 2019, lower favor- the December period, an annual decrease 2016 13800 14007 13694 13461 54962 able prior period development (the rever- of 17%. We think an unfavorable mix shift 2017 13762 13534 13282 13189 53767 sal of earlier estimated losses), and an ad- is likely to weigh on margins again in the 2018 14279 14259 14206 14168 56912 verse mix shift due to the loss of some cus- quarter, plus higher incentive-based em- 2019 16107 16245 16241 16107 64700 tomers in Medicare Part D prescription ployee compensation and spending on in- 2020 17750 17750 17750 17750 71000 plans, which tend to have a lower HBR. itiatives designed to offset the earnings Cal-EARNINGS PER SHARE B Full Operating costs declined 3%, as a result of headwind in 2020 from the reimplementa- endarMar.31 Jun.30 Sep.30 Dec.31 Year the HIF suspension and productivity im- tion of HIF. In the past, Humana has es- 2016 1.99 2.30 3.18 2.09 9.57 provements. On the higher HBR, operat- timated that the drag on earnings is likely 2017 2.75 3.49 3.39 2.06 11.71 ing income fell 2% year over year—a per- to amount to $2.15 per share, if Congress 2018 3.36 3.96 4.58 2.65 14.55 formance that was, however, better than chooses not to extend the moratorium. 2019 4.48 6.05 5.03 2.19 17.75 our estimated 8% decline. Modest drops in Reflecting the HIF reinstatement, our 2020 4.80 6.15 5.10 2.65 18.70 the tax rate and share base helped lift 2020 earnings call of $18.70 per share Cal-QUARTERLY DIVIDENDS PAID C Full earnings per share 10%, to $5.03. Results represents a slowdown in growth from an endarMar.31 Jun.30 Sep.30 Dec.31 Year were about 10% ahead of our call and the estimated 22% this year to 5%. 2015 .28 .28 .29 .29 1.14 consensus estimate. This stock is favorably ranked for rel- 2016 .29 .29 .29 .29 1.16 Management lifted its 2019 revenue ative performance in the year ahead. 2017 .40 .40 .40 .40 1.60 outlook. The top line is now expected to But appreciation potential out to 2022- 2018 .40 .50 .50 .50 1.90 reach $64.5 billion to $64.8 billion, up $1.2 2024 falls short of the Value Line median. 2019 .50 .55 .55 .55 billion at the midpoint from earlier guid- Christopher Joseph, CFA December 6, 2019 (A) Includes premiums, services revenue, and ’13, (99¢); ’14, (15¢); ’15, 69¢; ’16, ($5.50); ’17, (C) Div’ds paid late Jan., April, July, and Oct. Company’s Financial Strength A investment income. $5.10; ’18, ($2.39); ’19, 68¢. Qly. figures may (D) Incl. goodwill. In ’18, $3.9 bill., $28.75/sh. Stock’s Price Stability 55 (B) Excludes nonrecurring items: ’03, 6¢; ’04, not sum due to rounding. Next earnings report (E) In millions. Price Growth Persistence 90 4¢, ’05, (20¢); ’06, 11¢; ’08, 44¢, ’12, (18¢); due early February. (F) Includes medical costs payable. Earnings Predictability 70 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 23.9 RELATIVE DIV’D VALUE ICON PLC NYSE-ICLR PRICE 159.65RATIO 22.0()Median: 19.0 P/E RATIO 1.24YLD Nil LINE 803 TIMELINESS 2 Raised 10/19/18 High: 44.8 26.8 30.3 26.2 28.9 44.2 59.8 84.1 85.7 124.5 155.3 160.1 Target Price Range Low: 15.6 12.2 18.9 15.0 16.7 26.7 35.3 50.9 62.3 74.3 101.2 118.1 2022 2023 2024 SAFETY 3 New 12/8/17 LEGENDS 15.0 x ″Cash Flow″ psh 320 TECHNICAL Lowered 11/29/19 .... Relative Price Strength 3 2-for-1 split 10/06 BETA .85 (1.00 = Market) 2-for-1 split 8/08 200 Options: Yes 18-Month Target Price Range Shaded area indicates recession 160 Low-High Midpoint (% to Mid) 120 100 $119-$230 $175 (10%) 80 2022-24 PROJECTIONS 60 Ann’l Total Price Gain Return 40 High 225 (+40%) 9% Low 150 (-5%) -1% % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 18 4Q2018 1Q2019 2Q2019 Percent 24 to Buy 130 152 151 1 yr. 6.4 4.9 shares 16 3 yr. 83.0 30.2 to Sell 217 174 166 traded 8 Hld’s(000) 46762 46290 45086 5 yr. 179.2 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 4.77 5.36 5.83 7.99 10.94 14.79 15.04 14.94 15.73 18.49 21.69 25.01 28.66 30.56 32.51 48.09 52.45 56.05 Revenues per sh A 64.80 .54 .67 .48 .93 1.30 1.81 2.15 2.01 1.13 1.63 2.42 3.74 5.41 6.02 6.60 7.40 8.15 9.05 ‘‘Cash Flow’’ per sh 10.70 .39 .47 .24 .67 .94 1.30 1.57 1.44 .47 .92 1.65 2.73 3.97 4.77 5.39 6.09 6.90 7.65 Earnings per sh B 9.00 ------Nil Nil Div’ds Decl’d per sh Nil .33 .24 .22 .55 1.31 1.16 .57 .51 .59 .51 .48 .55 .90 .78 .83 .90 1.05 1.10 Cap’l Spending per sh 1.30 2.89 3.92 4.31 5.31 6.73 7.80 9.70 11.12 11.33 12.52 14.79 15.81 13.88 17.33 22.02 25.09 29.85 35.50 Book Value per sh C 54.65 47.37 55.35 56.07 57.04 57.67 58.52 59.01 60.25 60.14 60.29 61.59 60.11 54.96 54.53 54.08 53.97 53.60 53.50 Common Shs Outst’g D 54.00 15.7 19.9 38.0 22.4 25.4 25.3 13.4 16.9 43.8 25.1 21.5 17.7 17.4 15.2 18.1 21.3 Bold figures are Avg Ann’l P/E Ratio 21.0 .90 1.05 2.02 1.21 1.35 1.52 .89 1.08 2.75 1.60 1.21 .93 .88 .80 .91 1.15 Value Line Relative P/E Ratio 1.15 ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 887.6 900.0 945.7 1115.0 1336.1 1503.3 1575.0 1666.5 1758.4 2595.8 2810 3000 Revenues ($mill) A 3500 16.8% 14.0% 8.2% 10.4% 13.2% 17.5% 21.5% 22.8% 23.2% 17.4% 17.7% 18.5% Operating Margin 18.5% Total Debt $349.5 mill. Due in 5 Yrs $349.5 mill. 32.7 33.9 38.7 42.8 46.5 52.5 57.7 59.6 61.3 65.9 62.0 68.0 Depreciation ($mill) 82.0 LT Debt $349.5 mill. LT Interest $13.5 mill. (Total int. coverage: over 25.0x) (19% of Cap’l) 94.3 87.1 29.3 55.4 102.8 172.5 239.5 268.9 295.7 333.7 375 415 Net Profit ($mill) 495 9.9% 6.1% 24.6% 17.6% 14.9% 14.9% 14.1% 12.8% 12.0% 11.5% 12.0% 12.0% Income Tax Rate 12.0% Leases, Uncapitalized Annual rentals $32.6 mill. 10.6% 9.7% 3.1% 5.0% 7.7% 11.5% 15.2% 16.1% 16.8% 12.9% 13.3% 13.8% Net Profit Margin 14.0% Pension Assets-12/18 $32.0 mill. Oblig. $35.3 mill. 235.9 329.4 253.5 250.4 352.2 281.1 292.6 463.6 534.9 719.6 800 800 Working Cap’l ($mill) 900 .2 ------350.0 348.5 348.9 349.3 350 350 Long-Term Debt ($mill) 350 Pfd Stock None 572.2 670.0 681.5 754.6 910.6 950.2 763.1 945.2 1191.0 1354.3 1600 1900 Shr. Equity ($mill) C 2950 Common Stock 53,640,584 shs. 16.8% 13.1% 4.3% 7.3% 11.3% 18.2% 21.7% 21.3% 19.6% 20.0% 19.5% 18.5% Return on Total Cap’l 15.0% 16.5% 13.0% 4.3% 7.3% 11.3% 18.2% 31.4% 28.5% 24.8% 24.6% 23.5% 22.0% Return on Shr. Equity 17.0% MARKET CAP: $8.6 billion (Large Cap) 16.5% 13.0% 4.3% 7.3% 11.3% 18.2% 31.4% 28.5% 24.8% 24.6% 23.5% 22.0% Retained to Com Eq 17.0% CURRENT POSITION 2017 2018 9/30/19 ------Nil Nil All Div’ds to Net Prof Nil ($MILL.) Cash Assets 282.9 455.8 471.3 BUSINESS: ICON PLC is a contract research organization, provid- 14% of 2018 revenue; top five, 39%. Revenue by region: Europe, Receivables 379.5 414.8 407.8 ing outsourced development services to the pharmaceutical, 56%, U.S., 34%; rest of world, 10%. Has about 13,670 employees. Other 438.6 459.6 600.9 biotechnology, and medical device industries. ICON specializes in Offs. & dirs. own 2.9% of stock; WCM Investment Mgmt, 9.8%; Current Assets 1101.0 1330.2 1480.0 strategic development, management, and analysis of programs that Wellington Mgmt, 6.9% (3/19 20-F). Chrmn.: Ciaran Murray. CEO: Accts Payable 18.6 13.3 20.8 Debt Due ------support all stages of clinical development, from compound selection Steve Cutler. Inc.: Ireland. Addr.: South County Business Park, Other 547.5 597.3 708.2 to Phase I through IV clinical studies. Top customer accounted for Dublin, Ireland. Tel.: 353 1 291 1100. Internet: www.iconplc.com. Current Liab. 566.1 610.6 729.0 ICON delivered solid third-quarter re- $6.81 to $6.85 per share, while adding a ANNUAL RATES Past Past Est’d ’16-’18 sults. Revenue rose 8.5% to $710 million. few cents to the center. For the December of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 On a constant-currency basis, revenue was period, the new guidance implies revenue Revenues 12.5% 14.5% 10.0% ‘‘Cash Flow’’ 17.5% 31.0% 8.0% up 9.5%, or 8.4% on an organic basis, ex- and earnings of $730 million and $1.82 per Earnings 19.0% 40.0% 9.0% cluding a modest contribution from the ac- share, representing top-line growth of 7% Dividends - - - - Nil quisition of MolecularMD earlier this year. and earnings growth of 12%. We have left Book Value 12.5% 11.0% 17.0% Earnings per share reached $1.74, for an our final-quarter revenue and earnings Cal-QUARTERLY REVENUES ($ mill.) A Full annual gain of 13%, as overhead expenses forecasts essentially unchanged at $730 endarMar.31 Jun.30 Sep.30 Dec.31 Year grew more slowly than the top line. million and $1.84 per share. For 2020, we 2016 400.5 410.6 420.2 435.1 1666.5 The near-term outlook seems promis- continue to look for revenue to climb 7%, 2017 432.0 431.0 440.3 455.1 1758.4 ing. Management reported that demand to $3.0 billion. As the top-line advance lev- 2018 620.1 641.6 655.0 679.1 2595.8 from the segments ICON serves, including erages overhead costs, earnings should 2019 674.9 695.1 710.4 729.6 2810 large and midsized pharmaceutical compa- rise 11%, to $7.65 per share. 2020 725 740 760 775 3000 nies and biotech firms, has been solid. Net ICON was actively repurchasing its Cal-EARNINGS PER SHARE B Full business awards hit a record $931 million shares in the third quarter. The compa- endarMar.31 Jun.30 Sep.30 Dec.31 Year in the quarter. The company’s backlog ny spent $77 million to acquire roughly 2016 1.12 1.14 1.19 1.33 4.77 stood at $8.4 billion at September 30th, up 500,000 shares, bringing the total for the 2017 1.29 1.31 1.35 1.43 5.39 12.0%. In the third quarter, Pfizer, ICON’s year to one million shares at a cost of $142 2018 1.42 1.51 1.54 1.62 6.09 top customer, accounted for 11.4% of reve- million. We think repurchase activity is 2019 1.63 1.69 1.74 1.84 6.90 nue, down from 14.1% in the year-earlier likely to continue into next year, which 2020 1.81 1.86 1.96 2.02 7.65 period. Pfizer’s share of revenue is expect- ought to help offset share dilution from Cal-QUARTERLY DIVIDENDS PAID Full ed to range from 11% to 13% in the near employee grants and options. endarMar.31 Jun.30 Sep.30 Dec.31 Year term. As for this year’s financial outlook, This stock is ranked to outpace the 2015 management tightened its revenue guid- market averages in the year ahead. In 2016 NO CASH DIVIDENDS ance range, while also adding $1 million to light of the 20% run-up in price this year, 2017 BEING PAID the midpoint. Revenue is on track to reach appreciation potential out to 2022-2024 2018 $2.79 billion to $2.81 billion. Similarly, the falls short of the Value Line median. 2019 company narrowed its earnings outlook to Christopher Joseph, CFA December 6, 2019 (A) Beginning in 2018, revenue is reported cludes nonrecurring losses: ’17, 25¢; ’18, 20¢. (C) Includes intangibles. In 2018: $810.3 mil- Company’s Financial Strength A gross of reimbursable expenses. Quarterly figures may not sum to total due to lion, $15.01 per share. Stock’s Price Stability 70 (B) Diluted earnings. U.S. GAAP earnings rounding. Next earnings report due late Feb. (D) In millions. Price Growth Persistence 95 through 2016; adjusted earnings thereafter. Ex- Earnings Predictability 70 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 23.8 RELATIVE DIV’D VALUE IQVIA HOLDINGS NYSE-IQV PRICE 146.49RATIO 21.4()Median: NMF P/E RATIO 1.21YLD Nil LINE 804 TIMELINESS 2 Lowered 11/15/19 High: 47.5 60.8 80.4 81.4 110.7 135.5 164.1 Target Price Range Low: 40.1 45.3 56.5 55.0 74.8 91.6 107.8 2022 2023 2024 SAFETY 3 New 12/12/14 LEGENDS 15.0 x ″Cash Flow″ psh 320 TECHNICAL Lowered 12/6/19 .... Relative Price Strength 3 Options: Yes BETA .95 (1.00 = Market) Shaded area indicates recession 200 18-Month Target Price Range 160 Low-High Midpoint (% to Mid) 120 100 $122-$215 $169 (15%) 80 2022-24 PROJECTIONS 60 Ann’l Total Price Gain Return 40 High 240 (+65%) 13% Low 160 (+10%) 3% % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 18 4Q2018 1Q2019 2Q2019 Percent 30 to Buy 280 339 341 1 yr. 17.5 4.9 shares 20 3 yr. 101.3 30.2 to Sell 276 258 277 traded 10 Hld’s(000) 179262 177417 178044 5 yr. 146.7 36.8 IQVIA Holdings, Inc. is the parent compa- 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 ny of IQVIA. The company was founded in ------29.33 33.51 36.24 22.79 38.70 52.69 57.25 60.55 Revenues per sh 73.60 1982 and completed an initial public offering ------2.90 3.82 4.58 3.75 6.05 7.26 8.25 8.95 ‘‘Cash Flow’’ per sh 11.80 in 1994. In 2003, the company was taken ------2.10 2.70 3.33 3.91 4.67 5.55 6.40 7.20 Earnings per sh A 9.50 private by a group of investors. The stock ------Nil Nil Div’ds Decl’d per sh Nil was relisted in May, 2013 on the New York ------.71 .66 .66 .70 1.77 2.32 2.35 2.35 Cap’l Spending per sh 2.50 Stock Exchange under the ticker symbol Q. ------d5.14 d5.66 d4.73 36.67 38.94 33.98 37.30 42.50 Book Value per sh 63.90 Changed ticker to IQV in November, 2017. ------129.84 124.32 119.38 235.40 208.25 197.60 191.00 188.00 Common Shs Outst’g B 180.00 ------21.0 19.8 20.6 18.1 19.1 19.9 Bold figures are Avg Ann’l P/E Ratio 21.0 ------1.18 1.04 1.04 .95 .96 1.07 Value Line Relative P/E Ratio 1.15 estimates CAPITAL STRUCTURE as of 9/30/19 ------Avg Ann’l Div’d Yield Nil Total Debt $11542 mill. Due in 5 Yrs $4644 mill. ------3692.3 3808.3 4165.8 4326.4 5364.0 8060.0 10412 11050 11500 Revenues ($mill) 13250 LT Debt $11444 mill. LT Interest $500.0 mill. ------13.9% 16.1% 17.1% 18.8% 23.6% 26.1% 21.2% 21.5% 22.5% Operating Margin 24.0% (65% of Cap’l) ------98.3 107.5 121.0 127.7 289.0 241.0 278.0 310 315 Depreciation ($mill) 335 Leases, Uncapitalized: Annual Rentals $167 mill. ------177.5 268.9 353.4 418.9 594.0 1018.0 1156.0 1280 1390 Net Profit ($mill) 1790 ------34.9% 30.0% 30.5% 29.5% 24.8% 28.9% 23.1% 22.0% 24.0% Income Tax Rate 24.0% Pension Assets-12/18 $696.0 mill. ------4.8% 7.1% 8.5% 9.7% 11.1% 12.6% 11.1% 11.6% 12.1% Net Profit Margin 13.5% Oblig. $848.0 mill. ------201.0 463.4 674.2 817.8 632.0 546.0 340.0 475 725 Working Cap’l ($mill) 2150 Pfd Stock None ------2366.3 2035.6 2292.5 2419.3 7108.0 10122 10907 11100 11100 Long-Term Debt ($mill) 11500 Common Stock 194,037,571 shs. ------d1360 d667.4 d704.1 d564.2 8633.0 8109.0 6714.0 7195 8075 Shr. Equity ($mill) 11500 as of 10/21/19 ------24.3% 24.2% 25.4% 25.3% 4.2% 6.5% 7.7% 8.0% 8.5% Return on Total Cap’l 9.0% ------6.9% 12.6% 17.2% 18.0% 17.0% Return on Shr. Equity 15.5% MARKET CAP: $28.4 billion (Large Cap) ------6.9% 12.6% 17.2% 18.0% 17.0% Retained to Com Eq 15.5% CURRENT POSITION 2017 2018 9/30/19 ------Nil Nil All Div’ds to Net Prof Nil ($MILL.) Cash Assets 959 891 863 BUSINESS: IQVIA Holdings, Inc. provides biopharmaceutical de- cal development process), and Contracted Sales & Medical Solu- Receivables 1993 2394 2514 velopment services, commercial outsourcing services, and informa- tions. Acquired IMS Health 10/16. Has about 58,000 employees. Other 498 589 618 Current Assets 3450 3874 3995 tion technology services to a wide range of life sciences companies. Officers & directors own 1.4% of common stock (2/19 proxy). Chair- Accts Payable 322 437 2190 Has three reportable segments: Technology & Analytics Solutions man and Chief Executive Officer: Ari Bousbib. Incorporated: DE. Debt Due 103 100 123 (information technology services to the healthcare industry), Re- Address: 4820 Emperor Blvd, Durham, NC 27703. Telephone: Other 2479 2997 1263 search & Development Solutions (outsourcing services for the clini- (919) 998-2000. Internet: www.quintiles.com. Current Liab. 2904 3534 3576 IQVIA Holdings is performing well. the $1.60-a-share tally was 13% above the ANNUAL RATES Past Past Est’d ’16-’18 Last quarter, total revenues were up 7%, previous year. Higher operating income, of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Revenues - - 5.5% 11.5% year over year, to $2.77 billion. The Re- combined with a reduced share count, ‘‘Cash Flow’’ - - 14.5% 13.0% search & Development Solutions division elevated per-share earnings. We are keep- Earnings - - 17.5% 12.5% is seeing firm demand from large pharma- ing intact our $6.40 share-net estimate for Dividends - - - - NMF Book Value - - - - 10.0% ceutical clients that, historically, have per- full-year 2019. Buying back stock is the formed most research in house. Segment company’s preferred use of capital. In the Cal-QUARTERLY REVENUES ($ mill.) Full revenues rose 6%. Even better, the book- third quarter, it repurchased $313 million endarMar.31 Jun.30 Sep.30 Dec.31 Year to-bill ratio for the quarter was an im- worth of its shares, while $1.6 billion 2016 1108 1167 1136 1953 5364 pressive 1.31x. With strong bookings, the remained on the buyback authorization. 2017 1911 1969 2019 2161 8060 Research backlog jumped 11% from the The balance sheet carries substantial 2018 2563 2567 2594 2688 10412 previous year, to $18 billion. Management debt. The net-debt leverage ratio was 4.6x 2019 2684 2740 2769 2857 11050 expects about $5 billion of that to convert at the close of the third quarter, which is 2020 2800 2800 2900 3000 11500 to revenue in the coming 12 months. With somewhat aggressive. The company, how- Cal-EARNINGS PER SHARE A Full that, segment revenues may accelerate a ever, seems comfortable with its use of lev- endarMar.31 Jun.30 Sep.30 Dec.31 Year bit beyond the recent mid-single-digit erage, as management views debt elimina- 2016 .89 .93 1.00 1.09 3.91 pace. (IQVIA’s other segments have tion as uneconomical, given the backdrop 2017 1.01 1.09 1.19 1.40 4.67 shorter lead times, so they are not in- of low interest rates. Even if the debt level 2018 1.34 1.29 1.42 1.50 5.55 cluded in the backlog.) Elsewhere the IT doesn’t change much, the leverage ratio 2019 1.53 1.53 1.60 1.74 6.40 2020 1.75 1.75 1.80 1.90 7.20 services Technology & Analytics arm grew should improve over time, based on rough- at an 8% clip thanks to new technology ly 10% annual EBITDA expansion. Cal-QUARTERLY DIVIDENDS PAID Full deployment, while the smaller Contracted These shares are timely. They have endarMar.31 Jun.30 Sep.30 Dec.31 Year Sales unit returned to growth after several pulled back modestly in value since our 2015 periods of contraction. Indeed, 2020 is September review, but price dips may 2016 NO CASH DIVIDENDS shaping up to be a prosperous year. present better buying opportunities here. 2017 BEING PAID The company has posted double-digit IQV shares score 100 out of 100 for Price 2018 bottom-line growth in every quarter Growth Persistence. 2019 so far in 2019. In the September interim, Jeffrey Hirt December 6, 2019 (A) Diluted earnings. May not sum due to ($3.78). Next earnings report due mid- Company’s Financial Strength B+ rounding. Excludes nonrecurring gains and February. Stock’s Price Stability 80 (losses): ’13, ($0.33); ’14, $0.02; ’15, ($0.25); (B) In millions. Price Growth Persistence 100 ’16, ($3.15); ’17, $1.21; ’18, ($4.31); ’19, Earnings Predictability 100 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 15.8 RELATIVE DIV’D VALUE LAB. CORP. AMER. NYSE-LH PRICE 172.78RATIO 14.8()Median: 14.0 P/E RATIO 0.84YLD Nil LINE 805 TIMELINESS 2 Raised 11/1/19 High: 80.8 76.7 89.5 100.9 95.3 108.0 109.8 131.2 141.3 165.2 190.4 178.4 Target Price Range Low: 52.9 53.3 69.5 74.6 81.6 85.8 87.3 105.8 97.8 128.0 119.4 122.3 2022 2023 2024 SAFETY 1 Raised 12/19/08 LEGENDS 11.0 x ″Cash Flow″ psh 320 TECHNICAL Lowered 11/1/19 .... Relative Price Strength 2 Options: Yes BETA .95 (1.00 = Market) Shaded area indicates recession 200 18-Month Target Price Range 160 Low-High Midpoint (% to Mid) 120 100 $119-$197 $158 (-10%) 80 2022-24 PROJECTIONS 60 Ann’l Total Price Gain Return 40 High 255 (+50%) 10% Low 210 (+20%) 5% % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 18 4Q2018 1Q2019 2Q2019 Percent 45 to Buy 315 348 311 1 yr. 2.6 4.9 shares 30 3 yr. 31.5 30.2 to Sell 427 344 362 traded 15 Hld’s(000) 90466 90157 88994 5 yr. 50.8 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 20.51 22.65 26.31 29.38 36.65 41.60 44.84 50.04 56.67 60.66 67.77 71.06 85.69 93.88 102.47 114.59 118.85 123.30 Sales per sh 147.35 3.19 3.68 4.24 4.87 6.03 6.40 6.96 7.89 8.12 8.64 9.18 8.94 12.34 13.83 15.02 16.99 17.00 17.95 ‘‘Cash Flow’’ per sh 23.30 2.23 2.58 2.80 3.32 4.18 4.60 4.89 5.55 6.37 6.82 6.95 6.80 7.87 8.83 9.60 11.02 11.25 12.05 Earnings per sh A 15.50 ------Nil Nil Div’ds Decl’d per sh Nil .58 .70 .74 .95 1.28 1.45 1.10 1.26 1.49 1.89 2.36 2.41 2.53 2.72 3.07 3.84 3.95 4.15 Cap’l Spending per sh 4.50 13.23 14.68 14.91 16.18 15.54 15.59 20.12 24.66 25.60 29.06 29.07 33.34 48.81 53.61 67.03 70.49 76.30 83.50 Book Value per sh C 109.50 143.33 136.20 126.50 122.20 111.00 108.30 104.70 100.00 97.80 93.50 85.70 84.60 101.30 102.70 101.90 98.90 97.00 97.00 Common Shs Outst’g B 95.00 13.6 16.2 17.6 19.0 18.0 15.4 13.4 13.9 14.0 13.0 13.8 14.8 15.3 14.3 15.3 15.4 Bold figures are Avg Ann’l P/E Ratio 15.0 .78 .86 .94 1.03 .96 .93 .89 .88 .88 .83 .78 .78 .77 .75 .77 .83 Value Line Relative P/E Ratio .85 ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 4694.7 5003.9 5542.3 5671.4 5808.3 6011.6 8680.1 9641.8 10441 11333 11530 11960 Sales ($mill) 14000 Total Debt $6603.9 mill. Due in 5 Yrs $3300 mill. 25.4% 25.3% 22.7% 22.8% 21.4% 19.5% 20.9% 20.7% 18.9% 19.0% 19.7% 20.5% Operating Margin 23.0% LT Debt $6101.3 mill. LT Interest $335.0 milll. 195.1 203.6 145.6 143.5 148.4 245.5 457.8 499.2 533.2 552.1 560 570 Depreciation ($mill) 740 (45% of Capital) 533.5 585.6 648.2 664.3 638.1 511.2 792.4 921.1 997.3 1127.8 1090 1170 Net Profit ($mill) 1475 37.2% 37.6% 36.1% 37.9% 37.2% 38.0% 27.0% 28.8% 16.8% 27.1% 23.0% 23.0% Income Tax Rate 23.0% Leases, Uncapitalized Annual rentals $196.1 mill. 11.4% 11.7% 11.7% 11.7% 11.0% 8.5% 9.1% 9.6% 9.6% 10.0% 9.5% 9.8% Net Profit Margin 10.5% Pension Assets-12/18 $250.8 mill. d82.8 23.3 287.4 363.3 696.4 716.4 961.5 651.1 636.5 956.5 500 650 Working Cap’l ($mill) 1300 Oblig. $338.5 mill. 977.2 1826.7 2085.5 2175.0 2889.1 2682.7 5992.1 5300.0 6344.6 6041.9 6000 5800 Long-Term Debt ($mill) 4500 Preferred Stock None 2106.1 2466.3 2503.5 2717.4 2491.3 2820.5 4944.4 5505.8 6830.0 6971.4 7400 8100 Shr. Equity ($mill) 10400 Common Stock 97,100,000 shares 18.3% 14.3% 14.9% 14.5% 12.7% 10.2% 8.4% 9.5% 8.4% 9.6% 9.5% 9.5% Return on Total Cap’l 11.0% as of 10/29/19 25.3% 23.7% 25.9% 24.4% 25.6% 18.1% 16.0% 16.7% 14.6% 16.2% 15.0% 14.5% Return on Shr. Equity 14.0% MARKET CAP: $16.8 billion (Large Cap) 25.3% 23.7% 25.9% 24.4% 25.6% 18.1% 16.0% 16.7% 14.6% 16.2% 15.0% 14.5% Retained to Com Eq 14.0% CURRENT POSITION 2017 2018 9/30/19 ------Nil Nil All Div’ds to Net Prof Nil ($MILL.) Cash Assets 316.7 426.8 361.1 BUSINESS: Laboratory Corporation of America Holdings is one of Medicaid account for 10% of volume. Acquired Covance for $6.2 Receivables 1481.3 1467.9 1617.2 the nation’s largest independent clinical laboratory companies. It billion in 2/15, Chiltern for $1.2 billion in 8.17. Has 61,000 employ- Inventory 227.6 237.3 234.9 Other 657.0 703.4 774.6 provides a full range of clinical/anatomical tests to physicians, ees. Vanguard owns 11.0% of common; BlackRock, 9.9%; Offs. & Current Assets 2682.6 2835.4 2987.8 managed-care organizations, hospitals, clinics, and long-term care dirs. own less than 1.0% (3/19 proxy). President and CEO: Adam Accts Payable 663.0 634.6 607.8 facilities. Also offers substance-abuse tests. At 12/31/18, it had H. Schechter. Inc.: DE. Addr.: 358 S. Main St., Burlington, NC Debt Due 417.5 17.9 502.6 over 120 million patient encounters per annum. Medicare and 27215. Tel.: 336-229-1127. Internet: www.labcorp.com. Other 965.6 1226.4 1444.5 Current Liab. 2046.1 1878.9 2554.9 Laboratory Corporation of America their market penetration. If so, a bottom- posted another solid quarter in the line advance to just above the $12.00-a- ANNUAL RATES Past Past Est’d ’16-’18 September interim, but investors did share mark appears within reach. of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Sales 11.0% 11.0% 6.0% not like the somewhat tapered full- A recent managerial departure ‘‘Cash Flow’’ 10.0% 12.0% 7.5% year view. On the Diagnostics front, reve- garnered a good amount of attention. Earnings 9.5% 8.0% 8.0% nues ticked up modestly driven by contri- John Ratliff, the former CEO of the Dividends - - - - Nil Book Value 15.0% 18.0% 9.5% bution from acquisitions, while the Covance arm, took the same position on Covance arm put up a more robust growth the Diagnostics side of the coin around the Cal-QUARTERLY SALES ($ mill.) Full number in the drug development field. start of the fourth quarter. Less than one endarMar.31 Jun.30 Sep.30 Dec.31 Year Share net of $2.90 edged the consensus month later is was announced that Mr. 2016 2368 2431 2415 2427 9641.8 call by a nickel. Still, the investment com- Ratliff was leaving the company to pursue 2017 2447 2543 2655 2796 10441.4 munity got hung up on the fact that man- another opportunity. We get that the sud- 2018 2848 2866 2831 2788 11333.4 agement reduced the high end of its earn- den departure might sound alarms for 2019 2791 2882 2929 2928 11530 2020 2900 2990 3030 3040 11960 ings bracket from $11.40 to $11.30. Given some, but we are not overly concerned. the third-quarter beat it was a bit surpris- LabCorp has a deep executive bench. Dr. Cal-EARNINGS PER SHARE A Full ing, and likely the reason why the shares Brian Caveney will now run Diagnostics, endarMar.31 Jun.30 Sep.30 Dec.31 Year are hovering above the $170 mark, as op- and be assisted by Mark Schroeder. Both 2016 2.05 2.37 2.25 2.16 8.83 posed to the all-time high of a hair over are veterans of the sector. 2017 2.22 2.47 2.46 2.45 9.60 $190 registered last year. This high-quality equity is an above 2018 2.78 2.98 2.74 2.52 11.02 2019 2.62 2.93 2.90 2.80 11.25 We think year-over-year earnings average (2) play for year-ahead rela- 2020 2.80 3.15 3.10 3.00 12.05 growth will pick up the pace in 2020. tive price performance. Conversely, for Patient usage figures are a bit stagnant of the coming 18-month period, and the Cal-QUARTERLY DIVIDENDS PAID Full late, and we are expecting some improve- stretch to 2022-2024, expected returns are endarMar.31 Jun.30 Sep.30 Dec.31 Year ment beginning in the new year. The con- unexciting. LabCorp does not pay a divi- 2015 tract research division should continue to dend like its lab duopoly counterpart 2016 NO CASH DIVIDENDS be on its game and a new suite of Quest Diagnostics, so income-minded ac- 2017 BEING PAID consumer-initiated test offerings called counts should look elsewhere. 2018 2019 Pixel (purchased online) may well grow Erik M. Manning December 6, 2019 (A) Diluted earnings. Excludes nonrecurring rounding. Next earnings report due early Feb- $111.37/sh. Company’s Financial Strength A items: ’05, d9¢; ’06, d8¢; ’07, d25¢; ’08, d56¢; ruary. Stock’s Price Stability 90 ’09, 9¢; ’10, d26¢; ’11, d$1.26; ’12, d11¢; ’16, (B) In millions. Price Growth Persistence 70 $1.81; ’17, $2.61. Figures may not sum due to (C) Includes intangibles. In ’18: $11.27 bill., Earnings Predictability 100 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 8.1 RELATIVE DIV’D VALUE MEDNAX, INC. NYSE-MD PRICE 27.15RATIO 8.0()Median: 16.0 P/E RATIO 0.45YLD Nil LINE 806 TIMELINESS 4 Lowered 5/10/19 High: 36.3 30.7 34.7 37.7 40.9 56.4 67.6 86.1 77.0 72.1 63.0 38.9 Target Price Range Low: 11.7 12.3 22.4 29.2 29.6 40.3 49.8 64.1 59.4 40.6 31.7 19.9 2022 2023 2024 SAFETY 3 Lowered 6/8/18 LEGENDS 14.0 x ″Cash Flow″ psh TECHNICAL Lowered 11/22/19 .... Relative Price Strength 160 4 2-for-1 split 4/06 BETA .95 (1.00 = Market) 2-for-1 split 12/13 120 Options: Yes 100 18-Month Target Price Range Shaded area indicates recession 2-for-1 80 Low-High Midpoint (% to Mid) 60 50 $20-$41 $31 (10%) 40 2022-24 PROJECTIONS 30 Ann’l Total Price Gain Return 20 High 105 (+285%) 40% Low 70 (+160%) 27% 15 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 36 to Buy 143 159 109 1 yr. -46.8 4.9 shares 24 3 yr. -64.1 30.2 to Sell 189 147 172 traded 12 Hld’s(000) 82864 79339 78012 5 yr. -64.8 36.8 MEDNAX, Inc. (formerly Pediatrix Medical 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 Group) was founded in 1979 by Drs. Roger 13.70 14.60 16.23 18.16 21.28 25.40 29.66 33.97 36.90 41.53 41.80 42.60 Sales per sh 56.45 Medel and Gregory Melnick to provide 2.01 2.23 2.49 2.72 3.17 3.78 4.27 4.92 4.41 5.06 4.35 4.60 ‘‘Cash Flow’’ per sh 6.90 neonatal physician services to hospital- 1.85 2.02 2.24 2.43 2.78 3.18 3.58 3.99 3.34 3.82 3.35 3.45 Earnings per sh A 5.35 based neonatal intensive care units. The ------Nil Nil Div’ds Decl’d per sh Nil stock was brought public in September, .16 .13 .32 .14 .15 .19 .29 .42 .53 .56 .45 .50 Cap’l Spending per sh .70 1995 by Dean Witter Reynolds and Mont- 12.65 15.08 17.69 20.35 23.15 23.58 26.00 29.46 32.72 35.16 25.00 27.40 Book Value per sh B 38.25 gomery Securities in an offering of 4.4 mil- 94.04 95.97 97.87 100.04 101.21 96.03 93.74 93.72 93.72 87.82 84.00 84.00 Common Shs Outst’g C 85.00 lion shares priced at $10.00 a share. A sub- 12.0 14.0 15.1 14.6 17.2 18.5 20.7 16.9 16.8 12.4 Bold figures are Avg Ann’l P/E Ratio 16.0 sequent offering took place in July, 1996 of .80 .89 .95 .93 .97 .97 1.04 .89 .84 .66 Value Line Relative P/E Ratio .90 1.7 million shares at $17.75 a share. ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 1288.3 1401.6 1588.2 1816.6 2154.0 2438.9 2780.0 3183.2 3458.3 3647.1 3510 3580 Sales ($mill) 4800 Total Debt $1939.4 mill. Due in 5 Yrs $1400.0 23.3% 22.7% 24.0% 23.1% 22.8% 22.9% 22.4% 22.1% 16.9% 19.0% 17.3% 17.5% Operating Margin 20.0% mill. 16.7 22.0 25.3 30.8 40.0 46.0 64.2 89.3 102.9 111.3 85.0 95.0 Depreciation ($mill) 130 LT Debt $1932.2 mill. LT Interest $105.0 mill. (48% of Cap’l) 172.1 191.7 218.0 240.9 280.5 317.3 336.3 371.5 310.1 332.8 280 290 Net Profit ($mill) 455 38.9% 34.9% 38.3% 37.9% 37.4% 37.6% 37.8% 33.8% 24.4% 24.0% 24.0% 24.0% Income Tax Rate 25.0% Leases, Uncapitalized: Annual rentals $30.8 mill. 13.4% 13.7% 13.7% 13.3% 13.0% 13.0% 12.1% 11.7% 9.0% 9.1% 8.0% 8.1% Net Profit Margin 9.5% No Defined Benefit Pension Plan d54.0 d24.9 83.0 90.7 82.0 50.8 99.0 138.1 95.8 157.2 500 600 Working Cap’l ($mill) 775 50.2 146.6 29.3 144.2 27.1 558.9 1262.8 1683.6 1851.4 1974.3 1900 1800 Long-Term Debt ($mill) 1500 Pfd Stock None 1190.1 1447.5 1731.0 2035.4 2343.0 2264.6 2437.5 2760.8 3066.5 3087.9 2100 2300 Shr. Equity ($mill) 3250 Common Stock 84,298,441 shs. 14.0% 12.1% 12.5% 11.1% 11.9% 11.4% 9.4% 9.0% 7.1% 7.8% 8.5% 8.5% Return on Total Cap’l 10.5% as of 10/25/19 14.5% 13.2% 12.6% 11.8% 12.0% 14.0% 13.8% 13.5% 10.1% 10.8% 13.5% 12.5% Return on Shr. Equity 14.0% MARKET CAP: $2.3 billion (Mid Cap) 14.5% 13.2% 12.6% 11.8% 12.0% 14.0% 13.8% 13.5% 10.1% 10.8% 13.5% 12.5% Retained to Com Eq 14.0% CURRENT POSITION 2017 2018 9/30/19 ------Nil Nil All Div’ds to Net Prof Nil ($MILL.) Cash Assets 70.5 78.7 107.3 BUSINESS: MEDNAX, Inc. provides physician management serv- in the neonatal field. Another 850+ are maternal-fetal/pediatric Receivables 504.0 542.3 494.7 ices to hospital-based neonatal intensive care units administering specialists. Operates in all 50 states. T. Rowe Price owns 10.0% of Other 52.7 36.4 363.3 medical care to newborn infants and to hospital-based pediatric common; BlackRock, 9.7%; Vanguard, 9.0%. Offs. & dirs. own Current Assets 627.2 657.4 965.3 intensive care units providing care to critically ill children. It also has 3.4% (3/19 proxy). Chairman: Cesar L. Alvarez. Pres. and CEO: Accts Payable 438.0 469.3 442.0 Debt Due 1.4 .3 .2 operations in the anesthesia and teleradiology arenas. Its network Roger J. Medel, M.D. Inc.: FL. Addr.: 1301 Concord Terrace, Sun- Other 92.0 30.6 58.6 of doctors includes over 4,210 physicians, 1,270 of which are based rise, FL 33323. Tel.: 954-384-0175. Web: www.mednax.com. Current Liab. 531.4 500.2 500.8 MEDNAX shares remain below the $30 compete contracts expire. It is a far from ANNUAL RATES Past Past Est’d ’16-’18 mark. The third-quarter showing was in ideal situation that has prompted us to of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 line with both our and Wall Street’s es- take a slightly more conservative stance. Sales 15.0% 15.5% 7.0% ‘‘Cash Flow’’ 12.0% 13.0% 6.0% timates, and the stock climbed some on A recent downgrade from a leading Earnings 11.0% 10.5% 6.5% that news. Regardless, the equity remains credit rating agency is a bit troubling. Dividends - - - - Nil well below previous highs. Wage costs are That company affirmed MD’s Ba2 rating Book Value 13.0% 10.5% 3.0% the primary culprit, particularly in the on its unsecured bonds due in 2023 and Cal-QUARTERLY SALES ($ mill.) Full anesthesia business. That line item has 2027. However, the outlook was altered to endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year been elevated for some time, and the negative from stable. Eroding profit mar- 2016 752.6 771.8 828.0 830.8 3183.2 damaging effects it has on profitability are gins due to elevated compensation costs 2017 835.6 842.9 869.0 910.8 3458.3 clearly evident. Some streamlining is un- were cited, as was a concern with the un- 2018 901.1 915.9 896.7 933.4 3647.1 derway, and the reworking of contracts is predictability associated with restructur- 2019 851.2 868.3 888.7 901.8 3510 on the slate, but the correction of this ing initiatives. On a positive note, free 2020 870 885 905 920 3580 problem will not happen overnight. Addi- cash flow expectations remained static. Cal-EARNINGS PER SHARE A Full tional leverage has been taken out to pur- Therefore, we think debt levels are endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year chase facilities, which should aid the top manageable. Still, this most recent adjust- 2016 .87 1.03 1.09 1.00 3.99 line in the years ahead. In the meantime, ment from this agency will not help inves- 2017 .75 .85 .87 .87 3.34 the compensation concern remains the tor sentiment for a stock that was trading 2018 .89 1.07 .94 .92 3.82 elephant in the room. north of $60 a share in early 2018. 2019 .65 .89 .91 .90 3.35 We are once again reducing our earn- This untimely stock has sizable 2020 .70 .90 .93 .92 3.45 ings expectations for this year and longer-term capital appreciation Cal-QUARTERLY DIVIDENDS PAID Full the next. At the time of our September potential. The path to these improved endarMar.31 Jun.30 Sep.30 Dec.31 Year report we did the same, and there has profits is likely a bumpy one, though. The 2015 been no tangible signs of improvement stock has one significant thing going for it. 2016 NO CASH DIVIDENDS since that time. In fact, the amount of A private-equity buyout is a possibility, 2017 BEING PAID goodwill on the books continues to spook and MD would then have more options out 2018 the Street. The goodwill is in danger of of the public eye. 2019 being impaired as employment and non- Erik M. Manning December 6, 2019 (A) Diluted earnings. Excludes nonrecurring report due early February. Company’s Financial Strength B++ losses (gain): ’09, ($0.04); ’10, ($0.12); ’16, (B) Includes intangibles 2018: $4971.3 million, Stock’s Price Stability 55 $0.50; ’17, ($0.11); ’18, ($0.89). May not sum $56.61/share. Price Growth Persistence 40 to total due to change in share count. Next egs. (C) In millions, adjusted for a stock split. Earnings Predictability 85 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 30.9 RELATIVE DIV’D VALUE MEDPACE HOLDINGS NYSE-MEDP PRICE 76.26RATIO 25.8()Median: NMF P/E RATIO 1.46YLD Nil LINE 807 TIMELINESS 2 Raised 8/30/19 High: 38.9 39.6 65.1 86.7 Target Price Range Low: 26.5 21.8 31.8 48.2 2022 2023 2024 SAFETY 3 New 3/8/19 LEGENDS .... Relative Price Strength 128 TECHNICAL 3 Lowered 12/6/19 Options: Yes Shaded area indicates recession 96 BETA 1.25 (1.00 = Market) 80 18-Month Target Price Range 64 Low-High Midpoint (% to Mid) 48 40 $53-$142 $98 (30%) 32 2022-24 PROJECTIONS 24 Ann’l Total Price Gain Return 16 High 115 (+50%) 11% Low 75 (Nil) Nil 12 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 45 to Buy 129 139 127 1 yr. 41.3 4.9 shares 30 3 yr. 153.7 30.2 to Sell 105 116 94 traded 15 Hld’s(000) 29548 27480 31583 5 yr. — 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 ------9.11 12.30 19.76 23.60 27.10 Revenues per sh 34.85 ------1.76 2.41 3.14 3.35 4.15 ‘‘Cash Flow’’ per sh 6.45 ------.37 .98 1.97 2.60 3.30 Earnings per sh A 4.75 ------Nil Nil Div’ds Decl’d per sh Nil ------.33 .33 .45 .35 .40 Cap’l Spending per sh .60 ------15.02 14.20 16.53 20.55 23.35 Book Value per sh B 31.60 ------40.66 35.47 35.67 36.00 36.00 Common Shs Outst’g C 38.00 ------NMF 32.1 23.7 Bold figures are Avg Ann’l P/E Ratio 20.0 ------NMF 1.61 1.28 Value Line Relative P/E Ratio 1.25 ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 ------359.1 370.6 436.2 704.6 850 975 Revenues ($mill) 1325 Total Debt Nil Due in 5 Yrs Nil ------38.5% 29.8% 36.9% 19.8% 21.0% 24.0% Operating Margin 31.5% LT Debt Nil LT Interest Nil ------69.5 58.1 46.5 38.8 25.0 30.0 Depreciation ($mill) 65.0 ------d8.7 13.4 39.1 73.2 95.0 120 Net Profit ($mill) 180 Leases, Uncap.: None ------38.9% 31.3% 22.1% 22.0% 22.0% Income Tax Rate 25.0% No Defined Benefit Pension Plan ------NMF 3.6% 9.0% 10.4% 11.1% 12.3% Net Profit Margin 13.6% ------d39.3 d35.3 d62.7 d78.9 d60.0 d40.0 Working Cap’l ($mill) 120 Pfd Stock None ------377.9 151.3 205.1 79.7 Nil Nil Long-Term Debt ($mill) Nil Common Stock 36,030,398 shs. as of 10/25/19 ------413.5 610.7 503.5 589.7 740 840 Shr. Equity ($mill) 1200 ------.6% 3.0% 6.1% 11.5% 13.0% 14.5% Return on Total Cap’l 15.0% MARKET CAP: $2.7 billion (Mid Cap) ------NMF 2.2% 7.8% 12.4% 13.0% 14.5% Return on Shr. Equity 15.0% CURRENT POSITION 2017 2018 9/30/19 ------NMF 2.2% 7.8% 12.4% 13.0% 14.5% Retained to Com Eq 15.0% ($MILL.) ------Nil Nil All Div’ds to Net Prof Nil Cash Assets 26.5 23.3 79.3 Receivables 83.1 133.4 140.2 BUSINESS: Medpace Holdings, Inc. is a clinical contract research areas. Services include: medical affairs, clinical trial management, Inventory ------organization that provides scientifically driven outsourced clinical study feasibility/start-up, clinical monitoring, etc. Offs. & Dirs. own Other 20.4 21.4 30.9 development services to the biotech/pharma, and medical device 24.2% of common stock; BlackRock, 11.6; Vanguard, 9.9% (4/19 Current Assets 130.0 178.1 250.4 industries. The company’s mission is to accelerate the development Proxy). Has 2,500 employees. Chairman/C.E.O.: August J. Accts Payable 16.7 16.7 20.7 Debt Due 16.5 - - - - of safe/effective medical therapeutics. Medpace offers a suite of Troendle. Address: 5375 Medpace Way, Cincinnati, OH 45227. Tel- Other 159.5 240.3 293.7 services supporting process from Phase I to Phase IV in a range of ephone: (513) 579-9911. Web: www.medpace.com. Current Liab. 192.7 257.0 314.4 Shares of Medpace Holdings retreated testings is not out of the realm of possibil- ANNUAL RATES Past Past Est’d ’16-’18 south of the $80 mark in the past ity. Stricter rules would only add to Med- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 three months, but remain up roughly pace’s revenues. Revenues - - - - 19.0% ‘‘Cash Flow’’ - - - - 19.0% 40% year to date. The third-quarter This stock is best-suited for those Earnings - - - - 28.0% showing came in slightly below expecta- with a shorter-term outlook. We have Dividends - - - - Nil tions and it appears some investors took MEDP ranked Above Average (2) for Book Value - - - - 15.0% profits. Regardless, earnings for this year Timeliness in the coming year, and the 18- Cal-QUARTERLY REVENUES ($ mill.)D Full should rise handsomely (more color below) month reading is also strong. Conversely, endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year and our 2020 outlook remains static. Pres- out to 2022-2024 appreciation projections 2016 87.8 92.6 94.8 95.4 370.6 sures tied to the next election have put a are subpar. Too, like many medical serv- 2017 106.6 106.2 110.7 112.7 436.2 dent in some other subsectors of the medi- ices companies, there is no dividend here. 2018 163.1 170.1 179.3 192.1 704.6 cal services arena, though demand for Takeover speculation of late has cer- 2019 200.7 214.1 216.2 219 850 MEDP’s offerings remains firm. tainly been a boon to the quotation, as 2020 230 245 250 250 975 Earnings growth for 2019 should well. Coming off the less than stellar Cal-EARNINGS PER SHAREAD Full clock in at more than 30%, versus last third-quarter results, the quotation took a endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year year’s tally. The backlog conversion run hit, but was likely buoyed by the growing 2016 .11 .15 .13 - - .37 rate is at 18.5% even after the September chatter that buying a contract research 2017 .20 .23 .25 .30 .98 quarter where revenues came up a bit shy entity can cut the overall cost structure of 2018 .40 .45 .52 .60 1.97 of estimates. Moreover, new business many companies in the medical services 2019 .51 .73 .63 .73 2.60 awards were just above $285 million, field. LabCorp (LH) is a primary example 2020 .70 .90 .80 .90 3.30 which represents a year-over-year gain of of this, as that company’s fortunes have Cal-QUARTERLY DIVIDENDS PAID Full more than 25%. Clinical trials on new been on an upswing since it acquired endarMar.31 Jun.30 Sep.30 Dec.31 Year drugs and medical devices are vital in this Covance and then continued to build up a 2015 sector and MEDP is right in the sweet spot CRO platform. This attraction point is not 2016 NO CASH DIVIDENDS of the growing demand to get these treat- lost on the investment community, and the 2017 BEING PAID ments/offerings to market. Market share is number of potential buyers is rising as 2018 being won, and these trials will always Medicare For All talk increases. 2019 need to be done, and the likelihood of more Erik M. Manning December 6, 2019 (A) Diluted earnings. Next earnings report due (D) Qtrly. eps. or revs. may not sum to total Company’s Financial Strength B++ early February. (B) Incl. intangibles, in 2018: due to rounding or change in shares outstand- Stock’s Price Stability 15 $737.6 mill., $21.07/share. ing. Price Growth Persistence NMF (C) In millions. Earnings Predictability NMF © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 11.5 RELATIVE DIV’D VALUE MOLINA HEALTHCARE NYSE-MOH PRICE 135.90RATIO 11.6()Median: 28.0 P/E RATIO 0.66YLD Nil LINE 808 TIMELINESS 4 Lowered 6/21/19 High: 30.0 17.2 21.2 29.0 36.8 40.9 54.6 82.4 67.9 80.7 154.1 159.0 Target Price Range Low: 10.7 10.8 13.3 13.9 17.6 25.7 32.4 49.4 44.5 42.6 71.1 105.3 2022 2023 2024 SAFETY 3 New 9/7/18 LEGENDS 12.0 x ″Cash Flow″ psh 320 TECHNICAL Lowered 12/6/19 .... Relative Price Strength 5 3-for-2 split 5/11 BETA 1.20 (1.00 = Market) Options: Yes 200 Shaded area indicates recession 18-Month Target Price Range 160 Low-High Midpoint (% to Mid) 120 100 $93-$226 $160 (15%) 80 2022-24 PROJECTIONS 60 Ann’l Total Price Gain Return 3-for-1 40 High 285 (+110%) 20% Low 190 (+40%) 9% % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 18 4Q2018 1Q2019 2Q2019 Percent 45 to Buy 182 190 175 1 yr. -7.2 4.9 shares 30 3 yr. 116.2 30.2 to Sell 175 159 199 traded 15 Hld’s(000) 65570 71275 61226 5 yr. 141.9 36.8 Molina Healthcare, Inc. started as a 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 Medicaid-based insurance company in Long 95.53 89.87 103.98 128.92 143.64 194.39 253.18 311.97 331.38 304.68 267.00 285.10 Revenues per sh 335.40 Beach, California in 1980 as a network of 1.80 2.21 2.99 1.89 2.56 3.13 4.80 4.11 2.59 15.05 13.10 13.75 ‘‘Cash Flow’’ per sh 16.70 clinics for the poor with Dr. C. David Molina .79 1.32 1.35 .21 .96 1.30 2.58 .92 d.90 10.61 11.60 11.85 Earnings per sh A 13.30 as founder. The company became a health ------Nil Nil Div’ds Decl’d per sh Nil maintenance organization (HMO) in 1985. It .93 1.07 1.32 1.67 2.14 2.31 2.36 3.09 1.43 .48 .65 .70 Cap’l Spending per sh .90 held its initial public offering in July of 2003 14.13 15.82 16.48 16.73 19.47 20.32 27.80 28.93 22.28 26.56 30.15 34.90 Book Value per sh 48.45 at a price of $17.50, and raised $115.5 mil- 38.41 45.46 45.82 46.76 45.87 49.73 56.00 57.00 60.00 62.00 63.00 63.00 Common Shs Outst’g B 65.00 lion with Banc of America Securities (a Bank 17.6 13.2 16.6 NMF 35.7 32.8 25.4 NMF - - 10.0 Bold figures are Avg Ann’l P/E Ratio 18.0 of America entity) as lead underwriter. In 1.17 .84 1.04 NMF 2.01 1.73 1.28 NMF - - .54 Value Line Relative P/E Ratio 1.00 2006, Molina entered the Medicare market ------estimates Avg Ann’l Div’d Yield Nil via health plan options in 13 states initially. 3669.4 4086.0 4763.9 6028.8 6588.9 9666.6 14178 17782 19883 18890 16820 17960 Revenues ($mill) 21800 CAPITAL STRUCTURE as of 9/30/19 2.6% 3.7% 4.5% 1.9% 3.2% 3.0% 3.6% 2.7% 1.8% 7.5% 10.1% 11.3% Operating Margin 12.5% Total Debt $1254 mill. Due in 5 Yrs $880 mill. 38.1 45.7 74.4 78.8 72.7 92.9 126.0 182.0 210.0 226.0 95.0 120 Depreciation ($mill) 220 LT Debt $1239 mill. LT Interest $68.0 mill. 30.9 55.0 62.8 9.8 44.8 62.6 143.0 52.0 d54.4 707.0 730 745 Net Profit ($mill) 865 (39% of Capital) 29.2% 38.6% 51.4% 48.7% 44.8% 53.7% 55.6% 74.6% NMF 29.2% 23.0% 23.0% Income Tax Rate 22.0% Leases, Uncapitalized Annual rentals $147.0 mill. .8% 1.3% 1.3% .2% .7% .6% 1.0% .3% NMF 3.7% 4.3% 4.1% Net Profit Margin 4.0% No Defined Benefit Pension Plan 321.3 392.3 446.3 521.1 745.7 1070.6 1484.0 1418.0 1954.0 2216.0 2700 2900 Working Cap’l ($mill) 3500 158.9 164.0 216.9 261.8 602.9 905.1 1160.0 1173.0 1516.0 1217.0 1200 1140 Long-Term Debt ($mill) 900 Preferred Stock None 542.7 719.1 755.1 782.3 892.9 1010.4 1557.0 1649.0 1337.0 1647.0 1900 2200 Shr. Equity ($mill) 3150 Common Stock 62,700,000 shares 5.4% 7.1% 7.3% 1.7% 4.7% 4.8% 6.5% 3.6% .2% 26.7% 24.5% 23.0% Return on Total Cap’l 22.0% as of 10/25/19 5.7% 7.6% 8.3% 1.3% 5.0% 6.2% 9.2% 3.2% NMF 42.9% 38.5% 34.0% Return on Shr. Equity 27.5% MARKET CAP: $8.5 billion (Large Cap) 5.7% 7.6% 8.3% 1.3% 5.0% 6.2% 9.2% 3.2% NMF 42.9% 38.5% 34.0% Retained to Com Eq 27.5% CURRENT POSITION 2017 2018 9/30/19 ------Nil Nil All Div’ds to Net Prof Nil ($MILL.) Cash Assets 5879 4507 4436 BUSINESS: Molina Healthcare, Inc. provides healthcare to those company offers services through contracts with physicians, hospi- Receivables 871 1330 1280 on government assistance. Its Plans segment consists of services tals, clinics, and ancillary providers. Offs./dirs. own less than 1% of Other 761 625 161 in 14 states and Puerto Rico. As of 12/31/18, it served 3.8 million common stock; T. Rowe Price, 10.4%; Vanguard, 9.5%; BlackRock, Current Assets 7511 6462 5877 members. It arranges the delivery of heathcare services and offers 9.2%; FMR, 7.9% (3/19 proxy). CEO: Joseph M. Zubretsky. Ad- Accts Payable 366 390 478 health information management to individuals/families through dress: 200 Oceangate, Suite 100, Long Beach, CA 90802. Tele- Debt Due 653 241 15 Other 4538 3615 2815 Medicare, Medicaid, and other government-funded programs. The phone: (562) 435-3666. Web: www.molinahealthcare.com. Current Liab. 5557 4246 3308 Shares of Molina Healthcare are un- doing more with less so to speak. The loss ANNUAL RATES Past Past Est’d ’16-’18 timely, but the longer-term view is of contracts, coupled with the resizing of of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 significantly rosier. Earnings growth is some agreements, has resulted in lesser Revenues 18.0% 20.5% 1.0% expected to taper off from the tremendous revenues. Still, a combination of reduced ‘‘Cash Flow’’ 13.5% 24.0% 17.0% Earnings 10.5% 33.5% 25.0% figure posted in 2018, and the Wall Street interest expense and a lower tax rate have Dividends - - - - Nil darling status that MOH has enjoyed in mixed with other factors to boost profits. Book Value 8.5% 8.0% 11.0% the last two-plus years is fading. That Of late, specialty and pharmacy cost Cal-QUARTERLY REVENUES ($ mill.)A Full said, the company is still performing at a trends have been running in the compa- endarMar.31 Jun.30 Sep.30 Dec.31 Year high level and with the quotation retreat- ny’s favor. Too, high acuity members have 2016 4343 4359 4546 4534 17782 ing from all-time highs on the cusp of buoyed the performance of the Medicare 2017 4904 4999 5031 4949 19883 $160, the outlook for the stretch to 2022- portfolio. Add to this, early indications are 2018 4646 4883 4697 4664 18890 2024 is improving. Some of the pressure that 2020 will shape up as another solid 2019 4119 4193 4243 4265 16820 on these shares can be directly tied to campaign, and MOH will be looking to ex- 2020 4400 4480 4530 4550 17960 Medicare For All fears coming out of the pand its footprint in offerings brought Cal-EARNINGS PER SHARE A Full Democratic party front runners for the about by the Affordable Care Act. This endarMar.31 Jun.30 Sep.30 Dec.31 Year U.S. presidential election next year. We space, once believed to be a money loser, 2016 .43 .58 .76 d.85 .92 acknowledge the broad-based changes this has started to gain momentum since the 2017 1.37 d2.77 1.11 d.61 d.90 sector would go through if such a system Democrats won the House at the time of 2018 1.64 3.02 2.90 3.01 10.61 was put in place, but we think the reaction the midterm elections. 2019 2.99 3.06 2.75 2.80 11.60 to this news is overblown. In fact, in late Recently added transparency to 2020 3.05 3.15 2.80 2.85 11.85 November, Elizabeth Warren came out health care prices will not hurt Cal-QUARTERLY DIVIDENDS PAID Full and said that if elected she would not look Molina, but likely is not the cure all to endarMar.31 Jun.30 Sep.30 Dec.31 Year to finalize these reforms to health care un- bring down overall costs. The Trump 2015 til her third year in office, which Administration announced that starting in 2016 NO CASH DIVIDENDS hypothetically would be 2023. 2021, hospitals will be required to post 2017 BEING PAID Our 2019 earnings call is a dime high- their standard charges, as well as the 2018 er than at the time of our September negotiated rates with insurers. 2019 coverage, or $11.60 a share. Molina is Erik M. Manning December 6, 2019 (A) Diluted earnings. Excludes nonrecur- due early February. Company’s Financial Strength A ring/discontinued gains/(losses): ’11, (90¢); (B) In mill., adjusted for split. Stock’s Price Stability 20 ’13, 17¢; ’14, (1¢); ’17, ($8.17). Figures may Price Growth Persistence 90 not sum due to rounding. Next earnings report Earnings Predictability 5 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 21.6 RELATIVE DIV’D VALUE PRA HLTH SCIENCES NYSE-PRAH PRICE 106.95RATIO 19.8()Median: NMF P/E RATIO 1.12YLD Nil LINE 809 TIMELINESS 2 Raised 12/6/19 High: 27.0 50.3 61.0 92.0 122.0 115.5 Target Price Range Low: 18.5 22.4 35.6 54.1 79.2 82.1 2022 2023 2024 SAFETY 3 New 6/8/18 LEGENDS 17.0 x ″Cash Flow″ psh TECHNICAL 3 Lowered 11/29/19 .... Relative Price Strength 200 Options: Yes 160 BETA 1.15 (1.00 = Market) Shaded area indicates recession 18-Month Target Price Range 100 Low-High Midpoint (% to Mid) 80 60 $90-$189 $140 (30%) 50 2022-24 PROJECTIONS 40 Ann’l Total Price Gain Return 30 High 180 (+70%) 14% Low 120 (+10%) 3% 20 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 24 to Buy 167 203 167 1 yr. 0.9 4.9 shares 16 3 yr. 83.6 30.2 to Sell 177 134 176 traded 8 Hld’s(000) 65346 65298 66347 5 yr. — 36.8 PRA Health Sciences, incorporated in 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 2013, can trace its origins to the founding of ------24.40 26.79 29.41 35.51 43.92 48.20 52.35 Revenues per sh A 64.60 Pharmaceutical Research Associates in ------1.02 2.65 3.11 3.76 4.82 5.95 6.55 ‘‘Cash Flow’’ per sh 8.40 1982. In September, 2013, private equity ------d.83 1.29 1.90 3.33 4.28 5.10 5.80 Earnings per sh B 7.40 firm KKR acquired PRA. KKR subsequently ------Nil Nil Div’ds Decl’d per sh Nil took the company public on November 18, ------.46 .54 .54 .96 .85 1.00 .95 Cap’l Spending per sh 1.10 2014, in an offering of 19.5 million common ------11.32 11.66 11.84 14.63 15.98 15.75 21.90 Book Value per sh C 40.00 shares at $18.00 per share. Jefferies, ------59.81 60.25 61.60 63.62 65.40 63.50 64.00 Common Shs Outst’g D 65.00 Citigroup, KKR Capital Markets, UBS, Credit ------27.6 25.3 21.5 22.2 Bold figures are Avg Ann’l P/E Ratio 20.0 Suisse, and Wells Fargo acted as joint book ------1.39 1.33 1.08 1.20 Value Line Relative P/E Ratio 1.10 runners. ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 ------1459.6 1613.9 1811.7 2259.4 2871.9 3060 3350 Revenues ($mill) 4200 ------10.5% 15.1% 15.3% 16.0% 16.1% 17.3% 17.5% Operating Margin 17.5% Total Debt $1388.4 mill. Due in 5 Yrs $1082.7 mill. ------96.6 78.0 69.5 20.3 31.4 37.0 39.0 Depreciation ($mill) 45.0 LT Debt $1388.4 mill. LT Interest $55.0 mill. (Total interest coverage: 10.0x) (59% of Cap’l) ------d35.7 81.8 122.1 218.8 284.1 340 380 Net Profit ($mill) 500 ------26.1% 32.5% 26.0% 24.0% 24.0% 24.0% Income Tax Rate 24.0% Leases, Uncapitalized Annual rentals $43.7 mill. ------NMF 5.1% 6.7% 9.7% 9.9% 11.1% 11.3% Net Profit Margin 11.9% No Defined Benefit Pension Plan ------22.3 43.8 60.5 d94.6 d116.5 d50.0 d50.0 Working Cap’l ($mill) 100 Pfd Stock None ------948.5 889.5 797.1 1225.4 1082.4 1200 1000 Long-Term Debt ($mill) 1000 ------676.8 702.7 729.3 930.8 1045.0 1000 1400 Shr. Equity ($mill) 2600 Common Stock 63,248,324 shs. ------.3% 7.1% 9.8% 11.2% 14.6% 16.5% 17.0% Return on Total Cap’l 14.5% as of 10/28/19 ------NMF 11.6% 16.7% 23.5% 27.2% 34.0% 27.0% Return on Shr. Equity 19.0% MARKET CAP: $6.8 billion (Large Cap) ------NMF 11.6% 16.7% 23.5% 27.2% 34.0% 27.0% Retained to Com Eq 19.0% CURRENT POSITION 2017 2018 9/30/19 ------Nil Nil All Div’ds to Net Prof Nil ($MILL.) Cash Assets 192.2 144.2 181.8 BUSINESS: PRA Health Sciences, Inc. is a contract research or- ket. Top client represented 9% of ’18 revenue; top five clients, 36%. Receivables 627.0 568.2 702.6 ganization, providing product development and data services to Acquired Symphony Health, 9/17. Has over 16,400 employees. Of- Other 57.8 70.0 76.5 pharmaceutical and biotechnology companies. Clinical Research ficers & directors own less than 1% of common stock; BlackRock, Current Assets 877.0 782.4 960.9 segment (91% of ’18 revenue) offers outsourced clinical research 9.5% (4/19 proxy). Chairman, Pres., & CEO: Colin Shannon. Inc.: Accts Payable 64.6 43.7 58.6 Debt Due 120.3 - - - - and clinical trial related services; Data Solutions (9%) provides DE. Address: 4130 ParkLake Avenue, Suite 400, Raleigh, NC Other 786.7 855.2 814.1 data, analytics, technology, and consulting to the life sciences mar- 27612. Telephone: 919-786-8200. Internet: www.prahs.com. Current Liab. 971.6 898.9 872.7 PRA Health Sciences delivered strong $794 million and $1.46 per share. We have ANNUAL RATES Past Past Est’d ’16-’18 third-quarter results. Revenue of $781 left our final-quarter revenue and share- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 million was up 9% annually on an as- net estimates essentially unchanged and Revenues - - - - 10.0% ‘‘Cash Flow’’ - - - - 13.5% reported basis and 10% adjusted for cur- in line with management’s outlook. But Earnings - - - - 15.0% rency shifts. The top line exceeded our call our full-year earnings call is $0.05 higher Dividends - - - - Nil by $5 million. The client base remained to account for the third-quarter beat. For Book Value - - - - 19.0% well diversified, with the top five clients 2020, we continue to look for revenue of Cal-QUARTERLY REVENUES ($ mill.) A Full accounting for 39% of revenue and the nearly $3.4 billion, for a 10% increase. We endarMar.31 Jun.30 Sep.30 Dec.31 Year largest, just under 10%. Operating profita- have also added $0.05 to our 2020 bottom- 2016 430.2 455.8 453.3 472.4 1811.7 bility rose 40 basis points to 17.7%, on line estimate, which now stands at $5.80 2017 487.8 533.7 582.0 655.9 2259.4 higher staff utilization, some favorable per share, a 14% annual gain. 2018 701.8 722.8 717.6 729.7 2871.9 currency effects, and better expense In early September, PRA completed a 2019 722.0 763.3 780.7 794.0 3060 leveraging from the top-line increase. secondary offering. In the transaction, 2020 800 840 850 860 3350 Earnings per share rose 17% to $1.32. Re- private equity firm KKR sold its remain- Cal-EARNINGS PER SHARE B Full sults were $0.04 ahead of our estimate on ing 6.7 million shares of stock at $97.50 endarMar.31 Jun.30 Sep.30 Dec.31 Year the top-line beat and a stronger margin. per share. This marked the final exit for 2016 .28 .63 .49 .50 1.90 Near-term prospects appear bright. In KKR since the firm took PRA public in 2017 .62 .79 .88 1.04 3.33 the September period, net new business in 2014. In conjunction with the offering, 2018 .85 1.00 1.13 1.31 4.28 the Clinical Research segment of $670 mil- PRA repurchased 3.1 million of the offered 2019 1.10 1.22 1.32 1.46 5.10 lion helped lift the backlog 12%, to $4.6 shares for $300 million. In our opinion, 2020 1.28 1.35 1.47 1.70 5.80 billion. For the full year, management KKR’s exit helps alleviate the risk of a Cal-QUARTERLY DIVIDENDS PAID Full reaffirmed its revenue guidance of $3.02 large block of stock coming to market, endarMar.31 Jun.30 Sep.30 Dec.31 Year billion to $3.10 billion, implying growth of which could have pressured the price. 2015 5% to 8%. As for share earnings, the com- This equity is favorably ranked for 2016 NO CASH DIVIDENDS pany tightened the guidance range to year-ahead performance. Appreciation 2017 BEING PAID $5.07 to $5.12, while adding $0.07 to the potential out to 2022-2024 is in line with 2018 midpoint. The center of guidance suggests the Value Line median. 2019 fourth-quarter revenue and earnings of Christopher Joseph, CFA December 6, 2019 (A) Beginning in 2018, revenue is reported cludes nonrecurring losses: ’17, $2.01; ’18, (C) Includes intangibles. In 2018, $2.2 billion, Company’s Financial Strength B++ gross of reimbursable expenses. $1.96; ’19, $1.11. Quarterly figures may not $33.63 per share. Stock’s Price Stability 40 (B) Diluted earnings. U.S. GAAP earnings sum to total due to rounding. Next earnings (D) In millions. Price Growth Persistence 100 through 2016; adjusted earnings thereafter. Ex- report due late February. Earnings Predictability 50 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 17.0 RELATIVE DIV’D VALUE QUEST DIAGNOST. NYSE-DGX PRICE 106.53RATIO 16.1()Median: 14.0 P/E RATIO 0.91YLD 2.0% LINE 810 TIMELINESS 2 Raised 11/1/19 High: 59.9 62.8 61.7 61.2 64.9 64.1 68.5 89.0 93.6 113.0 116.5 108.0 Target Price Range Low: 38.7 42.4 40.8 45.1 53.3 52.5 50.5 60.1 59.7 90.1 78.9 79.9 2022 2023 2024 SAFETY 2 Raised 3/20/09 LEGENDS 11.0 x ″Cash Flow″ psh TECHNICAL 3 Lowered 12/6/19 .... Relative Price Strength 200 Options: Yes 160 BETA .95 (1.00 = Market) Shaded area indicates recession 18-Month Target Price Range 100 Low-High Midpoint (% to Mid) 80 60 $87-$124 $106 (0%) 50 2022-24 PROJECTIONS 40 Ann’l Total Price Gain Return 30 High 155 (+45%) 11% Low 115 (+10%) 4% 20 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 30 to Buy 286 322 293 1 yr. 10.0 4.9 shares 20 3 yr. 32.0 30.2 to Sell 318 261 294 traded 10 Hld’s(000) 120122 123163 121674 5 yr. 76.6 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 22.18 24.00 27.73 32.32 34.55 38.04 41.67 43.05 47.71 46.63 49.63 51.63 52.40 54.85 57.10 55.79 57.60 59.30 Revenues per sh 75.75 2.77 3.16 3.64 4.32 4.08 4.75 5.52 5.70 6.42 6.23 6.22 6.01 6.99 7.19 7.90 8.79 8.95 9.50 ‘‘Cash Flow’’ per sh 13.00 2.06 2.39 2.66 3.22 2.84 3.27 3.88 4.05 4.53 4.36 4.00 4.10 4.77 5.15 5.67 6.31 6.50 6.75 Earnings per sh A 9.50 - - .30 .36 .40 .40 .40 .40 .40 .47 .81 1.20 1.32 1.52 1.65 1.80 1.95 2.12 2.35 Div’ds Decl’d per sh B 2.95 .82 .82 1.13 1.00 1.13 1.12 .93 1.20 1.03 1.15 1.60 2.14 1.84 2.14 1.87 2.84 2.25 2.30 Cap’l Spending per sh 2.70 11.21 10.72 13.92 15.57 17.13 18.92 22.30 23.57 23.46 26.29 27.42 29.87 32.76 33.78 36.45 38.64 43.30 48.10 Book Value per sh C 60.75 213.61 213.57 198.46 193.95 194.04 190.57 178.92 171.16 157.42 158.33 144.00 144.00 143.00 137.00 135.00 135.00 134.00 133.00 Common Shs Outst’g D 130.00 14.9 17.9 19.0 17.1 18.6 15.1 13.7 13.0 12.2 13.6 14.8 14.5 14.8 15.2 17.7 16.2 Bold figures are Avg Ann’l P/E Ratio 14.0 .85 .95 1.01 .92 .99 .91 .91 .83 .77 .87 .83 .76 .75 .80 .89 .87 Value Line Relative P/E Ratio .80 - - .7% .7% .7% .8% .8% .8% .8% .9% 1.4% 2.0% 2.2% 2.2% 2.1% 1.8% 1.9% estimates Avg Ann’l Div’d Yield 2.2% CAPITAL STRUCTURE as of 9/30/19 7455.2 7368.9 7510.5 7382.6 7146.0 7435.0 7493.0 7515.0 7709.0 7531.0 7720 7890 Revenues ($mill) 9850 Total Debt $3933 mill. Due in 5 Yrs $1750 mill. 22.0% 21.1% 21.4% 21.7% 19.6% 17.4% 18.4% 19.8% 18.6% 20.4% 20.7% 21.4% Operating Margin 23.2% LT Debt $3188 mill. LT Interest $175 mill. 256.7 254.0 281.1 286.6 283.0 314.0 304.0 249.0 270.0 309.0 330 360 Depreciation ($mill) 455 (35% of Cap’l) 730.3 720.9 728.7 700.2 612.0 551.0 695.0 736.0 796.0 878.0 870 900 Net Profit ($mill) 1235 37.5% 35.9% 35.6% 37.8% 37.2% 30.9% 34.3% 36.4% 21.1% 17.0% 22.0% 22.0% Income Tax Rate 25.0% Leases, Uncapitalized: Ann’l rentals $200.0 mill. 9.8% 9.8% 9.7% 9.5% 8.6% 7.4% 9.3% 9.8% 10.3% 11.7% 11.3% 11.4% Net Profit Margin 12.5% No Defined Benefit Pension Plan 620.2 391.1 d159.9 513.4 251.0 d106.0 328.0 550.0 249.0 d95.0 d200 d75.0 Working Cap’l ($mill) 300 2936.8 2641.2 3370.5 3354.2 3120.0 3244.0 3492.0 3728.0 3748.0 3429.0 3100 2950 Long-Term Debt ($mill) 2250 Pfd Stock None 3989.6 4033.5 3692.9 4163.0 3948.0 4301.0 4684.0 4628.0 4921.0 5216.0 5800 6400 Shr. Equity ($mill) 7900 Common Stock 134,697,086 shares 11.5% 11.8% 11.4% 10.4% 9.8% 8.4% 9.4% 9.7% 10.0% 11.0% 10.5% 10.5% Return on Total Cap’l 13.0% as of 10/16/19 18.3% 17.9% 19.7% 16.8% 15.5% 12.8% 14.8% 15.9% 16.2% 16.8% 15.0% 14.0% Return on Shr. Equity 15.5% MARKET CAP: $14.3 billion (Large Cap) 16.4% 16.1% 18.0% 14.2% 10.8% 8.5% 10.3% 11.1% 11.2% 11.7% 10.0% 9.0% Retained to Com Eq 11.0% CURRENT POSITION 2017 2018 9/30/19 10% 10% 9% 15% 30% 34% 31% 30% 31% 30% 33% 35% All Div’ds to Net Prof 31% ($MILL.) Cash Assets 137 135 434 BUSINESS: Quest Diagnostics provides diagnostic testing, in- ices, and central laboratory testing performed with clinical research Receivables 924 1012 1117 formation, and services to patients, physicians, hospitals, insurers, trials. Employs 43,000. Vanguard owns 10.9% of common; Black- Inventory (FIFO) 95 99 112 Other 150 144 116 employers, government agencies, and other commercial clinical Rock, 9.6%; Macquarie Group, 5.7%; offs. & dirs. own less than Current Assets 1306 1390 1779 labs. It operates a network of more than 2,200 patient-service cen- 1.0% (4/19 proxy). Chairman and CEO: Stephen Rusckowski. Inc.: Payables & Other 1021 1021 1206 ters and principal labs, and approximately 3,200 phlebotomists in DE. Address: 500 Plaza Drive, Secaucus, New Jersey 07094. Tel.: Debt Due 36 464 805 physicians offices. Offers routine tests, anatomic pathology serv- 973-520-2700. Internet: www.questdiagnostics.com. Current Liab. 1057 1485 2011 Quest Diagnostics 2019 bottom line of people nationwide tested positive for a ANNUAL RATES Past Past Est’d ’16-’18 should clock in around the $6.50-per- controlled substance in 2018 than in the of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 share mark. September-period results years before that. Too, one in three in- Revenues 5.0% 3.0% 5.0% ‘‘Cash Flow’’ 6.0% 5.0% 8.5% came in better than expected in terms of dustries experienced double-digit percent- Earnings 6.5% 6.0% 9.0% both revenues and earnings. Volume gains age increases between 2015 and 2018. The Dividends 16.0% 17.0% 8.5% continue to be small, and are likely the concern is broad-based, as well. Trans- Book Value 7.5% 7.0% 9.0% reason that DGX shares still remain off portation/warehousing had the largest Cal-QUARTERLY REVENUES ($ mill.) A Full their all-time highs north of $116 despite jump in failed tests, while retail trade had endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year the fact that earnings should come in at the highest rate of positive tests. More 2016 1863 1906 1885 1861 7515.0 record levels both this year and next. A companies being wary of this phenomenon 2017 1899 1943 1931 1936 7709.0 pact to become a preferred lab network in and testing in earnest should aid volume 2018 1884 1919 1889 1839 7531.0 the UnitedHealthcare system is certainly gains at Quest in the years to come. 2019 1891 1953 1956 1920 7720 helping things on the volume front, but A data breach in June appears to 2020 1950 1990 1995 1955 7890 utilization rates still have room for im- have been weathered as far as Cal-EARNINGS PER SHARE A Full provement. Because of that reason, year- damage to the share price goes. Billing endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year over-year bottom-line growth will not be and payment info was compromised for 2016 1.12 1.34 1.37 1.32 5.15 all that eye-catching. Partnerships to nearly 12 million patients. No medical rec- 2017 1.33 1.55 1.39 1.40 5.67 move lab testing to Quest’s facilities and ords were stolen. The initial sting has 2018 1.52 1.75 1.68 1.36 6.31 away from hospitals and out-of-network passed, and DGX may have to pay fines/ 2019 1.40 1.73 1.76 1.61 6.50 labs are showing signs of life. However, penalties, but the quotation has held firm. 2020 1.45 1.80 1.82 1.68 6.75 getting utilization up would be a key This timely selection is also a Cal-QUARTERLY DIVIDENDS PAID B Full driver in the quarters to come. worthwhile selection for those seek- endarMar.31 Jun.30 Sep.30 Dec.31 Year Testing for drugs of abuse is becom- ing some income in the healthcare 2015 .33 .38 .38 .38 1.47 ing more vital for numerous in- space. Underlying metrics like Price 2016 .38 .40 .40 .40 1.58 dustries. In years past, cost cutting led to Stability and Earnings Predictability are 2017 .45 .45 .45 .45 1.80 some corporations going away from this strong here. Dividends in the medical 2018 .45 .50 .50 .50 1.95 practice. Recent data shows that the prob- services field are few and far between. 2019 .53 .53 .53 .53 lem is getting worse. A higher percentage Erik M. Manning December 6, 2019 (A) Diluted earnings. Excludes nonrecurring: rounding. Next earnings report due mid- (C) Includes intangibles. In ’18: $7.77 billion, Company’s Financial Strength B++ ’04, d4¢; ’06, d28¢; ’07, d$1.10; ’08, d1¢; ’11, February. $57.13/sh. Stock’s Price Stability 95 d$1.61; ’12, d8¢; ’13, $1.58; ’17, 17¢; ’18, (B) Dividends historically paid mid-January, (D) In millions. Price Growth Persistence 55 $1.02. Quarterly figures may not sum due to April, July, October. Earnings Predictability 95 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 21.6 RELATIVE DIV’D VALUE SELECT MEDICAL NYSE-SEM PRICE 22.49RATIO 19.2()Median: 15.0 P/E RATIO 1.08YLD Nil LINE 811 TIMELINESS 3 Raised 10/11/19 High: 10.9 10.8 9.7 14.9 11.9 16.2 17.2 14.3 19.8 21.7 22.5 Target Price Range Low: 8.6 5.6 5.5 6.9 7.2 10.1 10.1 7.3 12.0 14.8 13.0 2022 2023 2024 SAFETY 3 New 9/17/10 LEGENDS 5.5 x ″Cash Flow″ psh TECHNICAL 5 Lowered 11/29/19 .... Relative Price Strength 40 Options: Yes 32 BETA 1.30 (1.00 = Market) Shaded area indicates recession 24 18-Month Target Price Range Low-High Midpoint (% to Mid) 16 12 $13-$25 $19 (-15%) 10 2022-24 PROJECTIONS 8 Ann’l Total Price Gain Return 6 High 35 (+55%) 12% Low 20 (-10%) -2% 4 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 15 to Buy 117 113 90 1 yr. 9.9 4.9 shares 10 3 yr. 40.2 30.2 to Sell 89 83 90 traded 5 Hld’s(000) 103378 105240 103179 5 yr. 28.2 36.8 On September 30, 2009, Select Medical 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 Holdings completed an initial public offering 14.00 15.47 19.31 20.98 21.22 23.36 28.51 32.32 33.14 37.57 40.30 42.00 Revenues per sh 45.95 of 30,000,000 shares of common stock at .86 .95 1.37 1.50 1.34 1.44 1.80 1.68 2.13 2.51 2.90 3.20 ‘‘Cash Flow’’ per sh 3.95 $10.00 a share. On October 28, 2009, the .51 .48 .84 1.05 .89 .91 .99 .61 .97 1.02 1.05 1.30 Earnings per sh A 1.85 underwriters exercised an over-allotment ------.30 .40 .10 ------Nil Nil Div’ds Decl’d per sh D Nil option to purchase an additional 3,602,700 .36 .34 .32 .49 .53 .73 1.39 1.22 1.74 1.24 1.10 1.30 Cap’l Spending per sh 1.35 shares at the same price. Total net pro- 4.62 5.07 5.66 5.10 5.61 5.64 6.55 6.15 6.14 5.94 6.85 8.00 Book Value per sh C 12.95 ceeds after deducting underwriting costs 159.98 154.54 145.27 140.59 140.26 131.23 131.28 132.60 134.10 135.26 134.00 134.00 Common Shs Outst’g B 135.00 were about $312.5 million. Select Medical 19.0 16.2 9.5 9.1 9.9 14.8 13.8 19.3 16.0 17.8 Bold figures are Avg Ann’l P/E Ratio 15.0 used proceeds to repay $258.4 million in 1.27 1.03 .60 .58 .56 .78 .69 1.01 .80 .96 Value Line Relative P/E Ratio .85 debt and pay executives $18 million. ------3.4% 3.0% .7% ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 2239.9 2390.3 2804.5 2949.0 2975.6 3065.0 3742.7 4286.0 4443.6 5081.3 5400 5625 Revenues ($mill) 6200 Total Debt $3352.1 mill. Due in 5 Yrs $1675.0 mill. 13.7% 12.8% 13.6% 13.6% 12.3% 11.5% 10.1% 9.5% 12.0% 12.2% 13.0% 13.0% Operating Margin 13.5% LT Debt $3336.5 mill. LT Interest $195.0 mill. 71.0 68.7 71.5 63.3 64.4 68.4 105.0 145.3 160.0 201.7 240 250 Depreciation ($mill) 280 (Total interest coverage: 2.2x) (79% of Capital) 66.5 77.6 127.3 148.2 123.8 120.6 130.7 77.8 125.3 137.8 150 180 Net Profit ($mill) 255 31.9% 33.6% 38.4% 36.8% 36.7% 37.1% 34.8% 39.3% 22.6% 24.9% 27.0% 27.0% Income Tax Rate 27.0% Leases, Uncapitalized Annual rentals $261.9 mill. 3.0% 3.2% 4.5% 5.0% 4.2% 3.9% 3.5% 1.8% 2.8% 2.7% 2.8% 3.2% Net Profit Margin 4.1% No Defined Benefit Pension Plan 170.8 d70.3 99.5 65.2 82.9 133.2 11.5 236.5 315.4 287.3 520 405 Working Cap’l ($mill) 710 1401.4 1281.4 1386.0 1458.6 1427.7 1542.1 2190.3 2685.3 2677.7 3249.5 3250 3050 Long-Term Debt ($mill) 3000 Preferred Stock None 739.0 783.9 822.9 717.0 786.2 739.5 859.3 815.7 823.4 803.0 915 1075 Shr. Equity ($mill) 1750 Common Stock 134,326,112 shares 6.2% 6.2% 7.8% 8.9% 7.6% 7.2% 6.1% 4.7% 5.8% 5.9% 6.0% 6.5% Return on Total Cap’l 7.5% as of 10/31/19 9.0% 9.9% 15.5% 20.7% 15.7% 16.3% 15.2% 9.5% 15.2% 17.2% 16.5% 16.5% Return on Shr. Equity 14.5% 9.0% 9.9% 15.5% 20.7% 10.4% 9.1% 13.7% 9.5% 15.2% 17.2% 16.5% 16.5% Retained to Com Eq 14.5% MARKET CAP: $3.0 billion (Mid Cap) ------34% 44% 10% ------Nil Nil All Div’ds to Net Prof Nil CURRENT POSITION 2017 2018 9/30/19 ($MILL.) BUSINESS: Select Medical Holdings Corp. operates specialty hos- living and senior care centers, schools, and worksites. Employs ap- Cash Assets 122.5 175.2 136.0 pitals and outpatient rehabilitation clinics in the U.S. As of 12/31/18, proximately 47,100. Officers & directors own 19.5% of common Receivables 691.7 706.7 798.8 it operated 96 critical illness recovery hospitals, 26 inpatient rehabil- stock; T. Rowe Price Associates, 15.9% (3/19 Proxy). President Other 106.6 110.6 115.5 itation facilities, 1,662 outpatient rehab clinics, and 524 medical and CEO: David Chernowxsalle. Incorporated: Delaware. Address: Current Assets 920.8 992.5 1050.3 centers across the country. It also provides medical rehabilitation 4714 Gettysburg Road, P.O. Box 2034, Mechanicsburg, PA 17055. Accts Payable 128.2 146.7 136.8 Debt Due 51.7 69.0 15.6 services on a contract basis at nursing homes, hospitals, assisted Telephone: 717-972-1100. Internet: www.selectmedicalcorp.com. Other 425.5 489.5 717.4 Select Medical shares have performed ruary of 2018. At this point, the majority Current Liab. 605.4 705.2 869.8 well lately. Along with broadly swelling of an expected $38 million of run rate ANNUAL RATES Past Past Est’d ’16-’18 equity values, the shares recently set a synergies have been unlocked. Manage- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 new all-time high price. An enthusiastic ment believes there is another $3 million Revenues - - 11.0% 5.0% ‘‘Cash Flow’’ - - 8.5% 11.0% reception to third-quarter results also or $4 million of cost elimination op- Earnings - - -1.5% 13.5% helped buoy this stock. portunities remaining. Segment revenues Dividends - - - - NMF Book Value - - 2.0% 13.5% The company had a solid showing in rose 4%, to $422 million, while profitabil- the September interim. The top line in- ity improved from 17.0% to 18.4% on real- Cal-QUARTERLY REVENUES ($ mill.) E Full creased 10%, to $1.39 billion. Revenue ized synergies. endarMar.31 Jun.30 Sep.30 Dec.31 Year growth was broad based, with the various The company continues to refinance 2016 1088 1098 1054 1046 4286.0 hospital and clinic segments all posting debt. It redeemed $710 million of 2021 2017 1111 1121 1097 1114 4443.6 positive year-over-year comps. Most maturities by issuing $550 million of notes 2018 1253 1296 1267 1265 5081.3 notable was Rehabilitation Hospitals, due in 2026. In doing so, it recorded early 2019 1325 1361 1393 1321 5400 where revenues surged 20%, to $173 mil- debt extinguishment charges. Third- 2020 1375 1425 1450 1375 5625 lion. Patient days increased on organic quarter share net of $0.23 was a bit below Cal-EARNINGS PER SHARE A Full growth plus contributions from newer hos- our $0.25 call, but exceeded the Wall endarMar.31 Jun.30 Sep.30 Dec.31 Year pitals, while revenue per patient day Street consensus estimate excluding 2016 .20 .23 .06 .12 .61 jumped 9%, to $1,724. Thanks to scale and refinancing charges. The balance sheet 2017 .21 .32 .14 .31 .97 pricing leverage, segment profitability was remains highly leveraged, and we think 2018 .25 .35 .24 .18 1.02 strong, reaching 21.2% versus 17.5% last SEM will likely prioritize debt reduction 2019 .30 .33 .23 .19 1.05 year. Meanwhile, start-up losses on new above large-scale M&A for the time being. 2020 .35 .40 .30 .25 1.30 hospitals (which can vary greatly quarter We are trimming a nickel from our Cal-QUARTERLY DIVIDENDS PAID D Full to quarter) were merely $0.8 million. full-year share-net call, to $1.05. We endarMar.31 Jun.30 Sep.30 Dec.31 Year The Concentra urgent care division is have upped our 3- to 5-year projections a 2015 .10 ------.10 also performing well. It continues to bit, but even so, there seems to be limited 2016 ------make strides integrating occupational long-term capital appreciation potential 2017 ------health services provider U.S. after the recent price run-up. 2018 ------2019 ------HealthWorks, which was acquired in Feb- Jeffrey Hirt December 6, 2019 (A) Diluted earnings. Excludes nonrecurring (B) In millions. cludes special dividend of $1.50 paid on Company’s Financial Strength B gains/(losses): ’11, $0.13; ’13, ($0.07); ’16, (C) Includes intangibles. In ’18: $3,758.4 mill., 12/12/12. Stock’s Price Stability 35 $0.26; ’17, ($0.09). Next earnings report due $27.84 a share. (E) May not sum due to rounding Price Growth Persistence 70 mid February. (D) Dividend suspended in Q2 of 2015. Ex- Earnings Predictability 55 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 20.8 RELATIVE DIV’D VALUE SYNEOS HEALTH NYSE-SYNH PRICE 54.80RATIO 16.0()Median: NMF P/E RATIO 0.90YLD Nil LINE 812 TIMELINESS 2 Raised 10/25/19 High: 26.8 51.7 57.1 61.1 53.9 56.3 Target Price Range Low: 19.6 22.2 34.2 33.6 31.1 36.6 2022 2023 2024 SAFETY 4 New 6/7/19 LEGENDS 1.0 x ″Cash Flow″ psh 128 TECHNICAL 2 Lowered 11/22/19 .... Relative Price Strength Options: Yes 96 BETA 1.30 (1.00 = Market) Shaded area indicates recession 80 18-Month Target Price Range 64 Low-High Midpoint (% to Mid) 48 40 $37-$83 $60 (10%) 32 2022-24 PROJECTIONS 24 Ann’l Total Price Gain Return 16 High 115 (+110%) 20% Low 70 (+30%) 6% 12 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 60 to Buy 154 135 124 1 yr. 9.9 4.9 shares 40 3 yr. 9.7 30.2 to Sell 105 129 126 traded 20 Hld’s(000) 109413 108138 108747 5 yr. — 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 ------13.22 25.97 29.96 25.59 42.47 44.80 47.50 Revenues per sh 61.90 ------1.68 3.21 3.20 .58 2.88 5.55 6.00 ‘‘Cash Flow’’ per sh 8.00 ------.84 1.95 2.03 d1.59 .23 3.20 3.60 Earnings per sh A 5.00 ------Nil Nil Div’ds Decl’d per sh Nil ------.42 .39 .58 .42 .53 .65 .70 Cap’l Spending per sh .85 ------6.41 4.04 5.61 28.94 27.63 27.90 30.75 Book Value per sh B 40.95 ------61.23 53.87 53.76 104.44 103.37 104.00 104.00 Common Shs Outst’g C 105.00 ------28.6 19.4 21.8 18.5 NMF Bold figures are Avg Ann’l P/E Ratio 18.0 ------1.51 .98 1.14 .93 NMF Value Line Relative P/E Ratio 1.00 ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 ------652.4 809.7 1399.2 1610.6 2672.1 4390.1 4660 4940 Revenues ($mill) 6500 Total Debt $2708.9 mill. Due in 5 Yrs $1130.0 ------15.7% 18.5% 15.4% 13.3% 8.0% 12.5% 14.5% 15.0% Operating Margin 18.0% mill. ------58.5 54.5 56.0 59.2 179.9 273.7 240 250 Depreciation ($mill) 315 LT Debt $2680.1 mill. LT Interest $148.0 mill. (46% of Cap’l) ------d41.5 48.4 117.1 112.6 d119.0 24.3 335 375 Net Profit ($mill) 525 ------10.6% 16.0% 40.5% 57.6% 22.0% 22.0% Income Tax Rate 25.0% Leases, Uncap.: None ------NMF 6.0% 8.4% 7.0% NMF .6% 7.2% 7.6% Net Profit Margin 8.1% No Defined Benefit Pension Plan ------58.2 47.1 d52.5 55.9 262.6 d11.2 d50.0 90.0 Working Cap’l ($mill) 350 ------587.5 415.3 472.0 485.9 2966.3 2763.8 2600 2500 Long-Term Debt ($mill) 2000 Pfd Stock None Common Stock 103,796,489 shs. ------276.2 392.2 217.4 301.5 3022.6 2856.1 2900 3200 Shr. Equity ($mill) 4300 as of 10/24/19 ------NMF 12.2% 18.1% 15.1% NMF 1.6% 7.5% 8.0% Return on Total Cap’l 9.0% ------NMF 12.3% 53.8% 37.4% NMF .9% 11.5% 11.5% Return on Shr. Equity 12.0% MARKET CAP: $5.7 billion (Large Cap) ------NMF 12.3% 53.8% 37.4% NMF .9% 11.5% 11.5% Retained to Com Eq 12.0% CURRENT POSITION 2017 2018 9/30/19 ------Nil Nil All Div’ds to Net Prof Nil ($MILL.) Cash Assets 322.0 155.9 129.2 BUSINESS: Syneos Health, Inc. is a global biopharmaceutical biotechnology, and medical device industries. Has 21,000 emplys. Receivables 1016.0 1256.7 1295.1 services organization providing product development and commer- Chairman: John M. Dineen. CEO: Alistair MacDonald. Offs. and Inventory ------Other 84.2 79.3 68.2 cial solutions through its clinical end-to-end contract research or- dirs. own less than 1% of common; Advent Int’l, 21.6%; Thomas H. Current Assets 1422.2 1491.9 1429.2 ganization and contract commercial organization. Syneos supports Lee Partners, 18.5%; BlackRock, 8.2%; Vanguard, 6.9%. (4/19 Accts Payable 58.6 98.6 82.8 customers in more than 110 countries. Its customers include large Proxy). Address: 3201 Beechleaf Court, Suite 600, Raleigh, NC Debt Due 41.4 13.8 28.8 and small to mid-sized companies in the biopharmaceutical, 27604. Tel.: (919) 876-9300. Internet: www.syneoshealth.com. Other 1059.6 1390.7 1340.1 Current Liab. 1159.6 1503.1 1451.7 Shares of Syneos Health have not tioned $3.20 mark, which represents an moved much in the last three months. enormous year-over-year gain from the ANNUAL RATES Past Past Est’d ’16-’18 The September-period showing was a $0.23 figure posted last year. A diverse of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Revenues - - - - 11.0% mixed bag, with revenues falling a bit portfolio of both clinical and commercial ‘‘Cash Flow’’ - - - - 24.0% short of the mark and earnings beating ex- initiatives and sustained customer interest Earnings - - - - NMF pectations by a few cents. As a result, Wall in its offerings are the driving force behind Dividends - - - - Nil Book Value - - - - 12.0% Street’s reaction to the financial report the significantly higher profits. was muted. Still, SYNH stock remains up The industry backdrop for the years Cal-QUARTERLY REVENUES ($ mill.) Full more than 35% in price since the start of ahead is a healthy one for this compa- endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year 2019 outpacing the broader S&P 500, ny. Syneos has been strengthening its 2016 413.1 399.6 391.8 406.1 1610.6 which itself has risen more than 20% year end-to-end market position by innovating 2017 381.9 391.1 822.3 1076.8 2672.1 to date. The outperformance in that regard and expanding upon its Syneos One prod- 2018 1057 1072 1114 1145 4390.1 can be tied to the company’s positioning in uct. New business awards have been 2019 1119 1167 1177 1197 4660 2020 1185 1240 1250 1265 4940 the current sweet spot of the medical serv- ample, which bolsters our belief that the ices field, that being contract research. top line can rise to near $6.5 billion per Cal-EARNINGS PER SHAREA Full Syneos provides vital services in accelerat- annum for the 2022-2024 period. A recent endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year ing the path of drugs and devices getting partnership with AI and advanced data 2016 .32 .54 .49 .68 2.03 to market. analytics company AiCure to drive faster 2017 .38 .06 d1.48 d.55 d1.59 For 2019, we are looking for earnings and smarter trials to optimize patient 2018 d.24 .13 d.10 .44 .23 2019 .59 .74 .87 1.00 3.20 per share of $3.20. The in-house revenue engagement is the kind of move we expect 2020 .70 .85 .95 1.10 3.60 guidance outlook was trimmed to between more of. Speeding up the process and sav- $4.3 billion and $4.9 billion, and we have ing its customers money will lead to more Cal-QUARTERLY DIVIDENDS PAID Full subsequently sliced $30 million off our tal- business arriving on its doorstep. endarMar.31 Jun.30 Sep.30 Dec.31 Year ly to get to the exact midpoint of this We like this timely selection through 2015 spread. Conversely, the share net expecta- both a short- and long-term lens. 2016 NO CASH DIVIDENDS tion was increased to $3.17 to $3.27 from Takeover speculation in the contract re- 2017 BEING PAID $3.08 to $3.26. As such, we have added a search arena is another plus. 2018 2019 nickel to our call to get to the aforemen- Erik M. Manning December 6, 2019 (A) Diluted egs. Excludes nonrecurring (B) Includes intangibles, in 2018: $5466.8 mill., (C) In millions. Company’s Financial Strength B gains/(losses): ’14, ($1.35); ’17, ($0.26). Next $52.89/share. Stock’s Price Stability 15 earnings report due early February. Price Growth Persistence 60 Earnings Predictability 5 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 14.8 RELATIVE DIV’D VALUE TENET HEALTHCARE NYSE-THC PRICE 32.51RATIO 11.6()Median: 22.0 P/E RATIO 0.66YLD Nil LINE 813 TIMELINESS 3 Raised 7/19/19 High: 27.5 25.6 27.4 30.8 33.9 49.5 63.6 60.9 34.1 22.7 39.7 32.9 Target Price Range Low: 4.0 3.1 15.7 13.8 17.2 33.0 37.9 26.6 14.1 12.3 14.5 16.8 2022 2023 2024 SAFETY 4 Lowered 12/11/15 LEGENDS 4.0 x ″Cash Flow″ psh 128 TECHNICAL 5 Lowered 11/15/19 .... Relative Price Strength 1-for-4 Rev split 10/12 96 BETA 1.40 (1.00 = Market) Options: Yes 80 Shaded area indicates recession 64 18-Month Target Price Range 1-for-4 Low-High Midpoint (% to Mid) Reverse 48 40 $10-$41 $26 (-20%) 32 2022-24 PROJECTIONS 24 Ann’l Total Price Gain Return 16 High 75 (+130%) 22% Low 45 (+40%) 9% 12 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 60 to Buy 146 122 134 1 yr. -1.5 4.9 shares 40 3 yr. 28.6 30.2 to Sell 117 134 129 traded 20 Hld’s(000) 104017 102366 105332 5 yr. -54.8 36.8 Tenet Healthcare Corp. was formed on 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 March 1, 1995, when National Medical En- 74.94 75.77 85.33 89.15 114.62 168.88 189.19 196.83 189.94 178.60 177.20 182.70 Revenues per sh A 216.65 terprises purchased American Medical Hold- 3.83 4.69 4.60 5.88 7.61 10.10 10.16 9.57 9.40 9.70 10.75 11.30 ‘‘Cash Flow’’ per sh 13.90 ings (AMI) for $1.5 billion cash and 33.2 mil- .56 1.28 .52 1.70 1.87 1.44 2.06 1.05 .79 1.86 2.70 2.95 Earnings per sh B 4.00 lion shares of common stock. (AMI had op------Nil Nil Div’ds Decl’d per sh Nil erated 37 acute care hospitals with 8,831 3.79 3.92 4.58 4.95 7.13 9.48 8.55 8.78 7.00 6.02 6.45 6.55 Cap’l Spending per sh 7.75 beds in 13 states.) The combined compa- 2.59 11.79 10.50 11.17 7.79 6.62 7.02 4.18 d1.46 d1.16 d3.85 d1.95 Book Value per sh C 1.90 nies then adopted the name Tenet Health- 120.29 121.49 103.76 102.29 96.86 98.38 98.50 99.69 100.97 102.54 104.00 104.00 Common Shs Outst’g D 105.00 care and the ticker symbol THC. 24.1 15.8 44.9 13.3 22.8 34.3 22.1 23.8 21.2 14.4 Bold figures are Avg Ann’l P/E Ratio 15.0 1.61 1.01 2.82 .85 1.28 1.81 1.11 1.25 1.07 .78 Value Line Relative P/E Ratio .85 ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 9014.0 9205.0 8854.0 9119.0 11102 16615 18634 19621 19179 18313 18430 19000 Revenues ($mill) A 22750 Total Debt $15023 mill. Due in 5 Yrs $10400 mill. 8.5% 11.2% 12.0% 13.2% 12.1% 11.7% 11.3% 11.6% 12.5% 13.2% 13.8% 14.3% Operating Margin 15.7% LT Debt $14858 mill. LT Interest $815.0 mill. 386.0 394.0 413.0 430.0 545.0 849.0 797.0 850.0 870.0 802.0 840 870 Depreciation ($mill) 1040 (more than 100% of Cap’l) 75.0 200.0 88.0 185.0 192.0 144.3 204.0 104.0 79.0 193.0 280 305 Net Profit ($mill) 420 Leases, Uncapitalized Annual rentals $363.0 mill. - - 2.8% 37.9% 37.4% 31.5% 35.9% 13.9% 20.3% 22.6% 27.8% 23.0% 23.0% Income Tax Rate 21.0% No Defined Benefit Pension Plan .8% 2.2% 1.0% 2.0% 1.7% .9% 1.1% .5% .4% 1.1% 1.5% 1.6% Net Profit Margin 1.8% 689.0 586.0 542.0 918.0 782.0 1140.0 863.0 1223.0 1241.0 779.0 900 1000 Working Cap’l ($mill) 1400 4272.0 3997.0 4294.0 5158.0 10690 11695 14383 15064 14791 14644 15000 14500 Long-Term Debt ($mill) 13250 Common Stock 103,895,190 sh. as of 10/31/19 646.0 1766.0 1423.0 1143.0 755.0 651.0 691.0 417.0 d147.0 d119.0 d400 d200 Shr. Equity ($mill) 200 6.0% 7.1% 4.7% 6.1% 3.7% 4.0% 4.4% 3.8% 4.0% 4.8% 4.5% 4.9% Return on Total Cap’l 6.0% MARKET CAP: $3.4 billion (Mid Cap) 11.6% 11.3% 6.2% 16.2% 25.4% 22.2% 29.5% 24.9% NMF NMF NMF NMF Return on Shr. Equity NMF CURRENT POSITION 2017 2018 9/30/19 24.0% 12.3% 5.9% 15.0% 25.4% 22.2% 29.5% 24.9% NMF NMF NMF NMF Retained to Com Eq NMF ($MILL.) -- 12% 27% 8% ------Nil Nil All Div’ds to Net Prof Nil Cash Assets 611 411 314 Receivables 2616 2595 2768 BUSINESS: Tenet Healthcare Corp. owns/operates 68 hospitals private pay/other, 4.9%. Has 115,500 employees. Officers and Inventory 289 305 311 (three of which are in the process of being divested), 23 surgical directors own 1.5% of stock; Glenview Capital Management has Other 2057 1325 1396 hospitals, 470 outpatient centers, and Conifer Health. Acquired 17.4%; Vanguard, 11.8%; BlackRock, 11.2%; Harris Associates, Current Assets 5573 4636 4789 Vanguard Health in 2013. Locations are in 12 states, with con- 6.0% (3/19 proxy). Chairman/CEO: Ronald A. Rittenmeyer. Inc.: Accts Payable 1175 1207 1125 Debt Due 146 182 165 centrations in CA, MI, TX, and FL. ’18 occupancy rate: 47.3%. Rev- Nevada. Address: 1445 Ross Avenue, Suite 1400, Dallas, Texas Other 3011 2468 2638 enues by payer: Medicare/Medicaid, 29.7%; managed care, 65.4%; 75202. Telephone: 469-893-2200. Internet: www.tenethealth.com. Current Liab. 4332 3857 3928 Tenet stock has rebounded 50%-plus at least a portion of the proceeds would go ANNUAL RATES Past Past Est’d ’16-’18 since our September report. The shares to debt repayments, as THC has been op- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 were down below the $20 mark three erating with a debt-to-capital ratio of Revenues 10.0% 14.5% 2.5% ‘‘Cash Flow’’ 14.5% 9.5% 6.5% months ago. An upbeat third-quarter greater than 100% for years now. We anti- Earnings - - -2.0% 22.0% showing was just what the doctor ordered, cipate more specific details on this move in Dividends - - - - Nil and increased guidance for the full year the early stages of next year. Book Value - - - - 24.0% helped (more color below). Underlying A new rule set to go into effect in 2021 Cal-QUARTERLY REVENUES ($ mill.) A Full metrics gave the investment community is not sitting well with hospital opera- endarMar.31 Jun.30 Sep.30 Dec.31 Year things to get excited about. For starters, tors. In late November, the Trump Ad- 2016 5044 4868 4849 4860 19621 same-hospital service revenue grew 5.8% ministration announced that hospitals and 2017 4813 4802 4586 4978 19179 in the third quarter. Add to this, admis- health insurers will be required to disclose 2018 4699 4506 4489 4619 18313 sions were up 3.6% and surgical cases on negotiated rates. The belief is that trans- 2019 4545 4560 4568 4757 18430 the ambulatory side of the coin rose 4.4%. parency will drive costs down, especially 2020 4690 4700 4715 4895 19000 Other areas where progress was made for employers. Critics point to the added Cal-EARNINGS PER SHARE AB Full were highlighted in management’s com- cost and the confusion for patients that endarMar.31 Jun.30 Sep.30 Dec.31 Year mentary that coincided with the release, this wealth of information could cause. 2016 .45 .38 .16 .06 1.05 namely cost savings, physician recruit- Regardless, hospital chains were not 2017 d.27 d.17 d.17 1.40 .79 ment, and board refreshment. happy initially. A coalition intends to file a 2018 .57 .49 .29 .51 1.86 Our 2019 earnings call is now a lawsuit to overturn this legislation, which 2019 .54 .56 .58 1.02 2.70 quarter higher, or $2.70 a share. The is more than a year away. The situation 2020 .55 .65 .65 1.10 2.95 $0.25 hike largely reflects the out- may well grow uglier as 2020 progresses. Cal-QUARTERLY DIVIDENDS PAID Full performance in the September interim, but Long-term recovery potential is stout, endarMar.31 Jun.30 Sep.30 Dec.31 Year subscribers will note we are also raising but these neutrally ranked shares are 2015 our 2020 call by a dime, to $2.95. Each of not for all accounts. Elevated risks 2016 NO CASH DIVIDENDS these tallies would mark record highs for (Safety: 4), largely due to a sizable debt 2017 BEING PAID Tenet. Elsewhere, the plan remains to burden and poor Earnings Predictability 2018 spin off the Conifer payments business by (15 out of 100), are concerns. 2019 the halfway point of 2021. The hope is that Erik M. Manning December 6, 2019 (A) Fiscal years ended May 31st until 2003, $1.16; ’10, $6.76; ’12, (40¢); ’18, (79¢). Next (D) In millions, adjusted for a reverse split. Company’s Financial Strength B December 31st thereafter. (B) Fully diluted earnings report due early February. (C) In- Stock’s Price Stability 10 earnings. May not sum due to rounding. Excl. cludes intangibles; ’18, $9,012 million, Price Growth Persistence 25 nonreccuring gains (losses): ’08, (92¢); ’09, $87.89/share. Earnings Predictability 15 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 15.8 RELATIVE DIV’D VALUE TIVITY HEALTH NDQ-TVTY PRICE 22.55RATIO 15.8()Median: 23.0 P/E RATIO 0.89YLD Nil LINE 814 TIMELINESS 4 Raised 11/8/19 High: 71.2 19.4 19.5 17.6 12.0 22.2 20.2 23.3 27.3 48.5 44.3 25.6 Target Price Range Low: 5.4 7.0 9.5 5.6 6.2 9.6 11.5 9.9 9.2 20.6 23.7 14.8 2022 2023 2024 SAFETY 3 Raised 6/9/17 LEGENDS 12.0 x ″Cash Flow″ psh TECHNICAL Lowered 11/29/19 .... Relative Price Strength 80 5 Options: Yes BETA .90 (1.00 = Market) Shaded area indicates recession 60 50 18-Month Target Price Range 40 Low-High Midpoint (% to Mid) 30 25 $15-$45 $30 (35%) 20 2022-24 PROJECTIONS 15 Ann’l Total Price Gain Return 10 High 55 (+145%) 24% Low 35 (+55%) 11% 7.5 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 45 to Buy 124 193 108 1 yr. -52.9 4.9 shares 30 3 yr. -34.6 30.2 to Sell 105 70 125 traded 15 Hld’s(000) 44134 55246 57769 5 yr. 4.6 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 5.24 7.47 9.24 11.92 17.29 21.91 21.19 21.17 20.68 19.96 18.89 20.90 21.36 12.87 14.02 14.77 23.65 27.50 Revenues per sh A 33.00 .93 1.35 1.64 1.78 2.31 3.04 2.50 2.94 2.19 1.76 1.26 1.35 .52 2.23 1.81 2.50 1.85 2.65 ‘‘Cash Flow’’ per sh 4.00 .56 .75 .93 1.02 1.22 1.50 1.04 1.36 .68 .24 d.25 d.16 d.86 1.47 1.61 2.27 1.20 1.75 Earnings per sh AB 3.00 ------Nil Nil Div’ds Decl’d per sh Nil .51 .76 .48 .79 .83 2.46 1.45 1.31 1.48 1.44 1.18 1.21 .96 .37 .15 .22 .45 .50 Cap’l Spending per sh .60 3.56 4.73 6.12 7.94 10.19 10.54 11.14 12.66 7.98 8.22 8.62 8.58 7.76 4.86 6.85 8.99 11.65 13.55 Book Value per sh 22.00 31.59 32.86 33.81 34.60 35.61 33.60 33.86 34.02 33.30 33.92 35.11 35.51 36.08 38.93 39.73 41.05 48.00 48.00 Common Shs Outst’g C 50.00 20.3 32.2 37.9 45.9 37.5 29.0 12.8 10.2 18.1 36.8 ------11.3 21.1 15.7 Bold figures are Avg Ann’l P/E Ratio 15.0 1.16 1.70 2.02 2.48 1.99 1.75 .85 .65 1.14 2.34 ------.59 1.06 .85 Value Line Relative P/E Ratio .85 ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 717.4 720.3 688.8 677.2 663.3 742.2 770.6 501.0 556.9 606.3 1135 1320 Revenues ($mill) A 1650 Total Debt $1035.1 mill. Due in 5 Yrs $30.5 mill. 17.1% 21.4% 16.4% 12.2% 8.2% 10.6% 8.6% 26.3% 22.8% 22.8% 17.5% 18.5% Operating Margin 20.0% LT Debt $1035.1 mill. LT Interest $80.0 mill. 49.3 52.8 50.0 51.7 52.8 53.4 49.9 31.3 3.4 4.7 32.0 40.0 Depreciation ($mill) 45.0 (66% of Cap’l) 35.4 47.3 22.8 8.0 d8.5 d5.6 d31.0 55.6 68.7 97.9 57.0 87.0 Net Profit ($mill) 155 Leases, Uncapitalized Annual rentals $4.0 mill. 41.5% 39.1% 44.4% 45.6% ------28.1% 34.5% 21.7% 32.0% 27.0% Income Tax Rate 27.0% No Defined Benefit Pension Plan 4.9% 6.6% 3.3% 1.2% NMF NMF NMF 11.1% 12.3% 16.1% 5.0% 6.6% Net Profit Margin 9.4% d44.3 .6 8.7 13.5 d5.2 d7.6 d27.4 d74.3 d135.3 d3.0 50.0 50.0 Working Cap’l ($mill) 200 Pfd Stock None 254.4 243.4 266.1 278.5 237.6 231.1 212.4 164.3 - - 30.6 1000 875 Long-Term Debt ($mill) 550 Common Stock 47,994,056 shs. 377.3 430.8 265.7 278.8 302.7 304.6 279.9 189.3 272.0 369.0 560 650 Shr. Equity ($mill) 1100 as of 11/6/19 6.8% 8.1% 5.5% 2.7% NMF .5% NMF 17.7% 25.3% 24.6% 6.0% 8.0% Return on Total Cap’l 11.0% 9.4% 11.0% 8.6% 2.9% NMF NMF NMF 29.4% 25.3% 26.5% 10.0% 13.5% Return on Shr. Equity 14.0% MARKET CAP: $1.1 billion (Mid Cap) 9.4% 11.0% 8.6% 2.9% NMF NMF NMF 29.4% 25.3% 26.5% 10.0% 13.5% Retained to Com Eq 14.0% CURRENT POSITION 2017 2018 9/30/19 ------Nil Nil All Div’ds to Net Prof Nil ($MILL.) Cash Assets 28.4 1.9 6.9 BUSINESS: Tivity Health, Inc. operates through two main seg- quired 3/19). Divested Total Population Health (disease manage- Receivables 55.1 67.1 90.7 ments: Healthcare, which includes the legacy business and pro- ment services) division 7/16. Has about 500 empls. Off./dirs. own Inventory (Avg Cst) - - - - 23.7 Other 139.8 9.1 20.8 vides fitness and health improvement programs targeted to individ- 1.6% of common; BlackRock, 13.0%; Vanguard, 12.7%; D.E. Shaw Current Assets 223.3 78.1 142.1 uals 50 years of age and over via three networks (SilverSneakers, & Co., 5.1% (4/19 proxy). Chrmn.: Kevin G. Wills. CEO: Donato J. Accts Payable 26.8 29.1 46.9 Prime Fitness, and WholeHealth Living); and Nutrition, which pro- Tramuto. Inc.: DE. Addr.: 701 Cool Springs Blvd., Franklin, TN Debt Due 146.0 .1 - - vides weight-loss products and services through Nutrisystem (ac- 37067. Tel.: 615-614-4929. Internet: www.tivityhealth.com. Other 185.8 51.9 104.3 Current Liab. 358.6 81.1 151.2 Tivity Health shares have perked up be weak for the year, however. Tivity still lately, despite uneven third-quarter anticipates cost synergies to total $9 ANNUAL RATES Past Past Est’d ’16-’18 results. Revenues in the September peri- million-$12 million. Even so, we’ve shaved of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Revenues -2.0% -7.0% 15.5% od doubled, year over year, largely reflect- a dime off our 2019 EPS target (including ‘‘Cash Flow’’ -1.0% 4.5% 10.5% ing the $1.3 billion Nutrisystem acquisi- charges) to $1.20, but kept our revenue Earnings 3.5% NMF 9.0% tion that closed in March. The legacy forecast unaltered, all within guidance. Dividends - - - - Nil Book Value -3.0% -3.5% 21.5% Healthcare unit continued to outperform, Profits should move in the right direc- thanks to increased visits and new mem- tion from 2020 forward. Tivity is count- Cal-QUARTERLY REVENUES ($ mill.) A Full ber additions within the core Silver- ing on strong revenue gains within the endarMar.31 Jun.30 Sep.30 Dec.31 Year Sneakers program. The Prime Fitness pro- Healthcare division, with eligible Medicare 2016 126.0 125.0 125.1 124.9 501.0 gram fared well, too. But weakness per- lives at SilverSneakers projected to grow 2017 141.0 138.9 137.7 139.3 556.9 sisted on the Nutrition side of operations. from 15.3 million in 2019 to 16 million- 2018 149.9 151.9 151.5 153.0 606.3 And though $2.2 million in cost synergies plus in 2020. New products promoting so- 2019 214.1 340.4 303.9 276.6 1135 2020 355 350 315 300 1320 were realized, higher marketing spending, cial interaction, a deal with Walmart, and investments in the business, and restruc- an extension of the UnitedHealth deal for Cal-EARNINGS PER SHARE AB Full turing and integration-related charges two years beyond 2020 augur well for Sil- endarMar.31 Jun.30 Sep.30 Dec.31 Year didn’t do profits any favors. EPS slipped, verSneakers. Within Nutrition, Tivity is 2016 .52 .54 .12 .30 1.47 missing our $0.40 call. (Adjusted EPS of banking on a robust post-holiday dieting 2017 .38 .41 .46 .37 1.61 $0.46 was $0.10 below consensus views.) season, expansion into new channels (e.g., 2018 .49 .52 .59 .67 2.27 2019 .10 .37 .29 .44 1.20 Management’s outlook for 2019 was eldercare), and greater focus of the South 2020 .15 .55 .50 .55 1.75 reaffirmed, giving investors a sigh of Beach diet. Leaner costs will be key, too. relief. The Healthcare group should con- All told, this untimely issue has wide Cal-QUARTERLY DIVIDENDS PAID Full tinue to shine through yearend, especially long-term rebound potential. Investors endarMar.31 Jun.30 Sep.30 Dec.31 Year given the strong rise in visits and new are slowly warming up to TVTY, but 2015 membership at SilverSneakers, where TV there’s still concern that Tivity may have 2016 NO CASH DIVIDENDS ads and social media have helped boost bitten off more than it can chew with the 2017 BEING PAID awareness among Medicare Advantage Nutrisystem purchase and its debt burden. 2018 2019 seniors. The Nutrition category will likely J. Susan Ferrara December 6, 2019 (A) Fiscal year ended August 31st until 2008. 74¢; ’11, $5.36; ’17, $0.17 (U.S. tax reform not sum to total due to diff. in share count or Company’s Financial Strength B+ Calendar year beginning in 2009. chrg.). Excl. inc. (loss) from disc’d ops.: ’16, rounding. Next egs. report due late Feb. Stock’s Price Stability 15 (B) Diluted earnings. Excl. nonrec. loss: ’09, $4.86; ’17, $0.06; ’18, $0.02. Qtrly. egs. may (C) In millions, adjusted for stock splits. Price Growth Persistence 50 Earnings Predictability 20 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 19.5 RELATIVE DIV’D VALUE UNITEDHEALTH GRP. NYSE-UNH PRICE 282.67RATIO 17.9()Median: 13.0 P/E RATIO 1.01YLD 1.5% LINE 815 TIMELINESS 2 Raised 3/15/19 High: 57.9 33.3 38.1 53.5 60.8 75.9 104.0 126.2 164.0 231.8 287.9 283.0 Target Price Range Low: 14.5 16.2 27.1 36.4 49.8 51.4 69.6 95.0 107.5 156.1 208.5 208.1 2022 2023 2024 SAFETY 1 Raised 6/13/14 LEGENDS 13.5 x ″Cash Flow″ psh 640 TECHNICAL 5 Lowered 11/1/19 .... Relative Price Strength Options: Yes 480 BETA 1.00 (1.00 = Market) Shaded area indicates recession 400 18-Month Target Price Range 320 Low-High Midpoint (% to Mid) 240 200 $215-$413 $314 (10%) 160 2022-24 PROJECTIONS 120 Ann’l Total Price Gain Return 80 High 385 (+35%) 10% Low 315 (+10%) 5% 60 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 30 to Buy 922 980 1016 1 yr. -1.8 4.9 shares 20 3 yr. 87.0 30.2 to Sell 821 828 805 traded 10 Hld’s(000) 824140 814251 825050 5 yr. 187.6 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 24.72 28.94 33.41 53.19 60.20 67.60 75.97 86.70 95.20 108.56 123.98 136.77 164.86 194.16 207.59 235.67 256.75 277.45 Revenues per sh 349.45 1.82 2.30 2.76 3.59 4.35 3.86 4.20 5.25 5.86 6.71 7.09 7.44 7.88 10.34 12.55 15.71 17.75 19.55 ‘‘Cash Flow’’ per sh 25.85 1.48 1.97 2.48 2.97 3.42 2.95 3.24 4.10 4.73 5.28 5.50 5.70 6.01 8.05 10.07 12.87 14.95 16.50 Earnings per sh A 22.00 .01 .02 .03 .03 .03 .03 .03 .41 .61 .80 1.05 1.41 1.88 2.38 2.88 3.45 4.14 4.90 Div’ds Decl’d per sh B 6.40 .30 .27 .37 .54 .70 .66 .64 .81 1.00 1.05 1.32 1.60 1.63 1.79 2.09 2.15 2.15 2.20 Cap’l Spending per sh 2.40 4.40 8.33 13.06 15.47 16.01 17.30 20.58 23.78 26.44 30.60 32.54 34.02 35.39 40.10 49.30 53.85 62.45 69.15 Book Value per sh C 88.15 1166.0 1286.0 1358.0 1345.0 1253.0 1201.0 1147.0 1086.0 1070.0 1019.0 988.00 954.00 953.00 952.00 969.00 960.00 945.00 940.00 Common Shs Outst’g D 930.00 16.4 17.1 20.7 17.2 15.3 10.9 8.1 8.0 9.8 10.4 11.9 14.7 19.4 16.8 18.4 19.3 Bold figures are Avg Ann’l P/E Ratio 16.0 .93 .90 1.10 .93 .81 .66 .54 .51 .61 .66 .67 .77 .98 .88 .93 1.04 Value Line Relative P/E Ratio .90 NMF NMF .1% .1% .1% .1% .1% 1.2% 1.3% 1.5% 1.6% 1.7% 1.6% 1.8% 1.5% 1.4% estimates Avg Ann’l Div’d Yield 1.8% CAPITAL STRUCTURE as of 9/30/19 87138 94155 101862 110618 122489 130474 157107 184840 201159 226247 242650 260810 Revenues ($mill) 325000 Total Debt $44894 mill. Due in 5 Yrs $21000 mill. 8.4% 9.5% 9.4% 9.5% 9.0% 9.0% 8.1% 8.5% 9.0% 9.0% 9.8% 10.0% Operating Margin 12.8% LT Debt $38507 mill. LT Interest $2115 mill. 991.0 1064.0 1124.0 1309.0 1375.0 1478.0 1693.0 2055.0 2245.0 2428.0 2675 2850 Depreciation ($mill) 3575 (39% of Cap’l) 3822.0 4634.0 5142.0 5526.0 5625.0 5619.0 5813.0 7792.0 9918.0 12654 14125 15510 Net Profit ($mill) 20460 Leases, Uncapitalized Annual rentals $669.0 mill. 34.2% 37.2% 35.4% 35.9% 36.4% 41.8% 42.6% 37.9% 30.2% 21.4% 22.0% 23.0% Income Tax Rate 24.0% 4.4% 4.9% 5.0% 5.0% 4.6% 4.3% 3.7% 4.2% 4.9% 5.6% 5.8% 5.9% Net Profit Margin 6.3% d3963 d5307 d3572 d6064 d7501 d7067 d11259 d15373 d13379 d14517 d20000 d18500 Working Cap’l ($mill) d16000 No Defined Benefit Pension Plan 9009.0 8662.0 10656 14041 14891 16007 25460 25777 28835 34581 38500 36500 Long-Term Debt ($mill) 30000 Pfd Stock None 23606 25825 28292 31178 32149 32454 33725 38177 47776 51696 59000 65000 Shr. Equity ($mill) 82000 Common Stock 947,414,929 shs. 12.6% 14.1% 13.9% 12.9% 12.6% 12.1% 10.4% 13.0% 13.7% 15.5% 15.5% 16.5% Return on Total Cap’l 19.0% as of 10/31/19 16.2% 17.9% 18.2% 17.7% 17.5% 17.3% 17.2% 20.4% 20.8% 24.5% 24.0% 24.0% Return on Shr. Equity 25.0% 16.0% 16.2% 15.9% 15.1% 14.2% 13.1% 11.9% 14.5% 15.0% 18.1% 17.5% 17.0% Retained to Com Eq 17.5% MARKET CAP: $268 billion (Large Cap) 1% 10% 13% 15% 19% 24% 31% 29% 28% 26% 28% 30% All Div’ds to Net Prof 29% CURRENT POSITION 2017 2018 9/30/19 ($MILL.) BUSINESS: UnitedHealth Group is a diversified health/well-being Health 5/08; Amil P. 4/13. Medical cost ratio: 81.6% in 2018. Has Cash Assets 15490 14324 15818 company. It offers products/services to individuals through four seg- about 260,000 employees. Vanguard owns 7.4% of common; Receivables 9568 11388 10964 ments: UnitedHealthcare (network-based health care benefits), Op- BlackRock, 7.3%; FMR LLC, 6.8%; offs. & dirs., 0.8% (4/19 Proxy). Other 12026 12980 16759 tumHealth, OptumInsight, and OptumRx (information and technol- CEO: David Wichmann; CFO: John F. Rex. Inc.: Minnesota. Ad- Current Assets 37084 38692 43541 ogy based health services, consulting, and PBM). Acquired Oxford dress: 9900 Bren Road East, Minnetonka, MN 55343. Telephone: Accts Payable 15180 16705 18570 Debt Due 2857 1973 6387 7/04; PacifiCare Health 12/05; Sierra Health Svcs. 2/08; Unison 952-936-1300. Web: www.unitedhealthgroup.com. Other 32426 34531 37684 UnitedHealth Group’s stock has tinues to show steady gains, while the var- Current Liab. 50463 53209 62641 bounced back by roughly 25% in the ious Optum branches carry the growth ANNUAL RATES Past Past Est’d ’16-’18 past three months. Recall, through the torch. UNH’s units are so successful that of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 first seven-plus months of the year medi- areas like pharmacy benefits have sparked Revenues 13.5% 14.0% 8.5% ‘‘Cash Flow’’ 12.5% 14.5% 13.0% cal insurance stocks were beaten down due a consolidation spree via other companies Earnings 12.5% 15.0% 14.0% to fears tied to the news coming from the attempting to mimic its business struc- Dividends 58.0% 28.5% 14.0% Book Value 11.5% 10.0% 11.0% Democratic campaign trail. High-profile ture. Elsewhere, international advance- presidential candidates like Bernie ments are blossoming, with UNH’s opera- Cal-QUARTERLY REVENUES ($ mill.) Full Sanders and Elizabeth Warren were tions outside the 50 states starting to ma- endarMar.31 Jun.30 Sep.30 Dec.31 Year trumpeting a single-payer system for ture and contribute more to the revenue 2016 44527 46485 46293 47535 184840 healthcare and the Medicare For All head- and earnings picture. 2017 48723 50053 50322 52061 201159 lines shook the investment community. Until the next earnings cycle, this 2018 55188 56086 56556 58417 226247 UNH was at the eye of this storm, and the equity will likely move on political 2019 60308 60595 60351 61396 242650 stock fell from its all-time high just shy of headline news that affects healthcare. 2020 64850 65130 64890 65940 260810 $288 to just above $208. More recently, Full-year 2019 results are not due out un- Cal-EARNINGS PER SHAREA Full other political issues have been pushed to til the middle of January. Until then, in- endarMar.31 Jun.30 Sep.30 Dec.31 Year the forefront and when healthcare is men- vestors will probably look to play this 2016 1.81 1.96 2.17 2.11 8.05 tioned, the topic is skated around like at stock based on tidbits tied to the election. 2017 2.37 2.46 2.66 2.58 10.07 the most recent Democratic debate in late For example, UNH’s quotation got a boost 2018 3.04 3.14 3.41 3.28 12.87 November. All the while, UnitedHealth when in November, Mrs. Warren in- 2019 3.73 3.60 3.88 3.74 14.95 has been posting impressive quarterly timated that if she is elected, her adminis- 2020 4.15 4.00 4.25 4.10 16.50 reports and we had been stating that we tration would not look to implement Cal-QUARTERLY DIVIDENDS PAID B Full thought the selloff was dramatically over Medicare For All legislation until year endarMar.31 Jun.30 Sep.30 Dec.31 Year done. Wall Street has now gotten on board three of her term. 2015 .375 .50 .50 .50 1.88 with our train of thought. This blue chip is timely. We are no 2016 .50 .625 .625 .625 2.38 Earnings for 2019 are likely to come longer advising this selection for the 3- to 2017 .625 .75 .75 .75 2.88 in around the $15.00-a-share mark. 5-year pull, however. 2018 .75 .90 .90 .90 3.45 2019 .90 1.08 1.08 The legacy health insurance business con- Erik M. Manning December 6, 2019 (A) Diluted earnings. Excludes nonrecurring report due mid-January. (C) Includes intangibles. In ’18, $68.2 billion, Company’s Financial Strength A++ gains/(losses): ’07, (8¢); ’08, (55¢); ’16, 80¢; (B) Quarterly dividend initiated 6/10. Dividends $71.07/share. Stock’s Price Stability 85 ’17, 65¢; ’18, 68¢. May not sum due to round- historically paid in late March, June, Septem- (D) In millions, adjusted for stock split. Price Growth Persistence 100 ing or change in share count. Next earnings ber, and December. Earnings Predictability 90 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 15.8 RELATIVE DIV’D VALUE UNIVERSAL HEALTH NYSE-UHS PRICE 141.32RATIO 13.8()Median: 15.0 P/E RATIO 0.78YLD 0.6% LINE 816 TIMELINESS 2 Lowered 11/22/19 High: 34.6 33.3 44.0 56.5 49.8 83.8 115.6 148.6 139.8 129.7 139.6 157.8 Target Price Range Low: 15.3 15.2 28.4 31.3 36.4 48.9 73.1 101.2 99.7 95.3 108.6 114.9 2022 2023 2024 SAFETY 3 New 1/2/98 LEGENDS 9.0 x ″Cash Flow″ psh 320 TECHNICAL Raised 10/25/19 .... Relative Price Strength 2 2-for-1 split 12/09 BETA .95 (1.00 = Market) Options: Yes 200 Shaded area indicates recession 18-Month Target Price Range 160 Low-High Midpoint (% to Mid) 120 100 $105-$170 $138 (-5%) 80 2022-24 PROJECTIONS 60 Ann’l Total Price Gain Return 40 High 260 (+85%) 17% Low 175 (+25%) 6% % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 18 4Q2018 1Q2019 2Q2019 Percent 36 to Buy 205 193 205 1 yr. 13.5 4.9 shares 24 3 yr. 15.1 30.2 to Sell 207 217 220 traded 12 Hld’s(000) 83129 78377 77835 5 yr. 34.8 36.8 With the backing of venture capital, Alan 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 B. Miller, the former President of American 53.65 57.12 77.63 71.33 74.09 81.70 92.00 101.07 110.48 117.92 129.20 136.45 Revenues per sh 182.35 Medicore, and members of its management 4.64 4.86 7.18 7.64 8.03 9.70 10.98 11.58 12.74 13.49 15.35 18.00 ‘‘Cash Flow’’ per sh 22.30 team formed Universal Health Services, Inc. 2.49 2.54 4.04 4.53 4.55 5.78 6.76 7.14 7.81 8.31 9.80 10.75 Earnings per sh A 14.50 in 1978. (Their former company had been .17 .20 .20 .20 .20 .30 .40 .40 .40 .40 .60 .80 Div’ds Decl’d per sh D 1.40 the subject of a hostile takeover.) UHS went 3.92 2.45 2.96 3.72 3.65 3.96 3.86 5.38 5.92 7.28 7.25 7.35 Cap’l Spending per sh 7.75 public in 7/81 through an IPO of 1.2 million 18.06 20.30 23.77 27.80 33.06 37.85 43.23 46.91 52.95 59.00 62.20 67.80 Book Value per sh 94.10 shares led by Merrill Lynch. In 6/96, Smith 96.98 97.47 96.61 97.59 98.31 98.72 98.30 96.63 94.23 91.35 88.00 87.00 Common Shs Outst’g B 85.00 Barney, Inc. led a syndicate that added 4 10.2 14.5 11.0 9.3 15.1 16.4 18.4 17.2 14.6 14.6 Bold figures are Avg Ann’l P/E Ratio 15.0 million shares of Class B Common Stock, at .68 .92 .69 .59 .85 .86 .93 .90 .73 .79 Value Line Relative P/E Ratio .85 $26.25 per share. Figures are split-adjusted. .7% .5% .4% .5% .3% .3% .3% .3% .4% .3% estimates Avg Ann’l Div’d Yield .6% CAPITAL STRUCTURE as of 9/30/19 5202.4 5568.2 7500.2 6961.4 7283.8 8065.3 9043.5 9766.2 10410 10772 11370 11870 Revenues ($mill) 15500 Total Debt $3948.4 mill. Due in 5 Yrs $3400.0 mill. 13.5% 13.7% 15.9% 17.9% 17.2% 17.8% 18.2% 17.3% 16.6% 15.1% 15.8% 16.7% Operating Margin 19.3% LT Debt $3870.3 mill. LT Interest $215.0 mill. 204.7 224.0 295.2 302.4 337.2 375.6 398.6 416.6 447.8 453.0 485 630 Depreciation ($mill) 660 (43% of Cap’l) 245.6 249.9 398.2 443.4 452.1 581.8 680.5 702.4 752.3 779.7 865 935 Net Profit ($mill) 1235 Leases, Uncapitalized Annual rentals $106.1 mill. 35.9% 35.6% 35.5% 36.0% 35.7% 33.6% 34.5% 35.4% 32.0% 22.9% 21.0% 21.0% Income Tax Rate 21.0% Pension Assets-12/18 $104.6 mill. Oblig. $108.4 4.7% 4.5% 5.3% 6.4% 6.2% 7.2% 7.5% 7.2% 7.2% 7.2% 7.6% 7.9% Net Profit Margin 8.0% mill. 213.4 504.8 528.0 513.4 372.4 432.3 617.9 364.0 d50.0 489.1 400 525 Working Cap’l ($mill) 800 Pfd Stock None 956.4 3912.1 3651.4 3727.4 3209.8 3210.2 3387.3 4030.2 3494.4 3935.2 3900 3500 Long-Term Debt ($mill) 2750 Common Stock 87,582,269 shs. Class B: 80.32 mill.; A: 6.58 mill.; C: .66 mill.; 1751.1 1978.8 2296.4 2713.3 3250.0 3735.9 4249.6 4533.2 4989.5 5389.3 5475 5900 Shr. Equity ($mill) 8000 D: .019 mill.C 9.9% 4.9% 8.3% 8.2% 8.1% 9.3% 9.6% 9.3% 9.7% 9.2% 10.5% 11.0% Return on Total Cap’l 12.0% as of 10/31/19 14.0% 12.6% 17.3% 16.3% 13.9% 15.6% 16.0% 15.5% 15.1% 14.5% 16.0% 16.0% Return on Shr. Equity 15.5% MARKET CAP: $12.4 billion (Large Cap) 13.1% 11.6% 16.5% 15.6% 13.3% 14.8% 15.1% 14.6% 14.3% 13.8% 15.0% 14.5% Retained to Com Eq 14.0% CURRENT POSITION 2017 2018 9/30/19 7% 8% 5% 4% 4% 5% 6% 6% 5% 5% 6% 7% All Div’ds to Net Prof 10% ($MILL.) Cash Assets 74.4 105.2 58.9 BUSINESS: Universal Health Services, Inc. owns and operates employees. Offs. & dirs. have 87.6% of general voting power (Alan Receivables 1500.9 1509.9 1544.1 acute-care and surgical hospitals, behavioral health centers, and B. Miller has 86.9%); Vanguard has 11.0% of common; Wellington Other 222.7 322.7 327.6 surgery/radiation oncology centers. Runs 37 outpatient facilities Management, 8.8%; BlackRock, 7.7% (4/19 Proxy). Chairman and Current Assets 1798.0 1937.8 1930.6 and 350 inpatient centers in 37 states. Acquired Psychiatric Solu- CEO: A. Miller. President: M. Miller. Inc.: PA. Address: Universal Accts Payable 589.0 1382.9 1343.9 Debt Due 545.6 63.4 78.1 tions 11/10. Revenue sources in ’18: Medicare and Medicaid Corp. Ctr., 367 S. Gulph Rd., P.O. Box 61558, King of Prussia, PA Other 713.4 2.4 199.8 (50%), managed care (32%) and private payers (18%). Has 76,600 19406. Tel.: 610-768-3300. Internet: www.uhsinc.com. Current Liab. 1848.0 1448.7 1621.8 Universal Health is on pace to post year. Too, several of management’s recent ANNUAL RATES Past Past Est’d ’16-’18 earnings growth in the vicinity of 20% moves have been shareholder friendly, of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 this year. Yes, this amount is lower than namely repurchasing shares and doubling Revenues 9.5% 8.0% 9.0% ‘‘Cash Flow’’ 14.0% 10.5% 10.0% at the time of our September report due to the quarterly dividend payout. Subscribers Earnings 17.0% 12.0% 11.0% a bottom-line miss in the third quarter. will note, though, that we view this Dividends 9.5% 15.0% 23.0% Still, the figure is an impressive one and stipend as only an enhancer. Book Value 14.0% 13.5% 10.0% the $9.80 a share we are now forecasting The new price disclosure rule did not Cal-QUARTERLY REVENUE ($ mill.) Full would be a record for the hospital opera- sit well with hospital chains. Starting endarMar.31 Jun.30 Sep.30 Dec.31 Year tor. Revenue gains have been steady in 2021, the Trump Administration has in- 2016 2449 2430 2409 2475 9766.2 through the first nine-plus months of the formed hospitals that they must publish 2017 2612 2612 2541 2642 10409.9 year. More specifically, acute care hospital their standard charges online. Moreover, 2018 2688 2681 2648 2754 10772.3 admissions rose 7.4% in the September in- hospitals will have to disclose the rates 2019 2804 2855 2823 2888 11370 terim, with adjusted patient days also up they negotiate with third-party payers. 2020 2930 2980 2950 3010 11870 7.0%. On the behavioral side of the coin, The legality of these transparency altera- Cal-EARNINGS PER SHARE A Full comparisons were more subdued, but tions were immediately questioned, and a endarMar.31 Jun.30 Sep.30 Dec.31 Year growth was evident nonetheless. On top of coalition was formed to fight them. 2016 1.93 1.89 1.54 1.78 7.14 this, new opioid legislation and the These shares are timely and we are 2017 2.12 1.91 1.47 2.31 7.81 renewed positive light that has been also recommending them for longer- 2018 2.36 2.39 1.84 1.70 8.31 placed on the Affordable Care Act should term accounts. UHS stock should out- 2019 2.57 2.66 1.99 2.58 9.80 help UHS finish the year strong. pace the broader market averages in the 2020 2.75 2.90 2.25 2.85 10.75 Our reduced 2020 share-net view still coming year. Out to 2022-2024, this selec- Cal-QUARTERLY DIVIDENDS PAID D Full factors in a bottom-line advance of tion offers above average appreciation endarMar.31 Jun.30 Sep.30 Dec.31 Year around 10%. We now see earnings clock- potential versus the Value Line median. 2015 .10 .10 .10 .10 .40 ing in around $10.75 a share, which would Political risk is on the rise, but we antici- 2016 .10 .10 .10 .10 .40 be another record showing. An aging popu- pate that pressure will be significantly 2017 .10 .10 .10 .10 .40 lation, coupled with an uptick in the per- better defined, or peter out altogether, 2018 .10 .10 .10 .10 .40 centage of income spent on healthcare, once the 2020 election is decided. 2019 .10 .10 .20 .20 both augur well for continued success next Erik M. Manning December 6, 2019 (A) Diluted earnings. May not sum due to late January. (B) In mill., adj. for splits. ly takeover. Only B shares are publicly traded. Company’s Financial Strength B++ rounding and changes in share count. Ex- (C) Class A/C shares have 10x the voting (D) Dividends paid mid-March, June, Sept., Stock’s Price Stability 70 cludes nonrecurring gains, (losses); ’08, 13¢; power of B/D shares. The majority of A shares Nov. Excludes $0.40 a share special dividend Price Growth Persistence 75 ’09, 15¢; ’10, (20¢). Next earnings report due are held by CEO to defend against an unfriend- paid 12/28/12. Earnings Predictability 90 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 24.6 RELATIVE DIV’D VALUE WELLCARE HEALTH NYSE-WCG PRICE 324.05RATIO 20.8()Median: 20.0 P/E RATIO 1.18YLD Nil LINE 817 TIMELINESS – Suspended 4/5/19 High: 58.7 39.1 37.8 59.1 74.4 75.3 84.7 98.8 141.9 214.0 325.0 324.4 Target Price Range Low: 6.1 6.2 22.3 29.5 45.3 44.8 55.2 71.4 69.2 133.2 187.1 225.8 2022 2023 2024 SAFETY 3 New 12/9/16 LEGENDS 16.0 x ″Cash Flow″ psh TECHNICAL Suspended 4/5/19 .... Relative Price Strength 800 – Options: Yes BETA 1.05 (1.00 = Market) Shaded area indicates recession 600 500 18-Month Target Price Range 400 Low-High Midpoint (% to Mid) 300 250 $236-$473 $355 (10%) 200 2022-24 PROJECTIONS 150 Ann’l Total Price Gain Return 100 High 600 (+85%) 17% Low 400 (+25%) 6% 75 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 45 to Buy 251 262 200 1 yr. 7.5 4.9 shares 30 3 yr. 161.3 30.2 to Sell 253 242 288 traded 15 Hld’s(000) 50564 49801 47115 5 yr. 337.0 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 - - 36.15 48.70 95.44 128.62 154.32 162.37 127.88 143.55 171.46 217.70 295.12 314.88 321.42 381.99 408.33 552.80 624.50 Revenues per sh 796.20 - - 1.48 1.58 3.97 5.61 .84 1.49 d.69 6.67 5.00 5.05 4.77 4.33 7.44 11.10 12.28 18.75 23.15 ‘‘Cash Flow’’ per sh 30.65 - - 1.56 1.32 3.43 5.16 .31 .95 d1.26 6.00 4.22 4.02 3.39 2.67 5.43 8.31 9.29 13.40 16.60 Earnings per sh A 23.30 ------Nil Nil Div’ds Decl’d per sh Nil - - .23 .75 .90 .55 .46 .38 5.17 1.17 1.42 1.42 1.70 3.11 2.38 2.88 3.07 3.45 2.95 Cap’l Spending per sh 3.10 - - 8.00 9.59 14.28 19.28 19.07 20.80 19.56 26.25 30.62 34.68 36.34 39.18 45.16 54.28 84.81 96.20 113.70 Book Value per sh C 184.75 - - 38.59 38.59 39.43 41.91 42.26 42.36 42.54 42.54 43.21 43.77 43.91 44.11 44.29 44.52 49.99 50.50 51.00 Common Shs Outst’g B 53.00 - - 14.9 26.7 14.9 15.9 NMF 21.9 - - 7.4 13.7 15.2 20.1 31.7 19.4 20.3 26.0 Bold figures are Avg Ann’l P/E Ratio 21.5 - - .79 1.42 .80 .84 NMF 1.46 - - .46 .87 .85 1.06 1.60 1.02 1.02 1.40 Value Line Relative P/E Ratio 1.20 ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 6878.2 5440.2 6106.9 7409.0 9527.9 12960 13890 14236 17007 20414 27915 31850 Revenues ($mill) 42200 Total Debt $2029.1 mill. Due in 5 Yrs None 1.8% NMF 7.2% 4.5% 3.5% 3.2% 3.3% 4.7% 3.9% 4.1% 4.5% 4.7% Operating Margin 5.0% LT Debt $2029.1 mill. LT Interest $122 mill. 23.3 23.9 26.5 31.5 44.1 59.9 72.6 87.6 120.4 179.7 265 305 Depreciation ($mill) 355 (Total interest coverage: 9.2x) 39.9 d53.4 257.2 184.7 177.1 149.7 118.6 242.1 373.7 439.8 680 875 Net Profit ($mill) 1270 (29% of Cap’l) 57.1% - - 36.9% 37.7% 37.0% 51.7% 64.7% 54.3% 19.0% 36.5% 23.0% 24.0% Income Tax Rate 25.0% Leases, Uncapitalized: Annual rentals $31.1 mill. .6% NMF 4.2% 2.5% 1.9% 1.2% .9% 1.7% 2.2% 2.2% 2.4% 2.7% Net Profit Margin 3.0% No Defined Benefit Pension Plan 537.4 629.5 996.8 987.3 1455.6 1590.6 1826.9 2063.8 1376.0 1816.8 1125 1575 Working Cap’l ($mill) 4175 - - - - 135.0 120.0 600.0 900.0 912.1 997.6 1182.4 2126.4 2075 2125 Long-Term Debt ($mill) 2275 Pfd Stock None 880.9 832.0 1116.8 1323.2 1517.9 1595.9 1728.3 2000.1 2416.7 4240.0 4860 5800 Shr. Equity ($mill) 9800 4.5% NMF 20.8% 12.9% 8.6% 6.8% 5.5% 9.1% 11.3% 7.5% 10.5% 12.0% Return on Total Cap’l 11.0% Common Stock 50,316,099 shs. 4.5% NMF 23.0% 14.0% 11.7% 9.4% 6.9% 12.1% 15.5% 10.4% 14.0% 15.0% Return on Shr. Equity 13.0% MARKET CAP: $16.3 billion (Large Cap) 4.5% NMF 23.0% 14.0% 11.7% 9.4% 6.9% 12.1% 15.5% 11.4% 14.0% 15.0% Retained to Com Eq 13.0% CURRENT POSITION 2017 2018 9/30/19 ------Nil Nil All Div’ds to Net Prof Nil ($MILL.) Cash Assets 4199 3654 2567 BUSINESS: WellCare Health Plans, Inc. provides managed care States. Has about 8,900 employees. CEO & President: Kenneth A. Receivables 860 1684 1882 services for government-sponsored healthcare programs. Opera- Burdick. Officers & directors own less than 1% of common stock Inventory (FIFO) ------Other 760 1494 2952 tions include three reportable segments: Medicaid Health Plans outstanding; T Rowe Price, 13.9%; The Vanguard Group, 10.5%; Current Assets 5819 6832 7401 (64% of 2018 premium revenue), Medicare Health Plans (31%), BlackRock, 8.3%; FMR LLC, 5.7% (4/19 proxy). Address: 8725 Accts Payable 2146 2897 1923 and Medicare Prescription Drug Plans (5%). As of December 31, Henderson Road, Renaissance One, Tampa, FL 33634. Tele- Debt Due ------2018, WellCare served about 5.5 million members in the United phone: (813) 290-6200. Internet: www.wellcare.com. Other 2297 2119 4481 Current Liab. 4443 5016 6404 WellCare Health is making progress scale, management expects the union to on its pending merger with Centene result in about $500 million in cost ANNUAL RATES Past Past Est’d ’16-’18 Corporation (CNC). Earlier this year, synergies by its second year. of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Revenues 14.0% 18.0% 13.5% the two companies announced that CNC, a On its own, WellCare is having a ‘‘Cash Flow’’ 7.5% 16.0% 20.0% diversified, multinational healthcare en- strong year. Earnings jumped 75% in the Earnings 5.0% 13.0% 20.5% terprise, planned to acquire WCG in a September quarter, versus last year, off of Dividends - - - - Nil Book Value 12.5% 12.5% 20.0% cash-and-stock transaction initially valued a 41% increase in the top line. As was the at $17.3 billion. WellCare recently agreed case in the first half, strong comparisons Cal-QUARTERLY REVENUES ($ mill.) Full to sell its Missouri and Nebraska health continued to be driven by last year’s acqui- endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year plans to Anthem, subject to the closing of sition of Meridian (a managed care organi- 2016 3540 3594 3584 3518 14236 the Centene deal. According to the terms zation), along with contributions from all 2017 3954 4305 4403 4345 17007 of the transaction, WellCare shareholders three business segments. Based on the 2018 4646 4639 5058 6071 20414 stand to get 3.38 shares of Centene com- strong third-quarter performance, we have 2019 6762 7010 7140 7003 27915 2020 7875 8125 7875 7975 31850 mon stock and $120 in cash for each share raised our full-year share-net estimate by of WCG. The deal has received state insur- $0.95, to $13.40, suggesting a 44% in- Cal-EARNINGS PER SHARE A Full ance department conditional approvals in crease. We’ve also added $0.60 to our 2020 endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year all but two states, and remains scheduled call, to $16.60, which would be a 20% to 2016 .83 2.05 1.55 1.00 5.43 to be completed by the first half of 2020. 25% advance from this year’s target. 2017 1.50 1.65 3.82 1.34 8.31 The combination is an appealing one. The stock is up nearly 14% since our 2018 2.25 3.35 2.70 1.11 9.29 2019 2.98 3.60 4.74 2.08 13.40 Teaming up will create a leading early September review. While the deal 2020 3.75 5.00 5.25 2.60 16.60 government-sponsored managed care com- appears highly likely to go through as pany, with strong positions in Medicaid, planned, more-conservative investors will Cal-QUARTERLY DIVIDENDS PAID Full Medicare, and the health insurance want to consider selling their shares at the endarMar.31 Jun.30 Sep.30 Dec.31 Year marketplace. The new company would market. Otherwise, those who stay on 2015 have about 22 million members, with pro stand to benefit from the combined compa- 2016 NO CASH DIVIDENDS forma 2019 revenues of around $97 billion, ny’s improved profit and growth op- 2017 BEING PAID and $5 billion in EBITDA. Along with the portunities. 2018 2019 increased geographic diversification and Mario Ferro December 6, 2019 (A) Diluted earnings. Next earnings report due (B) In millions. (C) Includes intangibles: In 2018: $3.2 billion, Company’s Financial Strength A mid-February. 2018 EPS do not sum due to $64.00/share. Stock’s Price Stability 55 change in shares outstanding. Price Growth Persistence 90 Earnings Predictability 55 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. December 6, 2019 HEALTHCARE INFO. SERVICES 818

In the three months since our early-September INDUSTRY TIMELINESS: 78 (of 95) review, the stocks comprising the Healthcare In- formation Services Industry turned in a strong smaller physician practices, while attempting to guide relative performance. To wit, the eight equities the healthcare system in the United States away from currently included in our group rose 18.5%, on fee-for-service reimbursement. Nonetheless, our sense is average, well ahead of the major market bench- the pressure point for many operating in the Healthcare marks, where the performances ranged between Information Services Industry will continue to center gains of 11.4% and 8.6% for the Value Line (Arith- around the incentive system from CMS. metic) Index and the Dow Jones Industrial Aver- Meantime, most would agree that the healthcare age, respectively. At 28.5%, our group’s perfor- system in the United States is overly complex to navi- mance on a year-to-date basis was also quite good, gate and terribly expensive to utilize, making it an easy though it fell within the range recorded by the target for politicians from both ends of the ideological market averages. spectrum. That said, rhetoric surrounding Medicare For Meanwhile, as usual, individual stock returns All and single-payer healthcare (in certain states and in varied widely since the beginning of 2019, coming the national arena) seems to have bred an increased in between the respective gains of 75.6% and 69.5% level of conservatism in healthcare providers as it re- for Veeva Systems and Teledoc Health, versus the lates to their spending plans. modest loss of 1.3% recorded by Premier, Inc. Independent of the current politics surrounding healthcare, though, it seems likely that HCIT and re- The Third Quarter, In Review lated services will continue to be seen as leverage to In keeping with the established trend, the financial reduce the cost and improve the quality of care provided, results recorded in the September period from the clini- while also prodding the healthcare industry toward cal information systems providers are best characterized value-based care. On point, the secular trend in the as being mixed. For the most part, revenue and earnings healthcare industry is one of having to provide care to a generally met investors’ expectations. On the other larger patient population at a lower effective reimburse- hand, there were instances where changes in product ment rate. Moreover, providers will be increasingly mix, owing to the ongoing transition to subscription- rewarded for the value of the care provided. So, as we based sales agreements, and lumpy contracting activity progress from here, it seems that services aimed at muddied the waters in terms of revenue growth and new measuring patient outcomes versus cost of care are bookings. From a broad perspective, though, the pros- likely to take an increasing role. Indeed, companies in pects for sales activity in our Industry suggest that this industry are placing more strategic emphasis on bookings should progress at a respectable pace in the products and services related to the analysis of patient final quarter of this year. That said, the rate of advance- data and outcomes which, in turn, should aid in the more ment does not seem likely to measure up to the rapid efficient delivery of healthcare. We note that both Cerner pace previously realized by most clinical information Corp. and Allscripts Healthcare are making concerted systems vendors. efforts in this regard. On point, our view is that the high rates of growth that had been established will be difficult to match from here, Conclusion as clinical information systems providers contend with Our Industry consists of a varied range of companies evolving incentive programs from the Centers for Medi- that are best considered on an individual basis. That care and Medicaid Services—(CMS) and the momentum said, we think the overall long-term prospects for our building to compensate providers on a value-based sys- group are generally favorable. tem. Indeed, the sense of immediacy in the EHR replace- ment (electronic health record) market has cooled in response to the new rule-making. As added support for Charles Clark our take on contract bookings, the longer cycle now associated with sales activity suggests a combination of slower growth and less certainty with respect to closure rates. Companies operating outside the traditional clinical information systems arena and that are not particularly Healthcare Information Services affected by the incentive programs administered by RELATIVE STRENGTH (Ratio of Industry to Value Line Comp.) CMS have found the going much easier. Notable in this regard are Veeva Systems and Teledoc Health. 750 600 Industry Trends Beginning in 2011, the implementation of healthcare and clinical information systems (HCIT and CIS) be- 450 came a strategic emphasis for hospitals and delivery systems. Providers’ purchase decisions were greatly in- fluenced by the incentives paid via reimbursements from 300 the Centers for Medicare and Medicaid Services that became available under the HITECH Act, a provision of the American Recovery and Reinvestment Act of 2009. As noted, CMS has since modified this incentive system, changing the requirements for preferred reim- bursement under Medicare and Medicaid. Broadly 150 2013 2014 2015 2016 2017 2018 2019 speaking, the changes tend to lessen the burden on Index: June, 1967 = 100

© 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 15.8 RELATIVE DIV’D VALUE ALLSCRIPTS HEALTH NDQ-MDRX PRICE 11.03RATIO 16.0()Median: NMF P/E RATIO 0.90YLD Nil LINE 819 TIMELINESS 4 Raised 7/12/19 High: 20.0 23.1 21.7 16.4 19.7 15.8 15.2 15.2 16.1 12.4 Target Price Range Low: 16.4 13.9 8.8 9.2 11.0 11.3 9.8 10.2 8.5 8.8 2022 2023 2024 SAFETY 3 Raised 9/19/08 LEGENDS 7.5 x ″Cash Flow″ psh TECHNICAL 3 Raised 11/22/19 .... Relative Price Strength 40 Options: Yes 32 BETA 1.00 (1.00 = Market) Shaded area indicates recession 24 18-Month Target Price Range Low-High Midpoint (% to Mid) 16 12 $6-$13 $1 (-15%) 10 2022-24 PROJECTIONS 8 Ann’l Total Price Gain Return 6 High 20 (+80%) 16% Low 14 (+25%) 6% 4 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 45 to Buy 100 115 98 1 yr. -8.1 4.9 shares 30 3 yr. -8.9 30.2 to Sell 132 109 128 traded 15 Hld’s(000) 177924 175167 180081 5 yr. -20.3 36.8 2003 2004 2005 2006 2007 2008 2009 2010C 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 ------3.26 7.59 8.39 7.73 7.70 7.32 8.73 10.18 12.43 11.00 11.85 Revenues per sh 14.25 ------.24 1.08 .86 .87 .91 1.01 1.14 1.32 1.50 1.55 1.65 ‘‘Cash Flow’’ per sh 2.25 ------d.03 .39 d.01 .27 .31 .47 .56 .62 .72 .68 .75 Earnings per sh A 1.25 ------Nil Nil Div’ds Decl’d per sh Nil ------.13 .23 .47 .41 .15 .10 .20 .26 .18 .25 .25 Cap’l Spending per sh .25 ------7.35 7.76 7.45 7.37 7.12 7.44 6.83 6.20 9.06 7.85 7.90 Book Value per sh 9.25 ------188.29 190.38 172.42 178.80 180.47 189.31 180.51 180.83 171.22 162.00 158.00 Common Shs Outst’g B 150.00 ------NMF - - NMF NMF 28.6 22.8 20.5 17.7 Bold figures are Avg Ann’l P/E Ratio 14.0 ------NMF - - NMF NMF 1.44 1.20 1.03 .95 Value Line Relative P/E Ratio .80 ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 - - 613.3 1444.1 1446.3 1382.9 1389.5 1386.4 1575.7 1840.8 2128.6 1785 1870 Revenues ($mill) 2150 Total Debt $913.5 mill. Due in 5 Yrs $930.0 mill. - - 9.1% 18.6% 12.1% 13.3% 15.4% 18.3% 20.3% 21.4% 18.5% 17.5% 17.5% Operating Margin 19.0% D LT Debt $554.9 mill. LT Interest $25.0 mill. - - 50.1 132.4 150.2 106.5 107.8 102.7 101.3 127.2 127.2 135 140 Depreciation ($mill) 150 (30% of Cap’l) Leases, Uncapitalized Annual rentals $26.3 mill. - - d5.6 73.6 d1.2 48.2 56.4 87.7 104.1 112.3 128.9 113 120 Net Profit ($mill) 175 - - - - 37.3% - - 28.0% 35.3% 35.0% 35.0% 35.0% 23.0% 24.0% 24.0% Income Tax Rate 24.0% No Defined Benefit Pension Plan - - NMF 5.1% NMF 3.5% 4.1% 6.3% 6.6% 6.1% 6.1% 6.3% 6.4% Net Profit Margin 8.1% - - 144.4 169.9 54.4 22.8 1.4 25.4 d62.8 d22.5 61.3 100 100 Working Cap’l ($mill) 100 Pfd Stock None - - 459.8 322.7 362.7 545.1 548.7 612.4 1294.8 1531.9 647.5 900 900 Long-Term Debt ($mill) 900 - - 1383.8 1476.7 1284.3 1318.1 1284.2 1407.9 1232.5 1120.9 1551.1 1275 1250 Shr. Equity ($mill) 1400 Common Stock 162,366,195 shs. - - NMF 4.7% .4% 3.1% 3.6% 4.8% 5.1% 5.7% 6.7% 6.0% 6.0% Return on Total Cap’l 8.0% as of 10/31/19 - - NMF 5.0% NMF 3.7% 4.4% 6.2% 8.4% 10.0% 8.3% 9.0% 9.5% Return on Shr. Equity 12.5% MARKET CAP: $1.8 billion (Mid Cap) - - NMF 5.0% NMF 3.7% 4.4% 6.2% 8.4% 10.0% 8.3% 9.0% 9.5% Retained to Com Eq 12.5% CURRENT POSITION 2017 2018 9/30/19 ------Nil Nil All Div’ds to Net Prof Nil ($MILL.) Cash Assets 155.8 174.2 138.7 BUSINESS: Allscripts Healthcare Solutions, Inc. is a leading pro- cal software, connectivity, information solutions for physician prac- Receivables 567.9 465.3 426.6 vider of electronic health record (EHR) systems. In August, 2010, tices—physician practice management systems and services, and Other 122.1 219.5 208.3 the company acquired Eclipsys Corporation, a provider of clinical transaction processing. Stk. owners: Six fin’l Inst., 54.6% (4/19 Current Assets 845.8 859.0 773.6 information systems and services targeted at hospitals. Prior to the proxy). Chrmn: Michael Klayko; CEO: Paul Black; Pres.: Richard Accts Payable 97.6 73.2 101.7 Debt Due 30.4 20.1 358.6 Eclipsys acquisition, Allscripts Healthcare Solutions had merged Poulton. Inc.: DE. Addr.: 222 Merchandise Mart, Suite 2024, Chica- Deferred Revenue 546.8 466.8 373.1 (October, 2008) with Misys Healthcare Systems, a provider of clini- go, IL 60654. Tel.: 312-506-1200. Internet: www.allscripts.com. Other 193.5 237.6 343.9 Current Liab. 868.3 797.7 1177.3 Allscripts Healthcare’s financial largest contributor to Allscripts’ financial report for the September period was results (91% of revenues, 87% of gross ANNUAL RATES Past Past Est’d ’16-’18 mixed. From an operational perspective, profits before corporate allocations), and of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Revenues - - 5.5% 5.5% revenues came in about $10 million below the figures from this group are much less ‘‘Cash Flow’’ - - 7.0% 9.5% our $455 million estimate. On the other inspiring in terms of growth prospects. To Earnings - - 24.0% 12.0% hand, non-GAAP earnings matched our wit, revenue and operating profits from Dividends - - - - Nil Book Value - - -.5% 4.0% $0.17 call, as the company’s adjusted oper- the Provider group declined 2.5% and 2.2% ating margin remained in the 10% vicinity in the first three quarters of this year. Ac- Cal-QUARTERLY REVENUES ($ mill.) Full (inclusive of depreciation). Meanwhile, cordingly, we have decided to maintain our endarMar.31 Jun.30 Sep.30 Dec.31 Year contracting activity was again healthy in estimates for 2019 and 2020, despite the 2016 345.6 396.6 404.1 429.4 1575.7 the third quarter, advancing 19% over the recent upturn in contracting activity. 2017 415.1 427.7 451.2 546.8 1840.8 same period in 2018, to $236 million. What about Allscripts stock? Market 2018 518.6 535.8 535.8 538.4 2128.6 Bookings advanced 19% through the first support for the shares has improved since 2019 432.6 445.0 444.6 462.8 1785 2020 450 465 470 485 1870 nine months of this year, setting the stage our September report, as some investors for meeting the company’s forecast of took advantage of what they saw as a Cal-EARNINGS PER SHARE A Full $1.05 billion to $1.10 billion for 2019. bargain price. Still, compared to the over- endarMar.31 Jun.30 Sep.30 Dec.31 Year Our revenue and earnings estimates all stock market, their year-to-date per- 2016 .13 .14 .14 .14 .56 are essentially unchanged. As men- formance is nothing to write home about, 2017 .13 .15 .16 .18 .62 tioned in recent reports, Allscripts is now markedly trailing that of the broader stock 2018 .16 .18 .18 .20 .72 2019 .16 .17 .17 .18 .68 reporting financial results from its two market. That said, we are now taking a 2020 .16 .18 .20 .21 .75 business segments — the mature Provider somewhat more optimistic view of operations (traditional clinical information Allscripts’ longer-term prospects, having Cal-QUARTERLY DIVIDENDS PAID Full systems) and the Veradigm group (the raised both our projections through 2022- endarMar.31 Jun.30 Sep.30 Dec.31 Year company’s growth vehicle involved in clini- 2024 and our 3- to 5-year Target Price 2015 cal data analysis). In terms of revenues Range. At the recent price, MDRX stock 2016 NO CASH DIVIDENDS and profitability, Veradigm showed good may interest patient accounts willing to 2017 BEING PAID progress in the first nine months of 2019, shoulder the shares’ volatile price action. 2018 2019 but the Provider operations remain the Charles Clark December 6, 2019 (A) Diluted earnings, nonGAAP 2013 forward. not total to annual figure due to rounding. available due to change in fiscal year with the Company’s Financial Strength B Excl. nonrecurring items: ’13, d$0.85; Next earnings report due early February. August 2010 acquisition of Eclipsys Corp. Stock’s Price Stability 45 ’14, d$0.68; ’15, d$0.47; ’16, d$0.70; (B) In millions. (D) Cash interest only; does not include Price Growth Persistence 5 ’17; d$1.71; ’18, $1.32. Quarterly earnings may (C) Includes only 2H 2010. Consistent data not amortization of discount on convertible notes. Earnings Predictability 35 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 27.6 RELATIVE DIV’D VALUE CERNER CORP. NDQ-CERN PRICE 70.68RATIO 24.5()Median: 30.0 P/E RATIO 1.38YLD 1.0% LINE 820 TIMELINESS 2 Lowered 10/25/19 High: 15.0 21.5 24.4 37.2 44.2 59.4 66.4 75.7 67.5 73.9 73.4 73.4 Target Price Range Low: 7.6 8.3 18.0 23.0 29.7 39.4 48.4 55.8 47.0 47.1 48.8 50.5 2022 2023 2024 SAFETY 2 Raised 3/13/15 LEGENDS 14.0 x ″Cash Flow″ psh TECHNICAL Lowered 11/15/19 .... Relative Price Strength 160 2 2-for-1 split 1/06 BETA .95 (1.00 = Market) 2-for-1 split 6/11 120 2-for-1 split 7/13 100 18-Month Target Price Range Options: Yes 80 Shaded area indicates recession 2-for-1 Low-High Midpoint (% to Mid) 60 2-for-1 50 $46-$79 $63 (-10%) 40 2022-24 PROJECTIONS 30 Ann’l Total Price Gain Return 20 High 105 (+50%) 11% Low 80 (+15%) 4% 15 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 36 to Buy 265 313 317 1 yr. 17.8 4.9 shares 24 3 yr. 15.2 30.2 to Sell 400 307 338 traded 12 Hld’s(000) 259131 265835 266460 5 yr. 6.5 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 2.98 3.16 3.70 4.39 4.74 5.08 5.06 5.56 6.50 7.74 8.47 9.94 13.02 14.55 15.47 16.55 18.25 19.50 Revenues per sh 23.25 .40 .53 .64 .72 .87 1.06 1.16 1.29 1.53 1.80 2.12 2.57 3.24 3.65 3.90 4.19 4.65 5.30 ‘‘Cash Flow’’ per sh 6.50 .15 .22 .27 .31 .38 .52 .58 .70 .88 1.13 1.32 1.65 2.11 2.30 2.38 2.45 2.67 3.15 Earnings per sh B 4.00 ------.36 .72 Div’ds Decl’d per sh E .85 .10 .15 .32 .42 .56 .33 .40 .31 .31 .53 1.03 .81 1.07 1.39 1.09 1.38 1.50 1.25 Cap’l Spending per sh 1.25 1.76 2.04 2.42 2.93 3.53 4.04 4.79 5.72 6.81 8.23 9.21 10.42 11.38 11.92 14.39 15.20 14.25 15.40 Book Value per sh 20.75 281.84 293.10 314.06 313.57 320.59 324.17 330.26 332.96 339.13 344.18 343.82 342.33 339.96 329.64 332.46 324.31 312.00 305.00 Common Shs Outst’g D 300.00 26.8 26.0 32.1 35.1 36.2 21.1 25.7 30.0 33.5 33.1 37.3 34.8 31.5 24.6 26.6 25.0 Bold figures are Avg Ann’l P/E Ratio 23.0 1.53 1.37 1.71 1.90 1.92 1.27 1.71 1.91 2.10 2.11 2.10 1.83 1.59 1.29 1.34 1.35 Value Line Relative P/E Ratio 1.30 ------estimates Avg Ann’l Div’d Yield .9% CAPITAL STRUCTURE as of 9/29/19 1671.9 1850.2 2203.2 2665.4 2910.7 3402.7 4425.3 4796.5 5142.3 5366.3 5700 5950 Revenues ($mill) 7000 Total Debt $1038.6 mill. Due in 5 Yrs $825.0 mill. 28.8% 29.9% 30.5% 29.8% 32.5% 33.6% 32.4% 31.9% 31.6% 28.9% 29.0% 31.5% Operating Margin 32.5% LT Debt $1038.6 mill. LT Interest $34.0 mill. 189.6 193.3 212.6 222.6 263.5 302.4 360.7 413.7 491.8 540.2 600 640 Depreciation ($mill) 725 (19% of Cap’l) 193.5 237.3 306.6 397.2 466.4 576.4 740.8 790.4 805.0 818.5 855 970 Net Profit ($mill) 1200 33.9% 34.5% 34.7% 32.4% 32.8% 32.4% 31.1% 30.2% 30.4% 21.1% 20.0% 22.0% Income Tax Rate 22.0% Leases, Uncapitalized Annual rentals $29.7 mill. 11.6% 12.8% 13.9% 14.9% 16.0% 16.9% 16.7% 16.5% 15.7% 15.3% 15.0% 16.3% Net Profit Margin 17.1% No Defined Benefit Pension Plan 788.2 840.2 1063.6 1210.4 1121.3 1714.5 1049.9 774.0 1590.6 1356.1 1500 1250 Working Cap’l ($mill) 1600 Pfd Stock None 95.5 67.9 86.8 136.6 111.7 62.9 563.4 537.6 515.1 438.8 1100 1500 Long-Term Debt ($mill) 1500 Common Stock 314,097,410 shs. 1580.7 1905.3 2310.7 2833.7 3167.7 3566.0 3870.4 3927.9 4785.3 4928.4 4450 4700 Shr. Equity ($mill) 6225 as 10/16/19 11.8% 12.2% 12.9% 13.5% 14.3% 15.9% 16.9% 17.8% 15.3% 15.3% 15.5% 16.0% Return on Total Cap’l 16.0% MARKET CAP: $22.2 billion (Large Cap) 12.2% 12.5% 13.3% 14.0% 14.7% 16.2% 19.1% 20.1% 16.8% 16.6% 19.0% 20.5% Return on Shr. Equity 19.5% CURRENT POSITION 2017 2018 9/29/19 12.2% 12.5% 13.3% 14.0% 14.7% 16.2% 19.1% 20.1% 16.8% 16.6% 16.5% 16.0% Retained to Com Eq 15.0% ($MILL.) ------14% 23% All Div’ds to Net Prof 21% Cash Assets 805.8 775.4 632.7 Receivables 1042.8 1172.6 1155.0 BUSINESS: Cerner Corp. designs, develops, markets, installs, and pense: 12.7% of ’18 revenues. Contract backlog: $6.7 billion Inventory (FIFO) 15.7 25.0 23.2 supports clinical and management information systems. Cerner’s (12/29/18). Employed about 29,200 (12/18). Stock ownership: The Other 515.9 345.8 402.2 systems are designed and developed using a single, unified in- Vanguard Group, 10.2%; BlackRock, Inc., 6.8% (4/19 proxy). Chair- Current Assets 2380.2 2318.8 2213.1 formation architecture: Cerner Millennium. Cerner’s software and man & CEO: Brent Shafer; CFO: Marc G. Naughton. Incorporated: Accts Payable 219.0 293.5 275.9 Debt Due 11.6 4.9 - - systems are focused on the clinical side of healthcare and are DE. Address: 2800 Rockcreek Pkwy., North Kansas City, MO Deferred Revenue 311.3 399.2 308.4 targeted at hospitals and integrated delivery networks. R&D ex- 64117. Telephone: (816) 201-1024. Internet: www.cerner.com. Other 247.7 265.1 417.3 Current Liab. 789.6 962.7 1001.6 Cerner Corporation delivered respect- 2019 by $50 million and $0.02 a share. Al- able financial results for the Septem- though we look for Cerner to replace the ANNUAL RATES Past Past Est’d ’16-’18 of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 ber period. Revenue and non-GAAP Adventist contract with higher-growth and Revenues 12.5% 15.5% 7.0% earnings essentially met our estimates, more-profitable opportunities, we have ‘‘Cash Flow’’ 16.0% 16.5% 9.0% with bookings of $1.65 billion coming in at nonetheless pared $150 million and $0.15 Earnings 19.5% 16.5% 9.0% Dividends - - - - Nil the high end of the forecasted range. a share from our estimates for 2020, Book Value 14.5% 11.5% 7.0% We have made some changes to our awaiting further announcements. Finally, A earnings estimates for this year and Cerner has taken a large step in complet- Cal-QUARTERLY REVENUES ($ mill.) Full next. Cerner appears to be making head- ing its $1.5 billion stock-repurchase pro- endarMar.Per Jun.Per Sep.Per Dec.Per Year way in its efforts to streamline its organi- gram, which will work to support earnings 2016 1138.1 1216.0 1184.6 1257.8 4796.5 zational structure. Accordingly, the compa- through next year. 2017 1260.5 1292.0 1276.0 1313.8 5142.3 2018 1292.9 1367.7 1340.0 1365.7 5366.3 ny’s ability to meet its near-term profita- What about the company’s longer- 2019 1389.9 1431.1 1429.4 1449.6 5700 bility goals now seems relatively secure. term prospects? Cerner’s markets have 2020 1425 1500 1500 1525 5950 As a reminder, the company is targeting a generally matured and are being chal- ABC 20% adjusted operating margin (inclusive lenged via the move to value-based care, Cal-EARNINGS PER SHARE Full of depreciation) for the December period of suggesting it will need to address revenue endarMar.Per Jun.Per Sep.Per Dec.Per Year this year, an estimated improvement of growth, if the stock’s current market 2016 .53 .58 .59 .61 2.30 some 130 basis points. Cerner is also valuation is to be sustained over time. 2017 .59 .61 .61 .58 2.38 2018 .58 .62 .63 .63 2.45 maintaining its goal of reaching an operat- Cerner’s decision to work with Amazon 2019 .61 .66 .66 .74 2.67 ing margin of 22.5% by the fourth quarter Web Services to facilitate the move of its 2020 .70 .78 .79 .88 3.15 of 2020. In the meantime, it has started products and services to the cloud, coupled stepping back from some low-margined with a combination of organic growth and Cal-QUARTERLY DIVIDENDS PAID E Full endarMar.31 Jun.30 Sep.30 Dec.31 Year business relationships. An example in this M&A activity, should result in revenue regard is the recent termination of the rev- growth of about 5.5% a year through 2022- 2015 ------2016 ------enue cycle outsourcing agreement with 2024. Still, these shares’ recent valuation 2017 ------Adventist Health. As a result of this deci- already discounts some of progress we cur- 2018 ------sion, we have reduced our revenue and rently envision. 2019 - - - - .18 .18 earnings targets for the fourth quarter of Charles Clark December 6, 2019 (A) Fiscal year ends on the Saturday closest to ’08, 10¢; ’13, d19¢; ’14, d15¢; ’15, d57¢; to rounding or to changes in diluted shares out- Company’s Financial Strength A+ December 31st. ’16, d45¢; ’17, 19¢; ’18, d56¢. standing. Stock’s Price Stability 75 (B) Fully-diluted earnings; non-GAAP EPS Next earnings report due late January. (D) In millions, adjusted for stock splits. Price Growth Persistence 60 from 2014. Excl. items: ’05, 1¢; ’06, 5¢; (C) Quarters may not sum to annual figure, due (E) Initial dividend declared 5/30/19. Earnings Predictability 90 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 11.1 RELATIVE DIV’D VALUE COMPUTER PROG. NDQ-CPSI PRICE 28.16RATIO 11.4()Median: 23.0 P/E RATIO 0.64YLD 1.4% LINE 821 TIMELINESS 4 Lowered 7/19/19 High: 31.0 50.1 49.5 79.1 64.0 62.9 71.9 63.0 59.2 36.2 34.7 34.0 Target Price Range Low: 17.1 21.3 33.9 41.8 44.9 46.1 56.6 36.0 18.3 21.6 23.8 20.7 2022 2023 2024 SAFETY 3 New 3/23/07 LEGENDS 16.0 x ″Cash Flow″ psh 128 TECHNICAL 5 Lowered 11/22/19 .... Relative Price Strength Options: Yes 96 BETA .65 (1.00 = Market) Shaded area indicates recession 80 18-Month Target Price Range 64 Low-High Midpoint (% to Mid) 48 40 $18-$35 $27 (-5%) 32 2022-24 PROJECTIONS 24 Ann’l Total Price Gain Return 16 High 60 (+115%) 22% Low 40 (+40%) 11% 12 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 45 to Buy 69 89 73 1 yr. -6.3 4.9 shares 30 3 yr. -5.8 30.2 to Sell 57 58 72 traded 15 Hld’s(000) 11570 11358 11454 5 yr. -56.8 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 7.75 7.88 10.24 10.78 10.18 10.98 11.64 13.98 15.72 16.55 18.00 18.27 16.12 19.75 20.13 19.91 19.05 19.30 Revenues per sh 25.35 .89 .83 1.54 1.65 1.38 1.58 1.55 1.88 2.57 2.99 3.24 3.26 1.90 .52 1.91 2.55 2.45 2.50 ‘‘Cash Flow’’ per sh 3.50 .75 .67 1.37 1.48 1.20 1.43 1.39 1.71 2.34 2.71 2.95 2.94 1.62 .29 1.77 2.51 2.45 2.50 Earnings per sh A 3.20 .26 .48 .88 1.44 1.44 1.44 1.44 1.44 1.44 1.84 2.04 2.28 2.56 1.86 .85 .40 .40 .40 Div’ds Decl’d per sh B .60 .19 .16 .24 .27 .11 .10 .08 .46 .98 .39 .33 .13 .04 - - .05 .07 .05 .05 Cap’l Spending per sh .05 2.46 2.65 3.42 3.60 3.55 3.72 3.89 4.24 5.20 5.16 6.19 7.21 6.67 11.67 9.89 11.35 12.15 13.80 Book Value per sh C 18.35 10.49 10.49 10.63 10.76 10.81 10.89 10.97 10.96 11.03 11.08 11.16 11.21 11.30 13.53 13.76 14.08 14.40 14.50 Common Shs Outst’g D 15.00 27.0 30.0 24.4 26.4 23.2 16.4 26.2 25.0 25.2 19.9 18.6 21.4 31.0 NMF 16.4 11.6 Bold figures are Avg Ann’l P/E Ratio 16.0 1.54 1.58 1.30 1.43 1.23 .99 1.75 1.59 1.58 1.27 1.05 1.13 1.56 NMF .82 .63 Value Line Relative P/E Ratio .90 1.3% 2.4% 2.6% 3.7% 5.2% 6.1% 4.0% 3.4% 2.4% 3.4% 3.7% 3.6% 5.1% 4.8% 2.9% 1.4% estimates Avg Ann’l Div’d Yield 1.2% CAPITAL STRUCTURE as of 9/30/19 127.7 153.2 173.5 183.3 200.9 204.7 182.2 267.3 276.9 280.4 274 280 Revenues ($mill) 380 Total Debt $121.0 mill. Due in 5 yrs $121.0 mill. 19.7% 20.2% 25.2% 24.2% 26.7% 26.0% 15.5% 6.5% 16.5% 17.1% 18.3% 19.0% Operating Margin 19.0% LT Debt $112.6 mill. LT Interest $6.9 mill. 1.8 1.9 2.5 3.2 3.4 3.7 3.2 3.1 2.5 1.8 1.5 1.6 Depreciation ($mill) 2.3 Includes $0.3 mill. in capital leases (Total interest coverage: 7.0x) (40% of Cap’l) 15.2 18.7 25.8 30.0 32.7 32.9 18.3 3.9 23.8 34.0 34.0 35.0 Net Profit ($mill) 50.0 37.0% 37.1% 38.4% 28.6% 35.4% 33.8% 28.0% 50.8% 34.7% 14.5% 18.0% 19.0% Income Tax Rate 20.0% Leases, Uncapitalized Annual rentals $1.5 mill. 11.9% 12.2% 14.9% 16.4% 16.3% 16.1% 10.1% 1.5% 8.6% 12.1% 12.4% 12.5% Net Profit Margin 13.2% No Defined Benefit Pension Plan 34.4 35.1 37.5 32.5 51.3 63.3 57.2 13.6 17.0 31.4 30.0 35.0 Working Cap’l ($mill) 40.0 ------147.0 136.6 124.6 115 115 Long-Term Debt ($mill) 115 Pfd Stock None 42.7 46.5 57.4 57.2 69.1 80.8 75.4 158.0 136.1 159.8 175 200 Shr. Equity ($mill) 275 Common Stock 14,355,656 shs. 35.6% 40.3% 45.0% 52.4% 47.4% 40.8% 24.3% 2.4% 10.0% 13.2% 13.0% 12.0% Return on Total Cap’l 14.0% as of 11/4/19 35.6% 40.3% 45.0% 52.4% 47.4% 40.8% 24.3% 2.5% 17.5% 21.3% 19.5% 17.5% Return on Shr. Equity 18.0% MARKET CAP: $400 million (Small Cap) NMF 6.3% 17.3% 16.8% 14.6% 9.1% NMF NMF 8.9% 17.8% 16.0% 14.5% Retained to Com Eq 15.0% CURRENT POSITION 2017 2018 9/30/19 104% 84% 62% 68% 69% 78% NMF NMF 49% 17% 16% 17% All Div’ds to Net Prof 18% ($MILL.) Cash Assets .5 5.7 4.0 BUSINESS: Computer Programs & Systems, Inc. operates through nursing and assisted-living facilities. Acute care EHR: 56% of ’18 Receivables 38.1 55.5 51.6 four companies: Evident and Healthland offer electronic health rec- revenue; TruBridge, 36%; post-acute care EHR, 8%. Has about Inventory (Avg Cost) 1.4 1.5 1.5 Other 17.9 7.2 8.6 ord (EHR) solutions to community hospitals and physician clinics; 2,000 employees. Off. & dir. own 4.8% of common stock; Black- Current Assets 57.9 69.9 65.7 TruBridge supplies business management, consulting, IT services, Rock, 13.0%; Vanguard Group, 8.1% (3/19 proxy). Chmn.: David A. Accts Payable 7.6 5.7 7.6 and revenue cycle management to all care settings; and American Dye. Pres. & CEO: J. Boyd Douglas. Inc.: DE. Addr.: 6600 Wall St., Debt Due 5.8 6.5 8.4 HealthTech (AHT) offers a post-acute care EHR solution for skilled- Mobile, AL 36695. Tel.: 800-711-2774. Internet: www.cpsinet.com. Other 27.5 26.3 27.0 Current Liab. 40.9 38.5 43.0 Shares of Computer Programs & Sys- in line with our forecast. tems rose about 15% in price with the Near-term comparisons still seem ANNUAL RATES Past Past Est’d ’16-’18 release of third-quarter results. While challenging. Our fourth-quarter revenue of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Revenues 6.5% 3.5% 4.0% the top and bottom lines were in line with estimate of $70 million, while up 2% se- ‘‘Cash Flow’’ .5% -11.0% 13.5% expectations, investors appear to have quentially, represents an annual decline of Earnings 1.0% -10.5% 13.0% been cheered by the company’s robust about 3%. For the December period, we Dividends -3.0% -10.0% -8.5% Book Value 11.5% 14.5% 9.0% bookings. Total bookings surged 25% year have added $0.05 to our per-share earn- over year and were up 61% sequentially. ings call, reflecting lighter expenses than Cal-QUARTERLY REVENUES ($ mill.) Full On an annual basis, TruBridge bookings of we had been modeling. However, our $0.69 endarMar.31 Jun.30 Sep.30 Dec.31 Year $10.2 million were up 40%, while system estimate is still about 12% short of last 2016 69.6 68.4 64.7 64.6 267.3 sales and support bookings of $13.4 mil- year’s tally. We look for top-line com- 2017 64.1 67.7 67.1 78.1 276.9 lion increased 16%. We were encouraged parisons to turn slightly positive as the 2018 70.9 67.9 69.3 72.3 280.4 to hear the longer decision-making process company moves into 2020. Operating prof- 2019 69.1 66.2 68.7 70.0 274 2020 70.0 69.0 70.0 71.0 280 among acute-care EHR clients, which had itability should also rise modestly on the weighed on second-quarter bookings, has top-line increase and the effect of about Cal-EARNINGS PER SHARE A Full abated some. Too, the pullback of athena- $13 million in costs CPSI has eliminated endarMar.31 Jun.30 Sep.30 Dec.31 Year health, which was acquired by two private in the last two years. We remain comfort- 2016 d.13 .15 .12 .15 .29 equity firms earlier this year, from CPSI’s able with our 2020 revenue and earnings 2017 .29 .43 .43 .63 1.77 market appears to have provided a tail- estimates of $280 million and $2.50 per 2018 .59 .34 .79 .78 2.51 2019 .62 .50 .64 .69 2.45 wind. As for third-quarter results, revenue share, representing growth of about 2% on 2020 .60 .55 .65 .70 2.50 of $68.7 million was 1% lower year over the top and bottom lines. B year and in line with our estimate. Despite This stock is unfavorably ranked for Cal-QUARTERLY DIVIDENDS PAID Full the revenue decline, operating income was year-ahead performance. Projected endarMar.31 Jun.30 Sep.30 Dec.31 Year up 2%, mostly on lower sales and market- near-term price action is below average. 2015 .64 .64 .64 .64 2.56 ing expenses. Net income was, however, Out to 2022-2024, appreciation potential is 2016 .64 .64 .34 .24 1.86 off 20% annually, owing to a more normal wide, but speculative. Investors ought to 2017 .25 .20 .30 .10 .85 2018 .10 .10 .10 .10 .40 tax rate this year compared with a small wait until earnings start growing again. 2019 .10 .10 .10 .10 tax benefit in 2018. Share net of $0.64 was Christopher Joseph, CFA December 6, 2019 (A) Diluted earnings. Adjusted non-GAAP earn- earnings report due early February. (C) Includes intangibles. In 2018: $226.7 mill., Company’s Financial Strength B+ ings beginning ’17. Excl. nonrecurring losses: (B) Dividends historically paid in March, June, $16.10 per share. Stock’s Price Stability 35 ’17, $3.04; ’18, $1.25; ’19, $1.11. Qly figures September, and December. Special one-time (D) In millions. Price Growth Persistence 5 may not sum to total due to rounding. Next dividend: $1.00 per share paid Q4 ’12. Earnings Predictability 35 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: NMF RELATIVE DIV’D VALUE HEALTHEQUITY, INC. NDQ-HQY PRICE 63.68RATIO NMF()Median: NMF P/E RATIO NMFYLD Nil LINE 822 TIMELINESS 5 Lowered 11/8/19 High: 27.7 35.8 45.0 55.3 101.6 85.1 Target Price Range Low: 16.1 18.9 15.8 37.6 46.1 50.3 2022 2023 2024 SAFETY 3 New 9/7/18 LEGENDS .... Relative Price Strength TECHNICAL Lowered 10/18/19 Options: Yes 160 4 Shaded area indicates recession BETA 1.30 (1.00 = Market) 120 100 18-Month Target Price Range 80 Low-High Midpoint (% to Mid) 60 50 $44-$117 $81 (25%) 40 2022-24 PROJECTIONS 30 Ann’l Total Price Gain Return 20 High 120 (+90%) 17% Low 80 (+25%) 6% 15 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 30 to Buy 168 174 207 1 yr. -38.1 4.9 shares 20 3 yr. 70.9 30.2 to Sell 173 149 134 traded 10 Hld’s(000) 59747 60408 59740 5 yr. 178.4 36.8 HealthEquity, Inc. completed its initial pub- 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 lic offering on July 31, 2014. At that time, ------1.60 2.20 3.00 3.77 4.60 7.30 11.30 Revenues per sh AE 13.25 10.47 million shares were sold to the public ------.29 .44 .66 1.04 1.47 1.60 2.15 ‘‘Cash Flow’’ per sh 3.00 at an average price of $14.00 per share. Ad------.21 .28 .44 .77 1.17 1.25 1.50 Earnings per sh AB 2.25 ditional offerings were held in May 2015 ------Nil Nil Div’ds Decl’d per sh Nil (4.43 million shares at $25.90), September ------.03 .04 .06 .09 .06 .30 .20 Cap’l Spending per sh .10 2015 (3.45 million shares at $29.50), and ------2.63 3.52 4.40 5.69 7.64 14.10 13.90 Book Value per sh C 17.25 October 2016 (2.50 million shares at ------54.80 57.73 59.54 60.83 62.45 71.00 72.00 Common Shs Outst’g D 75.00 $35.85). The underwriting syndicates in------NMF NMF NMF NMF NMF Bold figures are Avg Ann’l P/E Ratio NMF cluded JPMorgan Chase, Well Fargo ------NMF NMF NMF NMF NMF Value Line Relative P/E Ratio NMF Securities, and Jefferies. ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 7/31/19 ------62.0 87.9 126.8 178.4 229.5 287.2 520 815 Revenues ($mill) 1000 Total Debt None ------25.5% 25.9% 27.4% 30.5% 30.7% 33.4% 32.0% 28.0% Operating Margin 33.0% LT Debt None ------4.3 5.9 8.6 13.2 16.0 18.2 30.0 45.0 Depreciation ($mill) 50.0 Leases, Uncapitalized Annual Rentals $7.3 mill. ------1.2 10.2 16.6 26.4 47.4 73.9 85.0 110 Net Profit ($mill) 175 ------NMF 35.5% 35.0% 34.3% 9.2% 2.5% 24.0% 24.0% Income Tax Rate 24.0% No Defined Benefit Pension Plan ------2.0% 11.6% 13.1% 14.8% 20.6% 25.7% 16.3% 13.5% Net Profit Margin 17.5% ------14.4 115.9 131.0 185.1 244.9 365.6 400 400 Working Cap’l ($mill) 500 Pfd Stock None ------1250 1000 Long-Term Debt ($mill) 500 Common Stock 70,621,252 shs. ------40.2 144.1 203.5 261.9 346.3 477.1 1000 1000 Shr. Equity ($mill) 1300 as of 8/30/19 ------3.1% 7.1% 8.2% 10.1% 13.7% 15.5% 4.5% 6.5% Return on Total Cap’l 10.5% ------3.1% 7.1% 8.2% 10.1% 13.7% 15.5% 8.5% 11.0% Return on Shr. Equity 13.5% MARKET CAP: $4.5 billion (Mid Cap) ------NMF 8.2% 10.1% 13.7% 15.5% 8.5% 11.0% Retained to Com Eq 13.5% CURRENT POSITION 2017 2018 7/31/19 ------56% NMF ------Nil Nil All Div’ds to Net Prof Nil ($MILL.) Cash Assets 240.3 361.5 815.2 BUSINESS: HealthEquity, Inc. offers a cloud-based platform that The company employs more than 1,000 individuals. Chairman: Receivables 21.6 25.7 27.4 enables consumers to make healthcare savings and spending deci- Robert W. Selander. President & CEO: Jon Kessler. Stock owners: Inventory (Avg Cst) .2 - - - - Other 3.3 7.5 10.9 sions. Consumers can compare treatment options and pricing, pay Officers/directors, 3.7%; BlackRock, 10.6%; Morgan Stanley, 9.9%; Current Assets 265.4 394.7 853.5 bills, and recieve personalized benefit information. As of 1/31/19, The Vanguard Group, 8.5%; FMC LLC, 5.2% (5/19 proxy). Inc.: DE. Accts Payable 2.4 3.5 2.7 HealthEquity operated the platform for 141 health plan and ad- Address: 15 West Scenic Pointe Drive Suite 100 Draper, UT 84020. Debt Due ------ministrator partners and for employees at more than 45,000 clients. Telephone: (801) 727-1000. Internet: www.healthequity.com Other 18.1 25.6 34.4 Current Liab. 20.5 29.1 37.1 HealthEquity is continuing to make ing margin of 15%. Although these as- progress. The company’s roster of HSA sumptions yield an additional $25 million ANNUAL RATES Past Past Est’d ’16-’18 members is growing nicely, advancing 16% to operating profit, the margin drops to of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Revenues - - - - 23.0% in the fiscal second quarter (ended July about 32.5%, versus the 42.0% we had es- ‘‘Cash Flow’’ - - - - 19.0% 31st). Custodial assets remained in growth timated prior to the WageWorks transac- Earnings - - - - 19.0% mode, as well, increasing 21% in the same tion. Meanwhile, HealthEquity borrowed Dividends - - - - NIL Book Value - - - - 19.5% period. Meanwhile, HealthEquity’s profita- $1.25 billion to help finance the deal, add- bility also improved, with its adjusted ing interest expense to the picture, and Fiscal QUARTERLY REVENUES ($ mill.) A Full Year Fiscal gross margin widening 260 basis points (to there will be some additional depreciation Ends Apr.30 Jul.31 Oct.31 Jan.31 Year 68.0%) in the first half, as the company associated with the WageWorks assets. As 2016 44.0 44.2 43.4 46.8 178.4 continues to emphasize its higher- it stands now, we look for earnings to take 2017 55.4 56.9 56.8 60.4 229.5 margined custodial business over generat- a step back in the second half. 2018 69.9 71.0 70.5 75.8 287.2 ing services fees. Its adjusted operating What about HealthEquity stock? There 2019 87.1 86.6 155 191.3 520 2020 210 200 200 205 815 margin followed suit, widening 250 basis are a lot of moving parts at the company, points (to 41.4%) in the first six months of given the WageWorks acquisition, generat- Fiscal EARNINGS PER SHARE AB Full Year Fiscal the company’s fiscal year. ing some uncertainty in the near term. Ends Apr.30 Jul.31 Oct.31 Jan.31 Year The recent acquisition of WageWorks Still, HealthEquity will be investing be- 2016 .13 .14 .10 .07 .44 will weigh on HealthEquity’s profita- tween $80 million and $100 million to 2017 .24 .27 .17 .09 .77 bility and earnings, at least in the bring the acquisition up to speed, allowing 2018 .36 .36 .25 .21 1.17 2019 .41 .45 .22 .17 1.25 nearer term. On a stand-alone basis, our it to gain a greater presence in the HSA 2020 .42 .43 .35 .30 1.50 revenue and adjusted operating profit (be- arena. And, as suggested by our longer- fore depreciation) would have remained term projections, our sense is it should Cal-QUARTERLY DIVIDENDS PAID Full unchanged at $345 million and $145 mil- have a good degree of success in this endarMar.31 Jun.30 Sep.30 Dec.31 Year lion (up 22.5%), respectively. However, the regard. That said, our current projections 2015 addition of WageWorks for the balance of should be taken as preliminary, with new 2016 NO CASH DIVIDENDS the year will pressure operating profits. commitments to HQY shares being made 2017 BEING PAID We are estimating WageWorks adds $175 carefully. 2018 2019 million in revenue at an adjusted operat- Charles Clark December 6, 2019 (A) Fiscal years end January 31st of the follow- ber. (E) Target Price Range calculated using 7.5x Company’s Financial Strength B++ ing calander year. (C) Includes intangibles. In fiscal 2018: $79.7 estimated Revenues Per Share for 2020-24. Stock’s Price Stability 20 (B) Non-GAAP diluted earnings from ’19 for- million, or $1.28 per share. Price Growth Persistence 90 ward. Next earnings report due early Decem- (D) In millions. Earnings Predictability 80 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 21.5 RELATIVE DIV’D VALUE NEXTGEN HEALTH NDQ-NXGN PRICE 17.84RATIO 19.4()Median: 33.0 P/E RATIO 1.10YLD Nil LINE 823 TIMELINESS 3 Raised 11/1/19 High: 24.0 33.0 35.9 50.7 45.0 24.2 21.1 18.8 17.5 17.7 23.7 21.1 Target Price Range Low: 12.9 17.1 25.7 33.1 15.0 17.0 13.0 12.0 10.6 12.6 12.2 13.6 2022 2023 2024 SAFETY 3 New 12/16/11 LEGENDS 15.0 x ″Cash Flow″ psh 64 TECHNICAL 4 Lowered 12/6/19 .... Relative Price Strength 2-for-1 split 3/06 48 BETA .75 (1.00 = Market) 2-for-1 split 10/11 40 Options: Yes 18-Month Target Price Range Shaded area indicates recession 32 Low-High Midpoint (% to Mid) 24 20 $12-$28 $20 (10%) 16 2022-24 PROJECTIONS 12 Ann’l Total Price Gain Return 8 High 35 (+95%) 18% Low 25 (+40%) 9% 6 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 45 to Buy 85 99 94 1 yr. 14.5 4.9 shares 30 3 yr. 31.2 30.2 to Sell 79 58 66 traded 15 Hld’s(000) 44681 45386 46511 5 yr. 18.6 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 1.40 1.70 2.23 2.90 3.40 4.32 5.10 6.10 7.26 7.73 7.39 8.13 8.08 8.16 8.30 8.16 8.30 8.70 Revenues per sh A 11.05 .25 .36 .51 .71 .85 .97 1.04 1.19 1.58 1.12 .74 .94 .58 .96 1.35 1.52 1.55 1.75 ‘‘Cash Flow’’ per sh 2.20 .20 .31 .43 .61 .72 .81 .84 1.06 1.28 .72 .26 .45 .09 .29 .70 .86 .86 1.00 Earnings per sh B 1.30 - - .38 .44 .50 .50 .58 .60 .63 .70 .70 .70 .70 .53 ------Nil Nil Div’ds Decl’d per sh C Nil .02 .03 .05 .06 .04 .06 .09 .12 .17 .17 .13 .11 .23 .19 .15 .08 .20 .25 Cap’l Spending per sh .30 1.21 1.20 1.36 1.68 2.07 2.73 3.29 3.88 4.99 5.16 4.90 4.70 4.42 4.88 5.05 5.80 6.35 7.60 Book Value per sh D 10.65 50.60 52.44 53.42 54.25 54.90 56.89 57.27 57.89 59.18 59.54 60.21 60.30 60.98 62.46 64.00 64.84 65.50 66.00 Common Shs Outst’g E 68.00 24.8 23.2 38.5 31.0 24.6 22.7 34.1 31.0 32.9 31.2 NMF 34.5 NMF 45.6 21.0 20.8 Bold figures are Avg Ann’l P/E Ratio 22.0 1.41 1.23 2.05 1.67 1.31 1.37 2.27 1.97 2.06 1.99 NMF 1.82 NMF 2.39 1.06 1.13 Value Line Relative P/E Ratio 1.20 - - 5.3% 2.7% 2.7% 2.8% 3.1% 2.1% 1.9% 1.7% 3.1% 3.5% 4.5% 3.5% ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 291.8 353.4 429.8 460.2 444.7 490.2 492.5 509.6 531.0 529.2 545 575 Revenues ($mill) A 750 29.8% 28.8% 31.7% 25.1% 14.1% 14.1% 14.1% 13.4% 20.5% 22.1% 22.0% 23.0% Operating Margin 23.5% Total Debt None 11.4 7.6 18.0 24.2 28.7 29.3 30.0 41.5 41.6 43.0 46.0 49.0 Depreciation ($mill) 60.0 Leases, Uncapitalized Annual rentals $9.6 mill. 48.4 61.6 75.7 42.7 15.7 27.3 5.7 18.2 44.5 55.8 56.0 65.0 Net Profit ($mill) 90.0 36.5% 34.8% 35.0% 38.0% 31.8% 23.4% 10.5% 22.7% 30.5% 22.0% 22.0% 22.0% Income Tax Rate 22.0% No Defined Benefit Pension Plan 16.6% 17.4% 17.6% 9.3% 3.5% 5.6% 1.1% 3.6% 8.4% 10.5% 10.3% 11.2% Net Profit Margin 12.0% Pfd Stock None 118.9 145.8 183.3 170.3 136.5 125.0 45.9 18.1 7.1 31.7 25.0 30.0 Working Cap’l ($mill) 50.0 ------105.0 15.0 37.0 11.0 Nil Nil Long-Term Debt ($mill) Nil D Common Stock 65,433,363 shs. 188.3 224.7 295.2 307.0 295.1 283.5 269.4 305.0 323.4 375.9 415 500 Shr. Equity ($mill) 725 as of 10/22/19 25.7% 27.4% 25.6% 13.9% 5.3% 9.6% 1.7% 6.2% 12.8% 14.8% 13.5% 13.0% Return on Total Cap’l 12.5% 25.7% 27.4% 25.6% 13.9% 5.3% 9.6% 2.1% 6.0% 13.8% 14.8% 13.5% 13.0% Return on Shr. Equity 12.5% MARKET CAP: $1.2 billion (Mid Cap) 7.5% 12.0% 11.7% .4% NMF NMF NMF 6.0% 13.8% 14.8% 13.5% 13.0% Retained to Com Eq 12.5% CURRENT POSITION 2017 2018 9/30/19 71% 56% 54% 97% NMF NMF NMF ------Nil Nil All Div’ds to Net Prof Nil ($MILL.) Cash Assets 28.8 33.1 42.9 BUSINESS: NextGen Healthcare, Inc., formerly known as Quality Acquired EagleDream Health, 8/17; Entrada, 4/17. Has about 2,660 Receivables 85.0 87.5 83.7 Systems, Inc., develops and markets electronic health record and employees. Founder Sheldon Razin owns 15.5% of common stock; Inventory (FIFO) .2 .1 .1 Other 27.7 39.2 43.4 practice management software products to the ambulatory care other offs. & dirs., 3.0%; former dir. Ahmed Hussein, 8.7%; Black- Current Assets 141.7 159.9 170.1 market. The company also provides support and maintenance serv- Rock, 11.1% (7/19 proxy). Chrmn.; Jeffrey H. Margolis. Pres. & Accts Payable 4.2 5.4 4.9 ices, revenue cycle management (RCM) services, and electronic CEO: Rusty Franz. Inc.: CA. Addr.: 18111 Von Karman, Suite 800, Debt Due ------data interchange and data services. R&D: 15% of 2018 revenue. Irvine, CA 92612. Tel.: 949-255-2600. Web: www.nextgen.com. Other 130.4 122.8 127.4 Current Liab. 134.6 128.2 132.3 NextGen’s fiscal second-quarter re- million. The midpoint of guidance implies sults (ended September 30th) were in modest growth of 4% in the second half. ANNUAL RATES Past Past Est’d ’16-’18 line with expectations. Revenue of $134 We think the trend of clients choosing sub- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Revenues 9.0% 2.0% 5.0% million, up 3% year over year, was on tar- scription models over perpetual licenses is ‘‘Cash Flow’’ 4.0% 2.0% 9.5% get with our estimate and the consensus likely to continue to skew bookings toward Earnings -1.5% -4.0% 13.0% forecast. The increase was driven primari- perpetual licenses which, in turn, ought to Dividends - - - - NMF Book Value 9.5% 1.0% 12.5% ly by a 7% jump in subscription revenue, pressure top-line growth in the near term. to $31.4 million, thanks to higher sales of We also note the company faces another Fiscal A Full Year QUARTERLY REVENUES ($ mill.) Fiscal analytics and NextGen Office. Support and relatively tough comparison for backlog Begins Jun.30 Sep.30 Dec.31 Mar.31 Year maintenance revenue slipped about half a growth in the December quarter, against 2016 122.2 127.2 127.9 132.3 509.6 percent, to $39.4 million, on expected attri- an 8% increase last year. In terms of earn- 2017 130.9 132.6 131.7 135.8 531.0 tion of legacy NextGen Enterprise clients. ings, management reiterated that share 2018 133.2 130.3 130.9 134.8 529.2 We were encouraged to see the rate of net is on track to reach $0.82 to $0.90 per 2019 131.9 134.3 135 143.8 545 2020 141 143 145 146 575 decline in this line slow in the quarter, share this year. Thus, we have left our after running in the mid single-digit per- second-half revenue and earnings forecasts Fiscal AB Full Year EARNINGS PER SHARE Fiscal centages in the last year. Too, second- at $278 million and $0.46 per share. For Begins Jun.30 Sep.30 Dec.31 Mar.31 Year quarter bookings of $36.6 million rose 1% fiscal 2020, the company continues to ex- 2016 d.01 .06 .17 .07 .29 annually, despite a difficult comparison of pect mid to high single-digit revenue 2017 .17 .22 .15 .16 .70 39% growth last year. The gross margin growth. We remain comfortable with our 2018 .19 .24 .20 .23 .86 2019 .16 .24 .22 .24 .86 fell about two percentage points to 55%, on 2020 revenue and earnings targets of $575 2020 .22 .27 .25 .26 1.00 higher development costs and an unfavor- million and $1.00 per share, representing C able mix shift. In all, NextGen reported annual gains of 6% and 16%, respectively. Cal-QUARTERLY DIVIDENDS PAID Full earnings of $0.24 per share, compared These shares are neutrally ranked for endarMar.31 Jun.30 Sep.30 Dec.31 Year with analysts’ expectations of $0.23. Re- year-ahead performance. Appreciation 2015 .175 .175 .175 .175 .70 sults were flat with the previous year. potential out to 2022-2024 is wide, but 2016 .175 ------.18 Management reaffirmed its guidance speculative. We note the stock’s rather low 2017 ------2018 ------for fiscal 2019. The company continues to score for Earnings Predictability. 2019 ------look for revenue of $536 million to $550 Christopher Joseph, CFA December 6, 2019 (A) Fiscal year ends March 31st of the follow- ings report due late January. (D) Includes intangibles. In 2018: $271.4 mill., Company’s Financial Strength B+ ing calendar year. (C) Dividend suspended in February, 2016. $4.19 per share. Stock’s Price Stability 35 (B) Diluted earnings. Excludes nonrecurring Special cash dividends paid: ’04, 38¢; ’05, 44¢; (E) In millions, adjusted for stock splits. Price Growth Persistence 15 losses: ’17, 66¢; ’18, 48¢; ’19, 29¢. Next earn- ’06, 50¢. Earnings Predictability 25 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 13.7 RELATIVE DIV’D VALUE PREMIER, INC. NDQ-PINC PRICE 36.69RATIO 12.7()Median: NMF P/E RATIO 0.72YLD Nil LINE 824 TIMELINESS 4 Lowered 11/22/19 High: 38.5 38.9 39.8 37.0 36.5 47.2 42.0 Target Price Range Low: 29.7 26.5 31.4 28.3 27.2 28.8 27.4 2022 2023 2024 SAFETY 3 New 12/8/17 LEGENDS 11.5 x ″Cash Flow″ psh TECHNICAL Lowered 11/1/19 .... Relative Price Strength 80 5 Options: Yes BETA .90 (1.00 = Market) Shaded area indicates recession 60 50 18-Month Target Price Range 40 Low-High Midpoint (% to Mid) 30 25 $27-$53 $40 (10%) 20 2022-24 PROJECTIONS 15 Ann’l Total Price Gain Return 10 High 65 (+75%) 15% Low 45 (+25%) 5% 7.5 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 24 to Buy 132 126 114 1 yr. -27.6 4.9 shares 16 3 yr. 2.3 30.2 to Sell 129 126 136 traded 8 Hld’s(000) 60852 61049 65282 5 yr. -2.4 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 ------6.00 6.99 8.18 10.45 12.05 12.35 10.55 Revenues per sh 13.25 ------1.53 1.76 2.00 2.34 2.82 3.43 3.75 ‘‘Cash Flow’’ per sh 4.75 ------1.27 1.43 1.61 1.89 2.31 2.64 2.90 Earnings per sh B 3.75 ------Nil Div’ds Decl’d per sh Nil ------.38 .49 .54 .51 .67 .74 .80 Cap’l Spending per sh .75 ------5.35 6.68 8.34 10.60 10.83 13.13 14.80 Book Value per sh E 18.75 ------144.89 144.05 142.13 139.24 137.87 126.49 120.00 Common Shs Outst’g D 110.00 ------25.7 23.7 21.1 17.0 14.1 14.7 Avg Ann’l P/E Ratio 14.5 ------1.35 1.19 1.11 .86 .76 .82 Relative P/E Ratio .80 ------Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 ------764.3 869.3 1007.0 1162.6 1454.7 1661.3 1562.5 1265 Revenues ($mill) 1450 Total Debt $8.5 mill. Due in 5 Yrs $8.5 mill. ------38.8% 40.4% 39.0% 37.9% 34.5% 32.7% 35.7% 46.0% Operating Margin 47.0% LT Debt $7.2 mill. LT Interest $.2 mill. ------29.2 36.8 45.2 51.1 58.9 71.3 87.5 100 Depreciation ($mill) 125 (less than 1% of Cap’l) Leases, Uncap’l Annual rentals $12.1 mill. ------33.2 185.0 208.2 233.3 267.3 317.1 346.4 355 Net Profit ($mill) 410 No Defined Benefit Pension Plan ------10.6% 40.7% 40.0% 40.0% 39.0% 32.0% 26.0% 26.0% Income Tax Rate 26.0% Pfd Stock None ------4.3% 21.3% 20.7% 20.1% 18.4% 19.1% 22.2% 28.1% Net Profit Margin 28.3% ------366.7 198.2 283.6 136.8 d162.8 d20.3 156.0 100 Working Cap’l ($mill) 150 Common Stock 122,018,869 shs. ------22.5 16.1 15.7 13.9 6.3 7.0 6.0 10.0 Long-Term Debt ($mill) 10.0 Incl. 66,437,223 shs. Cl. A and 55,581,646 shs. Cl. E B, ea. accorded one vote. ------631.4 775.2 961.7 1185.8 1476.3 1493.3 1661.0 1775 Shr. Equity ($mill) 2050 as of 11/1/19 ------5.1% 23.4% 21.3% 19.4% 18.0% 21.1% 20.8% 20.0% Return on Total Cap’l 20.0% MARKET CAP: $4.5 billion (Mid Cap) ------5.3% 23.9% 21.6% 19.7% 18.1% 21.2% 20.9% 20.0% Return on Shr. Equity 20.0% CURRENT POSITION 2018 2019 9/30/19 ------5.3% 23.9% 21.6% 19.7% 18.1% 21.2% 20.9% 20.0% Retained to Com Eq 20.0% ($MILL.) ------Nil All Div’ds to Net Prof Nil Cash Assets 152.4 141.1 125.2 Receivables 185.9 189.3 157.8 BUSINESS: Premier, Inc. operates as a healthcare improvement ucts provide intelligence for cost management, quality and safety, Inventory 66.1 51.0 52.3 company in the United States. Its Supply Chain Services segment and population health. Empl. 2,200 (6/30/19). Share owners (voting Other 24.2 232.6 241.4 includes a healthcare group purchasing organization (GPO), a power): Premier Trust; 50.1%; five fin’l inst.; 17.5%; Off. & dir.; Current Assets 428.6 614.0 576.7 specialty pharmacy, and direct sourcing unit. The Performance 17.7% (10/19 proxy). Chrmn: Terry D. Shaw; Pres. & CEO: Susan Accts Payable 60.1 54.5 57.4 Debt Due 101.3 27.6 1.3 Services segment includes an informatics and advisory services Devore. Inc.: DE. Addr.: 13034 Ballantyne Corporate Pl., Charlotte, Deferred Revenue 39.8 35.6 34.4 business. Premier’s software-as-a-service (SaaS) informatics prod- NC 28277. Tel.: (704) 357-0022. Internet: www.premierinc.com. Other 247.7 340.3 317.5 Current Liab. 448.9 458.0 410.6 Premier Inc. began fiscal 2020 with Our estimates for fiscal 2020 are un- respectable financial results. (Years changed. On the revenue side, we contin- ANNUAL RATES Past Past Est’d ’17-’19 of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 end June 30th.) Revenue from the Supply ue to look for about 5% growth in the Sup- Revenues - - 14.0% 2.5% Chain Services segment advanced 7.8% in ply Chain Services segment and a more ‘‘Cash Flow’’ - - 13.5% 10.5% the fiscal first quarter, benefiting from a modest advance of around 1% in the Per- Earnings - - 12.5% 10.5% Dividends - - - - Nil 6.4% increase in net administrative fees. formance Services group, with a meaning- Book Value - - 16.5% 10.0% In this regard, Premier’s GPO (Group Pur- ful improvement in the Performance seg- chasing Organization) saw further con- ment being realized in the second half as Fiscal QUARTERLY REVENUES ($ mill.) A Full Year Sep.30 Dec.31 Mar.31 Jun.30 Fiscal tract penetration from high-compliance recent investments take hold. Meanwhile, Ends Year members, and the addition of new contract the company’s operating margin should 2016 270.8 291.7 298.7 301.4 1162.6 categories and suppliers. The segment’s widen markedly this year (reflecting the 2017 313.3 358.5 379.8 403.1 1454.7 2018 390.6 411.4 425.3 434.0 1661.3 adjusted operating income grew 10.0% (be- recently divested specialty pharmacy busi- 2019 401.5 421.9 422.9 316.2 1562.5 fore depreciation), largely reflecting the ness), but by the same token, our sense is 2020 302.4 315 315 332.6 1265 rise in administrative fees. Meanwhile, the operating profit will likely be held to an Performance Services group’s top line advance of between 2% and 4%. We note Fiscal EARNINGS PER SHARE ABC Full Year Sep.30 Dec.31 Mar.31 Jun.30 Fiscal declined 7.5% in the June period, as lower our share-earnings estimate of $2.90 as- Ends Year revenue from a range of contracts and con- sumes Premier completes its current $300 2016 .38 .42 .44 .36 1.61 sulting agreements filtered through, as million buyback program, which adds 2017 .41 .46 .52 .50 1.89 2018 .44 .50 .67 .70 2.31 anticipated. Operating income fell 33.4%, $0.05 to $0.07 to our call for 2020. 2019 .65 .66 .66 .68 2.64 reflecting not only the lower revenue, but What about Premier shares? Premier is 2020 .68 .70 .74 .78 2.90 also increased expenditures related to ad- clearly focused on supporting its custom- QUARTERLY DIVIDENDS PAID ditional consulting and sales personnel ers as they navigate changes in reimburse- Cal- Full and strategic investments. Finally, al- ment, notably to value-based care. None- endarMar.31 Jun.30 Sep.30 Dec.31 Year though adjusted net income declined theless, our estimates and projections are 2015 slightly in the latest quarter, share earn- on the conservative side. With this in 2016 NO CASH DIVIDENDS ings met with our estimate, increasing mind, the prospects for PINC stock appear 2017 BEING PAID 2018 4.6% and benefiting from the company’s adequately reflected in the recent price. 2019 ongoing repurchase program. Charles Clark December 6, 2019 (A) Fiscal year ends June 30th. ’19, d$2.71. Next earnings report due early (D) In millions. Company’s Financial Strength B++ (B) Fully-diluted earnings; non-GAAP EPS. Feb. (C) Quarters may not sum to annual fig- (E) Sum of redeemable limited partners’ capital Stock’s Price Stability 65 Excl. items: ’14, d$1.08; ’15, d$1.17; ure, due to rounding or to changes in diluted and common shareholders equity. Price Growth Persistence 40 ’16, d$1.32; ’17, d$1.09; ’18, d$0.43; shares outstanding. Earnings Predictability 95 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: NMF RELATIVE DIV’D VALUE TELADOC HEALTH, INC. NYSE-TDOC PRICE 83.96RATIO NMF()Median: NMF P/E RATIO NMFYLD Nil LINE 825 TIMELINESS 3 Raised 11/8/19 High: 35.4 20.8 37.9 89.0 85.1 Target Price Range Low: 15.3 9.1 15.6 30.9 46.0 2022 2023 2024 SAFETY 4 Lowered 9/6/19 LEGENDS .... Relative Price Strength TECHNICAL Lowered 9/27/19 Options: Yes 160 3 Shaded area indicates recession BETA 1.20 (1.00 = Market) 120 100 18-Month Target Price Range 80 Low-High Midpoint (% to Mid) 60 50 $40-$111 $76 (-10%) 40 2022-24 PROJECTIONS 30 Ann’l Total Price Gain Return 20 High 125 (+50%) 10% Low 75 (-10%) -3% 15 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 60 to Buy 198 213 222 1 yr. 10.5 4.9 shares 40 3 yr. 371.4 30.2 to Sell 155 124 136 traded 20 Hld’s(000) 81028 111888 86916 5 yr. — 36.8 Teladoc, Inc. was incorporated in Texas in 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 June, 2002. Incorporation was changed to ------2.01 2.67 3.79 5.93 7.55 9.05 Revenues per sh D 11.75 Delaware in 2008. In July, 2015, the compa------d1.38 d1.43 d1.20 d.87 d0.85 d.50 ‘‘Cash Flow’’ per sh d.10 ny listed on the NYSE in an IPO of 9.5 mil------d2.91 d1.75 d1.93 d1.47 d1.45 d1.10 Earnings per sh A d.80 lion shares at $19.00 per share. Net pro------Nil Nil Div’ds Decl’d per sh Nil ceeds to the company were $163 million. ------.16 .05 .04 .06 .05 .05 Cap’l Spending per sh .10 Three follow-on offerings were completed in ------4.64 5.00 9.08 14.37 13.30 12.00 Book Value per sh B 7.65 2017 and 2018, for a combined 17.0 million ------38.53 46.20 61.53 70.52 73.00 75.00 Common Shs Outst’g C 85.00 shares and $590 million in net proceeds. In ------NMF NMF NMF NMF Bold figures are Avg Ann’l P/E Ratio D NMF August, 2018, the company changed its ------NMF NMF NMF NMF Value Line Relative P/E Ratio NMF name to Teladoc Health, Inc. ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 ------43.5 77.4 123.2 233.3 417.9 550 680 Revenues ($mill) 1000 Total Debt $433.8 mill. Due in 5 Yrs $230.5 mill. ------NMF NMF NMF NMF NMF NMF NMF Operating Margin 2.0% LT Debt $433.8 mill. LT Interest $26.0 mill. ------2.3 4.9 8.3 33.2 35.6 39.0 43.0 Depreciation ($mill) 60.0 Incl. $203.3 mill. 1.375% notes (due 2025) ea. cv. into 18.66 shs at $53.58 and $230.5 mill. 3% notes ------d17.0 d58.0 d74.2 d106.8 d97.1 d100 d80.0 Net Profit ($mill) d70.0 (due 2022) ea. cv. into 22.72 shs at $44.00 ------NMF NMF NMF NMF NMF NMF NMF Income Tax Rate NMF (Interest not covered) (30% of Cap’l) ------NMF NMF NMF NMF NMF NMF NMF Net Profit Margin NMF Leases, Uncapitalized Annual rentals $8.1 mill. ------41.7 133.6 61.6 115.9 470.3 450 500 Working Cap’l ($mill) 600 No Defined Benefit Pension Plan ------25.2 25.2 42.4 207.4 414.7 425 425 Long-Term Debt ($mill) 425 Pfd Stock None ------53.2 178.6 230.9 558.9 1013.1 970 900 Shr. Equity ($mill) 650 Common Stock 72,382,343 shs. ------NMF NMF NMF NMF NMF NMF NMF Return on Total Cap’l NMF as of 10/24/19 ------NMF NMF NMF NMF NMF NMF NMF Return on Shr. Equity NMF MARKET CAP: $6.1 billion (Large Cap) ------NMF NMF NMF NMF NMF NMF NMF Retained to Com Eq NMF CURRENT POSITION 2017 2018 9/30/19 ------Nil Nil All Div’ds to Net Prof Nil ($MILL.) Cash Assets 122.3 478.5 490.9 BUSINESS:Teladoc Health, Inc. provides telehealth services on a for 84% of 2018 revenue; visit fees, 16%. Acquired MedecinDirect, Receivables 27.1 43.6 53.7 business-to-business basis to more than 12,000 clients, including 3/19; Advance Medical, 5/18; Best Doctors, 7/17. Has over 2,000 Inventory ------Other 6.8 10.6 13.4 employers, health plans, hospitals, and insurance companies. Also employees. Offs. & dirs. own 3.1% of common stock; BlackRock, Current Assets 156.2 532.7 558.0 serves the behavioral health market on a direct-to-consumer basis. 9.5%; Vanguard, 8.5% (4/19 proxy). Chrmn.: David B. Snow. CEO: Accts Payable 3.9 7.8 6.1 Teladoc’s services cover 450 medical subspecialties from acute Jason Gorevic. Address: 2 Manhattanville Road, Suite 203, Pur- Debt Due ------needs to chronic conditions. Subscription access fees accounted chase, NY 10577. Tel.: (203) 635-2002. Internet: www.teladoc.com. Other 36.4 54.6 79.1 Current Liab. 40.3 62.4 85.2 Teladoc Health delivered strong an- by $0.13, to a range of $1.43 to $1.49. As a nual growth in the third quarter. Rev- result, we have moved our revenue and ANNUAL RATES Past Past Est’d ’16-’18 enues of $138 million climbed 24%. Reve- loss forecasts from $542 million and $1.55, of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Revenues - - - - 19.0% nues from subscription access fees rose to $550 million and $1.45. With the selling ‘‘Cash Flow’’ - - - - NMF 23% and accounted for 86% of the top line. season for next year’s contracts under Earnings - - - - NMF Visit fees made up the remaining 14%. way, we were encouraged to hear bookings Dividends - - - - Nil Book Value - - - - -3.5% U.S. paid members jumped a robust 55% rose 30% year to date through October. to 35.0 million at the end of the quarter. For 2020, management reiterated its ex- Cal-QUARTERLY REVENUES ($ mill.) Full Additional members from new and exist- pectation of revenue growth of 20% to endarMar.31 Jun.30 Sep.30 Dec.31 Year ing clients helped drive the increase. But 30%. Teladoc should be able to drive reve- 2016 26.9 26.5 32.4 37.4 123.2 in particular, membership received a sig- nue higher by expanding its client base in 2017 42.9 44.6 68.7 77.1 233.3 nificant boost from five million partici- the U.S. and abroad and providing more 2018 89.6 94.6 111.0 122.7 417.9 pants in United Healthcare’s commercial services to existing clients across its array 2019 128.6 130.3 138.0 153.1 550 2020 160 165 170 185 680 business. The number of visits hit 928,000, of clinical capabilities. We continue to look a 45% organic increase. Operating ex- for top-line growth of nearly 25% and a Cal-EARNINGS PER SHARE A Full penses grew slightly faster than the top loss of $1.10 per share in 2020. endarMar.31 Jun.30 Sep.30 Dec.31 Year line, mainly on a 45% jump in advertising This stock is neutrally ranked for 2016 d.40 d.38 d.65 d.32 d1.75 and marketing costs, reflecting the on- year-ahead performance. With the com- 2017 d.30 d.28 d.55 d.76 d1.93 boarding of a large number of members in pany expected to post per-share losses in 2018 d.38 d.40 d.34 d.35 d1.47 2019 d.43 d.41 d.28 d.33 d1.45 the quarter. Teladoc reported a loss per the coming years, we are using enterprise 2020 d.35 d.30 d.25 d.20 d1.10 share of $0.28, $0.06 better than last year value to revenue as a valuation measure. and $0.11 better than our call. Given the price history, we think 8.5 is a Cal-QUARTERLY DIVIDENDS PAID Full Management raised its guidance for valid multiple to apply to revenues per endarMar.31 Jun.30 Sep.30 Dec.31 Year 2019. The company now looks for revenue share, for a projected price range of $75- 2015 of $546 million to $550 million, an in- $125 out to 2022-2024. At the current 2016 NO CASH DIVIDENDS crease of about $7 million on the midpoint price, appreciation potential over that 2017 BEING PAID of previous guidance. Likewise, manage- span is short of average. 2018 2019 ment lowered its estimated per-share loss Christopher Joseph, CFA December 6, 2019 (A) Diluted earnings. Quarterly figures may not (B) Includes intangibles. In 2018: $984.6 mill., (D) Target Price Pange based on 8.5x 3- to 5- Company’s Financial Strength B sum to total due to rounding. Next earnings $13.96 per share. year revenues per share. Stock’s Price Stability 10 report due late February. (C) In millions. Price Growth Persistence 80 Earnings Predictability NMF © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: NMF RELATIVE DIV’D VALUE VEEVA SYSTEMS INC. NYSE-VEEV PRICE 156.95RATIO NMF()Median: NMF P/E RATIO NMFYLD Nil LINE 826 TIMELINESS 3 Lowered 12/6/19 High: 49.0 39.8 33.1 47.9 68.1 109.1 176.9 Target Price Range Low: 31.4 17.1 22.1 20.0 40.7 52.2 82.4 2022 2023 2024 SAFETY 3 New 12/9/16 LEGENDS .... Relative Price Strength 320 TECHNICAL Lowered 11/29/19 Options: Yes 3 Shaded area indicates recession BETA 1.25 (1.00 = Market) 200 18-Month Target Price Range 160 Low-High Midpoint (% to Mid) 120 100 $123-$256 $190 (20%) 80 2022-24 PROJECTIONS 60 Ann’l Total Price Gain Return 40 High 205 (+30%) 7% Low 135 (-15%) -3% % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 18 4Q2018 1Q2019 2Q2019 Percent 120 to Buy 252 330 322 1 yr. 55.3 4.9 shares 80 3 yr. 265.1 30.2 to Sell 219 193 263 traded 40 Hld’s(000) 113072 114471 114583 5 yr. 376.3 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 ------1.68 2.39 3.06 3.95 4.83 .90 7.25 8.35 Revenues per sh 13.75 ------.25 .42 .58 .82 1.05 1.78 2.35 2.75 ‘‘Cash Flow’’ per sh 4.25 ------.24 .37 .52 .73 .93 1.63 2.18 2.50 Earnings per sh A 3.75 ------Nil Nil Div’ds Decl’d per sh Nil ------.02 .20 .16 .05 .07 .06 .05 .05 Cap’l Spending per sh .05 ------2.24 3.10 3.78 4.74 6.13 8.47 11.35 14.40 Book Value per sh C 23.75 ------124.79 131.07 133.55 137.89 142.07 146.19 150.00 153.00 Common Shs Outst’g B 155.00 ------NMF NMF NMF 47.7 NMF NMF Bold figures are Avg Ann’l P/E Ratio 45.0 ------NMF NMF NMF 2.50 NMF NMF Value Line Relative P/E Ratio 2.50 ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 10/31/19 ------129.5 210.2 313.2 409.2 544.0 685.6 862.2 1090 1275 Revenues ($mill) 2125 Total Debt None ------23.8% 22.6% 28.0% 27.4% 30.3% 31.8% 36.2% 39.0% 39.5% Operating Margin 37.0% ------.8 .9 1.5 3.4 4.9 5.9 6.4 15.0 17.0 Depreciation ($mill) 20.0 Leases, Uncap Annual rentals $5.0 mill. ------18.8 30.1 53.2 74.5 108.0 142.9 254.1 345 405 Net Profit ($mill) 625 ------35.4% 34.3% 36.3% 31.5% 33.2% 35.0% 21.0% 21.0% 21.0% Income Tax Rate 21.0% No Defined Benefit Pension Plan ------14.5% 14.3% 17.0% 18.2% 19.8% 20.8% 29.5% 31.7% 31.8% Net Profit Margin 29.4% ------32.6 267.1 366.3 314.7 465.1 693.4 1032.4 1400 1775 Working Cap’l ($mill) 2750 Pfd Stock None ------Nil Nil Long-Term Debt ($mill) Nil C Common Stock 147,265,607 shs. ------34.0 280.1 406.8 505.2 653.0 871.5 1237.7 1700 2200 Shr. Equity ($mill) 3700 as of 5/31/19. 130,074,233 Class A, 17,191,374 ------55.3% 10.7% 13.1% 14.7% 16.5% 16.4% 20.5% 20.5% 18.5% Return on Total Cap’l 17.0% Class B. Ea. Class B sh. has 10 votes. ------55.3% 10.7% 13.1% 14.7% 16.5% 16.4% 20.5% 20.5% 18.5% Return on Shr. Equity 17.0% MARKET CAP: $23.1 billion (Large Cap) ------69.7% 10.7% 13.1% 14.7% 16.5% 16.4% 20.5% 20.5% 18.5% Retained to Com Eq 17.0% CURRENT POSITION 2017 2018 10/31/19 ------Nil Nil All Div’ds to Net Prof Nil ($MILL.) Cash Assets 762.0 1090.2 1495.0 BUSINESS: Veeva Systems, Inc. is a global provider of industry- and data services — OpenData and KOL Data (key opinion leader Receivables 233.7 303.5 116.9 specific, cloud-based software solutions for the life sciences indus- data). Employed 2,553 (1/31/19). Stock owners (voting power of Other 12.4 39.7 46.2 try. The company’s solutions enable pharmaceutical and other life Class A plus Class B shares): Off. & dir., 57.6%; 5% stockholders, Current Assets 1008.1 1433.4 1658.1 sciences companies to realize modern cloud-based architectures 7.0% (proxy dated 5/19). Chairman, Gordon Ritter; CEO, Peter Accts Payable 7.0 9.1 9.9 Debt Due ------and mobile applications for business functions. Product solutions in- Gassner. Inc.: DE. Address: 4280 Hacienda Drive, Pleasanton, CA Deferred Revenue 275.4 356.4 250.7 clude: Veeva CRM, Veeva Vault, Veeva Network, and Veeva data 94588. Telephone: (925) 452-6500. Internet: www.veeva.com. Other 32.3 44.5 46.3 Current Liab. 314.7 410.0 306.9 Veeva Systems’ financial performance our view. To wit, Veeva has set a goal of continues to impress. Indeed, the pro- reaching $3.0 billion in revenues by 2025, ANNUAL RATES Past Past Est’d ’16-’18 vider of cloud-based software solutions to with Commercial Cloud progressing to of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Revenues - - 24.0% 19.0% the life sciences industry saw its revenue $1.0 billion (from about $500 million) and ‘‘Cash Flow’’ - - 37.5% 23.0% and non-GAAP earnings progress 25% and Vault advancing to $2.0 billion (from Earnings - - 35.5% 22.5% 33%, respectively, for the fiscal third around $550 million). Meanwhile, the com- Dividends - - - - Nil Book Value - - 23.5% 24.5% quarter (ended October 31st). And our cur- pany’s operating margin, which has been rent expectation is the good times are set coming in between 39.0% and 40.0%, Fiscal Full Year QUARTERLY REVENUES ($ mill.) Fiscal to continue for some time yet. On point, seems set to narrow some over the longer Begins Apr.Per Jul.Per Oct.Per Jan.Per Year Veeva has been executing well, with term, say by 250-300 basis points. Al- 2016 119.8 131.3 142.8 150.1 544.0 growth proceeding nicely over all of its though our forecast range extends only to 2017 157.9 166.6 176.2 184.9 685.6 products and services. More specifically, the 2022-2024 time frame, we have fac- 2018 195.6 209.6 224.7 232.3 862.2 business is likely to remain brisk in both tored the company’s current goals into our 2019 244.8 266.9 280.9 297.4 1090 2020 300 320 325 330 1275 Veeva Commercial Cloud and Veeva 3- to 5-year projections, which underscore Vault, with CRM (customer relationship the company’s favorable growth prospects. Fiscal A Full Year EARNINGS PER SHARE Fiscal management) continuing to drive Com- What about Veeva stock? Support for Begins Apr.Per Jul.Per Oct.Per Jan.Per Year mercial Cloud; strength across application the shares has cooled some since our Sep- 2016 .15 .15 .22 .22 .73 areas (R&D, quality, and clinical) should tember report. Even so, they have 2017 .22 .23 .25 .23 .93 continue underpinning Vault’s progress. delivered an outsized return so far this 2018 .33 .39 .45 .45 1.63 2019 .50 .55 .60 .53 2.18 Vault is becoming a larger factor in year. Indeed, the stock remains a favorite 2020 .60 .62 .63 .65 2.50 Veeva’s financial results, with it probably for growth investors, given the company’s accounting for slightly over half of the financial record and history of increasing Cal-QUARTERLY DIVIDENDS PAID Full company’s total revenue for its fiscal year its outlook with its quarterly reports. That endarMar.31 Jun.30 Sep.30 Dec.31 Year ending January 31st. said, VEEV stock’s current valuation can- 2015 Good growth prospects should not be said to be a bargain, so new com- 2016 NO CASH DIVIDENDS remain in place for some time. The mitments should probably be made by 2017 BEING PAID company’s focus on the life sciences indus- risk-tolerant subscribers. 2018 2019 try provides it with a deep opportunity, in Charles Clark December 6, 2019 (A) Diluted earnings, non-GAAP. Excl. non- rounding and/or changes in shares outstand- $0.66/sh. Company’s Financial Strength B+ recurring items: ’13, d$0.09; ’14, d$0.09; ing. Next earnings report due late February. Stock’s Price Stability 30 ’15, d$0.14; ’16, d$0.26; ’18, d$0.16. Quarterly (B) In millions. Price Growth Persistence 75 earnings may not total to annual figure due to (C) Includes intangibles. In 2018: $95.8 mill., Earnings Predictability 85 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. December 6, 2019 BIOTECHNOLOGY INDUSTRY 827

The Biotechnology Industry consists of compa- INDUSTRY TIMELINESS: 77 (of 95) nies whose operations are scientifically intense and involve immense research activities. These Industry Growth Platforms firms seek to discover, develop, and ultimately commercialize therapies for a range of life- Arguably the biggest catalyst for biotechnology com- threatening and/or quality-of-life ailments. Some panies is research. This activity is intense and ongoing high-growth medical arenas include oncology and for the majority of the companies housed here. Some rare illnesses with a dearth of marketed drugs. promising developments include potential approvals on The biotechnology discovery process differs from the near-term horizon for United Therapeutics and In- pharmaceutical firms because biotechnology op- tercept Pharmaceuticals. erations utilize natural, living organisms, such as Also, consolidation is a recurring theme. For example, cells and tissue, in efforts to find a cure. Thus, Amgen recently bought Otezla (a psoriasis drug) for over generic duplication is often times hard to dupli- $13 billion. The purchase ought to significantly enhance cate. that company’s addressable markets. Furthermore, Currently, this Industry is ranked close to the United Therapeutics’ development endeavor alongside bottom of our Timeliness Ranking System (77 of medical device manufacturer Medtronic is currently 95). The near-bottom position is not too surprising under FDA review. Thus, ongoing R&D efforts could since these equities are known for their volatile potentially bring a company closer to commercialization, price swings. Many company-specific develop- which is the ultimate goal. ments have led to a flight-to-safety stance for Greater penetration into emerging markets is another investors. However, aggressive, risk-tolerant buy- solid expansion platform, in our view. And, lastly, a reach ers may be well rewarded over the 2022-2024 time into high-growth medical arenas, such as neuromodula- frame. tion, is a plus. There are significant opportunities here, and this may also allow a company to diversify its The Regulatory Environment portfolio.

From a regulatory standpoint, the Trump Administra- Conclusion tion recently passed legislation seeking greater pricing transparency in the drug industry. In particular, drug The equities within the Biotechnology Industry are companies are being made to list prices in direct-to- more suited to aggressive investors with a buy-and-hold consumer advertisements. Such actions are expected to mindset. Thus, nimble investors may want to avoid give the consumer greater options and can potentially taking up positions here. On the bright side, recent make pricing more competitive. This scenario will prob- stock-price declines may afford individuals a solid entry ably impact companies such as Amgen and United point. Therapeutics, whose therapies are sometimes adver- Indeed, many firms within the Industry possess in- tised. triguing pipelines that suggest regulatory success may On another note, the FDA has recently granted fast- be in the cards (not guaranteed). Our optimism leans track designation status to several companies including toward the 3- to 5-year horizon since data readouts from Moderna. The governing body continues to deal with a clinical trials are a lengthy process. Within this time full slate of submissions given biotechnology companies’ frame, developments along the way tend to lead to intense pipelines. stock-price movements as these equities are heavily influenced by trial-related news. The Near-Term Picture However, for those risk-tolerant types, rewards may be well worth near-term volatility. There have been notable stock-price movements for As always, we urge investors to read the individual the vast majority of biotechnology stocks, including reports that follow before making any investment deci- Exelixis, Intercept Pharmaceuticals, Myriad Genetics, sions. Regeneron Pharmaceuticals, and United Therapeutics. Some of these have significantly increased in value over Nira Maharaj the past three months but most have declined (see individual reports). The two main reasons can be related Biotechnology to pipeline developments or third-quarter results. RELATIVE STRENGTH (Ratio of Industry to Value Line Comp.) 15000 Near-Term Challenges 10000 A major challenge for companies such as Amgen and United Therapeutics is the loss of patent protection for 8000 certain legacy drugs. These patent expirations have led 6000 to increased competition, and, subsequently, have 5000 eroded these companies’ market share. Such firms are, 4000 however, implementing strategies to revitalize growth (more below). 3000 Also, Myriad Genetics continues to face reimburse- ment hurdles. This scenario has led to lower patient 2000 utilization for its cancer-detection testing kits, and has particularly impacted the hereditary cancer sector. 1000 2013 2014 2015 2016 2017 2018 2019 Index: June, 1967 = 100

© 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: NMF RELATIVE DIV’D VALUE ALKERMES PLC NDQ-ALKS PRICE 21.41RATIO 31.5()Median: NMF P/E RATIO 1.78YLD Nil LINE 828 TIMELINESS 5 Lowered 6/7/19 High: 17.0 13.2 16.1 20.0 21.1 41.5 59.7 80.7 78.9 63.4 71.2 37.8 Target Price Range Low: 5.6 7.4 9.4 11.9 14.8 18.6 38.5 53.0 27.1 46.4 27.5 17.1 2022 2023 2024 SAFETY 3 New 12/9/16 LEGENDS 16.0 x ″Cash Flow″ psh TECHNICAL Lowered 11/29/19 .... Relative Price Strength 160 5 Options: Yes BETA 1.40 (1.00 = Market) Shaded area indicates recession 120 100 18-Month Target Price Range 80 Low-High Midpoint (% to Mid) 60 50 $14-$31 $23 (5%) 40 2022-24 PROJECTIONS 30 Ann’l Total Price Gain Return 20 High 100 (+365%) 48% Low 70 (+225%) 35% 15 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 30 to Buy 104 101 127 1 yr. -52.2 4.9 shares 20 3 yr. -61.3 30.2 to Sell 141 110 86 traded 10 Hld’s(000) 152675 152914 151237 5 yr. -61.4 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 .44 .84 1.81 2.37 2.52 3.44 1.87 1.94 3.00 4.30 3.14 4.19 4.17 4.89 5.87 7.03 7.55 7.00 Revenues per sh 10.65 d1.02 d.57 .16 .21 .77 1.48 d.30 d.38 d.15 .81 .64 .08 d.94 .43 .81 1.29 1.20 1.35 ‘‘Cash Flow’’ per sh 5.20 d1.25 d.70 .04 .09 .59 1.36 d.42 d.48 d.99 .25 .12 d.61 d1.52 d.20 .17 .61 .50 .60 Earnings per sh A 4.25 ------Nil Nil Div’ds Decl’d per sh Nil .17 .20 .31 .36 .23 .06 .17 .10 .13 .17 .14 .23 .35 .29 .33 .45 .55 .65 Cap’l Spending per sh 1.20 .85 .05 .36 2.01 3.20 4.58 4.33 4.08 6.56 7.12 7.73 9.47 8.72 7.93 7.81 7.52 8.00 8.75 Book Value per sh C 25.00 89.69 90.38 92.13 101.11 95.48 94.92 95.25 96.09 130.18 133.75 137.79 147.54 150.74 152.43 154.01 155.76 156.00 157.00 Common Shs Outst’g B 160.00 - - - - NMF NMF 25.7 8.6 ------NMF NMF ------NMF NMF Bold figures are Avg Ann’l P/E Ratio 20.0 - - - - NMF NMF 1.36 .52 ------NMF NMF ------NMF NMF Value Line Relative P/E Ratio 1.10 ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 178.3 186.6 390.0 575.5 432.9 618.8 628.3 745.7 903.4 1094.3 1180 1100 Revenues ($mill) 1700 Total Debt $277.6 mill. Due in 5 Yrs $3.0 mill. NMF NMF 1.4% 29.7% 19.9% 1.8% NMF NMF NMF 7.6% 7.0% 9.0% Operating Margin 25.0% LT Debt $274.8 mill. LT Interest $13.0 mill. 10.9 8.7 93.7 73.8 70.8 98.1 85.6 94.3 98.5 103.7 110 120 Depreciation ($mill) 150 (Total interest coverage: 11.3x) (20% of Cap’l) d39.6 d45.5 d113.7 35.2 17.6 d86.5 d227.2 d28.4 26.2 96.7 80.0 95.0 Net Profit ($mill) 680 ------31.2% ------NMF NMF 37.8% 15.0% 18.0% Income Tax Rate 20.0% Leases, Uncapitalized Annual rentals $9.4 mill. NMF NMF NMF 6.1% 4.1% NMF NMF NMF 2.9% 8.8% 6.8% 8.6% Net Profit Margin 40.0% No Defined Benefit Pension Plan 247.2 204.9 250.0 322.7 469.2 746.2 518.8 578.7 517.7 643.5 700 775 Working Cap’l ($mill) 1000 Pfd Stock None - - - - 441.4 362.3 357.5 351.2 284.2 280.7 278.4 276.5 250 250 Long-Term Debt ($mill) 250 Common Stock 157,522,247 shs. 412.6 392.0 853.9 952.4 1065.2 1396.8 1314.3 1209.5 1202.8 1171.3 1250 1375 Shr. Equity ($mill) 4000 as of 10/18/19 NMF NMF NMF 4.5% 1.6% NMF NMF NMF 2.2% 7.2% 5.5% 6.0% Return on Total Cap’l 16.0% MARKET CAP: $3.4 billion (Large Cap) NMF NMF NMF 3.7% 1.7% NMF NMF NMF 2.2% 8.3% 6.5% 7.0% Return on Shr. Equity 17.0% CURRENT POSITION 2017 2018 9/30/19 NMF NMF NMF 3.7% 1.7% NMF NMF NMF 2.2% 8.3% 6.5% 7.0% Retained to Com Eq 17.0% ($MILL.) ------Nil Nil All Div’ds to Net Prof Nil Cash Assets 433.5 539.3 587.2 Receivables 233.6 292.2 250.2 BUSINESS: Alkermes plc, a global biopharmaceutical company, sclerosis; BYDUREON to treat type II diabetes; and VIVITROL for Inventory (FIFO) 93.3 90.2 101.0 engages in the research, development, and commercialization of alcohol and opioid dependence. 2018 deprec. rate: 17.7%; R&D, Other 48.4 61.6 59.5 pharmaceutical products in various therapeutic areas. The compa- 39% of sales. Has 2,300 employees. Off. and dir. own 4.7% of Current Assets 808.8 983.8 997.9 ny offers RISPERDAL CONSTA for the treatment of schizophrenia shares out. (4/19 proxy). Chairman & CEO.: Richard F. Pops. Inc: Accts Payable 55.5 39.8 81.4 Debt Due 3.0 2.8 2.8 and bipolar I disorder; INVEGA SUSTENNA to treat schizophrenia Ireland. Address: Connaught House, 1 Burlington Rd, Dublin 4, Other 232.6 297.2 286.2 schizoaffective disorder; AMPYRA/FAMPYRA to treat multiple Ireland Tel.: 353-1-772-8000. Internet: www.alkermes.com. Current Liab. 291.1 339.8 370.4 Alkermes will likely finish a relatively ter of 2019, they are expected to result in ANNUAL RATES Past Past Est’d ’16-’18 unexciting 2019 with good results. annual cost savings of some $150 million of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 During the third quarter, the company per annum beginning next year. This Revenues 8.0% 11.0% 10.5% ‘‘Cash Flow’’ .5% 14.0% 35.5% continued to ride on the coattails of its two should provide a shot in the arm to earn- Earnings -12.0% - - NMF blockbuster drugs VIVITROL (treats al- ings in 2020 and beyond. Dividends - - - - Nil cohol and opioid dependence) and Earnings ought to be in a range of Book Value 9.0% 1.5% 21.5% ARISTADA (treats schizophrenia). Look- $4.00 to $4.50 a share by the 2022-2024 Cal-QUARTERLY REVENUES ($ mill.) Full ing at it with more granularity, sales of time frame. Conservative accounts endarMar.31 Jun.30 Sep.30 Dec.31 Year VIVITROL increased 7% during the Sep- should note that projecting long-term re- 2016 156.8 195.2 180.2 213.5 745.7 tember period, to $85.2 million. What’s sults is quite difficult, given the volatility 2017 191.8 218.8 217.4 275.4 903.4 more, comparisons for ARISTADA climbed that is inherent in the biopharm industry. 2018 225.2 304.6 248.7 315.8 1094.3 a whopping 48%, to $53.6 million. We ex- However, Alkermes invests quite heavily 2019 223.1 279.9 255.2 421.8 1180 pect these trends to continue during the in research and development, which ought 2020 230 250 290 330 1100 fourth quarter. to result in a continued strong new pro- Cal-EARNINGS PER SHARE A Full We look for the biopharmaceutical duct pipeline in the years ahead. endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year company to register solid bottom-line These shares are unfavorably ranked 2016 d.12 d.01 d.09 .02 d.20 comparisons next year. Not only are for the year ahead based on our 2017 d.18 .01 .03 .31 .17 ARISTADA and VIVITROL likely to con- momentum-based ranking system. 2018 d.09 .29 .07 .34 .61 tinue to carry the earnings weight in 2020, Further, they don’t stand out for the com- 2019 d.17 .09 d.04 .62 .50 but a recent restructuring should also help ing 18 months, either. However, ALKS 2020 d.05 .15 .20 .30 .60 to firm up margins. More specifically, stock has the potential for strong capital Cal-QUARTERLY DIVIDENDS PAID Full these actions include the elimination of gains over the next 3 to 5 years. As noted endarMar.31 Jun.30 Sep.30 Dec.31 Year 160 current positions, a decrease in the above, conservative accounts may wish to 2015 company’s near-term hiring plans, and the look elsewhere, given that these shares 2016 NO CASH DIVIDENDS implementation of broad-based cost-saving are more volatile than the average equity 2017 BEING PAID measures. Though these actions are likely under our review. Long-term gains poten- 2018 to result in one-time (nonrecurring) tial is somewhat ill-defined. 2019 charges of $15 million in the fourth quar- Alan G. House December 6, 2019 (A) Diluted earnings. Excludes nonrecurring (B) In millions. Company’s Financial Strength B+ items (net): ’04, d$0.12; ’07, $1.03; ’12, d$0.07; (C) Includes intangibles: On 12/31/18; $283.9 Stock’s Price Stability 15 ’14, $0.40; ’16, d$1.18; ’18, d$1.51. Next earn- million, $1.83/sh. Price Growth Persistence 60 ings report late Feb. Earnings Predictability 20 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: NMF RELATIVE DIV’D VALUE ALNYLAM PHARM. NDQ-ALNY PRICE 112.42RATIO NMF()Median: NMF P/E RATIO NMFYLD Nil LINE 829 TIMELINESS 3 Raised 11/8/19 High: 36.4 26.4 19.3 12.3 21.4 68.0 112.6 140.0 98.0 147.6 154.0 116.5 Target Price Range Low: 16.4 14.8 8.8 5.9 8.3 18.6 47.0 71.1 31.4 36.0 60.3 65.8 2022 2023 2024 SAFETY 4 New 6/23/06 LEGENDS .... Relative Price Strength TECHNICAL 4 Lowered 11/1/19 Options: Yes 200 Shaded area indicates recession 160 BETA 1.60 (1.00 = Market) 18-Month Target Price Range 100 Low-High Midpoint (% to Mid) 80 60 $77-$200 $139 (25%) 50 2022-24 PROJECTIONS 40 Ann’l Total Price Gain Return 30 High 190 (+70%) 14% Low 115 (Nil) 1% 20 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 36 to Buy 135 141 158 1 yr. 7.8 4.9 shares 24 3 yr. 143.7 30.2 to Sell 148 115 112 traded 12 Hld’s(000) 91088 95642 106796 5 yr. -6.5 36.8 Alnylam Pharmaceuticals, Inc. was in- 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 corporated in Delaware in 2002. Its principal 2.40 2.36 1.95 1.27 .74 .66 .48 .55 1.05 .75 1.95 3.05 Sales per sh 7.20 drug candidate is ALN-RSV01, a phase 1 d.99 d.91 d1.24 d1.12 d1.24 d1.33 d3.19 d4.60 d5.56 d7.58 d7.80 d7.00 ‘‘Cash Flow’’ per sh 1.30 clinical stage product for the treatment of d1.14 d1.04 d1.36 d1.37 d1.45 d1.83 d3.45 d4.79 d5.42 d7.57 d8.00 d7.20 Earnings per sh A 1.00 lung infections. The company also engages ------Nil Nil Div’ds Decl’d per sh Nil in research and development of other drug .12 .11 .03 .16 .06 .12 .17 .75 1.21 1.27 .90 .95 Cap’l Spending per sh 1.00 candidates for the treatment of various dis- 4.25 3.74 2.79 2.55 4.24 12.13 14.86 10.71 20.55 13.06 15.25 15.65 Book Value per sh 19.20 eases. The initial public offering occurred on 41.84 42.34 42.34 52.49 63.74 77.20 85.09 85.94 85.94 99.67 113.00 115.00 Common Shs Outst’g B 125.00 May 28, 2004. Banc of America Securities ------Bold figures are Avg Ann’l P/E Ratio D NMF acted as lead underwriter in selling ------Value Line Relative P/E Ratio D NMF 5,000,000 common shares for $6.00 each. ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 100.5 100.0 82.8 66.7 47.2 50.6 41.1 47.2 89.9 74.9 220 350 Sales ($mill) 900 Total Debt None NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF Operating Margin 17.5% LT Debt None 6.0 4.9 5.1 9.0 10.2 11.9 19.1 15.1 13.4 6.4 18.0 20.0 Depreciation ($mill) 35.0 Leases, Uncapitalized: Annual rentals $18.7 mill. d47.6 d43.5 d57.6 d67.7 d89.2 d114.5 d290.1 d410.1 d490.9 d761.5 d900 d825 Net Profit ($mill) 125 ------Nil Nil Income Tax Rate Nil No Defined Benefit Pension Plan NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF Net Profit Margin 13.8% 182.8 152.0 71.0 77.1 200.1 651.1 1043.2 540.2 1620.4 1021.2 1050 1100 Working Cap’l ($mill) 1100 Pfd Stock None ------150.0 30.0 30.0 Nil Nil Long-Term Debt ($mill) Nil Common Stock 111,489,744 shs. 178.0 158.2 118.0 134.1 270.3 936.3 1264.7 920.2 1766.4 1302.0 1725 1800 Shr. Equity ($mill) 2400 as of 10/25/19 NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF Return on Total Cap’l 5.0% MARKET CAP: $12.5 billion (Large Cap) NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF Return on Shr. Equity 5.0% CURRENT POSITION 2017 2018 9/30/19 NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF Retained to Com Eq 5.0% ($MILL.) ------Nil Nil All Div’ds to Net Prof Nil Cash Assets 1690.6 1084.1 1721.0 Receivables 34.0 18.7 48.1 BUSINESS: Alnylam Pharmaceuticals, Inc., a biopharmaceutical diseased parts of the body. Has about 1,065 employees. Officers Inventory (Avg Cst) - - 24.0 54.5 company, engages in the development and commercialization of and directors control 3.6% of common shares; FMR LLC, 14.3%; Other 40.1 73.8 73.6 therapeutic products based on RNA interference (RNAi). The com- Wellington Management, 13.2%; Sanofi, 9.9% (4/19 Proxy). Chair- Current Assets 1764.7 1200.6 1897.2 pany is developing a pipeline using Direct RNAi, which are ad- man: Michael W. Bonney. Pres. & CEO: John M. Maraganore, Accts Payable 28.3 59.7 39.3 Debt Due ------ministered directly to diseased parts of the body, and Systemic Ph.D. Inc.: DE. Address: 300 Third St., Cambridge, MA 02142. Tel- Other 115.9 119.7 313.5 RNAi therapeutics, which travel through the blood stream to reach ephone: (617) 551-8200. Internet: www.alnylam.com. Current Liab. 144.2 179.4 352.8 Alnylam Pharmaceuticals’ launch of additional commercial success with ANNUAL RATES Past Past Est’d ’16-’18 ONPATTRO is going well. The drug is Givosiran. This drug seeks to treat of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 the company’s sole commercial product patients that suffer from a condition of the Sales -6.0% -10.0% 45.0% ‘‘Cash Flow’’ - - - - NMF and is used to treat a rare and sometimes liver known as acute hepatic porphyria. Earnings - - - - NMF fatal condition known as ATTR The FDA has granted Givosiran priority Dividends - - - - Nil amyloidosis. The illness is characterized review status, and an approval decision is Book Value 11.5% 36.0% 4.5% by a protein buildup around an individu- scheduled for February 4, 2020. Addi- Cal-QUARTERLY SALES ($ mill.) Full al’s vital organs. Since ONPATTRO’s tionally, the ILLUMINATE study that in- endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year debut about a year ago, the biotechnology tends to develop a medicine to treat 2016 7.3 8.7 13.7 17.5 47.2 firm has launched in the U.S., Canada, patients suffering from hyperoxaluria, a 2017 19.0 16.0 17.0 37.9 89.9 Switzerland, and Japan and also filed a condition whereby individuals suffer from 2018 21.8 30.0 2.1 21.0 74.9 new drug application submission to the recurrent kidney and bladder stones, is 2019 33.2 44.7 70.0 72.1 220.0 regulatory agency in Brazil. Expansion of currently in late-stage development. 2020 75.0 70.0 90.0 115 350.0 the therapy is being sought through addi- Alnylam’s promising pipeline activ- Cal-EARNINGS PER SHARE AC Full tional approvals worldwide. To wit, since ities appears to have lifted investor endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year the medicine’s introduction, patient adop- sentiment quite notably. The equity has 2016 d1.21 d1.05 d1.21 d1.32 d4.79 tion has increased to around 600 (100 gained another 35% in value since our 2017 d1.25 d1.34 d1.34 d1.48 d5.42 more than last quarter). Thus, the clinical September report. 2018 d1.41 d1.63 d2.43 d2.09 d7.57 need for the drug seems apparent. The equity is a standout for the next 2019 d1.73 d2.02 d1.92 d2.33 d8.00 There are plans to expand the utiliza- 18 months. However, recovery potential 2020 d1.60 d1.80 d2.10 d1.70 d7.20 tion of ONPATTRO to other rare over the 2022-2024 time frame is below Cal-QUARTERLY DIVIDENDS PAID Full illnesses. At present, there is a Phase III average. Despite solid revenue growth and endarMar.31 Jun.30 Sep.30 Dec.31 Year study entitled APOLLO that seeks to the likelihood of profitable status over the 2014 prove the drug’s efficacy toward the treat- longer term, the recent share price partly 2015 NO CASH DIVIDENDS ment of ATTR cardiomyopathy. Other reflects this already. Still, aggressive, risk- 2016 BEING PAID clinical endeavors to increase ONPAT- tolerant investors should prepare them- 2017 TRO’s use are under way. selves for stock-price volatility. 2018 The company seems on the brink of Nira Maharaj December 6, 2019 (A) Diluted earnings. Excludes nonrecurring (B) In millions. book value per share multiple. Company’s Financial Strength B gains and (losses): ’12; ($0.74); ’14 Q1: (C) Earnings may not sum to total due to Stock’s Price Stability 5 ($3.31). Next earnings report due early Febru- rounding or change in share count. Price Growth Persistence 70 ary. (D) Target Price Range is based on an 8.0 x Earnings Predictability 70 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 16.1 RELATIVE DIV’D VALUE AMGEN NDQ-AMGN PRICE 234.54RATIO 15.8()Median: 13.0 P/E RATIO 0.89YLD 2.6% LINE 830 TIMELINESS 3 Lowered 5/10/19 High: 66.5 64.8 61.3 65.0 90.8 119.7 173.1 181.8 176.9 191.1 210.2 235.8 Target Price Range Low: 39.2 45.0 50.3 47.7 63.3 81.6 108.2 130.1 133.6 147.1 163.3 166.3 2022 2023 2024 SAFETY 1 Raised 3/20/09 LEGENDS 12.0 x ″Cash Flow″ psh TECHNICAL 3 Lowered 11/1/19 .... Relative Price Strength 400 Options: Yes 320 BETA 1.05 (1.00 = Market) Shaded area indicates recession 18-Month Target Price Range 200 Low-High Midpoint (% to Mid) 160 120 $166-$263 $215 (-10%) 100 2022-24 PROJECTIONS 80 Ann’l Total Price Gain Return 60 High 350 (+50%) 12% Low 285 (+20%) 8% 40 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 30 to Buy 854 820 822 1 yr. 14.0 4.9 shares 20 3 yr. 64.7 30.2 to Sell 788 899 868 traded 10 Hld’s(000) 486864 471902 461888 5 yr. 49.6 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 6.53 8.37 10.16 12.24 13.59 14.33 14.72 16.15 19.59 22.83 24.75 26.38 28.73 31.14 31.64 37.72 38.50 40.15 Revenues per sh 47.80 2.30 2.87 3.72 4.41 4.57 5.03 6.01 6.39 7.35 8.16 9.41 11.56 13.34 14.75 15.48 18.30 18.45 19.55 ‘‘Cash Flow’’ per sh 24.10 1.69 2.19 2.95 3.51 3.31 3.90 4.83 5.12 5.25 6.46 7.60 8.70 10.38 11.65 12.58 14.40 14.45 15.50 Earnings per sh A 19.75 ------.56 1.44 1.88 2.44 3.16 4.00 4.60 5.28 5.80 6.00 Div’ds Decl’d per sh D■ 7.00 1.06 1.06 .71 1.04 1.17 .64 .53 .62 .71 .91 .92 .94 .79 1.00 .92 1.17 1.15 1.20 Cap’l Spending per sh 1.30 15.15 15.64 16.71 16.26 16.44 19.47 22.78 25.69 23.92 25.20 29.28 33.90 37.25 40.47 34.95 19.85 37.15 15.35 Book Value per sh B 52.15 1280.1 1260.0 1224.0 1166.0 1087.0 1047.0 995.00 932.00 795.60 756.30 754.60 760.40 754.00 738.20 722.20 629.60 592.00 585.00 Common Shs Outst’g C 575.00 36.4 27.0 23.7 20.2 17.4 13.2 11.4 10.9 10.7 11.8 13.7 15.1 15.2 13.4 13.6 13.1 Bold figures are Avg Ann’l P/E Ratio 16.0 2.08 1.43 1.26 1.09 .92 .79 .76 .69 .67 .75 .77 .79 .77 .70 .68 .71 Value Line Relative P/E Ratio .90 ------1.0% 1.9% 1.8% 1.9% 2.0% 2.6% 2.7% 2.8% estimates Avg Ann’l Div’d Yield 2.3% CAPITAL STRUCTURE as of 9/30/19 14642 15053 15582 17265 18676 20063 21662 22991 22849 23747 22800 23500 Revenues ($mill) 27500 Total Debt $29791 mill. Due in 5 Yrs $14562 mill. 48.0% 47.1% 42.1% 43.6% 44.3% 51.2% 54.4% 57.8% 68.9% 58.4% 54.0% 54.5% Operating Margin 56.5% LT Debt $27742 mill. LT Interest $800 mill. 1049.0 1017.0 1060.0 1088.0 1286.0 2092.0 2108.0 2105.0 1955.0 1946.0 2125 2135 Depreciation ($mill) 2220 (72% of Cap’l) 4931.7 4937.2 4787.0 5085.0 5815.0 6698.0 7950.0 8785.1 9223.0 9577.7 8800 9300 Net Profit ($mill) 11650 16.7% 19.1% 10.4% 13.3% 6.1% 6.0% 13.0% 15.8% 29.3% 12.1% 14.5% 15.0% Income Tax Rate 15.0% 33.7% 32.8% 30.7% 29.5% 31.1% 33.4% 36.7% 38.2% 40.4% 40.3% 38.5% 39.5% Net Profit Margin 42.3% Leases, Uncapitalized Annual rentals $166 mill. 15059 16559 21839 23018 19420 27705 29851 34806 40456 24130 25000 27750 Working Cap’l ($mill) 30000 No Defined Benefit Pension Plan 9962.0 10874 21344 24034 29623 30215 29306 30193 34190 29510 27000 25000 Long-Term Debt ($mill) 20000 Common Stock 594,183,541 shares 22667 23944 19029 19060 22096 25778 28083 29875 25241 12500 22000 25000 Shr. Equity ($mill) 30000 as of 10/23/19 15.6% 14.7% 12.4% 12.4% 12.1% 12.9% 14.8% 15.7% 16.6% 24.5% 19.0% 19.5% Return on Total Cap’l 24.0% MARKET CAP: $139 billion (Large Cap) 21.8% 20.6% 25.2% 26.7% 26.3% 26.0% 28.3% 29.4% 36.5% 76.6% 40.0% 37.0% Return on Shr. Equity 39.0% CURRENT POSITION 2017 2018 9/30/19 21.8% 20.6% 22.5% 20.8% 19.9% 18.8% 19.8% 19.4% 23.2% 48.6% 24.0% 23.0% Retained to Com Eq 25.5% ($MILL.) - - - - 10% 22% 24% 28% 30% 34% 36% 37% 39% 38% All Div’ds to Net Prof 35% Cash Assets 41678 29304 20853 Receivables 3237 3580 3606 BUSINESS: Amgen Inc. is one of the world’s largest independent mune diseases). ’18 R&D: 15.7% of sales. Employs 19,200. Off. & Inventory (FIFO) 2834 2940 3243 biotech medicines company. It discovers, develops, manufactures, dir. own less than 1% of stock; The Vanguard Group 8.1%, FMR Other 1727 1794 3349 and markets medicines for serious ailments. Product sales were LLC 7.8%, BlackRock, Inc. 7.5%, Capital Research Global Inves- Current Assets 49476 37618 31051 98% in 2018, and includes: Aranesp and EPOGEN (treat anemia in tors, 5.7%. (3/19 Proxy). Chairman, Pres. & CEO: Robert A. Brad- Accts Payable 1352 1207 1005 Debt Due 1152 4419 2049 patients with chronic renal failure); Neulasta and Neupogen (fight way. Inc.: DE. Address: One Amgen Center Drive, Thousand Oaks, Other 6516 7862 7683 infections in chemotherapy patients), and Enbrel (treats autoim- CA 91320. Tel.: 805-447-1000. Internet: www.amgen.com. Current Liab. 9020 13488 10737 We are optimistic that Amgen will kets are vast since it is approved in 50 ANNUAL RATES Past Past Est’d ’16-’18 weather near-term headwinds. For the countries and currently only distributed in of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 year thus far, sales have been impacted by 30. Additionally, Amgen recently announc- Revenues 9.5% 8.5% 6.0% ‘‘Cash Flow’’ 13.0% 14.5% 7.0% the loss of patent protection for certain ed the decision to acquire a 20.5% equity Earnings 13.5% 15.0% 7.5% legacy products such as Sensipar (hyper- stake in China-based biotechnology devel- Dividends - - 29.0% 7.0% parathyroidism) and Neupogen (white oper Bei Gene. The deal is valued around Book Value 6.0% 4.0% 8.5% blood cell enhancer), as well as the entry $2.7 billion and will be a cash transaction. Cal-QUARTERLY REVENUES ($ mill.) Full of biosimilar offerings and generic compe- The partnership will allow Amgen and Bei endarMar.31 Jun.30 Sep.30 Dec.31 Year tition. These factors have eroded Amgen’s Gene to collaborate on a 20-compound on- 2016 5527 5688 5811 5965 22991 market share a bit and are expected to re- cology pipeline, and Bei Gene will distrib- 2017 5464 5810 5773 5802 22849 sult in a 4% top-line decrease in 2019. ute three of Amgen’s drugs, XGEVA, 2018 5554 6059 5904 6230 23747 Earnings progress should be unremark- KYPROLIS, and BLINCYTO in China. 2019 5557 5871 5737 5635 22800 able this year, too, given the anemic reve- Amgen’s pipeline holds solid pros- 2020 5750 6000 5875 5875 23500 nue stream and elevated operating costs pects. There are several late-stage com- Cal-EARNINGS PER SHAREAB Full associated with ongoing research pounds under development. For example, endarMar.31 Jun.30 Sep.30 Dec.31 Year endeavors. However, results ought to im- it is testing tezepelumab as a treatment 2016 2.90 2.84 3.02 2.89 11.65 prove in 2020 due to numerous expansion- option for severe asthma. Too, the launch- 2017 3.15 3.27 3.27 2.89 12.58 ary tactics. All told, the top and bottom es of four biosimilar drugs (two in the U.S. 2018 3.47 3.83 3.69 3.42 14.40 lines should resume growth at a single- and two in Europe) are going well. Given 2019 3.56 3.97 3.66 3.26 14.45 digit pace next year. its record of regulatory success, further 2020 3.80 4.15 3.90 3.65 15.50 The acquisition of Otezla is a solid debuts are likely in the works. Cal-QUARTERLY DIVIDENDS PAID D■ Full portfolio addition, in our view. Amgen We like Amgen stock for those seeking endarMar.31 Jun.30 Sep.30 Dec.31 Year bought distribution rights to the psoriasis total return with a conservative bent. 2015 .79 .79 .79 .79 3.16 and inflammation drug from Celgene The high-quality issue has defensive 2016 1.00 1.00 1.00 1.00 4.00 Corp. at a $13.4 billion price tag. The deal qualities that may suit risk-averse individ- 2017 1.15 1.15 1.15 1.15 4.60 should close by the end of 2019, and Otezla uals. Over the next year and 18 months, 2018 1.32 1.32 1.32 1.32 5.28 is anticipated to be accretive to earnings the equity does not stand out, though. 2019 1.45 1.45 1.45 1.45 shortly after. The drug’s addressable mar- Nira Maharaj December 6, 2019 (A) Quarterly EPS based on diluted shares. Ex- d$1.32; ’16, d$1.41; ’17, d$9.89; ’18, d$1.78. (B) Incl. intangs. In ’18: $22.14 bill., $34.86/sh. Company’s Financial Strength A++ cls. nonrec. items: ’04, d40¢; ’05, d2¢; ’06, EPS may not sum due to change in share (C) In millions. Stock’s Price Stability 80 d$1.03; ’07, d53¢; ’09, d32¢; ’10, d33¢; ’11, count or rounding. Next earnings report due (D) Div’ds paid in early Mar., June, Sept., Dec. Price Growth Persistence 85 d$1.21; ’12, d$94¢; ’13, d96¢; ’14, d$2.00; ’15, late January. ■Div’d reinvestment plan available. Earnings Predictability 100 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 92.9 RELATIVE DIV’D VALUE BIO-TECHNE CORP. NDQ-TECH PRICE 220.09RATIO NMF()Median: 30.0 P/E RATIO NMFYLD 0.6% LINE 831 TIMELINESS 3 Lowered 8/16/19 High: 82.9 69.9 69.8 86.4 76.0 94.8 97.1 114.6 117.4 136.4 206.0 221.6 Target Price Range Low: 57.1 45.4 55.6 62.0 63.1 62.6 82.5 83.9 79.9 95.7 128.1 134.6 2022 2023 2024 SAFETY 2 Lowered 9/7/18 LEGENDS 22.0 x ″Cash Flow″ psh 320 TECHNICAL Lowered 11/29/19 .... Relative Price Strength 3 Options: Yes BETA 1.00 (1.00 = Market) Shaded area indicates recession 200 18-Month Target Price Range 160 Low-High Midpoint (% to Mid) 120 100 $158-$296 $227 (5%) 80 2022-24 PROJECTIONS 60 Ann’l Total Price Gain Return 40 High 185 (-15%) -3% Low 135 (-40%) -11% % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 18 4Q2018 1Q2019 2Q2019 Percent 24 to Buy 151 179 171 1 yr. 25.0 4.9 shares 16 3 yr. 105.7 30.2 to Sell 162 135 164 traded 8 Hld’s(000) 35169 35131 35234 5 yr. 141.3 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 3.54 3.92 4.62 5.15 5.66 6.66 7.09 7.27 7.80 8.54 8.43 9.67 12.17 13.40 15.07 17.10 18.82 20.25 Sales per sh A 25.00 1.26 1.47 1.87 2.04 2.33 2.87 3.03 3.18 3.26 3.39 3.39 3.52 3.90 3.95 3.95 4.53 4.59 4.75 ‘‘Cash Flow’’ per sh 7.15 1.08 1.31 1.62 1.85 2.15 2.64 2.78 2.94 3.02 3.04 3.05 3.00 2.89 2.80 2.34 2.78 2.47 2.80 Earnings per sh AB 5.00 ------.75 1.03 1.07 1.11 1.18 1.23 1.27 1.28 1.28 1.28 1.28 1.32 Div’ds Decl’d per sh C 1.52 .37 .09 .30 .12 .20 .42 .18 .13 .10 .16 .61 .37 .54 .45 .41 .56 .67 .65 Cap’l Spending per sh .75 5.78 7.23 6.93 8.64 11.09 12.61 12.26 13.55 15.78 18.31 20.02 21.49 22.80 23.60 25.42 28.69 30.73 33.35 Book Value per sh D 40.45 40.91 41.16 38.64 39.38 39.46 38.64 37.24 37.03 37.15 36.83 36.83 37.00 37.15 37.25 37.36 37.61 37.93 39.00 Common Shs Outst’g E 42.00 25.0 28.3 24.5 29.9 25.6 25.2 23.1 21.7 22.3 23.0 22.6 28.4 32.9 34.2 45.6 48.5 NMF Avg Ann’l P/E Ratio 32.0 1.43 1.50 1.30 1.61 1.36 1.52 1.54 1.38 1.40 1.46 1.27 1.49 1.66 1.80 2.29 2.62 NMF Relative P/E Ratio 1.80 ------1.2% 1.6% 1.6% 1.6% 1.7% 1.4% 1.3% 1.3% 1.2% .9% .7% Avg Ann’l Div’d Yield .8% CAPITAL STRUCTURE as of 9/30/19 264.0 269.0 290.0 314.6 310.6 357.8 452.2 499.0 563.0 643.0 714.0 790 Sales ($mill) A 1050 Total Debt $486.0 mill. Due in 5 yrs $12.5 mill. 60.4% 61.5% 59.2% 56.8% 55.0% 50.0% 40.7% 38.7% 35.1% 31.2% 31.5% 42.0% Operating Margin 43.5% LT Debt $473.5 mill. LT Interest $15.0 mill. 7.8 8.1 8.7 12.5 12.3 19.2 37.2 42.8 60.0 64.5 78.2 70.0 Depreciation ($mill) 80.0 (29% of Cap’l) 105.2 109.8 112.3 112.3 112.6 110.9 107.7 104.5 87.7 106.1 96.1 115 Net Profit ($mill) 220 Leases, Uncapitalized: Annual rentals $12.9 mill. 32.3% 29.8% 31.9% 30.7% 29.9% 31.3% 30.1% 29.2% 32.0% 15.8% 14.2% 25.0% Income Tax Rate 25.0% 39.9% 40.8% 38.7% 35.7% 36.2% 31.0% 23.8% 20.9% 15.6% 16.5% 13.5% 14.5% Net Profit Margin 20.9% No Defined Benefit Pension Plan 240.0 184.0 212.2 310.7 377.4 443.0 208.5 199.7 212.5 318.9 310.6 325 Working Cap’l ($mill) 550 Preferred Stock None ------7.0 73.0 91.5 343.8 339.0 492.7 500 Long-Term Debt ($mill) 250 Common Stock 38,112,184 shares as of 11/1/19 456.5 501.8 586.1 674.4 737.5 795.3 846.9 879.3 949.6 1079.1 1165.6 1300 Shr. Equity ($mill) 1700 23.1% 21.9% 19.2% 16.7% 15.3% 13.8% 11.8% 10.9% 7.1% 7.9% 6.9% 7.0% Return on Total Cap’l 11.5% MARKET CAP: $8.4 billion (Large Cap) 23.1% 21.9% 19.2% 16.7% 15.3% 14.0% 12.7% 11.9% 9.2% 9.8% 8.2% 9.0% Return on Shr. Equity 13.0% CURRENT POSITION 2018 2019 9/30/19 16.9% 14.2% 12.4% 10.6% 9.4% 8.2% 7.2% 6.5% 4.3% 5.4% 4.1% 5.0% Retained to Com Eq 9.0% ($MILL.) 27% 35% 35% 37% 39% 41% 44% 46% 54% 45% 50% 45% All Div’ds to Net Prof 29% Cash Assets 181.6 166.0 158.4 Receivables 120.2 137.5 122.7 BUSINESS: Bio-Techne Corp. is a holding company. R&D Systems 25.5%. Acquired Genzyme’s R&D products. Has 15.0% stake in Inventory (FIFO) 85.6 91.0 90.8 manufactures and sells more than 11,000 cytokines, enzymes, ChemoCentryx (cytokine-related drugs). Has 2,250 employees. Off. Other 10.9 18.1 20.0 antibodies, and related biotech products (76% of ’19 sales), used & dir. own 4.1% of stock; All others aggregate, 24.6% (9/19 proxy). Current Assets 398.3 412.6 391.9 for research and clinical diagnostics. Clinical Controls (24%) are Chairman: R. Baumgartner. CEO: Charles Kummeth. Inc.: Min- Accts Payable 18.5 16.2 14.1 Debt Due - - 12.5 12.5 used to calibrate blood analysis instruments. Int’l sales accounted nesota. Address: 614 McKinley Pl., N.E., Minneapolis, MN 55413. Other 60.1 73.2 61.6 for 45.2% of ’19 business; R&D, 8.7% of sales. 2019 deprec. rate: Telephone: 612-379-8854. Internet: www.bio-techne.com. Current Liab. 78.6 101.9 88.2 Bio-Techne delivered mixed results in The company is adept at pursuing ex- ANNUAL RATES Past Past Est’d ’17-’19 the fiscal 2020 first quarter (year ends pansion platforms, in our view. First, of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 June 30th). For the September period, through ongoing research endeavors, the Sales 10.0% 14.0% 8.0% ‘‘Cash Flow’’ 4.5% 5.0% 10.5% sales increased 12.5% year over year. The pipeline continues to churn out new Earnings - - -3.5% 14.5% company’s two operating segments experi- antibodies, cell, and tissue samples in- Dividends - - 2.0% 3.5% enced revenue growth. The Proteins divi- tended to be used for medical research. Book Value 9.0% 7.0% 7.5% sion contributed $126.4 million to the top Moreover, through acquisitions, Bio- Fiscal QUARTERLY SALES ($ mill.) A Full Year Fiscal line, while Diagnostics and Genomics add- Techne has also parlayed its research Ends Sep.30 Dec.31 Mar.31 Jun.30 Year ed $42.6 million, marking increases of 12% practices into tissue biopsies (with the Ad- 2016 112.3 121.0 130.9 134.8 499.0 and 16%, respectively. For the full year, vanced Cell Diagnostics) acquisition and 2017 130.6 131.8 144.0 156.6 563.0 we estimate roughly 10.5% sales progress, into liquid biopsy samples (through the 2018 144.6 154.2 163.9 180.3 643.0 as acquisitions and ongoing organic in- Exosome merger). Furthermore, TECH 2019 162.9 174.5 184.9 191.7 714.0 novation efforts (more below) are expected continues to target high-growth medical 2020 183.2 200 205 201.8 790 to lift revenues. arenas with top priority given to oncology Fiscal EARNINGS PER SHARE AB Full Year Fiscal Although we are optimistic that earn- and neuroscience. This is not surprising, Ends Sep.30 Dec.31 Mar.31 Jun.30 Year ings results will improve for the re- given the highly unmet clinical needs in 2016 .61 .69 .81 .69 2.80 mainder of this fiscal year, the first- those respective fields. Lastly, Medicare 2017 .55 .45 .57 .77 2.34 quarter performance was lackluster. coverage is currently favoring diagnostic 2018 .42 .35 .94 1.07 2.78 The company recorded a $0.37-a-share testing. In fact, the company recently an- 2019 .45 .43 1.15 .42 2.47 profit in the September period, an almost nounced that around 60 million Medicare 2020 .37 .49 1.16 .78 2.80 18% year-over-year decrease. The bottom- beneficiaries became eligible for the ExoDx Cal-QUARTERLY DIVIDENDS PAID C Full line shortfall was mainly attributed to Prostate IntelliScore test. endarMar.31 Jun.30 Sep.30 Dec.31 Year losses on an investment in fellow biotech- The stock seems overbought at this 2015 .32 .32 .32 .32 1.28 nology outfit ChemoCentryx. In fiscal juncture and does not stand out in the 2016 .32 .32 .32 .32 1.28 2020, we have shaved $0.45 from our full- short or long term. We expect some prof- 2017 .32 .32 .32 .32 1.28 year forecast to $2.80 in order to accom- it taking to ensue that could possibly pro- 2018 .32 .32 .32 .32 1.28 2019 .32 .32 .32 .32 modate further losses throughout the year, vide a more enticing entry point. but this still represents a 13% increase. Nira Maharaj December 6, 2019 (A) Fiscal year ends the Friday closest to on not sum due to rounding. Next earnings report (D) Includes intangibles: In 2019: $1312.0 Company’s Financial Strength A June 30th. due early February. million; $34.58/sh. Stock’s Price Stability 80 (B) Diluted earnings. Excl. nonrecur. gain (C) Dividends paid in early March, June, Sep- (E) In millions. Price Growth Persistence 65 (losses): ’04, (4¢); ’17, ($0.31); ’18, $0.53. May tember and December. Earnings Predictability 75 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: NMF RELATIVE DIV’D VALUE BIOMARIN PHARM. NDQ-BMRN PRICE 79.87RATIO NMF()Median: NMF P/E RATIO NMFYLD Nil LINE 832 TIMELINESS 3 Raised 11/1/19 High: 41.0 21.2 28.3 35.6 53.0 80.7 96.4 151.8 105.6 100.5 106.7 100.1 Target Price Range Low: 13.3 9.9 17.7 23.1 31.9 49.7 55.0 88.5 62.1 80.1 75.8 62.9 2022 2023 2024 SAFETY 3 Raised 3/19/10 LEGENDS .... Relative Price Strength 320 TECHNICAL Lowered 11/22/19 Options: Yes 5 Shaded area indicates recession BETA 1.25 (1.00 = Market) 200 18-Month Target Price Range 160 Low-High Midpoint (% to Mid) 120 100 $63-$141 $102 (30%) 80 2022-24 PROJECTIONS 60 Ann’l Total Price Gain Return 40 High 150 (+90%) 17% Low 100 (+25%) 6% % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 18 4Q2018 1Q2019 2Q2019 Percent 60 to Buy 204 250 220 1 yr. -20.6 4.9 shares 40 3 yr. -9.1 30.2 to Sell 237 200 227 traded 20 Hld’s(000) 177828 176455 179047 5 yr. -11.3 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 .19 .29 .35 .92 1.25 2.97 3.22 3.40 3.85 3.98 3.82 5.04 5.51 6.47 7.47 8.37 9.60 10.85 Revenues per sh 13.35 d1.04 d1.64 d.86 d.20 d.04 .51 .20 2.11 d.15 d.55 d.90 d.52 d.77 d.95 d.17 .10 .30 .95 ‘‘Cash Flow’’ per sh 2.75 d1.23 d1.85 d1.08 d.34 d.16 .32 - - 1.73 d.48 d.95 d1.28 d.92 d1.07 d1.61 d.67 d.44 d.30 .25 Earnings per sh A 2.00 ------Nil Nil Div’ds Decl’d per sh Nil .09 .37 .04 .27 .23 .56 .89 .45 .64 .35 .45 .80 1.41 .86 1.13 .81 1.40 1.50 Cap’l Spending per sh 1.65 1.84 d1.05 d1.04 1.28 1.93 2.77 3.19 6.48 6.73 8.07 9.35 10.25 14.86 16.02 15.97 16.65 17.80 19.25 Book Value per sh C 24.60 64.16 64.50 74.30 91.73 97.11 99.87 100.96 110.72 114.79 125.81 143.46 149.09 161.53 172.65 175.84 178.25 180.00 182.00 Common Shs Outst’g B 195.00 ------NMF - - 12.8 ------Bold figures are Avg Ann’l P/E Ratio D NMF ------NMF -- .81 ------Value Line Relative P/E Ratio NMF ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 324.7 376.3 441.4 500.7 548.5 751.0 889.9 1116.9 1313.6 1491.2 1725 1975 Revenues ($mill) 2600 Total Debt $843.6 mill. Due In 5 Yrs $374.2 mill. 11.5% 7.5% NMF NMF NMF NMF NMF NMF 5.6% NMF NMF 5.5% Operating Margin 10.5% LT Debt $843.6 mill. LT Interest $20.0 mill. 21.0 27.7 36.1 45.3 47.3 56.7 47.2 96.9 87.9 95.7 110 125 Depreciation ($mill) 145 (22% of Cap’l) d.5 205.8 d53.8 d114.3 d176.4 d134.0 d171.8 d261.2 d117.0 d77.2 d55.0 45.0 Net Profit ($mill) 390 NMF ------31.9% NMF NMF NMF Income Tax Rate 20.0% No Defined Benefit Pension Plan NMF 54.7% NMF NMF NMF NMF NMF NMF NMF NMF NMF 2.0% Net Profit Margin 12.4% Pfd Stock None 389.5 420.5 375.7 573.1 954.1 1189.9 644.1 982.5 1390.6 1533.0 1650 1675 Working Cap’l ($mill) 1750 Leases, Uncapitalized: Annual Rentals $12.2 mill. 497.1 377.5 348.3 324.9 655.6 658.0 662.3 660.8 813.5 830.4 800 700 Long-Term Debt ($mill) 400 Common Stock 179,625,303 shs. as of 10/18/19 322.2 717.3 773.0 1015.8 1341.0 1527.9 2400.8 2766.3 2808.7 2967.9 3200 3500 Shr. Equity ($mill) 4800 .8% 19.3% NMF NMF NMF NMF NMF NMF NMF NMF NMF 1.5% Return on Total Cap’l 7.5% NMF 28.7% NMF NMF NMF NMF NMF NMF NMF NMF NMF 1.0% Return on Shr. Equity 8.0% MARKET CAP: $14.3 billion (Large Cap) NMF 28.7% NMF NMF NMF NMF NMF NMF NMF NMF NMF 1.0% Retained to Com Eq 8.0% CURRENT POSITION 2017 2018 9/30/19 ------Nil Nil All Div’ds to Net Prof Nil ($MILL.) Cash Assets 1396.0 1084.2 720.7 BUSINESS: BioMarin develops biopharmaceuticals for diseases. MPS IVA). Has 2,489 employees. Acq’d Zystor (8/10). Off./Dir. own Receivables 261.3 342.6 403.0 Approved products: Naglazyme (galsulfase) for mucopolysac- 1.9% of comm. stock; Cap’l Research & Global Investors, 10.2%; Inventory (Avg Cst) 475.7 530.8 609.0 Other 74.1 98.6 126.6 charidosis VI (MPS VI); Kuvan (sapropterin dihydrochloride) tablets, The Vanguard Group, 8.7%; PRIMECAP Management, 7.9% (4/19 Current Assets 2207.1 2056.2 1859.3 for the treatment of phenylketonuria (PKU); Aldurazyme Proxy). Chrmn. & CEO: Jean-Jacques Bienaime. Inc.: DE. Addr.: Accts Payable 166.6 207.6 226.7 (laronidase) for MPS I; Firdapse (for LEMS disease). Products in 770 Lindaro Street, San Rafael, California 94901. Telephone: 415- Debt Due 361.0 - - - - dev’t include PEG-PAL (for PKU); GALNS (for the treatment of 506-6700. Internet: www.biomarin.com. Other 288.9 315.6 267.0 Current Liab. 816.5 523.2 493.7 BioMarin Pharmaceuticals delivered nificantly. a decent third-quarter performance. BioMarin is not resting on its laurels, ANNUAL RATES Past Past Est’d ’16-’18 Yet, investors appear to be maintaining a and ongoing research endeavors are of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Revenues 16.0% 14.0% 10.0% cautious disposition as the stock is up promising. Currently, two potential ‘‘Cash Flow’’ - - - - NMF slightly over the past three months. This pipeline candidates seem to be nearing Earnings - - - - NMF is not surprising, given the company’s in- regulatory success. First, clinical data to Dividends - - - - Nil Book Value 23.5% 15.0% 7.0% triguing, but speculative prospects. In- determine the effectiveness of valrox for creased products sales propelled the top the treatment of severe hemophilia A have Cal-QUARTERLY REVENUES ($ mill.) Full line almost 18% higher than last year’s been positive. Furthermore, regulatory endarMar.31 Jun.30 Sep.30 Dec.31 Year comparable period. Over this year and submissions and review by the FDA and 2016 236.7 300.2 279.9 300.1 1116.9 next, growing patient adoption for certain European agencies are under way 2017 303.7 317.5 334.1 358.3 1313.6 BioMarin’s therapies should drive double- for the drug with a decision date scheduled 2018 373.4 372.8 391.7 353.3 1491.2 digit sales growth. The healthy revenue by yearend. Secondly, late-stage develop- 2019 400.7 387.7 461.0 475.6 1725 2020 470 505 500 500 1975 showing helped the company achieve its ment for vosoritide, a potential therapy for first quarterly profit in almost a decade. achondroplasia (human dwarfism) is going Cal-EARNINGS PER SHARE A Full Although we have lifted our full-year out- well. Although commercial success is not endarMar.31 Jun.30 Sep.30 Dec.31 Year look this year, the company will likely rec- guaranteed, indicators point to the 2016 d.53 d.27 d.26 d.53 d1.61 ord a $0.30 share loss in 2019. We are op- likelihood of triumph for both these com- 2017 d.09 d.21 d.07 d.30 d.67 timistic that BioMarin will achieve full- pounds. Other research efforts are intrigu- 2018 d.26 d.09 d.07 d.03 d.44 2019 d.32 d.21 .30 d.07 d.30 year profitability in 2020 since its expand- ing too, as the company seems determined 2020 .05 .05 .06 .09 .25 ing commercial platform should continue to expand its portfolio of therapies geared to increase its addressable markets. toward the treatment of rare ailments. Cal-QUARTERLY DIVIDENDS PAID Full The company’s latest regulatory suc- The equity holds well-above-average endarMar.31 Jun.30 Sep.30 Dec.31 Year cess is proving a solid portfolio addi- recovery potential over the 18-month 2015 2016 NO CASH DIVIDENDS tion. BioMarin gained FDA approval for pull and 2022-2024 time frame. How- 2017 BEING PAID Palnziq, a drug used to treat a genetic con- ever, would-be buyers should be risk 2018 dition known as phenlketonuria. Since its tolerant since volatility is likely. 2019 debut, patient adoption has grown sig- Nira Maharaj December 6, 2019 (A) Diluted earnings. Excludes nonrecurring (B) In millions. book value per share. Company’s Financial Strength B loss: ’16, $2.22. Next earnings report due late (C) Includes intangibles. In ’18: $688.8 mill., Stock’s Price Stability 35 February. May not sum due to changes in $8.91/sh. Price Growth Persistence 60 shares outstanding. (D) Target Price Range is based on a 5.0x Earnings Predictability 40 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 21.6 RELATIVE DIV’D VALUE CAMBREX CORP. NYSE-CBM PRICE 59.92RATIO 33.1()Median: 14.0 P/E RATIO 1.87YLD Nil LINE 833 TIMELINESS – Suspended 8/16/19 High: 11.0 7.2 6.1 7.8 14.3 19.7 24.5 55.6 59.4 62.9 69.4 60.3 Target Price Range Low: 2.1 1.5 2.9 3.9 5.9 10.9 15.2 21.3 29.5 42.6 36.0 33.8 2022 2023 2024 SAFETY 3 Raised 8/5/16 LEGENDS 13.0 x ″Cash Flow″ psh 128 TECHNICAL – Suspended 8/16/19 .... Relative Price Strength Options: Yes 96 BETA 1.15 (1.00 = Market) Shaded area indicates recession 80 18-Month Target Price Range 64 Low-High Midpoint (% to Mid) 48 40 $21-$82 $52 (-15%) 32 2022-24 PROJECTIONS 24 Ann’l Total Price Gain Return 16 High 95 (+60%) 12% Low 65 (+10%) 2% 12 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 45 to Buy 137 103 90 1 yr. 12.1 4.9 shares 30 3 yr. 48.2 30.2 to Sell 123 132 99 traded 15 Hld’s(000) 38045 35847 35144 5 yr. 183.3 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 15.88 16.81 17.00 16.44 8.70 8.54 8.07 7.71 8.64 9.24 10.44 12.05 13.63 15.17 16.27 15.83 18.95 20.00 Revenues per sh A 24.05 2.42 2.46 1.94 1.09 .22 .99 1.06 1.07 1.24 1.63 1.73 2.61 2.49 3.46 4.13 4.21 3.25 3.45 ‘‘Cash Flow’’ per sh 5.95 1.02 .91 .48 d.05 d.47 .27 .36 .33 .45 .91 .98 1.81 1.76 2.65 3.10 3.07 1.90 2.05 Earnings per sh B 4.15 .12 .12 .12 .12 .03 ------Nil Nil Div’ds Decl’d per sh C Nil 1.44 1.50 1.51 1.38 .89 1.01 .43 .43 .51 .61 1.88 .75 1.97 1.54 1.59 1.86 1.90 2.00 Cap’l Spending per sh 2.65 15.34 14.83 9.09 8.90 3.52 2.56 3.53 3.66 3.39 5.46 6.90 8.08 9.78 12.53 16.59 19.45 21.15 23.50 Book Value per sh 34.20 25.86 26.39 26.76 27.70 29.01 29.18 29.29 29.43 29.57 29.91 30.49 31.10 31.80 32.35 32.85 33.61 34.00 33.50 Common Shs Outst’g D 32.00 22.5 26.6 41.3 - - - - 23.9 12.4 13.2 11.7 10.2 14.5 11.4 23.5 17.3 17.3 17.5 Bold figures are Avg Ann’l P/E Ratio 19.0 1.28 1.41 2.20 - - - - 1.44 .83 .84 .73 .65 .81 .60 1.18 .91 .87 .94 Value Line Relative P/E Ratio 1.05 .5% .5% .6% .6% .3% ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 236.3 227.0 255.7 276.5 318.2 374.6 433.3 490.6 534.5 532.1 645 670 Revenues ($mill) A 770 Total Debt $492.5 mill. Due in 5 Yrs $492.5 mill. 20.5% 18.7% 18.4% 20.8% 21.2% 17.5% 29.7% 31.4% 32.7% 29.6% 21.0% 21.5% Operating Margin 30.0% LT Debt $482.5 mill. LT Interest $21.4 mill. 20.5 21.8 23.1 21.8 22.5 23.8 22.1 24.7 31.8 37.9 45.0 45.0 Depreciation ($mill) 55.0 (75% of Cap’l) 10.4 9.6 13.4 26.9 30.3 57.3 57.2 87.3 103.8 103.5 65.0 70.0 Net Profit ($mill) 135 54.1% 35.6% 31.6% 14.1% 32.7% - - 36.1% 31.5% 26.8% 21.4% 22.0% 22.0% Income Tax Rate 22.0% Leases, Uncapitalized Annual rentals $8.8 mill. 4.4% 4.3% 5.3% 9.7% 9.5% 15.3% 13.2% 17.8% 19.4% 19.4% 10.1% 10.1% Net Profit Margin 17.3% Pension Assets-12/18 $40.5 mill. 94.3 82.1 77.5 61.0 105.3 128.8 129.5 227.2 339.6 305.7 260 335 Working Cap’l ($mill) 500 Oblig. $53.4 mill. 120.8 115.9 98.0 64.0 79.3 60.0 ------300.0 500 500 Long-Term Debt ($mill) 600 Pfd Stock None Common Stock 33,724,367 shs. 103.3 107.6 100.3 163.3 210.2 251.2 310.8 405.4 544.9 653.7 720 790 Shr. Equity ($mill) 1095 as of 10/28/19 5.7% 5.3% 7.4% 12.4% 10.8% 18.8% 18.7% 21.6% 19.2% 11.1% 9.0% 8.5% Return on Total Cap’l 12.0% 10.1% 9.0% 13.4% 16.5% 14.4% 22.8% 18.4% 21.5% 19.0% 15.8% 9.0% 8.5% Return on Shr. Equity 12.0% MARKET CAP: $2.0 billion (Mid Cap) 10.1% 9.0% 13.4% 16.5% 14.4% 22.8% 18.4% 21.5% 19.0% 15.8% 9.0% 8.5% Retained to Com Eq 12.0% CURRENT POSITION 2017 2018 9/30/19 ------Nil Nil All Div’ds to Net Prof Nil ($MILL.) Cash Assets 183.3 95.9 80.8 BUSINESS: Cambrex Corporation, through the Human Health unit, tal ’18 revenues. Depreciation rate: 7.1%. Has about 1228 employ- Receivables 75.2 146.3 84.6 provides products & services to accelerate the development and ees. Officers and directors own 1.4% of common stock; BlackRock, Inventory (FIFO) 138.5 111.1 114.7 Other 25.1 56.8 125.8 commercialization of small molecule active pharmaceutical in- 14.5%; Vanguard, 10.1%; William Blair, 7.7% (3/19 Proxy). CEO & Current Assets 422.1 410.1 405.9 gredients (APIs), advanced intermediates, and other products for President: Steven M. Klosk. Incorporated: Delaware. Address: One Accts Payable 35.0 47.0 43.3 branded and generic pharmaceuticals. Sold Bioproducts and Meadowlands Plaza, 15th Fl., East Rutherford, NJ 07073. Tele- Debt Due - - - - 10.0 Biopharma segments, 2/07. Research & Development: 2.9% of to- phone: 201-804-3000. Internet: www.cambrex.com. Other 47.5 57.4 117.8 Current Liab. 82.5 104.4 171.1 Cambrex remains on track to be ac- opment now total 19. quired by private equity fund The company missed our third- ANNUAL RATES Past Past Est’d ’16-’18 Permira for $2.4 billion. The deal will quarter revenue estimate. Cambrex re- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Revenues 3.5% 11.0% 7.5% be funded by a combination of debt and corded a healthy year-over-year revenue ‘‘Cash Flow’’ 17.5% 20.5% 7.0% equity, and is due to close sometime dur- increase of 42%, to $148.6 million. How- Earnings - - 30.5% 6.0% ing the fourth quarter. Under terms of the ever, most of this advance came from the Dividends - - - - Nil Book Value 12.5% 25.5% 13.5% agreement, Cambrex stockholders will re- acquisitions of Halo and Avista, which ceive $60.00 in cash for each share owned. drove a more than tripling of the top lines Cal-QUARTERLY NET REVENUES ($ mill.) Full This represents a premium of roughly 47% of the Drug Product and Early Stage De- endarMar.31 Jun.30 Sep.30 Dec.31 Year over the company’s closing price on August velopment and Testing divisions. Else- 2016 94.7 118.6 99.4 177.9 490.6 6th, the day before the deal was announc- where, the Drug Substance division expe- 2017 105.0 134.6 112.6 182.3 534.5 ed. Permira’s holdings primarily consist of rienced a 10% revenue increase, to $103.6 2018 141.1 152.0 104.6 134.4 532.1 investments in the technological, con- million. However, the aforementioned ac- 2019 159.5 176.9 148.6 160 645 2020 165 170 165 170 670 sumer, financial services, and healthcare quisitions caused a material increase in sectors. However, it likely believes that the cost of services delivered, which Cal-EARNINGS PER SHARE B Full this acquisition can help bolster its weighed noticeably on the bottom line. endarMar.31 Jun.30 Sep.30 Dec.31 Year pharma outsourcing network. Cambrex ac- The Timeliness rank of Cambrex 2016 .45 .63 .42 1.15 2.65 quired Halo Pharmaceuticals and Avista stock remains suspended due to the 2017 .63 .75 .52 1.20 3.10 Pharmaceuticals last year, which granted pending merger. Shares of the company 2018 .37 .74 .49 1.44 3.07 2019 .60 .49 .38 .43 1.90 it the opportunity to begin producing its have hovered around the acquisition value 2020 .50 .50 .50 .55 2.05 active pharmaceutical ingredients in- of $60.00 since our early-September C house. Too, these acquisitions added early- report. However, if the transaction fails to Cal-QUARTERLY DIVIDENDS PAID Full stage and analytical testing capabilities to be completed, they would probably be sus- endarMar.31 Jun.30 Sep.30 Dec.31 Year the Cambrex model that should help im- ceptible to a significant step back. Thus, at 2015 prove its cost structure. Additionally, the this time, we advise most shareholders to 2016 NO CASH DIVIDENDS company added multiple late-stage drug take profits, and for prospective investors 2017 BEING PAID 2018 substance products to the pipeline in 2019. to consider options elsewhere. 2019 In sum, those products in late-stage devel- Robert J. Scrudato December 6, 2019 (A) Incl. other rev. ’03 rev. and egs. restated to ’11, (9¢); ’12, $1.17; ’13, (14¢); ’16, (17¢); ’17, div’d susp’d in ’07. Spec’l. div’d of $14/sh. paid Company’s Financial Strength B++ reflect divest. of Rutherford Chem. (B) Excl. (7¢). Qtly. eps may not sum due to rounding. 5/07. (D) In millions. Stock’s Price Stability 20 nonrec. gains (losses): ’03, ($3.09); ’04, Next egs. report due early February. (C) Qtly. Price Growth Persistence 80 ($1.89); ’05, ($5.32); ’06, ($1.07); ’07, $7.77; Earnings Predictability 55 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 14.3 RELATIVE DIV’D VALUE EXELIXIS, INC. NDQ-EXEL PRICE 16.78RATIO 15.1()Median: NMF P/E RATIO 0.85YLD Nil LINE 834 TIMELINESS 4 Lowered 7/5/19 High: 9.0 8.0 9.2 12.8 6.9 6.2 8.4 6.8 18.3 32.5 32.2 25.3 Target Price Range Low: 2.1 4.1 2.9 3.9 4.2 4.3 1.3 1.5 3.6 14.2 13.4 15.0 2022 2023 2024 SAFETY 4 New 3/10/17 LEGENDS TECHNICAL Raised 9/6/19 .... Relative Price Strength 80 3 Options: Yes BETA 1.25 (1.00 = Market) Shaded area indicates recession 60 50 18-Month Target Price Range 40 Low-High Midpoint (% to Mid) 30 25 $16-$49 $33 (95%) 20 2022-24 PROJECTIONS 15 Ann’l Total Price Gain Return 10 High 55 (+230%) 34% Low 35 (+110%) 20% 7.5 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 75 to Buy 191 235 173 1 yr. 11.4 4.9 shares 50 3 yr. 45.9 30.2 to Sell 142 129 172 traded 25 Hld’s(000) 226297 236217 238866 5 yr. 808.8 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 .72 .70 .91 1.03 1.08 1.11 1.41 1.69 2.14 .26 .17 .13 .16 .66 1.53 2.85 3.10 3.40 Revenues per sh 4.60 d1.08 d1.23 d.81 d.89 d1.07 d1.41 d1.14 d.75 .61 d.77 d1.31 d1.36 d.74 d.24 .52 1.50 1.00 1.45 ‘‘Cash Flow’’ per sh 2.60 d1.45 d1.54 d1.07 d1.17 d1.23 d1.54 d1.26 d.85 .58 d.92 d1.33 d1.38 d.81 d.28 .49 1.43 .95 1.25 Earnings per sh A 2.20 ------Nil Nil Div’ds Decl’d per sh Nil .20 .16 .17 .12 .17 .15 .06 .02 .01 .01 .01 - - - - .01 .07 .11 .15 .25 Cap’l Spending per sh .35 2.27 .68 .40 .55 .69 d.54 d1.52 d2.09 .67 1.61 .36 d.59 d.46 .31 .96 4.29 4.75 5.15 Book Value per sh B 5.70 71.30 75.00 83.40 95.99 104.74 106.33 107.92 109.29 135.56 183.70 184.53 195.90 227.96 289.92 296.21 299.88 304.00 310.00 Common Shs Outst’g C 325.00 ------14.2 ------48.1 15.0 Bold figures are Avg Ann’l P/E Ratio 20.0 ------.89 ------2.42 .81 Value Line Relative P/E Ratio 1.10 ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 151.8 185.0 289.6 47.5 31.3 25.1 37.2 191.5 452.5 853.8 950 1050 Revenues ($mill) 1600 Total Debt $15.3 mill. Due in 5 Yrs $15.3 mill. NMF NMF 36.8% NMF NMF NMF NMF NMF 36.9% 23.5% 20.5% 28.5% Operating Margin 35.5% LT Debt $15.3 mill. LT Interest $.5 mill. 12.6 10.5 6.8 5.7 3.1 2.4 1.4 1.0 1.2 4.9 3.0 5.0 Depreciation ($mill) 10.0 (Obligations include deferred revenue) (1% of Cap’l) d135.2 d92.3 75.7 d147.6 d244.8 d268.5 d169.7 d70.2 154.2 446.1 290 400 Net Profit ($mill) 715 Leases, Uncapitalized Annual rentals $5.8 mill. - - - - 1.7% ------2.7% 2.7% 21.0% 23.0% Income Tax Rate 25.0% NMF NMF 26.1% NMF NMF NMF NMF NMF 34.1% 52.2% 30.5% 38.0% Net Profit Margin 44.6% No Defined Benefit Pension Plan 22.9 d16.4 136.5 350.8 178.7 d4.7 126.4 200.2 369.7 791.6 875 1000 Working Cap’l ($mill) 1200 40.4 170.7 176.6 322.6 335.5 262.4 381.4 - - 238.5 - - 10.0 Nil Long-Term Debt ($mill) Nil Pfd Stock None d163.7 d228.3 90.6 296.4 66.2 d114.8 d104.3 89.3 285.0 1287.5 1450 1600 Shr. Equity ($mill) 1850 Common Stock 303,846,306 shares out. - - - - 29.9% NMF NMF NMF NMF NMF 29.5% 34.6% 20.0% 25.0% Return on Total Cap’l 38.5% as of 10/21/19 - - - - NMF NMF NMF - - - - NMF 54.1% 34.6% 20.0% 25.0% Return on Shr. Equity 38.5% MARKET CAP: $5.1 billion (Large Cap) - - - - NMF NMF NMF - - - - NMF 54.1% 34.6% 20.0% 25.0% Retained to Com Eq 38.5% CURRENT POSITION 2017 2018 9/30/19 ------Nil Nil All Div’ds to Net Prof Nil ($MILL.) Cash Assets 387.7 693.2 760.6 BUSINESS: Exelixis, Inc. is a biopharmaceuticals company that COMETRIQ. In 2018, R&D costs were $182.2 mill. Has 484 em- Receivables 81.1 178.7 183.5 discovers, develops, and commercializes small molecule therapies ployees. Inc.: DE. President & CEO: Michael M. Morissey, Ph.D. Inventory (FIFO) 6.6 9.8 13.3 Other 9.4 15.3 14.7 for the treatment of cancer. Operations are focused on the develop- Off./dir. own 4.5% of common stock; BlackRock, 10.2%; The Current Assets 484.8 897.0 972.1 ment of cabozantinib, an internally discovered inhibitor of multiple Vanguard Group, 9.1%; FMR, LLC, 7.1%; Meditor Group, 5.3%; Accts Payable 9.5 10.9 8.3 receptor tyrosine kinases, in various tumor indications. It is ap- (4/19 proxy). Address: 1851 Harbor Bay Parkway, Alameda, CA Debt Due 39.5 - - - - proved in the U.S. and E.U. under the names CABOMETYX and 94502. Telephone: 650-837-7000. Internet: www.exelixis.com Other 66.1 94.5 132.7 Current Liab. 115.1 105.4 141.0 Exelixis continues to strengthen its utilization of the Cabozantinib com- position as a commercial entity. Grow- pound in the oncology arena. Current- ANNUAL RATES Past Past Est’d ’16-’18 ing patient adoption from the ly there are three Phase III trials under of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Revenues 4.5% 14.5% 18.5% Cabozantinib franchise continues to ex- way that seek to increase Cabozaninib’s ‘‘Cash Flow’’ - - - - 28.0% pand at home and abroad. The drug is ap- purpose in the treatment of cancer. One of Earnings - - - - 26.0% proved under three labels, Cabometyx these is entitled CheckMate 9ER which is Dividends - - - - Nil Book Value 23.0% 16.0% 20.5% (renal cell cancer), Cometriq (medullary a combined effort with research partner thyroid cancer), and Cotellic (metastatic Bristol-Myers Squibb to determine an op- Cal-QUARTERLY REVENUES ($ mill.) Full melanoma). In the September period, tion of treatment for patients suffering endarMar.31 Jun.30 Sep.30 Dec.31 Year product sales contributed $191.8 million to from advanced or metastatic renal cell car- 2016 15.4 36.3 62.2 77.6 191.5 the revenues while collaboration revenues cinoma. Other partnerships may well lead 2017 80.9 99.0 152.5 120.1 452.5 were $80 million, marking a 20.5% year- to further regulatory success too, although 2018 213.7 186.1 225.4 228.6 853.8 over-year increase. Over this year and commercial triumph is never guaranteed. 2019 215.5 240.2 271.7 222.6 950 2020 250 255 285 260 1050 next, we estimate sales will advance at a Investors have been a bit cautious 10%-11% clip as EXEL and its partners toward Exelixis stock, of late. The Cal-EARNINGS PER SHARE A Full gain market share with Cabozantinib. equity has declined almost 15% in value endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year Earnings may well take a step back since our September report. The near-term 2016 d.26 d.15 d.04 .12 d.28 this year, though. For the first nine retreat in profits is the likely cause for 2017 .05 .06 .26 .12 .49 months of 2019, the company has recorded muted trader sentiment. 2018 .37 .28 .41 .37 1.43 2019 .24 .25 .31 .15 .95 year-over-year share-net declines. In fact, The untimely stock holds well above- 2020 .35 .30 .35 .25 1.25 we expect that elevated operating ex- average, but speculative appeal for penses will cause a roughly 33.5% earn- long-term buyers. Our 18 month and Cal-QUARTERLY DIVIDENDS PAID Full ings decline this year. However, research 2020-2024 earnings projections suggest endarMar.31 Jun.30 Sep.30 Dec.31 Year and launch-related expenses position the there is upside recovery potential for these 2015 company for longer-term growth, in our shares. However, the equity has a pen- 2016 NO CASH DIVIDENDS view. Furthermore, we are optimistic that chant for volatility as indicated by the 2017 BEING PAID bottom-line results will improve in 2020. above-market beta coefficient: 1.25. 2018 2019 Pipeline activities aim to expand the Nira Maharaj December 6, 2019 (A) Fully diluted earnings. Excludes non- report due early March. Company’s Financial Strength B+ recurring gain: ’18, $0.78. Quarterly figures (B) Includes intangibles. In 2018: $63.7 mill., or Stock’s Price Stability 10 may not sum to total due to rounding and $0.20 per share. Price Growth Persistence 50 changes in shares outstanding. Next earnings (C) In millions. Earnings Predictability 25 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 50.5 RELATIVE DIV’D VALUE INCYTE CORPORATION NDQ-INCY PRICE 94.00RATIO 49.5()Median: NMF P/E RATIO 2.80YLD Nil LINE 835 TIMELINESS 3 Lowered 10/18/19 High: 12.8 9.6 17.5 21.2 26.3 52.5 80.8 133.6 109.9 153.1 102.6 94.5 Target Price Range Low: 1.9 2.0 8.5 11.8 14.7 16.6 40.3 69.1 55.0 92.9 57.0 62.0 2022 2023 2024 SAFETY 3 Raised 6/7/19 LEGENDS .... Relative Price Strength 320 TECHNICAL Lowered 11/15/19 Options: Yes 4 Shaded area indicates recession BETA 1.15 (1.00 = Market) 200 18-Month Target Price Range 160 Low-High Midpoint (% to Mid) 120 100 $62-$139 $101 (5%) 80 2022-24 PROJECTIONS 60 Ann’l Total Price Gain Return 40 High 215 (+130%) 23% Low 140 (+50%) 10% % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 18 4Q2018 1Q2019 2Q2019 Percent 90 to Buy 208 300 244 1 yr. 29.5 4.9 shares 60 3 yr. -3.5 30.2 to Sell 239 177 244 traded 30 Hld’s(000) 193586 195688 205984 5 yr. 25.1 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 .65 .17 .09 .33 .41 .04 .08 1.38 .75 2.23 2.18 2.98 4.04 5.84 7.26 8.79 10.00 11.90 Revenues per sh 21.85 d1.15 d1.17 d1.14 d.80 d.87 d1.70 d1.64 d.06 d1.26 d.11 d.33 d.04 .28 .86 d1.23 .77 2.15 2.60 ‘‘Cash Flow’’ per sh 8.90 d1.42 d1.48 d1.24 d.89 d1.03 d1.99 d2.06 d.26 d1.49 d.34 d.56 d.29 .03 .54 d1.53 .51 1.85 2.20 Earnings per sh A 8.25 ------Nil Nil Div’ds Decl’d per sh Nil .13 .02 .02 .02 .01 .01 .00 .03 .03 .02 .03 .16 .14 .64 .52 .34 .40 .40 Cap’l Spending per sh .65 2.13 .95 d.23 d1.01 d1.89 d2.27 d.86 d.72 d1.80 d1.31 d1.18 d.48 .92 2.21 7.70 9.00 10.70 12.85 Book Value per sh 28.70 72.55 83.03 83.60 83.97 84.53 97.34 118.89 123.28 126.47 133.46 162.98 171.77 186.65 189.41 211.66 214.05 217.00 220.00 Common Shs Outst’g B 230.00 ------NMF NMF - - NMF Bold figures are Avg Ann’l P/E Ratio 21.5 ------NMF NMF - - NMF Value Line Relative P/E Ratio 1.20 ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 9.3 169.9 94.5 297.1 354.9 511.5 753.8 1105.7 1536.2 1881.9 2175 2620 Revenues ($mill) 5030 Total Debt $18.1 mill. Due in 5 Yrs $18.1 mill. NMF 22.7% NMF 10.5% 3.7% 7.2% 12.7% 18.4% NMF 9.8% 20.0% 25.0% Operating Margin 35.0% LT Debt $18.1 mill. LT Interest $.2 mill. 16.7 24.5 27.0 30.0 29.2 41.4 44.9 58.4 52.2 55.0 65.0 80.0 Depreciation ($mill) 150 d211.9 d31.8 d186.5 d44.3 d83.1 d48.5 6.5 104.2 d313.1 109.5 400 490 Net Profit ($mill) 1900 Leases, Uncapitalized Annual rentals $12.9 mill. ------13.6% 3.0% - - 5.1% 15.0% 15.0% Income Tax Rate 10.0% NMF NMF NMF NMF NMF NMF .9% 9.4% NMF 5.8% 18.4% 18.7% Net Profit Margin 37.8% No Defined Benefit Pension Plan 523.3 341.9 175.2 173.4 447.8 477.7 674.4 720.7 1129.5 1407.0 1630 1780 Working Cap’l ($mill) 2770 443.1 293.3 316.2 331.1 661.6 603.5 619.9 651.5 16.6 17.4 25.0 25.0 Long-Term Debt ($mill) 50.0 Pfd Stock None d102.4 d88.6 d227.1 d175.0 d193.1 d81.6 171.2 419.5 1630.6 1926.0 2325 2825 Shr. Equity ($mill) 6600 Common Stock 215,397,290 shs. NMF NMF NMF NMF NMF NMF 3.7% 11.5% NMF 5.7% 17.0% 17.0% Return on Total Cap’l 28.5% as of 10/22/19 ------3.8% 24.8% NMF 5.7% 17.0% 17.5% Return on Shr. Equity 29.0% MARKET CAP: $20.2 billion (Large Cap) ------3.8% 24.8% NMF 5.7% 17.0% 17.5% Retained to Com Eq 29.0% CURRENT POSITION 2017 2018 9/30/19 ------Nil Nil All Div’ds to Net Prof Nil ($MILL.) Cash Assets 1169.7 1438.3 1702.0 BUSINESS: Incyte Corporation is a drug discovery company, fer access to pharmaceutical companies. Acquired Proteome in Receivables 266.3 307.6 276.1 focused on the development of novel, small molecule drugs to 2000; Maxia Pharmaceuticals, ’03. Officials and directors own Other 68.9 86.4 341.5 treat severe medical conditions. Areas of concentration include 17.1% of common stock: The Vanguard Group, 8.8% (4/19 proxy). Current Assets 1504.9 1832.3 2319.6 human immunodeficiency virus (HIV) inflammatory disorders, can- Has 1208 employees. CEO and President: Herve Hoppenot. Inc.: Accts Payable 67.7 103.8 95.4 Debt Due ------cer, and diabetes. It ceased the development of its genomic in- DE. Address: 1801 Augustine Cut-off Willmington, DE. 19803. Tel.: Other 307.7 321.5 366.3 formation database business in February, 2004, but continues to of- 650-855-0555. Internet: www.incyte.com. Current Liab. 375.4 425.3 461.7 Incyte’s third-quarter performance budgeting should help it broaden its dis- ANNUAL RATES Past Past Est’d ’16-’18 was led by strong adoption of Jakafi. ease awareness campaign for steroid- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Patient demand for the myelofibrosis refractory acute graft versus host disease Revenues 39.5% 33.5% 20.0% ‘‘Cash Flow’’ - - - - NMF medication rose 18%, year over year, to (GVHD). The third quarter represented Earnings - - - - NMF now cover more than 50% of the addres- the first full period during which time Dividends - - - - Nil sable population within the U.S. This kept Jakafi had possessed approval for GVHD, Book Value - - - - 28.5% Jakafi revenues on a strong upward and management suggested that its Cal-QUARTERLY REVENUES ($ mill.) Full trajectory, increasing some 25% compared launch had already begun to outperform endarMar.31 Jun.30 Sep.30 Dec.31 Year to the third quarter of 2018, to $433 internal expectations. 2016 263.4 246.3 269.5 326.5 1105.7 million. In polycythemia vera, patient pen- Additional GVHD-related test results 2017 384.1 326.4 381.5 444.2 1536.2 etration was even more impressive, and are expected in the coming months. 2018 382.3 521.5 449.7 528.4 1881.9 Jakafi still has plenty of runway left, as it Incyte is anticipating the outcome of a 2019 497.9 529.9 551.6 595.6 2175 has now reached only 20% of that popula- randomized Phase III REACH-3 trial 2020 600 620 675 725 2620 tion. These results led management to evaluating Jakafi in chronic GVHD in Cal-EARNINGS PER SHARE AC Full boost top-line guidance for the drug in 2020, and top-line results from a Phase III endarMar.31 Jun.30 Sep.30 Dec.31 Year 2019 for the second-consecutive period GRAVITAS-301 trial evaluating itaticinib 2016 .12 .18 .19 .05 .54 from a range of $1.61 billion-$1.65 billion in steroid-refractory acute GVHD before 2017 d.96 d.06 .17 d.71 d1.53 to $1.65 billion-$1.68 billion. year’s end. The company also recently sub- 2018 d.19 .24 .14 .32 .51 The company is displaying disciplined mitted an NDA to the FDA for pemigatinib 2019 .47 .48 .59 .31 1.85 cost controls. Incyte beat our earnings for patients with FGFR2-driven 2020 .50 .50 .50 .70 2.20 estimate in the third quarter by a wide cholangiocarcinoma. Cal-QUARTERLY DIVIDENDS PAID Full margin, due in part to the aforementioned Incyte stock has experienced a endarMar.31 Jun.30 Sep.30 Dec.31 Year growth of Jakafi. However, the company resurgence in recent months. Shares of 2015 was also able to reduce SG&A expenses by the company are now trading in the neigh- 2016 NO CASH DIVIDENDS 6%, while maintaining a flat R&D budget borhood of their 52-week high. Still, we see 2017 BEING PAID because of its reallocation of capital from room for this stock to run now that Jakafi 2018 baricitinib and epacadostat to other late- is beginning to hit its stride. 2019 stage development projects. This capital Robert J. Scrudato December 6, 2019 (A) Diluted shares. Excl. nonrecur. (C) Earnings may not sum due to rounding and Company’s Financial Strength B+ gain/(losses): ’03, (91¢); ’04, (73¢). Next earn- change in share count. Stock’s Price Stability 25 ings report due early February. Price Growth Persistence 70 (B) In millions, adjusted for stock split. Earnings Predictability 5 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: NMF RELATIVE DIV’D VALUE INTERCEPT PHARM. NDQ-ICPT PRICE 96.34RATIO NMF()Median: NMF P/E RATIO NMFYLD Nil LINE 836 TIMELINESS 4 Lowered 11/15/19 High: 36.0 77.5 497.0 314.9 177.9 135.6 133.7 131.9 Target Price Range Low: 18.0 30.4 65.2 137.3 89.8 55.0 51.1 56.8 2022 2023 2024 SAFETY 4 New 6/12/15 LEGENDS .... Relative Price Strength TECHNICAL 5 Lowered 11/8/19 Options: Yes 200 Shaded area indicates recession 160 BETA 1.55 (1.00 = Market) 18-Month Target Price Range 100 Low-High Midpoint (% to Mid) 80 60 $48-$133 $91 (-5%) 50 2022-24 PROJECTIONS 40 Ann’l Total Price Gain Return 30 High 165 (+70%) 14% Low 100 (+5%) 1% 20 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 75 to Buy 103 130 130 1 yr. -24.2 4.9 shares 50 3 yr. -41.2 30.2 to Sell 85 76 72 traded 25 Hld’s(000) 20603 22695 27250 5 yr. -71.8 36.8 Intercept Pharmaceuticals, Inc. was in- 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 corporated in Delaware on September 4, ------.15 .08 .08 .11 1.01 5.20 6.06 7.60 9.30 Revenues per sh 22.10 2002. Its principal product candidate is ------d2.63 d3.49 d13.20 d9.21 d14.65 d14.13 d10.26 d10.00 d9.20 ‘‘Cash Flow’’ per sh 2.20 obeticholic acid (OCE), a bile acid analog. ------d7.36 d3.76 d13.63 d9.56 d14.90 d14.38 d10.86 d10.10 d9.50 Earnings per sh A 2.00 The drug is currently under 5 Phase 3 trials ------Nil Nil Div’ds Decl’d per sh Nil for multiple diseases including portal hyper------.08 .22 .24 .20 .41 .01 .45 .45 Cap’l Spending per sh .50 tension and sclerosing cholangitis. The ini------3.99 4.25 10.78 24.69 12.69 .65 .64 5.90 8.10 Book Value per sh D 16.30 tial public offering occured on October 11, ------16.53 19.39 21.42 24.39 24.82 25.17 29.69 33.00 35.00 Common Shs Outst’g B 43.00 2012. BofA, Merrill Lynch, and Citigroup ------Bold figures are Avg Ann’l P/E Ratio D NMF served as joint underwriters in selling ------Value Line Relative P/E Ratio NMF 1,730,000 shares at $33.01 per share. ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 - - - - 1.8 2.4 1.6 1.7 2.8 25.0 131.0 179.8 250 325 Revenues ($mill) 950 - - - - NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF Operating Margin 40.0% Total Debt $526.5 mill. Due In 5 Yrs. $364.9 mill. - - - - .4 .2 .1 .4 1.7 3.8 4.6 4.6 5.0 7.0 Depreciation ($mill) 10.0 LT Debt $525.3 mill. LT Interest $10.0 mill. - - - - d12.7 d43.6 d67.8 d283.2 d226.4 d367.5 d360.4 d309.2 d335 d330 Net Profit ($mill) 85.0 (80% of Cap’l) ------Nil Nil Income Tax Rate Nil - - - - NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF Net Profit Margin 8.9% Leases, Uncapitalized: Annual rentals $6.3 mill. - - - - 14.9 98.8 138.7 230.6 594.3 629.4 344.3 368.2 650 750 Working Cap’l ($mill) 900 No Defined Benefit Pension Plan ------341.4 355.7 372.1 500 400 Long-Term Debt ($mill) 300 Pfd Stock None - - - - d2.6 65.9 82.4 230.9 602.1 314.9 16.4 19.1 200 300 Shr. Equity ($mill) 700 Common Stock 32,733,447 shs. ------NMF NMF NMF NMF NMF NMF NMF NMF NMF Return on Total Cap’l 9.0% ------NMF NMF NMF NMF NMF NMF NMF NMF NMF Return on Shr. Equity 12.0% MARKET CAP: $3.1 billion (Mid Cap) ------NMF NMF NMF NMF NMF NMF NMF NMF NMF Retained to Com Eq 12.0% CURRENT POSITION 2017 2018 9/30/19 ------Nil Nil All Div’ds to Net Prof Nil ($MILL.) Cash Assets 415.0 436.1 712.3 BUSINESS: Intercept Pharmaceuticals, Inc. is a biopharmaceutical obeticholic acid (OCA). OCA is being developed for other chronic Receivables 16.5 25.6 32.8 company focused on the development and commercialization of liver diseases, including cirrhosis and portal hypertension. Off. & Inventory (Avg Cst) - - - - 9.3 Other 16.8 20.7 14.6 therapeutics to treat orphan and more prevalent liver and intestinal Dir. own 5.0% of comm. stock; Genextra; 20.5%; FMR LLC 14.9% Current Assets 448.3 482.4 769.0 diseases utilizing its expertise in bile acid chemistry. It has one (4/19 Proxy). Has 483 employees. C.E.O. & President: Mark Accts Payable 7.0 11.7 19.5 commercial product Ocaliva (June 2016) used to treat primary Pruzanski. Address: 10 Hudson Yards, 37th Floor, New York, NY, Debt Due 1.8 1.6 1.2 biliary cirrhosis, developed from its lead product candidate, 10001. Tel.: (646) 747-1000. Internet: www.interceptpharma.com. Other 95.2 100.9 119.2 Current Liab. 104.0 114.2 139.9 Positive developments have sparked continues to expand since Ocaliva’s debut investor interest in Intercept Pharma- in 2016. In the latest quarter, the drug ANNUAL RATES Past Past Est’d ’16-’18 ceuticals stock. The equity has gained contributed $61.5 million, the lion’s share of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Revenues - - NMF 32.5% roughly 60% in value since our September to the top line. We are optimistic that ‘‘Cash Flow’’ - - - - NMF report. Although well below the 52-week sales will advance at a double-digit pace Earnings - - - - NMF high, the recent stock-price ascension sug- this year and next. The bottom-line deficit Dividends - - - - Nil Book Value - - 2.5% 23.0% gests that traders may be more receptive widened to $2.59 a share in the September to the speculative play. period, however. Increased operating ex- Cal-QUARTERLY SALES ($ mill.) Full Encouraging clinical findings are per- penses, particularly costs related to ad- endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year haps the biggest catalyst for investor vancing the pipeline and possibly launch- 2016 .4 5.5 5.2 13.9 25.0 enthusiasm at the moment. Notably, ing a new drug, were the main reasons be- 2017 21.0 30.9 41.3 37.8 131.0 upbeat results from the biotechnology de- hind the share loss. The story is likely to 2018 36.0 43.6 46.9 53.3 179.8 veloper’s Phase III REGENERATE study remain the same and keep the company 2019 52.3 66.3 61.9 69.5 250.0 2020 65.0 80.0 85.0 95.0 325.0 is a bright spot. The trial seeks to develop pinned in the red for the next few years. and commercialize a therapy for advanced Prospects over the 3- to 5-year hori- Cal-EARNINGS PER SHARE AC Full fibrosis due to a rare liver ailment known zon are better, but uncertain. If the endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year as nonalcoholic steatohepatitis (NASH). company gains another regulatory ap- 2016 d3.33 d3.14 d3.59 d4.84 d14.90 The company has filed a new drug applica- proval, it could potentially have two block- 2017 d3.61 d3.46 d2.89 d4.43 d14.38 tion with the FDA and intends to seek buster drugs in its portfolio. However, 2018 d3.22 d2.58 d2.18 d2.97 d10.86 2019 d3.03 d2.28 d2.59 d2.20 d10.10 European approval as well. Regulatory commercial success is not guaranteed, and 2020 d2.80 d2.25 d2.30 d2.15 d9.50 success would be significant since there is competition is a likely headwind. no therapy currently available for this ail- Patient investors may be well Cal-QUARTERLY DIVIDENDS PAID Full ment, and it is estimated that roughly 30 rewarded. We envision profitability over endarMar.31 Jun.30 Sep.30 Dec.31 Year million Americans suffer from NASH. the 2022-2024 time frame. Despite the 2015 Intercept’s sole approved drug, recent price increase in ICPT stock, there 2016 NO CASH DIVIDENDS Ocaliva, is doing well. This drug is used is still some investment appeal for patient 2017 BEING PAID to treat a rare liver disease known as pri- investors that are not risk averse here. 2018 2019 mary biliary cholangitis. Patient adoption Nira Maharaj December 6, 2019 (A) Diluted earnings. Excludes nonrecurring (C) Earnings may not sum to total due to Company’s Financial Strength B items: ’16; ($1.84). Next earnings report due rounding or change in share count. Stock’s Price Stability 5 late February. (D) Target Price Range is based on a 8.0x Price Growth Persistence 35 (B) In millions. book value per share multiple. Earnings Predictability 40 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: NMF RELATIVE DIV’D VALUE IONIS PHARM., INC. NDQ-IONS PRICE 63.14RATIO NMF()Median: NMF P/E RATIO NMFYLD Nil LINE 837 TIMELINESS 3 Lowered 8/23/19 High: 20.2 18.8 11.8 10.5 15.6 42.7 67.1 77.8 62.7 65.5 59.8 86.6 Target Price Range Low: 9.9 9.8 7.6 6.3 7.0 10.4 22.3 37.4 19.6 37.3 39.1 52.4 2022 2023 2024 SAFETY 4 Lowered 6/13/14 LEGENDS .... Relative Price Strength TECHNICAL Lowered 12/6/19 Options: Yes 160 3 Shaded area indicates recession BETA 1.25 (1.00 = Market) 120 100 18-Month Target Price Range 80 Low-High Midpoint (% to Mid) 60 50 $40-$97 $69 (10%) 40 2022-24 PROJECTIONS 30 Ann’l Total Price Gain Return 20 High 115 (+80%) 16% Low 70 (+10%) 3% 15 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 60 to Buy 141 195 227 1 yr. 12.5 4.9 shares 40 3 yr. 114.5 30.2 to Sell 157 158 153 traded 20 Hld’s(000) 116728 115160 135329 5 yr. 21.0 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 .90 .74 .56 .30 .80 1.10 1.23 1.09 .99 1.01 1.26 1.81 2.36 2.85 4.06 4.35 7.10 6.70 Revenues per sh 10.15 d1.50 d2.28 d.87 d.46 d.05 d.05 d.22 d.52 d.73 d.54 d.44 d.25 d.65 d.64 .02 d.33 1.60 .50 ‘‘Cash Flow’’ per sh 2.60 d1.73 d2.52 d1.15 d.62 d1.63 d.13 d.31 d.62 d.85 d.65 d.55 d.33 d.74 d.72 d.05 d.44 1.50 .40 Earnings per sh A 2.50 ------Nil Nil Div’ds Decl’d per sh Nil .14 .06 .01 .01 .03 .14 .14 .13 .07 .01 .01 .06 .06 .06 .28 .10 .15 .15 Cap’l Spending per sh .15 .95 d1.26 .04 .83 .01 .69 2.95 2.46 1.71 1.80 3.25 2.18 1.67 .82 2.65 7.60 9.95 10.90 Book Value per sh 19.95 55.56 57.45 72.20 82.28 87.24 97.17 98.85 99.39 100.04 101.48 116.47 118.44 120.35 121.64 124.98 137.93 141.00 142.00 Common Shs Outst’g B 148.00 ------Bold figures are Avg Ann’l P/E Ratio NMF ------Value Line Relative P/E Ratio NMF ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 121.6 108.5 99.1 102.1 147.3 214.2 283.7 346.6 507.7 599.7 1000 950 Revenues ($mill) 1500 Total Debt $674.4 mill. Due in 5 Yrs $612.7 mill. NMF NMF NMF NMF NMF NMF NMF NMF 6.5% NMF NMF NMF Operating Margin 33.0% LT Debt $672.3 mill. LT Interest $45.0 mill. 9.3 9.2 11.8 10.8 9.8 9.4 10.2 9.0 8.4 12.5 14.0 15.0 Depreciation ($mill) 18.0 (33% of Cap’l) d30.6 d61.3 d84.8 d65.5 d60.6 d39.0 d88.3 d86.6 d6.0 d58.4 215 57.0 Net Profit ($mill) 370 ------NMF NMF Income Tax Rate 21.0% Leases, Uncapitalized Annual rentals $3.1 mill. NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF 21.5% 6.0% Net Profit Margin 24.7% No Defined Benefit Pension Plan 484.7 377.2 284.0 349.1 637.7 721.3 688.1 664.2 943.3 1927.6 2250 2350 Working Cap’l ($mill) 2900 136.6 148.8 215.5 221.9 228.2 454.9 472.1 587.9 605.9 633.0 650 650 Long-Term Debt ($mill) 650 Pfd Stock None 291.7 244.5 171.4 182.8 378.4 257.8 200.8 99.6 330.9 1048.1 1400 1550 Shr. Equity ($mill) 2950 Common Stock 140,663,254 shs. NMF NMF NMF NMF NMF NMF NMF NMF 1.8% NMF 11.5% 4.0% Return on Total Cap’l 11.0% as of 10/31/19 NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF 15.5% 4.0% Return on Shr. Equity 12.5% MARKET CAP: $8.9 billion (Large Cap) NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF 15.5% 4.0% Retained to Com Eq 12.5% CURRENT POSITION 2017 2018 9/30/19 ------Nil Nil All Div’ds to Net Prof Nil ($MILL.) Cash Assets 1022.7 2084.1 2220.8 BUSINESS: Ionis Pharmaceuticals, Inc. (formerly Isis Pharmaceuti- in development; Kynamro (FDA approved 1/13) for high cholesterol; Receivables 63.0 12.8 49.1 cals until 12/15) discovers and develops antisense drugs (DNA-like Spinraza approved 12/16 for spinal muscular atrophy. Owns 75% of Inventory (FIFO) 10.0 8.6 19.4 Other 72.3 102.4 118.8 drugs that bind to RNA) used to treat a range of severe and rare Akcea Therapeutics. Has 737 empls. Off./dirs. own 2.4% of com- Current Assets 1168.0 2207.9 2408.1 illnesses, cardiovascular and metabolic diseases, various cancers, mon; FMR LLC, 14.9% (4/19 proxy). Chrmn., CEO & Pres.: Stanley Accts Payable 24.9 28.7 13.1 and other conditions. Uses antisense drugs as tools to provide info. T. Crooke. Inc.: DE. Addr.: 2855 Gazelle Court, Carlsbad, CA Debt Due 1.6 13.7 2.1 on human genes to pharma. and biotech sectors. Has compounds 92010. Tel.: 760-931-9200. Internet: www.ionispharma.com. Other 198.2 237.9 216.6 Current Liab. 224.7 280.3 231.8 Investor enthusiasm for Ionis Phar- titis B, and is on pace to get $10 million maceuticals seems to have eased late- from Bayer to advance a compound for ANNUAL RATES Past Past Est’d ’16-’18 ly. Granted, September-quarter numbers clotting disorders. Including the new col- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Revenues 17.5% 28.0% 18.0% were strong, with revenues up 16%, year laborations, the company now expects ‘‘Cash Flow’’ - - - - NMF over year, and the bottom line swinging to 2019 revenues of about $1 billion (up from Earnings - - - - NMF a profit of $0.18 a share. On the plus side, $725 million) and non-GAAP income of Dividends - - - - Nil Book Value 22.0% 10.5% 32.5% royalties on blockbuster drug Spinraza (for $300 million. We’ve revised our top- and spinal muscular atrophy commercialized bottom-line estimates for this year (from Cal-QUARTERLY REVENUES ($ mill.) Full by Biogen) were solid. R&D collaborations $770 million and a share loss of $0.20). endarMar.31 Jun.30 Sep.30 Dec.31 Year added nicely, too. Lower expenses also lent We remain upbeat about the long- 2016 36.9 38.5 110.9 160.3 346.6 a big helping hand. But sales of Tegsedi term growth prospects here, nonethe- 2017 110.3 104.2 120.9 172.3 507.7 (FDA-approved to treat polyneuropathy of less. In addition to Spinraza, we think 2018 144.4 117.8 145.4 192.1 599.7 hereditary TTR amyloidosis) and Waylivra Tegsedi and Waylivra will become key con- 2019 297.2 163.8 168.0 371 1000 2020 220 230 240 260 950 (okayed in the EU for a life-threatening tributors, as their global availability lipid disorder) were light. Investors are grows. A pipeline of partner-driven studies Cal-EARNINGS PER SHARE A Full also anxiously awaiting drug news. on compounds targeting a range of dis- endarMar.31 Jun. 30 Sep. 30 Dec. 31 Year Management’s increased 2019 outlook, eases holds promise, too. Meanwhile, a 2016 d.52 d.47 .06 .21 d.72 reflecting new collaboration deals, cash hoard of $2.2 billion, which should 2017 .03 d.09 - - .02 d.05 didn’t faze the investment communi- rise further as milestones and licensing 2018 d.01 d.29 d.03 d.09 d.44 2019 .62 d.01 .18 .71 1.50 ty, either. Under one deal, Ionis and af- fees pour in, ought to comfortably support 2020 .10 .10 .10 .10 .40 filiate Akcea will be receiving $250 million R&D activities in the next few years. up front from Pfizer, which is licensing This risky stock (Safety: 4, Below Cal-QUARTERLY DIVIDENDS PAID Full ANGPTL3-L for cardiovascular and meta- Average) is not a standout at the mo- endarMar.31 Jun.30 Sep.30 Dec.31 Year bolic diseases. They may also get up to ment. That said, speculative types looking 2015 $1.3 billion in milestones and royalties. beyond the coming six to 12 months may 2016 NO CASH DIVIDENDS Moreover, Ionis just earned a $25 million want to wait for a more opportune entry 2017 BEING PAID licensing fee from GlaxoSmithKline to de- point before getting on board here. 2018 2019 velop/commercialize a treatment for hepa- J. Susan Ferrara December 6, 2019 (A) Diluted earnings. (Note: ’07 incl. a loss of disc. ops.). Excl. net gain/(loss): ’09, $1.89 rpt. due late February. (B) In mill. Company’s Financial Strength B $1.50 a share related to the excess purchase from sale of Ibis unit/loss from disc. ops.; ’18, (C) Target Price Range based on 9.0x 3- to 5- Stock’s Price Stability 10 price over the carrying value of the minority int. $2.51 from one-time tax benefit. Qtrly. egs. year Rev./sh. Price Growth Persistence 70 in Symphony GenIsis.; ’08 incl. $0.09 loss from may not add due to diff. in shs. out’g. Next egs. Earnings Predictability 15 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 9.6 RELATIVE DIV’D VALUE JAZZ PHARMA. NDQ-JAZZ PRICE 147.66RATIO 9.2()Median: 13.0 P/E RATIO 0.52YLD Nil LINE 838 TIMELINESS 3 Lowered 11/23/18 High: 15.6 11.9 20.3 47.9 60.0 128.5 183.8 194.7 160.0 163.8 184.0 149.0 Target Price Range Low: 0.9 0.5 6.4 18.8 37.9 50.8 120.4 117.3 95.8 109.1 113.5 116.5 2022 2023 2024 SAFETY 3 New 12/13/13 LEGENDS 12.0 x ″Cash Flow″ psh TECHNICAL 5 Lowered 11/29/19 .... Relative Price Strength 400 Options: Yes 320 BETA 1.20 (1.00 = Market) Shaded area indicates recession 18-Month Target Price Range 200 Low-High Midpoint (% to Mid) 160 120 $104-$194 $149 (0%) 100 2022-24 PROJECTIONS 80 Ann’l Total Price Gain Return 60 High 305 (+105%) 20% Low 205 (+40%) 9% 40 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 75 to Buy 233 254 208 1 yr. -20.9 4.9 shares 50 3 yr. 14.8 30.2 to Sell 190 174 206 traded 25 Hld’s(000) 52767 50852 52458 5 yr. -25.6 36.8 Jazz Pharmaceuticals is an international 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 company formed under the laws of Ireland. 4.44 4.35 6.41 10.10 15.02 19.34 21.61 24.87 27.07 33.14 37.45 40.80 Sales per sh 49.35 It provides specialty biopharmaceutical .08 1.35 3.13 5.03 6.74 8.84 9.95 10.68 11.53 14.97 16.10 17.30 ‘‘Cash Flow’’ per sh 23.55 products that focus on improving patients’ d.23 1.14 2.67 4.82 6.31 8.43 9.52 10.14 11.04 13.70 15.80 16.95 Earnings per sh B 23.15 lives by identifying and commercializing in------Nil Nil Div’ds Decl’d per sh Nil novative products that address unmet medi- - - .02 .03 .10 .17 .60 .59 .13 .48 .36 .50 .55 Cap’l Spending per sh .55 cal needs. The company issued its IPO in d2.52 .76 4.54 19.33 22.31 22.61 26.08 31.38 45.37 48.33 64.20 80.00 Book Value per sh C 136.60 June of 2007, which generated proceeds of 28.93 39.96 42.47 58.01 58.07 60.66 61.31 59.82 59.80 57.06 57.00 58.00 Common Shs Outst’g A 62.00 $180 million. The offering was underwritten - - 9.5 12.5 10.2 12.1 18.1 17.3 12.8 12.9 11.5 Bold figures are Avg Ann’l P/E Ratio 11.0 by Morgan Stanley and Lehman. Core prod- - - .60 .78 .65 .68 .95 .87 .67 .65 .62 Value Line Relative P/E Ratio .60 uct offerings include Xyrem and Erwinaze, ------estimates Avg Ann’l Div’d Yield Nil medications that service the needs of nar- 128.4 173.8 272.3 586.0 872.4 1172.9 1324.8 1488.0 1618.7 1890.9 2135 2365 Sales ($mill) 3060 colepsy and oncology patients, respectively. 19.5% 38.3% 49.8% 55.3% 57.2% 58.2% 65.7% 62.9% 54.5% 55.3% 55.0% 55.5% Operating Margin 58.5% CAPITAL STRUCTURE as of 9/30/19 9.1 8.7 7.8 1.3 3.0 7.1 9.9 11.8 13.1 15.2 15.0 20.0 Depreciation ($mill) 25.0 Total Debt $1604.2 mill. Due in 5 Yrs $1604 mill. d6.8 45.1 125.0 290.4 388.3 529.1 600.1 627.2 676.7 838.6 900 985 Net Profit ($mill) 1435 LT Debt $1570.8 mill. LT Interest $33.1 mill. ------18.2% 19.0% 19.1% 17.7% - - 15.0% 16.0% 16.0% Income Tax Rate 18.0% (Total interest coverage: 31.1x) (36% of Cap’l) NMF 25.9% 45.9% 49.6% 44.5% 45.1% 45.3% 42.1% 41.8% 44.3% 42.2% 41.6% Net Profit Margin 46.9% Leases, Uncapitalized: $18.3 mill. d22.2 14.6 146.2 360.1 660.6 799.1 1031.1 490.7 674.3 888.5 1175 1180 Working Cap’l ($mill) 1530 No Defined Benefit Pension Plan 91.1 24.6 - - 427.1 544.4 1333.0 1166.9 1993.5 1540.4 1563.0 1575 1475 Long-Term Debt ($mill) 1125 d72.8 30.6 192.8 1121.3 1295.5 1371.2 1598.6 1877.3 2713.1 2757.4 3660 4640 Shr. Equity ($mill) 8470 Common Stock 56,572,721 shares 25.0% 91.4% 64.8% 19.2% 21.7% 20.3% 22.3% 17.0% 16.8% 19.8% 24.5% 21.0% Return on Total Cap’l 17.0% as of 10/31/19 MARKET CAP: $8.4 billion (Large Cap) - - NMF 64.8% 25.9% 30.0% 38.6% 37.5% 33.4% 24.9% 30.4% 24.5% 21.0% Return on Shr. Equity 17.0% - - NMF 64.8% 25.9% 30.0% 38.6% 37.5% 33.4% 24.9% 30.4% 24.5% 21.0% Retained to Com Eq 17.0% CURRENT POSITION 2017 2018 9/30/19 ($MILL.) ------Nil Nil All Div’ds to Net Prof Nil Cash Assets 601.0 824.6 1070.2 Receivables 224.1 263.8 267.0 BUSINESS: Jazz Pharmaceuticals plc is a specialty (asparaginase Erwinia chrysanthemi), and Prialt(R) (ziconotide) in- Inventory (FIFO) 43.3 53.0 71.1 biopharmaceutical company focused on improving patients’ lives by trathecal infusion. The Vanguard Group owns 8.9% of common Other 99.8 92.6 112.3 identifying, developing, and commercializing innovative products stock; Officers & Directors, 4.3% (Proxy: 6/19). Has 870 employ- Current Assets 968.2 1234.0 1520.6 that address unmet medical needs. The company’s diverse portfolio ees. Chairman & C.E.O.: Bruce C. Cozadd. Address: Fifth Floor, Accts Payable 24.4 40.6 70.1 of products in narcolepsy, oncology, pain, and psychiatry includes Waterloo Exchange, Waterloo Road, Dublin 4, Ireland. Telephone: Debt Due 40.6 33.4 33.4 Other 228.9 271.5 286.9 the Xyrem(R) (sodium oxybate) oral solution, Erwinaze(R) 011-353-1-634-7800. Internet: www.jazzpharma.com. Current Liab. 293.9 345.5 390.4 Jazz Pharmaceuticals reported some- uct as early as the third quarter of next ANNUAL RATES Past Past Est’d ’16-’18 what mixed third-quarter results. The year. This comes at an opportune time, as of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 company’s core narcolepsy medication, competitors have recently launched their Sales 27.5% 22.0% 9.5% Xyrem, posted a strong year-over-year own narcolepsy offerings. Still, Xyrem has ‘‘Cash Flow’’ - - 20.0% 11.5% Earnings - - 20.5% 12.0% sales advance of 19%, to $425.6 million. generated such strong momentum, of late, Dividends - - - - Nil However, of its remaining product port- that Jazz recently boosted its guidance for Book Value - - 22.0% 22.0% folio, sales for Erwinaze and Defitelio came the drug in 2019, to $1.6 billion-$1.64 bil- Cal-QUARTERLY SALES ($ mill.) Full in flat to down, and Vyxeos registered an lion. endarMar.31 Jun.30 Sep.30 Dec.31 Year advance that failed to meet our expecta- Vyxeos sales should continue to gain 2016 336.0 381.2 374.2 396.6 1488.0 tions. The company was able to post a momentum. During the third quarter, 2017 376.1 394.3 411.9 436.4 1618.7 wide earnings beat, relative to our $3.65 top-line contributions from the myeloid 2018 444.6 500.5 469.4 476.4 1890.9 estimate, owing mostly to a lower-than- leukemia treatment were weaker than ex- 2019 508.2 534.1 537.7 555 2135 expected tax rate and, to a lesser extent, pected, but they still came in more than 2020 535 570 610 650 2365 reduced SG&A expenses. However, Er- 40% higher than last year at $29.6 million. Cal-EARNINGS PER SHAREB Full winaze continued to feel the effects of sup- Jazz recently added 15 new representa- endarMar.31 Jun.30 Sep.30 Dec.31 Year ply and manufacturing constraints, which tives to its Vyxeos sales team, and it 2016 2.15 2.67 2.61 2.71 10.14 disallowed it the ability to meet market should continue to enhance educational ef- 2017 2.31 2.56 3.22 2.95 11.04 demand, Defitelio fell victim to its usual forts in the coming months. 2018 2.98 3.49 3.58 3.64 13.70 inter-quarter variability, and Vyxeos expe- These neutrally ranked shares contin- 2019 3.67 4.05 4.10 3.98 15.80 rienced modestly slower-than-anticipated ue to possess material long-term capi- 2020 3.75 4.15 4.45 4.60 16.95 domestic expansion in the wake of its tal appreciation potential. Healthy Cal-QUARTERLY DIVIDENDS PAID Full launch in the EU. growth prospects for Xyrem combine with endarMar.31 Jun.30 Sep.30 Dec.31 Year The company plans to file an NDA for an intriguing pipeline of sleep deprivation, 2015 JZP-258 in January. Jazz recently hematology, and oncology treatments to 2016 NO CASH DIVIDENDS reported positive phase III results for its provide the company with meaningful 2017 BEING PAID novel oxybate product, which possesses earnings potential over the coming 3 to 5 2018 92% less sodium than Xyrem. The compa- years. 2019 ny foresees potential approval of the prod- Robert J. Scrudato December 6, 2019 (A) In millions. (C) Includes intangibles. In 2018: $3659.0 mil- Company’s Financial Strength A (B) Fully diluted earnings. May not add due to lion; $64.13/share. Stock’s Price Stability 50 change in share count. Next earnings report Price Growth Persistence 60 due early February. Earnings Predictability 85 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: NMF RELATIVE DIV’D VALUE MODERNA, INC. NDQ-MRNA PRICE 20.00RATIO NMF()Median: NMF P/E RATIO NMFYLD Nil LINE 839 TIMELINESS – C High: 22.8 29.8 Target Price Range Low: 13.0 11.5 2022 2023 2024 SAFETY 4 New 9/6/19 LEGENDS .... Relative Price Strength 64 TECHNICAL – C Options: Yes Shaded area indicates recession 48 BETA NMF (1.00 = Market) 40 18-Month Target Price Range 32 Low-High Midpoint (% to Mid) 24 20 $5-$19 $12 (-40%) 16 2022-24 PROJECTIONS 12 Ann’l Total Price Gain Return 8 High 25 (+25%) 6% Low 14 (-30%) -8% 6 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 15 to Buy 78 66 98 1 yr. — 4.9 shares 10 3 yr. — 30.2 to Sell 04242traded 5 Hld’s(000) 132760 137361 147458 5 yr. — 36.8 Moderna, Inc. completed its initial public of- 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 fering on December 6, 2018. At that time, ------.41 .20 .30 Revenues per sh D .75 26.28 million shares were sold to the public ------d1.09 d1.50 d1.65 ‘‘Cash Flow’’ per sh d1.40 at an average price of $23.00 per share. ------d1.17 d1.60 d1.70 Earnings per sh A d1.50 The underwriting syndicate included Morgan ------Nil Nil Div’ds Decl’d per sh Nil Stanley, BofA Merrill Lynch, Barclays, Gold------.32 .15 .15 Cap’l Spending per sh .20 man Sachs, and JPMorgan Chase. ------4.65 3.15 2.05 Book Value per sh d.20 ------328.80 335.00 350.00 Common Shs Outst’g B 500.00 ------Bold figures are Avg Ann’l P/E Ratio NMF ------Value Line Relative P/E Ratio NMF CAPITAL STRUCTURE as of 9/30/19 estimates Total Debt None ------Avg Ann’l Div’d Yield Nil ------135.1 65.0 85.0 Revenues ($mill) 250 Leases, Uncapitalized Annual rentals $1.2 mill. ------NMF NMF NMF Operating Margin NMF ------24.9 30.0 30.0 Depreciation ($mill) 40.0 No Defined Benefit Pension Plan ------d384.7 d535 d600 Net Profit ($mill) d510 ------NMF NMF Income Tax Rate NMF Pfd Stock None ------NMF NMF NMF Net Profit Margin NMF Common Stock 333,250,115 shares ------1340.2 825 550 Working Cap’l ($mill) d150 as of 10/31/19 ------NMF NMF Long-Term Debt ($mill) Nil ------1530.2 1050 715 Shr. Equity ($mill) d100 MARKET CAP: $6.7 billion (Large Cap) ------NMF NMF NMF Return on Total Cap’l NMF CURRENT POSITION 2017 2018 9/30/19 ------NMF NMF NMF Return on Shr. Equity NMF ($MILL.) Cash Assets - - 1521.4 1058.5 ------NMF NMF NMF Retained to Com Eq NMF Receivables - - 11.7 2.8 ------Nil Nil All Div’ds to Net Prof Nil Inventory (Avg Cst) ------Other - - 29.9 33.1 BUSINESS: Moderna, Inc., a clinical stage biotechnology company, of medicines with the potential to improve the lives of patients. Inc.: Current Assets - - 1563.0 1094.4 researches and develops drugs and therapetics to treat various dis- DE. Has 760 employees. CEO: Stephane Bancel. Co-founder & Accts Payable - - 31.2 11.7 eases and ailments. Its platform is based on Messenger RNA, or Chairman: Noubar Afeyan. Officers/directors own 34.5% of the Debt Due ------mRNA, which transfers information stored in individuals’ genes to common stock; AstraZeneca, 7.8%; Viking Global, 5.2% (5/19 Other - - 191.6 136.1 cells that produce the proteins required for life. Given its essential proxy). Address: 200 Technology Square Cambridge, MA 02139. Current Liab. - - 222.8 147.8 role, Moderna believes mRNA could be used to create a new class Telephone: (617) 714-6500. Internet: www.modernatx.com ANNUAL RATES Past Past Est’d ’16-’18 Moderna’s potential is baked into its Research is intriguing, but the compa- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Revenues - - - - NMF pipeline. The Massachusetts-based ny seems far from commercialization ‘‘Cash Flow’’ - - - - NMF biotechnology company focuses its re- while short- and long-term prospects Earnings - - - - NMF search toward potential therapies for in- are ill-defined. Over this year and next, Dividends - - - - Nil Book Value - - - - NMF fectious diseases, oncology therapeutics, we estimate revenue declines, partly due and rare illnesses. The discovery pathway to the end of a partnership with Cal-QUARTERLY REVENUES ($ mill.) Full involves the Messenger RNA process or AstraZeneca in 2018. With no prospective endarMar.31 Jun.30 Sep.30 Dec.31 Year mRNA, which transfers information stored new research funding partners on the ho- 2016 ------in individuals’ genes to cells that produce rizon, the company is likely to be financial- 2017 ------vital proteins. The ultimate goal is to ly burdened. Moreover, elevated operating 2018 29.0 28.9 41.8 35.4 135.1 2019 16.0 13.1 17.0 18.9 65.0 create a new class of medicines, and the expenses, particularly those associated 2020 20.0 18.0 22.0 25.0 85.0 company’s medical arenas hold significant with clinical trials, will hinder Moderna A potential. However, Moderna is in its fled- from achieving profitable status. In fact, Cal-EARNINGS PER SHARE Full gling stages of development, and with we do not foresee the company turning a endarMar.31 Jun.30 Sep.30 Dec.31 Year early-stage trials, much of the company’s profit over the 3- to 5-year period, either. 2016 ------prospects are speculative at this juncture. Our outlook can change if the re- 2017 ------2018 ------d1.17 Investor attitudes toward the equity search pathway accelerates. Indeed, 2019 d.40 d.41 d.37 d.42 d1.60 continue to change. At present, the the company’s mRNA process differs from 2020 d.45 d.43 d.42 d.40 d1.70 stock has increased almost 40% in value most of its biotech peers. Thus, if commer- since our September review. One of the cial status is achieved, generic duplication Cal-QUARTERLY DIVIDENDS PAID Full likely reasons behind the rally was a posi- and, consequently, competition will likely endar Year Mar.31 Jun.30 Sep.30 Dec.31 tive clinical development. To wit, the FDA be difficult. 2015 recently granted fast-track designation for These shares lack investment appeal 2016 NO CASH DIVIDENDS mRNA-3927 for propionic acidema, which at this juncture. The unranked issue has 2017 BEING PAID 2018 is characterized by an individual’s in- well below-average capital gains potential 2019 ability to break down certain proteins in over the next 18 months and out to 2022- the body. As is typical with biotechnology 2024. equities, the stock soared on the news. Nira Maharaj December 6, 2019 (A) Diluted earnings. Next earnings report due (D) Target Price Range calculated using 25.0 Company’s Financial Strength B early March. times revenues per share. Stock’s Price Stability NMF (B) In millions. Price Growth Persistence NMF (C) Unranked due to short trading history. Earnings Predictability NMF © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 20.1 RELATIVE DIV’D VALUE MYRIAD GENETICS NDQ-MYGN PRICE 26.76RATIO 24.3()Median: 19.0 P/E RATIO 1.37YLD Nil LINE 840 TIMELINESS 4 Lowered 11/15/19 High: 36.2 47.1 27.1 25.9 31.8 38.3 42.5 46.2 43.7 37.3 50.4 48.4 Target Price Range Low: 17.2 22.4 14.1 17.5 20.0 20.0 20.5 30.3 15.9 15.1 26.8 20.1 2022 2023 2024 SAFETY 3 Raised 3/21/08 LEGENDS 12.0 x ″Cash Flow″ psh 128 TECHNICAL 4 Lowered 11/29/19 .... Relative Price Strength 2-for-1 split 3/09 96 BETA .85 (1.00 = Market) Options: Yes 80 Shaded area indicates recession 18-Month Target Price Range 64 Low-High Midpoint (% to Mid) 48 40 $10-$46 $28 (5%) 32 2022-24 PROJECTIONS 24 Ann’l Total Price Gain Return 16 High 50 (+85%) 17% Low 30 (+10%) 3% 12 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 75 to Buy 142 131 112 1 yr. -25.2 4.9 shares 50 3 yr. 70.8 30.2 to Sell 123 125 120 traded 25 Hld’s(000) 75277 77999 76703 5 yr. -14.7 36.8 Myriad Genetics was founded in 1991 to 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 identify genes associated with various dis- 3.41 3.86 4.66 6.01 7.61 10.59 10.50 10.91 11.28 10.94 11.58 10.80 Revenues per sh A 13.60 eases. A key competitive advantage in this 1.52 1.69 1.25 1.47 1.94 2.59 1.53 2.20 1.57 2.00 2.72 2.15 ‘‘Cash Flow’’ per sh 3.15 regard is its genetic and medical databases 1.38 1.54 1.10 1.30 1.77 2.25 1.08 1.71 .87 1.20 1.67 1.10 Earnings per sh AB 2.00 derived from the progeny of pioneers who ------Nil Div’ds Decl’d per sh Nil settled in Utah and Quebec. Using its .08 .08 .04 .11 .14 .19 .35 .07 .09 .12 .12 .25 Cap’l Spending per sh .35 ProTrap high-throughput screening technol- 4.53 5.93 6.57 7.70 9.04 9.78 9.61 10.83 11.37 13.67 14.82 16.00 Book Value per sh D 18.55 ogy, bioinformatics software, and ProNet 95.90 94.05 86.24 82.57 80.58 73.50 68.90 69.10 68.40 70.60 73.50 75.00 Common Shs Outst’g C 70.00 protein-interaction assay system, Myriad 25.4 15.5 17.9 17.0 15.4 13.5 33.0 22.0 23.7 27.0 20.8 Avg Ann’l P/E Ratio 20.0 has identified genes associated with certain 1.69 .99 1.12 1.08 .87 .71 1.66 1.15 1.19 1.46 1.16 Relative P/E Ratio 1.10 cancers and cardiovascular diseases, as ------Avg Ann’l Div’d Yield Nil well as potential drug targets. The company 326.5 362.6 402.1 496.0 613.2 778.2 723.1 753.8 771.4 772.6 851.1 810 Revenues ($mill) A 950 went public in 10/95 via a sale of 5.2 million 41.6% 39.2% 41.0% 38.2% 38.6% 37.0% 22.0% 25.7% 19.8% 15.9% 24.4% 21.5% Operating Margin 25.0% shares (adjusted for subsequent split). 9.4 7.1 7.2 9.1 8.9 13.8 25.0 26.7 48.3 54.4 73.0 75.0 Depreciation ($mill) 80.0 CAPITAL STRUCTURE as of 9/30/19 136.3 152.3 100.7 112.2 147.1 176.2 80.2 125.3 59.3 86.6 127.0 85.0 Net Profit ($mill) 140 Total Debt $227.1 mill. Due In 5 Yrs. $233.5 mill. .1% - - 36.9% 39.2% 36.9% 36.6% 40.5% 25.8% 39.2% 39.2% 25.0% 25.0% Income Tax Rate 25.0% LT Debt $225.0 mill. LT Interest $5.0 mill. 41.7% 42.0% 25.0% 22.6% 24.0% 22.6% 11.1% 16.6% 7.7% 11.2% 14.9% 10.4% Net Profit Margin 14.7% (17% of Cap’l) Leases, Uncapitalized: $19.7 mill. 334.0 446.5 383.9 377.5 419.5 241.8 214.9 242.2 99.6 224.2 230.8 250 Working Cap’l ($mill) 850 No Defined Benefit Pension Plan ------99.1 9.3 233.5 200 Long-Term Debt ($mill) 100 Preferred Stock None 434.2 557.6 566.8 635.7 728.6 719.0 662.1 748.1 777.8 964.9 1088.9 1200 Shr. Equity ($mill) 1300 Common Stock 74,389,024 shares 31.4% 27.3% 17.8% 17.6% 20.2% 24.5% 12.1% 16.7% 6.8% 8.9% 9.6% 6.0% Return on Total Cap’l 10.0% as of 11/3/19 31.4% 27.3% 17.8% 17.6% 20.2% 24.5% 12.1% 16.7% 7.6% 9.0% 11.7% 7.0% Return on Shr. Equity 10.5% MARKET CAP: $2.0 billion (Mid Cap) 31.4% 27.3% 17.8% 17.6% 20.2% 24.5% 12.1% 16.7% 7.6% 9.0% 11.7% 7.0% Retained to Com Eq 10.5% CURRENT POSITION 2018 2019 9/30/19 ($MILL.) ------Nil All Div’ds to Net Prof Nil Cash Assets 180.6 136.9 142.6 BUSINESS: Myriad Genetics, Inc. is a leader in genetic testing. It included in the divesture). ’19 R&D: $85.9 mill. Has 2,600 employ- Receivables 98.3 133.9 117.0 Inventory (FIFO) 34.3 31.4 28.1 primarily develops and markets tests which detect predispositions ees. BlackRock, Inc. 16.5% of stock; Baillie Gifford & Co., owns Other 13.2 46.4 41.8 for diseases (breast, colon, or uterine cancers, and susceptibility to 12.8%; The Vanguard Group 12.4%; Officers and directors, 5.9% Current Assets 326.4 348.6 329.5 hypertension and drug toxicity). 2019 depreciation rate: 43.1%. (10/19 Proxy). Chairman: J.T. Henderson. Pres./CEO: P.D. Accts Payable 26.0 33.3 24.0 Spun off pharmaceutial research and drug development business in Meldrum. Inc.: DE. Address: 320 Wakara Way, Salt Lake City, Utah Debt Due 2.6 2.2 2.1 June 2009 along with $188 million in cash (stake in Prolexys was 84108. Telephone: 801-584-3600. Internet: www.myriad.com. Other 73.6 82.3 89.3 Current Liab. 102.2 117.8 115.4 Near-term operational hurdles are ex- trends, in our view. ANNUAL RATES Past Past Est’d ’17-’19 pected to persist for Myriad Genetics. The company has compelling catalysts of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 The biotechnology firm began fiscal 2020 that could spark a turnaround. First, Revenues 14.0% 7.0% 4.0% (years end June 30th) in a disappointing UnitedHealthcare recently announced the ‘‘Cash Flow’’ 13.0% 1.0% 8.5% manner. For the September period, sales decision to cover GeneSight for MediCare Earnings 10.0% -7.0% 10.0% Dividends ------declined 8%, year over year, to $186.3 mil- patients with a major depressive disorder Book Value 11.5% 8.5% 10.0% lion. However, the share-net decline of or anxiety that have failed to improve with Fiscal QUARTERLY REVENUES ($ mill.) A Full 81%, to $0.08 (on an adjusted basis), was medication. This regulatory win potential- Year Fiscal even more steep. Moreover, in line with ly expands GeneSight’s addressable mar- Ends Sep.30 Dec. 31 Mar. 31 Jun. 30 Year 2016 183.5 193.3 190.5 186.5 753.8 management’s revised outlook, we have ket by five million individuals. Also, along- 2017 177.5 196.5 196.9 200.5 771.4 lowered our top- and bottom-line estimates side research partner AstraZeneca, a late- 2018 187.9 192.7 191.1 200.9 772.6 for fiscal 2020 to $810 million and $1.10 a stage clinical trial entitled APOLLO in- 2019 202.3 216.8 216.6 215.4 851.1 share, respectively. These forecasts would tends to prove the effectiveness of the 2020 186.3 210 215 198.7 810 represent a roughly 5% decline in sales BRACAnalysis kit for the treatment of Fiscal EARNINGS PER SHARE AB Full and 34% decrease in earnings. pancreatic cancer. Year Fiscal Ends Sep.30 Dec. 31 Mar. 31 Jun. 30 Year The main headwind appears to be The stock continues to trade well be- 2016 .42 .50 .47 .32 1.71 lower reimbursement payments from low its 52-week high, thus patient in- 2017 .12 .18 .27 .30 .87 the company’s legacy hereditary can- vestors may be afforded a solid 2018 .26 .31 .31 .38 1.20 cer business. A change in coding contrib- buying opportunity. Recovery potential 2019 .43 .38 .46 .41 1.67 uted to a 10% decline in revenues for this over the next 18 months and 2022-2024 2020 .08 .31 .40 .31 1.10 detection kit in the September period. Fur- time frame, is above average. However, Cal-QUARTERLY DIVIDENDS PAID Full thermore, certain other cancer screening would-be buyers should prepare them- endarMar.31 Jun.30 Sep.30 Dec.31 Year devices also experienced lower demand. selves for near-term stock-price volatility, 2015 All told, the diagnostic testing market is a which is highlighted in the equity’s wide 2016 NO CASH DIVIDENDS highly competitive and somewhat elective trading range for the year, thus far. Mo- 2017 BEING PAID arena. Also, reimbursement challenges mentum seekers may want to steer clear 2018 and instances of patient deferrals may be of the untimely issue. 2019 contributing to current soft demand Nira Maharaj December 6, 2019 (A) Fiscal year ends the Friday closest to June items: In ’09, ($0.52); ’17, ($0.55); ’18, $0.62; (D) Includes intangibles in 2019: $1,101.9 mil- Company’s Financial Strength B++ 30th. ’19, ($1.61). Next earnings report due early lion: $14.99/sh. Stock’s Price Stability 10 February. May not sum due to rounding. Price Growth Persistence 35 (B) Diluted earnings. Excludes nonrecurring (C) In millions, adjusted for split. Earnings Predictability 45 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: NMF RELATIVE DIV’D VALUE QIAGEN N.V. NDQ-QGEN PRICE 41.83RATIO NMF()Median: 45.0 P/E RATIO NMFYLD Nil LINE 841 TIMELINESS – Suspended 11/29/19 High: 24.4 24.5 24.9 23.1 20.2 25.7 26.3 29.6 29.9 36.3 39.4 41.9 Target Price Range Low: 13.0 14.9 17.5 12.9 14.6 19.0 20.2 23.0 20.7 27.5 30.8 25.0 2022 2023 2024 SAFETY 3 New 9/17/10 LEGENDS 17.5 x ″Cash Flow″ psh 120 TECHNICAL – Suspended 11/29/19 .... Relative Price Strength 100 96% Rev split 1/17 80 BETA 1.05 (1.00 = Market) Options: Yes Shaded area indicates recession 64 18-Month Target Price Range 96% 48 Low-High Midpoint (% to Mid) 32 $29-$48 $39 (-10%) 24 2022-24 PROJECTIONS 20 Ann’l Total 16 Price Gain Return High 65 (+55%) 12% 12 Low 45 (+10%) 2% % TOT. RETURN 10/19 8 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 21 to Buy 133 120 131 1 yr. -17.9 4.9 shares 14 3 yr. 17.4 30.2 to Sell 121 130 121 traded 7 Hld’s(000) 146067 142561 143372 5 yr. 22.0 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 2.50 2.69 2.79 3.22 3.45 4.73 4.52 4.84 5.19 5.55 5.78 6.02 5.71 5.92 6.26 6.66 6.75 7.25 Sales per sh 9.05 .52 .51 .61 .70 .60 1.03 1.16 1.28 1.35 1.52 1.19 1.42 1.42 1.30 1.59 1.76 .95 2.20 ‘‘Cash Flow’’ per sh 2.80 .33 .34 .43 .48 .29 .46 .66 .62 .42 .56 .30 .50 .56 .35 .62 .82 d.10 1.10 Earnings per sh A 1.60 ------Nil Nil Div’ds Decl’d per sh Nil .14 .09 .10 .20 .18 .21 .23 .35 .38 .45 .38 .39 .44 .33 .40 .49 .50 .50 Cap’l Spending per sh .60 2.38 2.83 3.15 3.92 7.40 7.71 10.25 11.03 11.34 12.06 12.05 11.86 11.41 11.54 11.22 11.68 11.10 11.95 Book Value per sh C 15.60 140.81 141.58 142.96 144.61 188.11 188.68 223.49 224.49 225.55 225.87 225.24 223.44 224.38 225.88 226.56 225.51 225.50 224.00 Common Shs Outst’g B 221.00 27.8 35.1 29.8 31.2 NMF 43.9 29.5 33.9 43.3 31.2 NMF 48.1 47.0 NMF 50.6 42.7 Bold figures are Avg Ann’l P/E Ratio 34.0 1.58 1.85 1.59 1.68 NMF 2.64 1.96 2.16 2.72 1.99 NMF 2.53 2.37 NMF 2.54 2.31 Value Line Relative P/E Ratio 1.90 ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 1009.8 1087.4 1169.7 1254.5 1302.0 1344.8 1281.0 1338.0 1417.5 1501.9 1525 1620 Sales ($mill) 2000 Total Debt $1761.8 mill. Due in 5 Yrs $1624 mill. 29.8% 30.5% 26.5% 30.7% 20.2% 26.9% 28.7% 23.3% 26.1% 31.5% 31.5% 34.0% Operating Margin 35.0% LT Debt $1688.8 mill. LT Interest $70.0 mill. 120.4 142.8 210.4 214.8 199.4 200.8 191.5 213.1 216.5 206.4 240 240 Depreciation ($mill) 250 (41% of total capital) 137.8 144.3 94.9 129.5 69.1 116.6 127.1 80.4 144.8 190.4 d23.0 255 Net Profit ($mill) 365 20.1% 16.6% 1.3% 10.8% - - 1.1% 4.3% - - NMF 15.7% NMF 15.0% Income Tax Rate 15.0% Leases, Uncapitalized: Annual rentals $20.2 mill. 13.6% 13.3% 8.1% 10.3% 5.3% 8.7% 9.9% 6.0% 10.2% 12.7% NMF 15.7% Net Profit Margin 18.3% 958.0 976.2 266.7 725.7 583.9 717.2 693.2 729.2 1323.2 1182.9 1000 1100 Working Cap’l ($mill) 1300 No Defined Benefit Pension Plan 898.9 797.2 446.0 846.0 845.3 1041.0 1059.6 1067.1 1758.3 1671.1 1650 1600 Long-Term Debt ($mill) 1400 Pfd Stock None 2291.2 2476.4 2557.8 2724.4 2714.3 2649.7 2559.9 2607.1 2541.0 2635.0 2500 2675 Shr. Equity ($mill) 3450 Common Stock 226,486,000 shs. 4.7% 4.8% 3.6% 4.0% 2.3% 3.7% 4.0% 2.7% 3.9% 5.2% NMF 7.0% Return on Total Cap’l 8.0% 6.0% 5.8% 3.7% 4.8% 2.5% 4.4% 5.0% 3.1% 5.7% 7.2% NMF 9.5% Return on Shr. Equity 10.5% MARKET CAP: $9.5 billion (Large Cap) 6.0% 5.8% 3.7% 4.8% 2.5% 4.4% 5.0% 3.1% 5.7% 7.2% NMF 9.5% Retained to Com Eq 10.5% CURRENT POSITION 2017 2018 9/30/19 ------Nil Nil All Div’ds to Net Prof Nil ($MILL.) Cash Assets 1016.9 1393.7 799.2 BUSINESS: QIAGEN N.V. creates and markets sample and assay nologies then create target biomolecules, like the DNA of a specific Receivables 329.1 351.6 358.8 technologies and products. It services academic research markets, virus, for detection and analysis. Has 4,952 empls. BlackRock owns Inventory (FIFO) 155.9 162.9 168.3 Other 146.1 246.9 216.0 pharmaceutical and biotechnology companies, and customers in 9.7% of comm. shs.; PRIMECAP Mgmt. Co., 7.1%; Massachusetts Current Assets 1648.0 2155.1 1542.3 applied testing markets. QIAGEN sample technologies collect, sta- Fin’l Svcs. Co., 5.8%; off./dirs., 2.8% (’18 20-F). Interim CEO: Accts Payable 59.2 69.4 64.8 bilize, isolate, and purify deoxyribonucleic acid (DNA), ribonucleic Thierry Bernard. Inc.: NL. Address: Hulsterweg 82, 5912 PL Venlo, Debt Due - - 503.1 73.0 acid (RNA), and proteins from a biological sample. Its assay tech- Netherlands. Tel.: 31-77-355-6600. Internet: www.qiagen.com. Other 265.6 399.7 492.9 Current Liab. 324.8 972.2 630.7 Could QIAGEN be up for sale soon? 2019 has been revised. Given lower rev- The Dutch molecular diagnostics maker enue prospects from partner-driven devel- ANNUAL RATES Past Past Est’d ’16-’18 has been generating plenty of interest opment projects for NGS instruments, of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Sales 5.0% 2.5% 6.5% lately among would-be buyers. Rumors management has scaled back its (constant ‘‘Cash Flow’’ 7.0% 2.5% 10.5% had initially been swirling that Thermo currency) top-line growth forecast. It also Earnings 4.0% 7.0% 18.0% Fisher Scientific approached the company narrowed its adjusted EPS range to $1.43- Dividends - - - - Nil Book Value 6.0% -.5% 5.0% with an offer to purchase it. But other $1.44, from $1.42-$1.44. For our part, potential suitors, besides Thermo Fisher, we’ve cut our 2019 sales target from $1.55 Cal-QUARTERLY SALES ($ mill.) Full are apparently eyeing QIAGEN. In fact, billion, but now expect a GAAP loss of endarMar.31 Jun.30 Sep.30 Dec.31 Year after receiving ‘‘several conditional, non- $0.10 a share, versus a profit of $0.85. 2016 298.4 334.4 338.7 366.5 1338.0 binding indications of interest,’’ QIAGEN’s Things stand to improve over time. 2017 307.7 349.0 364.0 396.8 1417.5 board ‘‘entered into discussions with inter- Despite recent portfolio changes, QIAGEN 2018 343.6 377.2 377.9 403.2 1501.9 ested parties’’ as part of a review to ex- should still see strength across the busi- 2019 348.7 381.6 382.7 412.0 1525 2020 375 400 410 435 1620 plore potential strategic alternatives. The ness, within the QuantiFERON TB testing latest news sent QGEN’s stock price surg- franchise and QIAstat-DX, which should Cal-EARNINGS PER SHARE A Full ing to the 52-week high set in June, but gain more traction as an expanded version endarMar.31 Jun.30 Sep.30 Dec.31 Year could climb higher if a bidding war ensues. is launched in 2020. Increased efficiency 2016 .06 .09 .15 .04 .35 Meanwhile, it has been anything but and disciplined capital allocation will also 2017 .08 .06 .21 .27 .62 business as usual. QIAGEN stumbled in be key. Too, under a 15-year deal with Il- 2018 .14 .16 .26 .26 .82 2019 .13 .19 d.71 .29 d.10 the September quarter, mostly due to its lumina, QIAGEN will commercialize NGS- 2020 .18 .25 .29 .38 1.10 recent decision to discontinue its next- based in-vitro diagnostics, with initial generation gene sequencing (NGS) joint sales expected in 2022/2023. Cal-QUARTERLY DIVIDENDS PAID Full venture in China and to stop development Investors should stay tuned. QGEN is endarMar.31 Jun.30 Sep.30 Dec.31 Year of new NGS instruments. This resulted in no longer trading on fundamentals, and is 2015 hefty impairment/restructuring charges of just outside our long-term Target Price 2016 NO CASH DIVIDENDS $0.89 a share. Adjusted EPS, though, was Range. We’d sit tight for now, pending ad- 2017 BEING PAID $0.36, or $0.01 above the consensus view. ditional news of a possible takeover deal. 2018 2019 Guidance (on a stand-alone basis) for J. Susan Ferrara December 6, 2019 (A) Diluted earnings, based on U.S. GAAP. earnings report due early February. (C) Includes intangibles. In 2018: $2,583.5 mil- Company’s Financial Strength B+ Excl. U.S. tax reform charge of $0.45 in ’17. (B) In millions. lion, $11.46/share. Stock’s Price Stability 65 Quarterly earnings may not sum due to dif- Price Growth Persistence 60 ference in shs. outstanding/rounding. Next Earnings Predictability 30 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 16.5 RELATIVE DIV’D VALUE REGENERON PHARM. NDQ-REGN PRICE 366.82RATIO 16.1()Median: NMF P/E RATIO 0.91YLD Nil LINE 842 TIMELINESS 3 Raised 9/6/19 High: 25.3 25.0 33.9 79.9 189.0 319.8 437.6 605.9 532.9 543.6 416.5 442.0 Target Price Range Low: 12.6 11.8 20.5 32.3 56.0 154.2 263.0 393.0 325.3 340.1 281.9 271.4 2022 2023 2024 SAFETY 3 Raised 6/17/11 LEGENDS 23.0 x ″Cash Flow″ psh TECHNICAL Lowered 10/25/19 .... Relative Price Strength 800 5 Options: Yes BETA 1.10 (1.00 = Market) Shaded area indicates recession 600 500 18-Month Target Price Range 400 Low-High Midpoint (% to Mid) 300 250 $246-$484 $365 (0%) 200 2022-24 PROJECTIONS 150 Ann’l Total Price Gain Return 100 High 750 (+105%) 20% Low 500 (+35%) 8% 75 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 45 to Buy 323 417 305 1 yr. -9.7 4.9 shares 30 3 yr. -11.2 30.2 to Sell 301 246 361 traded 15 Hld’s(000) 73090 73167 73531 5 yr. -22.2 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 1.12 2.05 1.36 1.22 1.85 3.21 4.81 5.26 4.92 14.48 21.55 27.51 39.21 45.85 54.56 61.56 70.00 75.90 Revenues per sh B 90.45 d1.70 d.89 d1.42 d1.34 d1.19 d.89 d.68 d.97 d2.10 4.74 4.77 3.91 6.79 9.44 15.51 23.78 24.55 25.50 ‘‘Cash Flow’’ per sh 30.25 d2.13 d1.15 d1.71 d1.77 d1.59 d1.05 d.85 d1.26 d2.45 3.89 3.81 3.07 5.52 7.70 13.14 21.29 22.25 22.75 Earnings per sh A 25.00 ------Nil Nil Div’ds Decl’d per sh Nil .53 .11 .09 .04 .23 .44 1.23 1.14 .63 .52 1.60 3.25 6.48 4.83 2.53 3.51 7.50 7.85 Cap’l Spending per sh 9.00 2.48 3.27 2.02 3.31 5.84 5.24 5.03 6.05 5.36 13.08 19.99 24.81 34.92 41.97 57.09 80.34 80.70 82.85 Book Value per sh 107.15 55.53 55.86 56.44 65.40 78.85 79.89 78.86 87.24 90.69 95.22 97.67 102.48 104.65 106.01 107.63 109.01 110.00 108.00 Common Shs Outst’g C 105.00 ------33.6 NMF NMF NMF NMF 32.0 16.5 Bold figures are Avg Ann’l P/E Ratio 25.0 ------2.14 NMF NMF NMF NMF 1.61 .89 Value Line Relative P/E Ratio 1.40 ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 379.3 459.1 445.8 1378.5 2104.7 2819.6 4103.7 4860.4 5872.2 6710.8 7700 8200 Revenues ($mill) B 9500 Total Debt $712.7 mill. Due in 5 Yrs $712.7 mill. NMF NMF NMF 35.9% 38.1% 31.6% 32.3% 29.5% 47.4% 40.0% 40.5% 42.5% Operating Margin 48.5% Lt Debt $712.7 mill. Lt Interest $20.0 mill. 14.2 19.7 31.1 36.9 41.2 52.7 74.9 104.7 145.5 148.2 150 155 Depreciation ($mill) 175 (6% of Cap’l) Leases, Uncapitalized: Annual rentals $21.5 mill. d67.8 d104.5 d221.8 414.4 424.4 348.1 636.1 895.5 1523.8 2444.4 2550 2600 Net Profit ($mill) 3000 ------40.5% 55.1% 48.1% 32.7% 42.2% 4.3% 13.0% 15.0% Income Tax Rate 18.0% No Defined Benefit Pension Plan NMF NMF NMF 30.1% 20.2% 12.3% 15.5% 18.4% 25.9% 36.4% 33.1% 31.7% Net Profit Margin 31.5% 331.9 248.5 504.6 1042.4 1498.1 1512.8 2103.9 1938.7 3199.6 5004.8 2200 2250 Working Cap’l ($mill) 2400 Pfd Stock None - - - - 275.0 296.5 320.3 146.8 362.9 351.6 703.5 708.5 650 600 Long-Term Debt ($mill) 300 Common Stock 109,795,760 shs. as of 10/24/19 396.8 527.8 485.7 1245.4 1952.1 2542.3 3654.8 4449.2 6144.1 8757.3 8875 8950 Shr. Equity ($mill) 11250 MARKET CAP: $40.3 billion (Large Cap) NMF NMF NMF 28.3% 19.7% 14.0% 16.0% 18.7% 22.4% 26.0% 27.0% 27.5% Return on Total Cap’l 26.0% CURRENT POSITION 2017 2018 9/30/19 NMF NMF NMF 33.3% 21.7% 13.7% 17.4% 20.1% 24.8% 27.9% 28.5% 29.0% Return on Shr. Equity 26.5% ($MILL.) NMF NMF NMF 33.3% 21.7% 13.7% 17.4% 20.1% 24.8% 27.9% 28.5% 29.0% Retained to Com Eq 26.5% Cash Assets 1409.5 2809.9 2877.9 Receivables 1974.3 2243.2 2660.0 ------Nil Nil All Div’ds to Net Prof Nil Inventory (LCOM) 726.3 1151.2 1344.3 BUSINESS: Regeneron Pharmaceuticals, Inc. is engaged in the re- of 2018 revenues. Has 6,200 employees. Stock ownership: Sanofi, Other 224.9 243.3 226.9 search, development, and commercialization of drugs to cure medi- 21.8%; three financial institutions, 17.5%; Off. and dir., 92.5% Class Current Assets 4335.0 6447.6 7109.1 cal conditions, including cancer, inflammatory disorders, and A shs. and 9.6% common shs. (4/19 proxy). Chairman: P. Roy Accts Payable 178.1 218.2 335.6 Deferred Revenue 320.0 452.5 698.7 degenerative eye diseases. ARCALYST is approved in the U.S. for Vagelos, M.D.; Pres. & CEO: Leonard S. Schleifer, M.D. Inc.: New Debt Due ------the treatment of CAPS, Eylea, for the treatment of Wet AMD, and York. Address: 777 Old Saw Mill River Road, Tarrytown, New York Other 637.3 772.1 731.1 Praluent, used to treat hypercholesterolemia. R&D expenses: 33% 10591. Telephone: 914-347-7000. Internet: www.regeneron.com. Current Liab. 1135.4 1442.8 1765.4 Investor support for Regeneron Phar- ly. The healthy revenue stream ought to ANNUAL RATES Past Past Est’d ’16-’18 maceuticals’ stock has strengthened. facilitate single-digit earnings progress of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Revenues 38.5% 31.5% 9.0% The equity has increased roughly 30% in over this year and next. ‘‘Cash Flow’’ - - 46.0% 11.0% value since our September report, but The company’s longer-term pipeline is Earnings - - 51.5% 10.0% remains below its 52-week high. The ebb noteworthy, in our view. First, it is not Dividends ------Book Value 28.5% 36.0% 10.0% and flow may perhaps be attributed to un- resting on its laurels with the aforemen- even financial performances throughout tioned products. Instead, Regeneron has Cal-QUARTERLY REVENUES ($ mill.) B Full 2019 thus far, as well as a cautious near- successfully diversified its medical focus endarMar.31 Jun.30 Sep.30 Dec.31 Year term outlook outlined by management. We toward the high-growth arena of oncology. 2016 1200.9 1212.6 1220.1 1226.8 4860.4 would not be surprised with further near- In late 2018, it gained FDA approval for 2017 1319.0 1470.1 1500.7 1582.4 5872.2 term volatility. Libtayo, a drug used to treat metastatic 2018 1511.5 1608.0 1663.5 1927.8 6710.8 We are optimistic about the compa- cutaneous squamous cell carcinoma for 2019 1711.8 1933.7 2048.4 2006.1 7700 2020 1950 2050 2100 2100 8200 ny’s near-term prospects. First, patients that do not have surgery as a Regeneron has two well-established com- curative option. There are currently 24 Cal-EARNINGS PER SHARE A Full mercialized products, EYLEA (macular candidates in the pipeline, some of which endarMar.31 Jun.30 Sep.30 Dec.31 Year degeneration, diabetic retinopathy) and seek to expand the company’s oncology 2016 1.59 1.69 2.27 2.19 7.70 Dupixent (atopic dermatitis, nasal polyps). reach. Strong partnerships, such as those 2017 2.16 3.34 3.32 4.30 13.14 Both products hold multibillion dollar op- with Sanofi and Alnylam Pharmaceuticals, 2018 4.16 4.82 5.17 7.15 21.29 2019 3.99 5.17 5.86 7.23 22.25 portunities and growing patient adoption point toward regulatory success on the 3- 2020 4.50 5.25 5.60 7.40 22.75 of these drugs is expected to continue to to 5-year horizon. contribute meaningfully to top- and These shares suit patient investors. Cal-QUARTERLY DIVIDENDS PAID Full bottom-line growth. Furthermore, addi- Even with the recent favorable stock-price endarMar.31 Jun.30 Sep.30 Dec.31 Year tional late-stage clinical trials geared action, capital appreciation potential over 2015 toward expanding the utilization of both the 2022-2024 time frame is above aver- 2016 NO CASH DIVIDENDS therapies suggest that the company may age. However, these neutrally ranked 2017 BEING PAID well expand its addressable markets. All shares offer below-average return poten- 2018 2019 told, we estimate roughly 14.5% and 6.5% tial over the next 18 months. sales growth in 2019 and 2020, respective- Nira Maharaj December 6, 2019 (A) Diluted earnings. Excl. nonrecur items: ary. Company’s Financial Strength A+ ’04, $1.89, ’12, $2.86. ’17, ($2.80). May not (B) Incl. an allocation for investment income. Stock’s Price Stability 45 sum due to rounding or change in shares out- (C) In millions. Price Growth Persistence 60 standing. Next earnings report due early Febru- Earnings Predictability 30 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: NMF RELATIVE DIV’D VALUE SEATTLE GENETICS NDQ-SGEN PRICE 121.62RATIO NMF()Median: NMF P/E RATIO NMFYLD Nil LINE 843 TIMELINESS 3 Raised 11/15/19 High: 13.4 14.9 18.0 22.4 29.8 49.2 56.0 52.3 75.4 71.3 84.4 122.4 Target Price Range Low: 6.8 7.0 9.2 12.3 16.3 23.3 30.5 30.0 26.0 45.3 47.8 54.3 2022 2023 2024 SAFETY 4 Lowered 9/11/15 LEGENDS .... Relative Price Strength TECHNICAL 4 Lowered 11/29/19 Options: Yes 200 Shaded area indicates recession 160 BETA 1.25 (1.00 = Market) 18-Month Target Price Range 100 Low-High Midpoint (% to Mid) 80 60 $38-$134 $86 (-30%) 50 2022-24 PROJECTIONS 40 Ann’l Total Price Gain Return 30 High 160 (+30%) 7% Low 95 (-20%) -6% 20 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 45 to Buy 149 175 135 1 yr. 91.3 4.9 shares 30 3 yr. 107.7 30.2 to Sell 150 116 169 traded 15 Hld’s(000) 162936 159825 160846 5 yr. 192.9 36.8 Seattle Genetics is a biotechnology com- 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 pany focused on the development and com- .52 1.06 .82 1.76 2.19 2.31 2.41 2.93 3.05 4.08 5.15 5.55 Sales per shC 8.50 mercialization of targeted therapies for the d.78 d.62 d1.27 d.40 d.44 d.51 d.72 d.86 d.64 d1.22 d1.35 d1.60 ‘‘Cash Flow’’ per sh .90 treatment of cancer. Its marketed product, d.90 d.66 d1.34 d.46 d.51 d.62 d.93 d1.00 d.88 d1.41 d1.60 d1.90 Earnings per sh A .50 ADCETRIS was approved by the FDA in ------Nil Nil Div’ds Decl’d per sh Nil August of 2011 and in Canada in 2013 for .05 .04 .10 .09 .18 .14 .10 .20 .18 .13 .20 .20 Cap’l Spending per sh .30 the treatment of patients with relapsed 2.05 1.59 1.89 1.89 1.87 1.70 4.90 4.45 4.29 7.93 6.10 4.05 Book Value per sh 3.00 Hodgkin lymphoma or relapsed systematic 100.55 101.61 116.02 119.71 122.98 124.32 139.93 142.49 157.95 160.56 165.00 170.00 Common Shs Outst’g B 185.00 anaplastic large cell lymphoma. It is current------Bold figures are Avg Ann’l P/E Ratio NMF ly an industry leader in antibody-drug con------Value Line Relative P/E Ratio NMF jugates, a technology designed to harness ------estimates Avg Ann’l Div’d Yield Nil the targeting ability of monoclonal 52.0 107.5 94.8 210.8 269.3 286.8 336.8 418.1 482.3 654.7 850 940 Sales ($mill) 1575 antibodies to deliver cell-killing agents NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF Operating Margin 11.0% directly to cancer cells. 3.3 3.6 4.2 6.2 8.6 12.5 20.2 18.0 24.3 26.0 40.0 50.0 Depreciation ($mill) 80.0 CAPITAL STRUCTURE as of 9/30/19 d81.7 d66.3 d152.0 d53.8 d62.5 d76.1 d121.3 d140.1 d125.5 d222.7 d260 d320 Net Profit ($mill) 90.0 Total Debt None ------Nil Nil Income Tax Rate Nil Leases, Uncapitalized: $7.5 mill. NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF Net Profit Margin 5.7% No Defined Benefit Pension Plan 244.1 249.3 308.5 340.3 338.1 282.1 636.8 586.2 410.0 428.5 500 560 Working Cap’l ($mill) 950 ------Nil Nil Long-Term Debt ($mill) Nil 206.2 161.5 218.8 226.1 230.2 210.8 685.9 634.1 677.6 1273.9 1010 690 Shr. Equity ($mill) 555 Common Stock 171,385,656 shares NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF Return on Total Cap’l 16.0% as of 10/25/19 NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF Return on Shr. Equity 16.0% MARKET CAP: $20.8 billion (Large Cap) NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF NMF Retained to Com Eq 16.0% CURRENT POSITION 2017 2018 9/30/19 ($MILL.) ------Nil Nil All Div’ds to Net Prof Nil Cash Assets 413.2 410.7 870.3 BUSINESS: Seattle Genetics, Inc. is a biotechnology company Hodgkin lymphoma or relapsed sALCL. Wellington Management Receivables 84.8 146.3 190.4 Inventory (FIFO) 60.0 53.2 92.0 focused on the development of monoclonal antibody-based owns 9.4% of common stock; Felix Baker, 31.9%. Officers and Other 19.1 43.4 43.7 therapies for cancer. It offers ADCETRIS, or brentuximab vedotin, Directors, 33.8% (4/19 Proxy). Has 1100 employees. Chairman, Current Assets 577.1 653.6 1196.4 for patients with relapsed Hodgkin lymphoma and systemic CEO & President: Clay B. Siegall. Incorporated: DE. Address: Accts Payable 132.7 44.2 57.9 anaplastic large cell lymphoma (sALCL), as well as to treat patients 21823, 30th Dr. SE, Bothell, Washington 98021. Telephone: (425) Debt Due ------with certain types of cutaneous T-cell lymphoma and relapsed 527-4000. Internet: www.seattlegenetics.com. Other 34.4 180.9 188.3 Current Liab. 167.1 225.1 246.2 Seattle Genetics reported a wide net based on the findings, the company ANNUAL RATES Past Past Est’d ’16-’18 loss in the third quarter. We were announced that it plans to unblind the tri- of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 looking for the company’s share deficit to al and submit an NDA to the FDA in the Sales 26.5% 16.0% 17.0% narrow, on a year over year basis, to $0.35. first quarter of 2020. This data was ac- ‘‘Cash Flow’’ - - - - NMF However, higher-than-expected R&D ex- companied by positive results in a trial of Earnings - - - - NMF Dividends - - - - Nil penses were necessary in the development enfortumab vedotin in combination with Book Value 17.0% 24.0% -10.0% of late-stage products like tucatinib, en- Keytruda in front-line urothelial car- fortumab vedotin, and tisotumab vedotin, cinoma. The launch and progression of Cal-QUARTERLY REVENUES ($ mill.) Full endarMar.31 Jun.31 Sep.30 Dec.31 Year and so the cancer therapy developer fell these offerings is likely to put further 2016 111.1 95.4 106.3 105.3 418.1 deeper into the red, posting a net loss of pressure on Seattle Genetics’ near-term 2017 109.2 108.2 135.3 129.6 482.3 $0.55. On the top line, the company ac- margin profile, but it should be well worth 2018 140.6 170.2 169.4 174.5 654.7 tually beat our $210 million estimate by the expense to add these revenue streams 2019 195.2 218.4 213.3 223.1 850 about $3 million, as sales of Hodgkin to its oncology line. 2020 220 220 250 250 940 lymphoma treatment ADCETRIS came in Neutrally ranked Seattle Genetics Cal-EARNINGS PER SHARE A Full ahead of schedule, rising 32% within the shares are a risky investment option endarMar.31 Jun.30 Sep.30 Dec.31 Year U.S. and Canada to $167.6 million. We at the recent price. What’s more, now 2016 d.15 d.23 d.23 d.39 d1.00 look for further adoption of ADCETRIS to that stock of the company has nearly 2017 d.42 d.39 .34 d.41 d.88 provide the company with a near-30% top- doubled in value in 2019, much of the 2018 d.73 .47 d.42 d.75 d1.41 line increase in the fourth quarter, as well. growth potential that we had envisioned 2019 d.08 d.49 d.55 d.48 d1.60 Recent trial results have yielded pivo- for it over the coming 3 to 5 years seems to 2020 d.40 d.55 d.55 d.40 d1.90 tal data. Specifically, in late October, be baked in. Aggressive adoption of AD- Cal-QUARTERLY DIVIDENDS PAID Full Seattle Genetics announced that its CETRIS, and the potential offered by endarMar.31 Jun.30 Sep.30 Dec.31 Year HER2CLIMB trial, testing the efficacy of Seattle Genetics’ remaining oncology 2015 tucatinib on relapsed and refractory treatments, leave it in line to break even 2016 NO CASH DIVIDENDS HER2-positive metastatic breast cancer over the stretch out to 2022-2024. How- 2017 BEING PAID met its primary endpoint of improved ever, speculative investors can probably 2018 progression-free survival. That trial also find more lucrative options elsewhere. 2019 met a pair of secondary endpoints and, Robert J. Scrudato December 6, 2019 (A) Based on diluted shares outstanding. May (B) In millions. Company’s Financial Strength B not sum due to changes in share count. Next (C) Target Price Range calculated using reve- Stock’s Price Stability 15 earnings report due early February. nues per share multiple of 15.0x. Price Growth Persistence 90 Earnings Predictability 40 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: 6.7 RELATIVE DIV’D VALUE UNITED THER. NDQ-UTHR PRICE 95.34RATIO 7.5()Median: 13.0 P/E RATIO 0.42YLD Nil LINE 844 TIMELINESS 4 Lowered 10/12/18 High: 58.9 53.6 64.7 70.7 59.0 116.6 137.8 190.3 160.0 169.9 152.5 128.9 Target Price Range Low: 23.8 27.3 46.1 36.6 40.3 51.4 84.6 117.9 97.5 112.0 100.1 75.7 2022 2023 2024 SAFETY 3 New 12/23/05 LEGENDS 12.0 x ″Cash Flow″ psh 320 TECHNICAL Lowered 10/25/19 .... Relative Price Strength 4 2-for-1 split 9/09 BETA .95 (1.00 = Market) Options: Yes 200 Shaded area indicates recession 18-Month Target Price Range 160 Low-High Midpoint (% to Mid) 120 100 $53-$102 $78 (-20%) 80 2022-24 PROJECTIONS 60 Ann’l Total Price Gain Return 40 High 200 (+110%) 20% Low 135 (+40%) 9% % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 18 4Q2018 1Q2019 2Q2019 Percent 75 to Buy 149 175 150 1 yr. -19.0 4.9 shares 50 3 yr. -25.2 30.2 to Sell 182 161 233 traded 25 Hld’s(000) 42372 42259 41495 5 yr. -31.4 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 1.25 1.64 2.49 3.72 4.74 5.33 7.15 10.49 13.86 18.26 22.17 27.35 32.03 37.21 39.90 37.34 33.50 30.25 Sales per sh 37.50 d.18 .40 1.03 .72 .52 1.01 .60 2.15 4.44 6.61 4.08 9.57 12.36 15.74 17.45 16.33 14.85 12.90 ‘‘Cash Flow’’ per sh 15.00 d.24 .33 .90 .59 .44 1.00 .35 1.78 3.67 5.71 3.28 7.73 10.40 13.77 16.12 15.36 14.10 12.00 Earnings per sh A 14.00 ------Nil Nil Div’ds Decl’d per sh Nil .16 .12 .13 .36 .87 2.35 1.84 .32 .67 2.23 .63 1.01 1.09 .88 2.00 4.23 1.20 1.40 Cap’l Spending per sh 1.75 3.94 4.27 5.90 4.76 6.65 9.60 12.62 15.36 17.69 21.61 24.99 26.37 34.71 43.09 48.61 63.98 52.30 57.00 Book Value per sh 77.50 42.62 44.86 46.64 42.95 44.50 52.86 51.76 57.56 53.61 50.17 50.39 47.11 45.76 42.97 43.24 43.59 44.00 43.00 Common Shs Outst’g B 40.00 - - 43.2 31.7 49.7 NMF 44.9 NMF 31.1 15.1 8.7 22.0 14.0 15.4 8.8 8.2 7.8 Bold figures are Avg Ann’l P/E Ratio 12.0 - - 2.28 1.69 2.68 NMF 2.70 NMF 1.98 .95 .55 1.24 .74 .78 .46 .41 .42 Value Line Relative P/E Ratio .65 ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 369.8 603.8 743.2 916.1 1117.0 1288.5 1465.8 1598.8 1725.3 1627.8 1475 1300 Sales ($mill) 1500 Total Debt $1.050 bill. Due In 5 Yrs. $250.0 10.1% 30.1% 45.5% 49.0% 29.0% 50.4% 60.7% 74.8% 81.2% 58.6% 47.0% 44.5% Operating Margin 5460% mill. 11.4 17.9 20.5 27.1 31.3 32.2 32.9 31.6 31.0 35.9 33.0 35.0 Depreciation ($mill) 40.0 LT Debt $800 mill. LT Interest $7.5 mill. (24% of Cap’l) 19.5 105.9 217.2 304.4 174.6 418.6 532.8 644.5 723.4 675.8 620 520 Net Profit ($mill) 560 - - 28.4% 27.4% 30.9% 37.4% 30.7% 37.5% 44.6% 45.4% 22.4% 25.0% 25.0% Income Tax Rate 25.0% Leases, Uncapitalized: Annual rentals $4.2 mill. 5.3% 17.5% 29.2% 33.2% 15.6% 32.5% 36.4% 40.3% 41.9% 41.5% 42.0% 40.0% Net Profit Margin 37.3% No Defined Benefit Pension Plan d5.7 335.8 349.9 491.7 221.3 469.9 834.5 1092.3 1003.2 1491.4 875 900 Working Cap’l ($mill) 1100 Pfd Stock None 30.3 - - 194.2 204.7 ------250.0 250.0 250 250 Long-Term Debt ($mill) 250 Common Stock 43,881,350 shs. 653.0 883.9 948.5 1084.0 1259.3 1242.4 1588.6 1851.3 2101.8 2788.6 2300 2450 Shr. Equity ($mill) 3100 as of 10/23/19 2.8% 12.0% 19.4% 24.3% 14.6% 33.7% 33.5% 34.8% 30.8% 22.2% 24.5% 19.5% Return on Total Cap’l 17.0% 3.0% 12.0% 22.9% 28.1% 13.9% 33.7% 33.5% 34.8% 34.4% 24.2% 27.0% 21.0% Return on Shr. Equity 18.0% MARKET CAP: $4.2 billion (Mid Cap) 3.0% 12.0% 22.9% 28.1% 13.9% 33.7% 33.5% 34.8% 34.4% 24.2% 27.0% 21.0% Retained to Com Eq 18.0% CURRENT POSITION 2017 2018 9/30/19 ------Nil Nil All Div’ds to Net Prof Nil ($MILL.) Cash Assets 927.4 1415.9 1570.0 BUSINESS: United Therapeutics Corp. is engaged in the dev’t and analogs, antibody-based therapeutics, and glycobiology antiviral Receivables 297.1 175.7 183.6 commercialization of therapies for cardiovascular, cancer, and in- agents. ’18 R&D costs: 22.0% of sales. Has 800 employees. Inventory (FIFO) 107.9 101.0 94.1 Other 115.5 75.4 85.7 fectious diseases. The Drug division sells Remodulin, a prostacyclin Shareowners: BlackRock, Inc., 11.3%; The Vanguard Group, 8.9%; Current Assets 1447.9 1768.0 1933.4 analog that is infused to treat pulmonary arterial hypertension, FMR LLC, 6.6%; Off. & dir., 8.8%. (4/19 Proxy). Chrmn & CEO: Accts Payable 8.4 23.1 161.1 Remodulin accounted for 37% of sales in ’18, Adcirca, and Tyvaso, Martine A. Rothblatt. Inc.: DE. Add.: 1040 Spring St., Silver Spring, Debt Due - - - - 250.0 combined, 45%. R&D pipeline: oral and inhaleable prostacyclin MD 20910. Tel.: 301-608-9292. Internet: www.unither.com Other 436.3 253.5 58.8 Current Liab. 444.7 276.6 469.9 United Therapeutics stock continues FDA approval for Orenitram to be used in to trade in a volatile manner. Since our conjunction with a background PAH ANNUAL RATES Past Past Est’d ’16-’18 September report, the equity has in- therapy. Results from a clinical study of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 Sales 23.5% 16.0% -.5% creased roughly 20% in value. Investor entitled FREEDOM-EV showed ‘‘Cash Flow’’ 36.0% 27.0% -1.5% sentiment has been in flux due to Orenitram’s effectiveness to delay disease Earnings 36.5% 29.0% -1.0% company-specific factors (more below). progression. The regulatory success can Dividends - - - - Nil Book Value 22.0% 19.5% 7.0% There is likely to be further near-term vol- potentially double the drug’s patient atility, and would-be buyers ought to utilization over the next two to three years Cal-QUARTERLY SALES ($ mill.) Full prepare themselves for such a scenario. and continue on an upward trajectory endarMar.31 Jun.30 Sep.30 Dec.31 Year Sales and earnings are expected to afterwards. Additionally, over the next 12 2016 369.0 412.6 408.2 409.0 1598.8 decline this year and next. In 2019, the months, the company could potentially 2017 370.5 444.6 445.5 464.7 1725.3 top and bottom lines are likely to decrease gain three new approvals. First, an im- 2018 389.2 444.5 412.7 381.4 1627.8 around 8% and 9%, respectively. Losses in plantable system for Remodulin alongside 2019 362.6 373.6 401.5 337.3 1475 2020 320 325 325 330 1300 2020 may be even more steep, at a double- medical device manufacturer Medtronic is digit pace. To wit, the company has been in the works. Also, expanded uses for Cal-EARNINGS PER SHARE A Full losing its competitive position in the pul- Remodulin and Trevyent are being endarMar.31 Jun.30 Sep.30 Dec.31 Year monary arterial hypertension (PAH) mar- reviewed. These catalysts could potentially 2016 3.02 4.55 3.68 2.52 13.77 ket since the loss of patent protection for turn around the company’s fortunes. 2017 3.19 4.35 4.69 3.89 16.12 Adcirca in 2018. The entry of generic com- The aforementioned good news per- 2018 3.76 4.36 3.98 3.24 15.36 2019 3.58 3.63 3.83 3.06 14.10 petition is likely to continue to erode haps sparked renewed optimism 2020 2.75 3.00 2.80 3.45 12.00 United Therapeutics’ market share. How- toward United Therapeutics stock. ever, the company intends to expand its However, momentum seekers ought to Cal-QUARTERLY DIVIDENDS PAID Full reach in the PAH arena and other medical steer clear of these untimely shares that endarMar.31 Jun.30 Sep.30 Dec.31 Year fields through pipeline endeavors. also possess no appeal over the next 18 2015 There are exciting developments that months. Patient investors may be well 2016 NO CASH DIVIDENDS may lead to a recovery over the 3- to rewarded, as recovery potential over the 2017 BEING PAID 5-year period, in our view. Notably, 2022-2024 pull is above average. 2018 2019 United Therapeutics recently received Nira Maharaj December 6, 2019 (A) Diluted earnings, based on GAAP. Ex- report due late February. Company’s Financial Strength A cludes nonrecurring gains/(losses): ’05, 39¢; (B) In millions, adjusted for split. Stock’s Price Stability 40 ’06, 95¢; ’08, ($1.93); ’14, ($1.45); ’15, $2.32; Price Growth Persistence 50 ’16, $1.48; ’17, ($6.81); ’18, ($1.97). Next egs. Earnings Predictability 55 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. RECENT P/E Trailing: NMF RELATIVE DIV’D VALUE VERTEX PHARM. INC. NDQ-VRTX PRICE 223.27RATIO NMF()Median: NMF P/E RATIO NMFYLD Nil LINE 845 TIMELINESS 3 Lowered 11/8/19 High: 35.0 44.0 44.2 58.9 66.1 90.0 124.4 143.5 125.0 167.9 194.9 223.6 Target Price Range Low: 13.8 25.9 31.3 26.5 32.0 42.7 59.8 97.4 71.5 73.3 144.1 161.0 2022 2023 2024 SAFETY 3 Raised 9/11/15 LEGENDS .... Relative Price Strength TECHNICAL 4 Lowered 11/29/19 Options: Yes 400 Shaded area indicates recession 320 BETA 1.20 (1.00 = Market) 18-Month Target Price Range 200 Low-High Midpoint (% to Mid) 160 120 $149-$287 $218 (0%) 100 2022-24 PROJECTIONS 80 Ann’l Total Price Gain Return 60 High 360 (+60%) 13% Low 240 (+5%) 2% 40 % TOT. RETURN 10/19 Institutional Decisions THIS VL ARITH.* STOCK INDEX 4Q2018 1Q2019 2Q2019 Percent 75 to Buy 313 380 345 1 yr. 15.4 4.9 shares 50 3 yr. 157.7 30.2 to Sell 342 284 322 traded 25 Hld’s(000) 242074 243211 247494 5 yr. 73.5 36.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 © VALUE LINE PUB. LLC 22-24 .89 1.27 1.49 1.72 1.50 1.16 .51 .70 6.74 7.03 5.18 2.40 4.19 6.86 9.83 11.94 14.50 17.70 Revenues per sh 26.40 d1.94 d1.43 d1.11 d1.49 d2.74 d2.83 d3.06 d3.56 .31 d.32 d1.70 d2.79 d2.01 d.20 1.28 2.38 3.50 5.70 ‘‘Cash Flow’’ per sh 10.70 d2.27 d1.85 d1.65 d1.89 d3.03 d3.27 d3.71 d3.77 .14 d.50 d1.98 d3.14 d2.31 d.46 1.04 2.06 3.10 5.25 Earnings per sh A 10.00 ------Nil Nil Div’ds Decl’d per sh Nil .22 .15 .16 .26 .24 .21 .12 .19 .17 .33 .22 .21 .18 .23 .39 .37 .40 .45 Cap’l Spending per sh .70 2.47 .44 2.21 4.01 2.04 1.58 5.48 2.48 3.76 4.60 5.80 4.45 3.82 4.66 8.01 17.38 21.40 27.70 Book Value per sh 57.35 78.03 80.77 108.15 126.12 132.88 151.25 199.96 203.52 209.30 217.29 233.79 241.76 246.31 248.30 253.25 255.17 257.00 260.00 Common Shs Outst’g B 265.00 ------NMF ------NMF NMF Bold figures are Avg Ann’l P/E Ratio 30.0 ------NMF ------NMF NMF Value Line Relative P/E Ratio 1.65 ------estimates Avg Ann’l Div’d Yield Nil CAPITAL STRUCTURE as of 9/30/19 101.9 143.4 1410.6 1527.0 1212.0 580.4 1032.3 1702.2 2488.7 3047.6 3730 4600 Revenues ($mill) 7000 Total Debt None NMF NMF 18.2% 2.8% NMF NMF NMF 4.3% 18.3% 24.2% 35.0% 40.0% Operating Margin 52.0% LT Debt None 30.1 30.5 35.0 38.2 48.4 63.3 62.3 61.4 61.4 72.4 90.0 100 Depreciation ($mill) 130 Leases, Uncapitalized Annual rentals $85.1 mill. d642.2 d754.6 29.6 d107.0 d445.0 d737.6 d556.3 d112.1 263.5 533.7 805 1380 Net Profit ($mill) 2700 - - - - 31.9% ------12.7% 21.0% 21.0% Income Tax Rate C 21.0% No Defined Benefit Pension Plan NMF NMF 2.1% NMF NMF NMF NMF NMF 10.6% 17.5% 26.1% 30.0% Net Profit Margin 38.6% 1022.1 582.2 938.9 1157.0 1190.8 1178.2 900.8 1039.0 1841.7 2722.8 3350 4500 Working Cap’l ($mill) 10700 Pfd Stock None 121.8 400.0 400.0 415.2 48.8 319.9 266.9 35.0 20.5 19.7 Nil Nil Long-Term Debt ($mill) Nil Common Stock 257,149,588 shs. 1096.4 504.0 786.8 999.2 1356.4 1075.0 940.0 1156.6 2028.6 4435.2 5500 7200 Shr. Equity ($mill) 15200 as of 10/18/19 NMF NMF 3.1% NMF NMF NMF NMF NMF 12.9% 12.0% 14.5% 19.0% Return on Total Cap’l 18.0% MARKET CAP: $57.4 billion (Large Cap) NMF NMF 3.8% NMF NMF NMF NMF NMF 13.0% 12.0% 14.5% 19.0% Return on Shr. Equity 18.0% CURRENT POSITION 2017 2018 9/30/19 NMF NMF 3.8% NMF NMF NMF NMF NMF 13.0% 12.0% 14.5% 19.0% Retained to Com Eq 18.0% ($MILL.) ------Nil Nil All Div’ds to Net Prof Nil Cash Assets 2088.7 3168.2 3996.4 Receivables 281.3 409.7 443.3 BUSINESS: Vertex Pharmaceuticals Inc. uses drug discovery (ivacaftor) (1/12), Orkambi (lumacaftor/ivacaftor) (7/15), Symdeko Inventory 111.8 124.4 162.3 technologies to develop small molecule drugs that treat major medi- (tezacaftor/ivacaftor) (2/18) for cystic fibrosis. Has about 2,500 Other 167.2 140.8 175.1 cal problems such as viral, autoimmune, inflammatory, and neuro- employees. Officers and directors own less than 1% of common Current Assets 2649.0 3843.1 4777.1 logical diseases, as well as cancer. Sold royalty rights to Agenerase stock; T. Rowe Price, 10.0% (4/19 proxy). Chrmn., Pres. & CEO: Accts Payable 74.0 111.0 92.5 Debt Due 22.5 9.8 - - (amprenavir) and Lexiva for HIV in 6/08. FDA-approved drugs: In- Dr. Jeffrey M. Leiden. Inc.: MA. Address: 50 Northern Ave., Boston, Other 710.8 999.5 1296.4 civek (telapravir) (5/11, withdrawn in ’14) for Hepatitis C; Kalydeco MA 02210. Tel.: 617-341-6100. Internet: www.vrtx.com. Current Liab. 807.3 1120.3 1388.9 Vertex Pharmaceuticals has added ing to get the green light in the E.U. And, ANNUAL RATES Past Past Est’d ’16-’18 yet another FDA-approved drug to its Kalydeco, FDA-approved for six-month-old of change (per sh) 10 Yrs. 5 Yrs. to ’22-’24 cystic fibrosis (CF) franchise. In Octo- babies, could get the okay in the E.U. Revenues 20.5% 8.5% 18.5% ‘‘Cash Flow’’ - - - - 45.0% ber, the company got the nod on Trikafta, soon. Elsewhere, a number of studies are Earnings - - - - 50.0% a triple drug blend of elexacaftor, teza- on track targeting beta thalassemia, sickle Dividends - - - - Nil caftor, and ivacaftor, for patients suffering cell disease, a protein deficiency, kidney Book Value 14.5% 16.0% 34.0% from the life-threatening lung disease ages disease, and pain. Data for many of these Cal-QUARTERLY REVENUES ($ mill.) Full 12 and older, with at least one specific should be out in 2020. Moreover, Vertex endarMar.31 Jun.30 Sep.30 Dec.31 Year gene mutation. Like Kalydeco, Orkambi, recently acquired Semma Therapeutics for 2016 398.1 431.6 413.8 458.7 1702.2 and Symdeko, the new breakthrough drug $950 million to develop curative stem-cell 2017 714.7 544.1 578.2 651.7 2488.7 treats the underlying cause of CF, but also treatments for type 1 diabetes. 2018 640.8 752.2 784.5 870.1 3047.6 gives Vertex the potential to treat 90% of The earnings picture seems quite rosy 2019 858.4 941.3 949.8 980.5 3730 CF sufferers, with some patients switching through early next decade. While high- 2020 1075 1125 1175 1225 4600 from its other therapies. The latest addi- er R&D investments to advance the pipe- Cal-EARNINGS PER SHARE AD Full tion is consistent with its strategy to tack- line may pressure the bottom line for now endarMar.31 Jun.30 Sep.30 Dec.31 Year le CF in the earlier stages of disease prog- (as was the case in the third quarter), we 2016 d.17 d.26 d.16 .13 d.46 ression via new drugs or by expanding the think strong revenue growth will drive im- 2017 .99 .07 d.41 .39 1.04 label on existing ones. As part of this, pressive profit gains in the years ahead, 2018 .81 .80 .50 d.05 2.06 Vertex has aimed to widen global access of even as Vertex is now a tax payer. 2019 1.03 1.03 .22 .82 3.10 its CF drugs, targeting a broader/younger Vertex stock has risen sharply of late, 2020 1.15 1.30 1.35 1.45 5.25 patient population and obtaining reimbur- but have investors missed the boat? Cal-QUARTERLY DIVIDENDS PAID Full sement across multiple markets. The approval of Trikafta certainly gave endarMar.31 Jun.30 Sep.30 Dec.31 Year The company remains highly active VRTX shares a big boost. And positive 2015 on the R&D front, even beyond CF. To news flow should keep them climbing. Yet, 2016 NO CASH DIVIDENDS be sure, label-expansion efforts on the CF with the recent run-up in price, the issue 2017 BEING PAID side continue. The company is already ex- offers diminished long-term upside poten- 2018 ploring Trikafta as a treatment for tial. We’d jump in on a pullback, though. 2019 younger kids (ages 6-11), and it’s also look- J. Susan Ferrara December 6, 2019 (A) Diluted earnings. Excl. non-recur. (B) In millions. Note: share count in ’13 reflects ryforwards of about $4.6 bill. and tax credits of Company’s Financial Strength A (charges)/gains: ’03, (29¢); ’04, (27¢); ’05, the conversion of convertible notes into 8.3 $485.6 million. Stock’s Price Stability 35 (63¢); ’06, 6¢; ’18, $6.03 (one-time tax benefit). mill. shs. (D) Qtrly. eps may not add due to antidilutive Price Growth Persistence 95 Next egs. rpt. due early February. (C) As of 12/31/18, had total net oper. loss car- effects/changes in shs. outst’g. Earnings Predictability 15 © 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. December 6, 2019 SUPPLEMENTARY REPORTS 846

TD AMERITRADE HOLDING (AMTD; 51.78) value in response. Adjusted earnings per share of $1.13 Latest Report page 1809 10-11-19 grew 21.5% year over year and compared favorably to Latest Supplementary Report page 639 11-21-19 our estimate of $1.00. Domestic revenue of $8.96 billion SCHWAB (CHARLES) (SCHW; 49.31) rose 2.4%, owing largely to a solid 2.0% increase in same- Latest Report page 1808 10-11-19 store sales. Strength from the appliances, headphones, Latest Supplementary Report page 639 11-21-19 tablets, services, and computing categories were partially Online broker Charles Schwab has entered into a de- offset by weak sales of gaming and home theater prod- finitive agreement to acquire industry peer TD ucts. Online revenue growth was also healthy, climbing Ameritrade. Under the terms of the deal, AMTD stock- 15% on higher average order values. As a percentage of holders would receive 1.0837 shares of Schwab for each total revenue, e-commerce sales increased 180 basis share held. This represents a 17% premium to the equity’s points, to 15.6%. Meanwhile, the acquisition of GreatCall, closing price on November 20th. The all-stock transac- a provider of health monitoring equipment for the eld- tion is valued at about $26 billion. erly, contributed 40 basis points to the total domestic sales The deal is subject to customary regulatory and clos- gain, offsetting lost revenue from some store closures over ing conditions. Plus, it must earn the approvals of “the the past year. majority of a minority” of TD’s and Schwab’s sharehold- Management appears upbeat about the holiday shop- ers. That said, we expect the merger to close during the ping season, citing a strong assortment and improved second half of 2020. inventory availability. Notably, free next-day air ship- We believe the combination of the two e-brokers would ping will be available for thousands of products. This lead to significant synergies, as the integration should outlook, along with the solid fiscal third-quarter results, enable the new company to better scale its business, le- prompted management to raise its full-year fiscal 2019 verage technologies, and reduce operating costs down the adjusted earnings-per-share estimate to a range of $5.81- road. In all, the combined entity would hold 24 million $5.91, from the prior forecast of $5.60-$5.75. In response, client accounts, more than $5 trillion in client assets, we have increased our share-net target for the current and generate $17 billion in annual revenues. fiscal year by $0.20, to $5.90. Rumors surrounding this tie-up surfaced about a week We were pleased to see Best Buy making progress on before the official announcement, driving up the stocks the same-store sales front. Effective cost controls and of both companies. Consequently, AMTD and SCHW solid earnings growth were also welcome outcomes. It shares did not move much in reaction to the fine print of appears that the company’s strategy to drive traffic the merger arrangement. through customer service is helping to fend off other O.S. online rivals such as Amazon and Walmart. The focus on healthcare technology should also benefit the shares over AVX CORP. (AVX; 20.55)* the long run. We continue to recommend the stock to Latest Report page 1319 9-27-19 many investors. Shares of electrical equipment manufacturer AVX K.D. Corp. were up significantly in recent trading. Investor enthusiasm was ignited after Japan-based Kyocera an- BUCKLE (THE), INC. (BKE; 28.43) nounced plans to purchase the remaining 28% of AVX Latest Report page 2195 10-25-19 stock that it does not already own for $19.50 a share in Shares of The Buckle rallied after the apparel and cash. The proposed offer represents a 35%-plus premium accessories retailer reported better-than-expected fiscal to the equity’s preannouncement closing price. Manage- third-quarter (ended November 2nd) results. The top line ment will review the proposal. However, investors clearly rose 4% from a year earlier, to $224.1 million, nicely ahead seem to favor the deal, given the stock’s momentum fol- of our $215.0 million forecast. Comparable-store sales lowing the news. The recent ascension discounts capital increased 4.7% and online sales were up 5.4%. Updated gains potential to 2022-2024. We have suspended the fits and styles in denim resonated well with women and stock’s Timeliness rank due to the pending deal. lifted women’s merchandise sales 3%. Strength in mens- N.M. wear was even more pronounced and broad based, with *Price as of 1:45 P.M. EST on 11-27-19 sales climbing 6%. Footwear was especially strong. In terms of profitability, the gross margin expanded BEST BUY CO. (BBY; 74.25) 168 basis points (thanks to wider merchandise margins Latest Report page 2166 10-25-19 and leverage in occupancy, buying, and distribution Consumer electronics and appliances retailer Best Buy costs), while SG&A expenses as a percentage of the top reported strong results for the fiscal 2019 third quarter line decreased 96 basis points (due to reduced payroll (ended November 2nd), and the shares rose sharply in expenses). The tax rate also fell to 24.5% from 25.9%. All

© 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber's own, non-commercial, internal use. No part of it may To subscribe call 1-800-VALUELINE be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. December 6, 2019 SUPPLEMENTARY REPORTS 847 told, earnings per share rose 26% from a year earlier, to ance from $3.30-$3.45, to $3.50-$3.60, or 5.2% at the $0.53, well ahead of our $0.42 forecast. Also of note, com- midpoints. In response, we have lifted our share-net es- parable-store inventory was down 3.5% at the end of the timate from $3.40, to $3.60. Further, the company ex- quarter, which should help limit the need for aggressive pects same-store sales to rise between 2.5% and 3.0%, markdowns and promotions over the holidays. compared with a 3.1% decline in fiscal 2018. As for the stock, we continue to think that its primary This was an encouraging report from Dick’s. We were allure is its above-average dividend yield. The company particularly impressed with the same-store sales, as this continues to face stiff competition in the apparel space, level of growth has eluded the company for some time. and this latest increase in price discounts much of the Despite the recent price advance, the shares still have a equity’s capital appreciation potential, in our view. reasonable price-to-earnings ratio. Thus, investors may M.E.S. want to consider the stock. K.D. CENTRAL GARDEN & PET (CENT; 25.55)* *Price as of 1:45 P.M. EST on 11-27-19 Latest Report page 1184 9-20-19 Shares of household goods conglomerate Central Gar- DOLLAR TREE, INC. (DLTR; 94.09)* den & Pet slumped after the company issued fiscal fourth- Latest Report page 2142 10-25-19 quarter and 2019 results (year ended September 30th). Shares of Dollar Tree were hit hard after the discount Earnings per share fell 79%, to $0.04, and slumped 31%, retailer reported an earnings miss for the third quarter to $1.61, for the full year. Higher operating expenses, (fiscal 2019 ends February 1, 2020) and provided disap- owing to restructuring charges and other business in- pointing guidance for the January period. Specifically, vestments, took a toll on the bottom line. Likewise, its the company posted earnings of $1.10 a share, $0.08 be- Animal Health business struggled for much of the year low the year-earlier tally and a nickel short of our esti- and an unfavorable product mix, tariffs, and rising oper- mate. Sales increased 3.7%, in line with expectations, ating costs narrowed margins. but the operating margin declined at a faster clip than Looking ahead, we expect the company will continue most on Wall Street, including us, were calling for, due to struggle in the first quarter of fiscal 2020. Manage- to tariff-related pressures. In the same vein, manage- ment expects it will record a loss of $0.10 to $0.15 per ment said that it now anticipates earnings of between share for the December quarter. Nevertheless, we think $1.70 and $1.80 a share in the fiscal fourth quarter, well things will begin to pick up in the following months. All below the $1.93 earned in the prior-year period and our told, we have shaved $0.45 from our fiscal 2020 share- previous call for $2.02. Given the revision, we have de- net estimate, and now look for earnings to rebound about cided to trim our January-quarter share-net estimate to 2%, to $1.65 next year. $1.75 and our fiscal 2020 forecast to $5.30, for the time O.S. being. All but the most risk-tolerant investors are ad- *Price as of 1:45 P.M. EST on 11-27-19 vised to look elsewhere. A.J.C. DICK’S SPORTING GOODS (DKS; 46.22)* *Price as of 1:45 P.M. EST on 11-27-19 Latest Report page 2169 10-25-19 Sporting equipment and apparel retailer Dick’s Sport- TIFFANY & CO. (TIF; 133.25) ing Goods reported better-than-expected results for the Latest Report page 2188 10-25-19 fiscal third quarter (ended November 2nd), and the Latest Supplementary page 2669 11-8-19 shares were up meaningfully in response. Adjusted earn- Shares of Tiffany & Co. were on the move higher again ings per share increased 33% year over year, to $0.52, following news that the iconic jewelry chain has agreed much better than the $0.36 we estimated. Net sales rose to be acquired by France’s LVMH Group. LVMH, a luxury- 5.6%, owing to a 6.0% advance in same-store sales. Strong goods powerhouse with a large stable of brands, from gains in traffic and the average transaction amount drove Louis Vuitton and Bulgari to Christian Dior, would pay the impressive comp performance. E-commerce sales $135 a share in cash, or about $16.2 billion, for the com- jumped 13% and accounted for 13% of the total, versus pany. This is nearly 13% higher than LVMH’s initial bid, 12% in the prior-year period. The company’s three pri- made public in late October. But we had envisioned an mary categories (hardlines, apparel, and footwear) were even greater takeout price, especially since TIF shares all positive. Management also credited stronger market- had traded in the $140s as recently as July, 2018. ing, new e-commerce fulfillment centers, and enhanced Still, the deal seems to make sense for Tiffany at this website functionality for the solid showing. juncture, as the retailer’s top line has been on the slug- Due to the favorable results, management increased gish side, hampered by softer spending from international its full-year fiscal 2019 adjusted earnings-per-share guid- tourists, most notably from China. The company has also

© 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber's own, non-commercial, internal use. No part of it may To subscribe call 1-800-VALUELINE be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. December 6, 2019 SUPPLEMENTARY REPORTS 848 been struggling to attract younger customers, despite now makes up 10.5% of total sales. Meanwhile, margins promising new ad campaigns and product initiatives. are holding up and adjusted earnings per share more In light of this proposed transaction, expected to close than doubled to $0.32, versus $0.14 a year earlier. in mid-2020, we think that remaining Tiffany sharehold- The company now sees same-store sales growing 4%- ers would do well to divest their positions at this time. 6% in fiscal 2019, which compares to the prior expecta- While we don’t envision any regulatory roadblocks, tion of 1%-2%. NonGAAP earnings are now forecast to there’s always a chance that the deal could fall through, land between $2.30 and $2.50 a share, versus the prior and this would likely send the stock tumbling from re- forecast of $2.15 to $2.25. In response, we are raising cent levels. our full-year earnings estimate to $2.45 a share. J.H. This was an impressive showing from Hibbett Sports. We applaud the company’s solid same-store sales. The FERRO CORP. (FOE; 14.36) fact that the improvement is stemming from both brick- Latest Report page 569 11-29-19 and-mortar and online is encouraging. We think the Shares of Ferro Corporation spiked in value following shares may have some further room to run, but conser- speculation that the specialty materials producer is en- vative investors should look elsewhere, as any evidence gaged in potential takeover discussions. Indeed, accord- of a weaker-than-expected holiday shopping season may ing to news sources, the company is working with finan- well weigh on the share price. cial advisers to explore strategic options for its business, K.D. including an outright sale. Ferro’s gross margin has been on the decline for the NORDSTROM, INC. (JWN; 38.36) better part of a three-year stretch, as it has contended Latest Report page 2146 10-25-19 with volatile commodity prices. Though acquisitions and Shares of Nordstrom, Inc. rallied notably in price af- operating leverage allowed it to post double-digit top- ter the Seattle-headquartered upscale retailer released and bottom-line gains in 2017 and 2018, macroeconomic its fiscal third-quarter (ended November 2nd) results. challenges have caused a reversal of fortunes this year. Although net sales fell 2.2% year over year, to $3.57 bil- Indeed, for the nine months ended September 30th, sales lion, the figure was in line with Wall Street’s expecta- and share net fell 6% and 21%, respectively, from the tion. Meanwhile, share net of $0.81 came in much stron- year-earlier time frame. ger than the consensus forecast of $0.63. Meantime, tepid demand of late has prompted other Nordstrom’s digital sales grew 7% from the year-ago industry players, including Axalta Coating Systems, to period and continued to offset softness from its full-price initiate strategic review processes. With regard to Ferro, product sales. To note, digital sales make up about 34% we think consolidating its operations with a peer would of the retailer’s total sales. Furthermore, the company’s give it greater scale and potentially add a measure of ongoing growth initiatives, especially tight inventory stability to the gross margin, while removing a competi- controls, favorable pricing, and enhanced loyalty pro- tor from the picture. grams, are boosting the bottom line. Another factor con- M.L. tributing to Nordstrom’s success is the opening of select new locations across the country. More recently, HIBBETT SPORTS (HIBB; 28.63) Nordstrom introduced two flagship stores in New York Latest Report page 2174 10-25-19 City for men and women, which have received favorable Sporting goods and fitness apparel retailer Hibbett foot traffic since opening doors. Sports reported better-than-expected results for the fis- Looking ahead, Nordstrom still expects its full-fiscal cal third quarter (ended November 2nd), and the shares year sales to fall 2% year over year, but has now guided traded sharply higher in response. Net sales rose 27% for earnings in the $3.30-$3.50-per-share range. Previ- year over year, to $275.5 million, beating our call by $25.5 ously, it had projected share earnings between $3.25 and million. The acquisition of City Gear stores contributed $3.50. This guidance reflects management’s optimism $43.7 million to the total, and organic growth was an that additional tariffs on Chinese imports may not have impressive 6.9%. Driving that result was a 10.7% increase a significant impact on its overall results. in same-store sales, the strongest rate of improvement All told, Nordstrom’s latest results are encouraging. in over seven years. Importantly, this compares to a mere Therefore, we have increased our fiscal 2019 and fiscal 30-basis-point year-over-year advance in the fiscal sec- 2020 share-net estimates by $0.10 each, to $3.40 and ond quarter. Management credited its strategic focus on $3.55, respectively. leading with sneakers and then selling subsequent E.J. activewear and accessories to create “toe-to-head con- cepts.” The e-commerce business is also doing well, and

© 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber's own, non-commercial, internal use. No part of it may To subscribe call 1-800-VALUELINE be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. December 6, 2019 SUPPLEMENTARY REPORTS 849

MEDICINES COMPANY (MDCO; 83.80) MOVADO GROUP (MOV; 19.73)* Latest Report page 1631 10-4-19 Latest Report page 2178 10-25-19 NOVARTIS AG ADR (NVS; 91.30) Shares of Movado Group came under heavy pressure Latest Report page 1635 10-4-19 on the heels of a disappointing earnings report for the The Medicines Company, which specializes in the de- third quarter of fiscal 2019 (year ends January 31, 2020). velopment and commercialization of cardiovascular-care Adjusted share net of $0.82 for the October interim fell drugs, recently entered into a definitive agreement to be 31% from a year earlier and badly missed our $1.15 esti- acquired by pharma giant Novartis AG. Under the terms mate, with a sluggish top line being the main culprit. of the deal, Novartis would pay $85 for each share of Despite stepped-up marketing initiatives, sales were MDCO, giving the all-cash transaction an equity value hampered by the challenging retail landscape, as well as of $9.7 billion. The price represents a premium of about by weakness across the broader watch category. Com- 45% to MDCO’s closing price before news reports sur- petitors, like beleaguered Fossil Group, have felt the pres- faced suggesting a potential deal between the compa- sure, too. And Movado may have a hard time jump-start- nies. ing its top line in the coming periods, with more young The Medicines Company has recently reported favor- consumers bypassing traditional timepieces or opting for able clinical trial results for INCLISIRAN, an investiga- high-tech smartwatches from Apple, Samsung, etc. tional twice-yearly therapy aimed at reducing low-den- In view of the difficult business environment, the com- sity lipoprotein cholesterol (LDL-C), also known as “bad pany now envisions share earnings for fiscal 2019 of be- cholesterol”. The company expects to file regulatory sub- tween $1.55 and $1.70, down from $2.25-$2.35 previously. missions for INCLISIRAN in the United States, followed Consequently, we are slashing our bottom-line call by by Europe in early 2020. $0.70, to $1.65 a share. We are also taking our share-net The deal, which has been approved by the boards of estimate for next year down from $2.80 to $2.00, at least directors of both companies, is expected to close in the until visibility improves and new product-innovation ef- first quarter of 2020. Both stocks advanced on the news. forts show signs of bearing fruit. The recent valuation is M.F. quite compelling, but only patient, longer-term investors should consider MOV stock at this point. MTS SYSTEMS (MTSC; 46.32)* J.H. Latest Report page 125 11-15-19 *Price as of 1:45 P.M. EST on 11-27-19 MTS Systems, a global supplier of high-performance test systems, motion simulators, and sensors, recently NUTANIX, INC. (NTNX; 34.92)* reported its fiscal fourth-quarter results (year ended Latest Report page 1832 10-11-19 September 28th) and the news was nothing to write home E-commerce company Nutanix has issued its fiscal about. Although the company posted a better-than-ex- first-quarter results (year began August 1st). Nutanix pected 13% year-over-year jump in sales, driven by con- was unprofitable in the October period, and its net loss tinued growth in both the Test and Simulation divisions, widened to $229.3 million (or a deficit of $1.21 per share), September-quarter earnings came in at an from $94.3 million ($0.54) in the year-ago period. Mean- underwhelming $0.25 a share, well below our estimate time, revenues came in roughly flat year over year, at and the year-ago result. It is important to note that the $314.8 million. Nevertheless, investors seemed enthused year-earlier figure included a $4.6 million gain from the by the company’s recurring subscription revenue streams, sale of one of the company’s manufacturing plants in sending the stock sharply higher in value. Indeed, the China. Earnings were hurt by higher interest expenses company has been increasing its sales team and grow- from its increased debt position, as well as restructuring ing its customer base. Too, Nutanix has focused on pro- and acquisition-related costs. ductivity improvements and widening margins. Management’s guidance for the coming fiscal year was Looking ahead, we expect the bottom line will linger none too inspiring. To wit, although fiscal 2020 sales are in the red for the remainder of fiscal 2020. But we be- targeted to come in between $955 million and $995 mil- lieve the company will narrow its losses in the coming lion (above our previous estimate of $930 million), earn- quarters and for the full year. However, given the weak ings per share are now expected to only hit the $2.05- start to the year, we have widened our full-year fiscal $2.35 mark, well below our earlier estimate of $3.05. All 2020 share-loss estimate by $0.50, and now look for a in all, the investment community was not pleased with deficit of $3.00 (compared to a loss of $3.43 in fiscal 2019.) the news, with MTSC stock down sharply in value. O.S. K.A.N. *Price as of 1:45 P.M. EST on 11-27-19 *Price as of 1:45 P.M. EST on 11-27-19

© 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber's own, non-commercial, internal use. No part of it may To subscribe call 1-800-VALUELINE be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product. December 6, 2019 SUPPLEMENTARY REPORTS 850

PALO ALTO NETWORKS (PANW; 220.52)* Latest Report page 2602 11-8-19 SUPPLEMENTARY REPORTS Shares of Palo Alto Networks traded sharply lower in price after the cybersecurity solutions provider reported AVX Corp...... 846 mixed fiscal 2020 first-quarter results (year ends July Best Buy Co...... 846 31st) and provided disappointing guidance. October-quar- ter sales climbed almost 18% from the year-ago period, Buckle (The), Inc...... 846 to about $772 million, besting our $765 million call. The Central Garden & Pet ...... 847 ongoing shift to a subscription-based model helped that Dick’s Sporting Goods ...... 847 segment rise some 30%, which more than offset a 4% decline in the products division. Billings also rose by Dollar Tree, Inc...... 847 about 18%, exceeding the upper end of management’s Ferro Corp...... 848 expected range. However, the gross margin contracted Hibbett Sports ...... 848 by 20 basis points, and a 50% spike in R&D costs led to a MTS Systems ...... 849 20% rise in overall operating expenses. An unfavorable swing on the tax line exacerbated matters, with the com- Medicines Company ...... 849 pany ultimately registering a share loss of $0.62. This Movado Group ...... 849 was more severe than the $0.41-a-share deficit recorded Nordstrom, Inc...... 848 a year earlier and our estimate for a loss of $0.40. Looking ahead, Palo Alto reaffirmed its fiscal 2020 top- Novartis AG ADR ...... 849 line target of $3.44 billion to $3.48 billion, which trans- Nutanix, Inc...... 849 lates to 19%-20% growth. However, the non-GAAP EPS Palo Alto Networks ...... 850 guidance range was trimmed to $4.90-$5.00 (from $5.00- Schwab (Charles) ...... 846 $5.10), owing to charges related to a proposed acquisi- tion. (Our presentation reflects GAAP results.) Our full- TD Ameritrade Holding ...... 846 fiscal year revenue forecast of $3.46 billion remains in- Tiffany & Co...... 847 tact. That said, given weaker margin assumptions for the balance of the year, coupled with the downside to our October-quarter estimate, we now look for a fiscal 2020 GAAP share loss of $1.45 (previously $1.00). M.L. *Price as of 1:45 P.M. EST on 11-27-19 Dear Subscribers, As part of our ongoing efforts to keep The Value Line Investment Survey the most valuable investment resource STOCK SPLITS AND DIVIDENDS DECLARED for our subscribers, all updated Ranks are now being released Next Ex- See on the Value Line Web Site by 8:00 A.M. Eastern Time on Mon- Payment Date Page days. You can access all the Ranks each week at www.valueline.com by entering your user name and Commerce Bancshs. 5.00% Dec. 2 778 password. We look forward to continuing to provide you with accurate and timely investment research. Thank you.

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