Brown & Brown (BRO)

SSG and PERT A Graph | Google “stocks: bro” | Company Website

Brown & Brown remains a high quality growth stock. Currently at $31.25, our stock selection guide has BRO a buy up to $26.40 with a projected average return of 8.3%. BRO pays a 0.8% dividend. Its current price makes it a HOLD. We wouldn’t buy more at this price but we are reluctant to exchange this quality company for another.

The Feb 24, 2006, Value Line comments that Brown & Brown has made solid progress
of late and has bright prospects over the coming 3 to 5 years. VL rates BRO’s financial strength as an “A” and earnings predictability as 90. Morningstar also speaks well of the company and projects revenue growth of 16% while Value Line projects revenue growth of 14%. However, Morningstar only gives BRO 2-stars indicating that the current price is high relative to its fair value calculation.

Investor Advisory Service also follows BRO and notes: “Business remains quite solid at insurance broker Brown & Brown. Fourth quarter EPS increased 14%. Sales grew 21%, with internal revenue growth of 5.2%. CEO J. Hyatt Brown notes that 2005 was the thirteenth consecutive year in which Brown & Brown had earnings growth of at least 15%. Acquisitions are clearly an important part of its growth. The past two years were extremely robust in terms of acquisitions, and the company says that its pipeline of new deals is “a strong as ever.” IAS has as a buy up to 28.

Intel Corp. (INTC)

SSG and PERT A | Google “stocks: INTC” | Company Website

Here is a revised stock selection guide for Intel Corp. Assuming 7.0% revenue growth and 8.8% earnings growth, the projected average return is 17.0%. Intel quality is high with a RQR rating of 71.6. Value Line rates its financial strength A++ but earnings predicatbility is only 50. As the two charts below show, Intel has contined to grow its earnings over the past four years while the market price has remained relatively constant for the last 18 months.

Lower than expected Q4 and year end earnings, and concerns about INTC losing market share to AMD have caused the share price to drop 17.4% YTD. Concern over AMD may be an overreaction (see story). Intel will be supplying CPU andrealtred chipsfor Apple’s new computers.

Intel remains a strong HOLD.

Amgen Inc. (AMGN)

SSG and PERT A (12-26-2005) | Google “Stocks: AMGN” | Company Website

Amgen remains a HOLD. Morningstar provides the following summary of Amgen:

Amgen stands out in an industry dominated by companies trying to creep out of the red. With 37% operating margins last year (excluding acquisition-related charges) and historical margins periodically surpassing 40%, Amgen has proved its ability to translate sales into profits. Even though it invested $2 billion in research and development last year, Amgen still generates plenty of cash, with free cash flow solidly above 20% of sales. With these numbers, Amgen is rewarding investors by both funding future growth and repurchasing shares.

Growth. The Value Line 3-5 year growth projection for revenue growth is 18.5% and EPS is 10%. M* only forecasts 15% revenue growth. The attached stock selection guide uses revenue growth of 17%. Using the preferred procedure, this results in EPS growth of 15.5% and a projected 5-year EPS of $5.88.

Quality. AMGN is high quality company with Value Line rating Financial Strength A++ and Earning Predictability 95. Section 2 of the SSG shows average return on equity (ROE) of 16.8% and average pretax margin of 41.6%. The RQR quality rating is 78.2.

Valuation. Applying the above and a conservative future average PE of 23, the projected average return is 10.8% making Amgen a HOLD. M* rates AMNG four stars meaning the stock is under valued.

Wal-Mart Stores (WMT)

SSG and PERT A (17 Dec 2005) | Google “stocks: wmt” | Company Website

Wal-Mart Stores, Inc. (WMT) operates retail stores in various formats in the United States and internationally. It has two segments: The Wal-Mart Stores and The SAM’S CLUB. The Wal-Mart Stores segment includes Discount Stores, Supercenters, and Neighborhood Markets in the United States, as well as Walmart.com. As of July 31, 2005, Wal-Mart operated 1,276 Wal-Mart stores, 1,838 Supercenter, 92 Neighborhood Markets, and 556 SAM’s Clubs in 50 states in the United States. The company operates various retail formats in Argentina, Brazil, Canada, Germany, Mexico, Puerto Rico, South Korea, and the United Kingdom.

Growth. Value Line projects 3-5 year revenue growth of 12.5% and EPS growth of 13.5%. Reuters reports an analysts consensus EPS growth of 13.7% (based on 16 analysts). M* projects future growth to decline from 13% to 10%. The attached stock selection guide (SSG) assumes revenue growth of 11% and EPS growth of 11.4%. This resulting in a 5-yr EPS of $4.40.

Quality. Wal-Mart is a high quality company. Part 1 of the SSG shows very consistent revenue and earnings growth. From Part 2 of the SSG we see that Wal-Mart has averaged a 20% return on equity over the last five years. Part 2 of the SSG and the PERT chart, and PERT graph (see attached SSG), show consistent pretax margins slightly over 5%. M* gives Wal-Mart a stewardship grade of A. Value Line rates Wal-Mart financial strength A++ and earnings predictability of 100. That is as good as it gets. The Robertson quality rating is 82.3.

Valuation. Wal-Mart has a projected average return (PAR) of 14.3% and total return of 18.2%. See SSG. (Manifest Investing projects PAR as 14.35%.) U/D ratio for Wal-Mart is 10 to 1 and the buy price using 25%-50%-25% zoning is $60.30. (Current price is $49.27.) M* rates Wal-Mart undervalued with five stars.

Microsoft Company

Microsoft Corporation (MSFT) engages in the development, manufacture, license, and support of software products for various computing devices worldwide. Its Client segment offers operating systems for servers, personal computers (PCs), and intelligent devices. The company’s Server and Tools segment provides server applications and developer tools, as well as training and certification services.

Growth. Value Line projects 3-5 year revenue growth of 12.5% and EPS growth of 13.5%. Reuters reports an analysts consensus EPS growth of 11.5% (based on 20 analysts). M* projects future growth at 10%. The attached SSG assumes revenue growth of 9.5% and EPS growth of 10.9%. This resulting in a 5year EPS of $2.03.

Quality. Microsoft is a high quality company. Part 1 of the SSG shows consistent revenue and earnings growth. From Part 2 of the SSG we see that MSFT has averaged a 17.1% return on equity over the last five years with no debt less.Part 2 of the SSG and the PERT chart, and PERT graph (see attached SSG), show consistent pretax margins over 40%. M* gives Microsoft a stewardship grade of A. Value Line rates Dell’s financial strength A++ and earnings predictability of 90. The Robertson quality rating is 83.2 (a rating above 65 is excellent).

Valuation. MSFT has a PAR of 15.2% and TR of 18.1%. See SSG. (Manifest Investing projects PAR as 17.7%.) U/D ratio for MSFT is 7.7 to 1 and the buy price using 25%-50%-25% zoning is $32.10. M* rates MSFT five stars meaning it is undervalued.

Jack Henry & Assoc. (JKHY)

SSG and PERT A (11-18-2005) | Google “stocks: jkhy” | Company Website

Jack Henry & Associates (JKHY) is a stock that frequently shows up in screens for quality growth stocks. Using NAIC criteria, JKHY is a buy up to $22.90 (current price is $19.10). Projected average return over the next 5 years is 15.2%. The SSG assumes a 13.5% revenue growth based on Value Line projections.

Jack Henry & Associates provides integrated computer systems and processes ATM and debit card transactions for banks and credit unions. It describes itself as:

A technology provider for the financial industry. That’s the simplest way to describe what we do. But it hardly describes what Jack Henry & Associates is really about. We’re about solutions and support. We’re about building relationships and making things work. We’re about doing the right things for our customers, no matter what. It began as a vision, and it’s become our tradition.

A substantial amount of JKHY’s revenue, about 60%, comes from recurring sales. The company has a strong customer focus. 92% of its customers renw. Its several corporate aircraft are used to transport customer support teams — not company executives. Great concept!

Value Line rates JHKY’s financial strength “B++” and earnings predictability as 80 (out of 100). Its RQR quality rating is 63 — a little lower than the Moose Pond Investors portfolio average. Given the projected average return above 15% and the that fact that JKHY is a medium size company, the slightly lower quality rating is acceptable. Morningstar gives JKHY a rating of five stars and a wide economic moat. It estimates fair value at $23 assuming a growth in revenue of 12%.

Synovus Fin. Corp. (SNV)

SSG and PERT A (11-12-2005) | Google “stocks: snv” | Company Website

We took an initial position today in SNV. It has a projected average return of 18.7% and a RQR quality rating of 70.1. The director of investor relations spoke at the Better Investing National Conference in Atlanta. Two key points from the presentation were that SNV is well managed and the price of banks have been driven down based on concern about bank profitability due to the increase in long term interest rates. SNV has maintained very solid profitability with an return on assets (a key metric for banks) of about 1.9%. Return on equity has been steady aroud 18%. See Morningstar profitability summary below.

Business Description. Synovus Financial Corp., a holding company, provides various financial services. It operates in two segments, Financial Services and Transaction Processing Services (TPS).

The Financial Services segment provides commercial banking services, including commercial, financial, agricultural, and real estate loans; retail banking services, including accepting demand and savings deposits; individual, consumer, installment, and mortgage loans; safe deposit services; leasing services; automated banking and fund transfer services; and bank credit card services. It also provides portfolio management services; securities brokerage; trust services; insurance agency services; financial planning services; asset management services; and investment advisory services.

The TPS segment primarily provides electronic payment processing services in the United States, Canada, Mexico, Honduras, Puerto Rico, and Europe. It also provides back-end processing services to support merchant processing and offers other products and services to support its processing services. In addition, the TPS segment provides commercial printing and related services; programming support and assistance with the conversion of card portfolios to TS2; recovery collections, bankruptcy process and legal account management, and skip tracing services; Internet, Intranet, and client/server software solutions for commercial card management programs; targeted loyalty consulting, as well as travel, gift card, and reward programs; gift card processing services to Japanese clients; prepaid card solutions; and sells and leases computer related equipment associated with its electronic payment processing services. As of April 26, 2005, Synovus operated 41 banks and other Synovus’ offices in Georgia, Alabama, South Carolina, Florida, and Tennessee. The company was formed in 1888 and was formerly known as CB&T Bancshares, Inc. It changed its name to Synovus Financial Corp. in 1989. Synovus is headquartered in Columbus, Georgia.

Pfizer Inc. (PFE)

SSG and PERT A (07-21-2005) | Google “Stocks: PFE” | Company Website

The stock selection guide for Pfizer has been updated to reflect Q2 earnings. Using a 5-yr projected revenue growth of 6.5% and consevative PEs (high PE of 22 and low PE of 12.5), the projected average return ofor the next five years is 18.1%. PFE remains a high quality stocks and is a buy up to $32.70.
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Lowe’s Companies (LOW)

SSG and PERT A (05-06-2005) | Google Stocks | Company Website

Growth. Value Line (8 April 2005 report) projects revenue growth for LOW to be 14.5% and EPS growth to be 17%. Historic sales growth over the past 10 years has been between 18% and 20%.

Quality. Two of the key indicators of quality management, pretax profit margin and return on equity have shown steady increases over the past 10 years. See table from Part 2 of the stock selection guide.

The Robertson Quality Rating for LOW is 75.6 calculated as follows:
Value Line Financial Strength of A+ = 22.5
Earnings Predictability of 95 = 95 / 4 = 23.8
Projected Sales growth = (14.5 / 11.8) * (25 /2) = 15.4
Projected Profit Margins = (10.6 / 9.4) * (25 / 2) = 14.0

Valuation. 5-year projected EPS is 6.07. With a high PE of 25.1, projected high price is $152.40. With a low PE of 16.3, projected low price is 44.8. Using 25% / 50% / 25% zoning, LOW (currently $53.54) is buy below $71.70.

Negatives. LOW currently has a slightly negative free cash flow (cash flow form operations – capital expenditures). Home Deport (HD) its primary competitor has a positive free cash flow.

What Others Are Saying. A recent Motley Fool article discusses Home Depot and Lowe’s Companies. The author finds both HD and LOW attractive but prefers Home Depot as the market leader and notes it has superior margins and returns, and a lower relative price tag (with comparable bottom-line growth). Morningstar rates LOW with four stars, below average business risk, fair value estimate of $62 and a wide economic moat.
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FactSet Research Sys (FDS)

SSG and PERT A | Google Stocks | Company Website

5/7/2007: The SSG has been updated. FDS has been a winner. However, its run-up in price has reduced projected average return (PAR) to about 6%.  If PAR falls any lower, it might be candiate for replacement.  ValueLine rates its financial strength B++ and earnings predictability 100. Morningstar rates it three stars. See stock selection guide. (more…)