I do not own this stock of Morneau Shepell Inc (TSX-MSI, OTC-MSIXF). Every once in a while, I go through the stocks that my brokerage, TD Waterhouse, is recommending to find promising new stocks. In February 2013 this stock was rated a buy by TD Waterhouse. It was under Diversified Financials.
When I was updating my spreadsheet, I noticed Long Term Debt increased by 108%, but the Long Term Debt/Market Cap Ratio is still low at 0.23. Goodwill and Intangible Assets also increased by 90% and the Ratio here is 0.75. It is ok, but getting high. They made an acquisition in 2018 and issued shares. Outstanding Shares are up over 19% in 2018.
This company used to be an Income Trust. Income Trusts can pay much higher dividends than corporations. When companies change from an Income Trust to a corporation, they will be paying dividends that are too high to be supported by earnings.
Companies therefore either cut the dividends or kept them flat until they can be covered by earnings or a combination. This company both cut the dividends then kept them flat. The cut was only a 17% cut. Dividends have been flat for the last 7 years. However, analysts expect that the company will be paying out less than earnings by 2020 and then they will start to increase dividends again. See chart below for dividend growth.
The dividend yield is currently moderate (2 to 4% ranges), but the yields used to be high because it was an Income Trust Company. The current dividend yield is 2.63%. The 5, 10 and historical median dividend yields are 4.59%, 5.27% and 6.10%. In the future you can expect dividend yields probably in the 2% to 3% ranges.
The Dividend Payout Ratios are expected to be fine in 2020 and beyond. The DPR for EPS for 2018 is 217% with 5 year coverage at 169%. The DPR for CFPS for 2018 is 45% with 5 year coverage at 43%. In 2020 the DPR for EPS is expected to be around 73%
Debt Ratios are fine. The Long Term Debt/Market Cap Ratio for 2018 is 0.23. The Liquidity Ratio for 2018 is 1.49 with 5 year median at 1.67. This ratio has varied over time. The Debt Ratio for 2018 is 1.82 with 5 year median at 1.80. The Leverage and Debt/Equity Ratio for 2018 is 2.22 and 1.22 respectively, with 5 year medians at 2.15 and 1.15.
The Total Return per year is shown below for years of 5 to 14 to the end of 2018. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See chart below.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2013 | 5 | 0.00% | 14.42% | 10.18% | 4.24% |
| 2008 | 10 | -0.62% | 17.60% | 11.06% | 6.54% |
| 2004 | 14 | -0.48% | 12.12% | 6.78% | 5.34% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 29.68, 34.66 and 41.45. The corresponding 10 year ratios are 28.78, 33.84 and 37.12. The corresponding historical ratios are 27.7, 33.84 and 37.12. The current P/E Ratio is 45.69 based on a stock price of $29.70 and 2019 EPS estimate of $0.65. This stock price testing suggests that the stock price is relatively expensive.
I get a Graham Price of $11.63. The 10 year low, median, and high median Price/Graham Price Ratios are 1.60, 1.89 and 2.17. The current P/GP Ratio is 2.55 based on a stock price of $29.70. This stock price testing suggests that the stock price is relatively expensive.
I get a 10 year median Price/Book Value per Share Ratio of 2.22. The current P/B Ratio is 3.21 based on a Book Value of $596M, Book Value per Share of $9.25 and a stock price of $29.70. The current ratio is 45% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
I get an historical median dividend yield of 6.10%. The current dividend yield is 2.63% based on dividends of $0.78 and a stock price of $29.70. The current yield is some 57% lower than the historical median dividend yield. This stock price testing suggests that the stock price is relatively expensive.
The 10 year median Price/Sales (Revenue) Ratio is 1.41. The current P/S Ratio is 2.28 based on 2019 Revenue estimate of $840M, Revenue per Share of $13.04 and a stock price of $27.90. The current ratio is 61% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
Results of stock price testing is that the stock price is the stock price is probably expensive. The stock price is showing as expensive on all tests. We can ignore the Dividend yield test because the company was an Income Trust, but all the others are showing expensive also.
Is it a good company at a reasonable price? This would be a good Financial Services stock to own. It will probably be a dividend growth stock in the future. However, it is probably too expensive to buy at the present time.
When I look at analysts’ recommendations, I find Strong Buy (1), Buy (1) and Hold (3). The consensus would be a Buy. Personally, I agree with the Hold rating. The 12 month stock price is $31.00. This implies a total return of 7.00% with 4.38% from capital gains and 2.63% from dividends.
See what analysts are saying about this company on Stock Chase. Analysts think this is a solid company. Karen Thomas on Motley Fool thinks that the company has hit a peak and you should sell.. The company put a notice on News Wire bout them being recognized as a leading human resources service provider by Canadian HR Reporter for the fourth consecutive year.. A Writer on Simply Wall Street thinks the company’s debt load is a vulnerability. Harry Campbell on Altcoin Mercury talks about analysts’ estimates.
Morneau Shepell Inc operates as a human resource consulting and technology company in Canada, the United States, and internationally. The company provides health and productivity, administrative, and retirement solutions to assist employers in managing the financial security, health, and productivity of their employees. Its web site is here Morneau Shepell Inc.
The last stock I wrote about was about was Empire Company Ltd (TSX-EMP.A, OTC-EMLAF) ... learn more. The next stock I will write about will be Inter Pipeline Ltd (TSX-IPL, OTC-IPPLF) ... learn more on Monday, July 15, 2019 around 5 pm.
This blog is meant for educational purposes only and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.
See my website for stocks followed and investment notes. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter or StockTwits. I am on Instagram. Or you can just Google #walktoronto spbrunner8166 to see my pictures.
No comments:
Post a Comment