Looking For Growth At A Reasonable Price? Try Sysco, Insperity & Curtiss-Wright

by Trefis Team
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Growth stocks have been in favor over the last few years, driven partly by the low-interest rate environment and most growth names are trading at increasingly expensive valuations. For perspective, the PEG ratio for the broader S&P 500, calculated by dividing the P/E ratio by the earnings growth rate, has risen from roughly 1x in 2018 to close to 2.3x currently, highlighting the premium that investors are placing on growth. [1] In this analysis, we pick a few stocks including Sysco (NYSE: SYY), Insperity (NYSE: NSP), and Curtiss-Wright (NYSE: CW) that have been seeing relatively high earnings growth in recent years and are presently trading at attractive valuations. While some of these stocks have considerably underperformed the market, partly due to Covid-19 related impacts, they are likely to regain momentum as the pandemic eases.

Here’s a rundown of the specific criteria we’ve used to pick these stocks. Firstly, we focus on value, picking companies that have a trailing P/E multiple of under 18x, well below the P/E of the S&P 500 (about 23x as of late July). Secondly, we screen based on growth, selecting companies that have seen their Net Income expand by over 10% each year over the last three years. We also filter for scale and leverage, focusing on companies with a market cap of over $2 billion and Debt to EBITDA ration standing at less than 5x.

See our complete analysis on Growth Stocks At A Reasonable Price for more details on the financial performance and returns of these companies. Parts of the analysis are summarized below.

An Overview Of Some High-Growth, Yet Value Priced Stocks

Sysco ($28 billion market cap, 17x trailing P/E)  is a food services company that markets and distributes food products,  kitchen equipment, and tabletop items to restaurants and other institutions. The stock has underperformed declining 35% year-to-date as the Covid-19 pandemic and associated lockdowns impacted demand for dining out, hurting the company’s revenues. While the near-term picture remains mixed, Sysco has a strong balance sheet with over $2 billion in cash, and this should enable it to tide out the current crisis and potentially rebound stronger, post the pandemic.

Insperity ($2.7 billion, 18x ) provides human resources and administrative services to companies. The stock is down by about 20% year-to-date, as the Coronavirus-led downturn impacted the job market and hit the small and medium-sized businesses that the company focuses on. However, Insperity has a strong balance sheet, which should help it to mitigate risks through these uncertain times. Additionally, Insperity’s recently published Q2 results were stronger than expected, indicating that the worst could be behind the company.

Curtiss-Wright ($4.1 billion, 13.5x ) is a diversified product and service provider that caters to the aerospace, industrial, defense, and energy markets. The company has underperformed this year, as the commercial aerospace market is likely to remain lackluster on account of Covid-19. However, the company is quite well-diversified. Its defense segment actually recorded about 7% sales growth in Q2 and it’s possible that other segments such as power generation and general industrial products could also recover more quickly, helping the stock.

Looking for outsized outperformance? Here is a shortlist of 4 companies that beat the S&P 500, every single year, year after year, for the last 10 years.

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Notes:
  1. S&P 500 Sectors STEG, LTEG, & PEG, Yardeni Research, July 2020 []
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