Saturday, May 10, 2008

Top 25 Stocks PPD

I saw today that there were 3 new stocks on the top 25 list (new to the top 25 that is). I thought that this weekend that I would do a little diligence on two of them,

PPD -this is a rather unique stock. They provide pre-paid legal services. I am not sure if anyone else does this, though I have seen some adds with Robert Shapiro selling Legal Zoom dot com, which might have some similar elements. I suspect most people don't want to trust the internet for legal services, they'd rather be face-to-face with an attorney. I know I would.

I have decided that the biggest question to ask regarding any MFI stock is whether they can replicate or improve last year's earnings. If they can't do that, then the follow-up question is would you still buy the stock with lowered earnings? Here is my calc of the ratios for PPD:



ppd
+ Operating Income After Depreciation 94.43
- Minority Interest - Income Account -
= Income for Calculation 94.43

Market Cap Yahoo 528,230

Share Price 43.44
+ Market Cap Calc 528.23
+ Preferred Capital -
+ Debt in Current Liabilities 18.26
+ Long-Term Debt 51.86

Cash and Short-Term Investments 32.17
- Excess Cash 11.89
= Enterprise Value 586.47






+ Property Plant and Equipment - Net 56.79
+ Receivables 5.64
+ Inventories 1.56
+ Other Current Assests 28.17
+ Working Cash 20.28
- Accounts Payable 15.41
- Current Liabilities - Other 40.24
= Invested Capital 56.79

Earnings Yield 16%

ROIC 166%

Obviously strong numbers, else would not be in top 25. They are trading at $43.44 with a 52 week range of $39.45 to $71.49. Looking at their balance sheet, they have $52m of debt, down from $70m a year ago. They cover their debt payment over 20x with income, so I don't think that is a major concern.

Their revenue has been very flat the past 5 quarters. In the current econmic environment, that isn't so bad. They have done a great job managing expenses, so not much expense ratio pressure.

It looks like no analysts follow the company, so we can't get a peg on whether they think the company will continue to make money.

They are actively buying back their stock with free cash flow and they are actually reducing share count ( down in past year from 13.348m to 12.116m) and plans in the hopper to buyback another million.

I like this company and their business model. I'd rate them a buy. They seem like a classic MFI stock. Cheap and a good company that could grow with little additional capital. What do other people think?

2 comments:

Homer315 said...

PPD was on the list when I first started using MFI. I didn't buy it in my first basket, and (since I'm a lawyer) regretted it a few months later as the stock price went much higher. I didn't check to see whether, over the course of the year (i.e. from Jan 07 to Jan 08) I would have made some money, but this is not the first time the stock's been on the list...

Marsh_Gerda said...

PPD has been on various lists for over past two years. I meant it was new to the top 25 since October 2007.

MG