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My thread on comparision of both #HUL and #Nestle.. I'm simply doing a forward EPS model here to understand whether the CMP has over/under/fairly estimated the future growth and what is the delta? #Stockanalysis #EPSmodelvaluation
These 2 are stable FMCG giants jointly demanding a Lion's share in the market with very high RoCEs, Stable and incremental positive cashflows and well established brands which are going to continue for generations irrespective of recession or inflation
I can do a DCF to determine the intrinsic value but cases like these where the Quality is nondebatable, One can only look for an appropriate entry. Hence I'm doing a quick forward EPS model simply to understand the inbuilt growth in the price
Let's look at #HUL 1st .. Assuming I want a 20% returns on my investment and assuming the stock still trades at a decent 50PE multiple (Currently its trading at 68/70 PE) Last 5 yrs Median PE has been 56. So its a fair assumption for 2025
In the above example, HUL has grown its EPS at 12.8% CAGR (5 yrs), If I need 15% returns at current CMP, and assuming HUL gets 50 PE in 2025, it has to further grow its EPS to 90/- which is 22.6% growth expectation. Historical growth 13%, Expected growth 23% = Overvalued
Let's look at Nestle, Similar to HUL assumptions, RoR expected of 20% and giving a PE of 50 (Historical 5 yrs Median PE is 56)
If you see the above example, A returns expectation of 15%, The EPS has to grow to 630/- which is 25% CAGR for 5 yrs. Historical growth achieved 23% (CAGR 4 yrs). I have not looked at 2015 which was an aberration and wud hv given a false swelled CAGR
Basis this model, Nestle looks a much more attractive option with price and EPS growth almost matched correctly. 15% RoR expectation, some may argue as less but its realistic in current scenario and given risk to reward ratio! (Also don't forget the dividends) which is 1% fr both
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