Thursday, May 31, 2012

Tim Hortons (THI)

Lets look at Tim Hortons (THI) today. THI trades on the TSX and the NYSE. For discussion and to determine the entry and exit points. Using P/E and CF/S
By using the historical P/E ratio and CF/S ratio one can determine what the entry and exit positions should be and I’ll look at the dividend ratio (D/S) for this company.

THI is a public company that provides a range of food and beverage products. So here we go: for the past 3 years THI has had an average P/E trading range of 18.57 (high) and 14.27 (low). Over a longer term THI had an average P/E ratio of 22.52(high) and 16.83(low) over the past 6 years. THI has also had some wild swings in the past, for example P/E values in 2010 THI had a high P/E ratio of 11.80 and a low P/E ratio 8.5. With a current P\E of 23.03 it looks like THI is on the top end of the price range. THI has over time had an average annual Earnings growth of 22.31% over the past 6 years. For the purposes of this analysis I am using the average of a 20% increase to determine what THI should be valued at.

Knowing or at least estimating future earnings you can estimate the share price. In this case THI should earn about $2.82 in 2012 and using the average P/E the estimated trading range should be 52.36 (high) and 40.23 (low).

THI is a dividend payer which it started paying in 2006. Over that time THI has increased its dividend by 25.01% annually. Lets hope that the increases continue in fact THI has already increased its dividend in the first quarter of 2012 to $0.21 from $0.17, that is a increase of 23.5%.
THI dividend yield for the past 3 years range from 1.20 (high) to 1.58 (low). The past 6 years THI had a yield range of 0.91 (high) to 1.22 (low) Currently THI is paying a 1.50% based on its current price $54.35 which is above its historical average. It is estimated that THI will increase its dividend to $0.84 per share in 2012.

Looking at the math for the dividends and working it backwards the dividend would support a share price of $69.91 (high) and 53.12 (low)
Which makes the current price, look like an attractive buy.

Looking at the price per cash flow ratio (P/CF). THI has increased it’s average CF/S by 13.36% over the past 6 years. THI’s 6 year P/CF ratio is 17.55 (high) and 13.09(low) however the three year average gives a different picture. The current 3 year average is a much lower ratio at 14.24 (high) and 10.92(low). Could this be a sign that THI is maturing in it’s current market?
This gives THI a share price based on a cash flow of $50.04 (high) and $38.37 (low). With todays close of $54.35 it appears to be over valued at this price. CF/S for 2012 is estimated to be $3.51 per share.

To sum it up: current price $54.35
P/E over top of the price range $52.36
D/S is near its low Price range $53.12
CF/S is above its estimated price range $50.04

Now on to, how to trade, as I’m looking to purchase shares of THI I would be writing a put near my price estimates. In this case I’m looking to write a Put Option at $35 on the www.cboe.com and I am looking to sell 10, Oct 2012 Put contracts for the 35 strike price with collecting the premium of $.40 /share. I’ll be collecting the premium of $400 before trading costs. If the share price falls to my price level, the Dividend rate would rise to 2.4%.
If your wondering on what the return would be? 35000 /400 = 1.14% at an annual rate of 2.28%

Tuesday, May 22, 2012

Lets look at Microsoft (MSFT) today.
This posting is open for discussion and to determine the entry and exit price points by using 3 different methods. These three methods use the historical P/E, CF/S and the dividend (D/S) ratios. Please note that there is a ton of ratios out there.
Definitions of the following terms used:
P/E. Price divided by its earnings, which shows what multiple that a investor is willing to pay for $1 dollar of earnings.
http://www.investopedia.com/terms/p/price-earningsratio.asp#axzz1ywxwNlkP
CF/S is the same as earnings except that its referring to the company’s ability to generate cash.
http://www.investopedia.com/terms/c/cashflowpershare.asp#axzz1ywxwNlkP
D/S or Dividend per share. For this ratio you would use the dividend yield formula.
http://www.investopedia.com/university/ratios/investment-valuation/ratio7.asp#axzz1ywxwNlkP
Using these historical ratios a person can estimate what the stock price range should be.
By comparing the 3 year average vs a longer term (10 year average or more) can also help to determine where the market believes the company is in its life cycle, which includes: start up (venture), growth or mature company.
Microsoft trades on the Nasdaq under the symbol (MSFT). MSFT has been a publicly traded company for more 10 years. MSFT is a computer software company and sells its products world wide.
So here we go: for the past 3 years MSFT has had an average P/E trading range of 14.53 (high) and 9.37 (low). Over a longer term MSFT has had average P/E ratio of 52.11(high) and 30.57(low) over the past 19 years. MSFT has also had some wild swings in the past with P/E values for example, in 2000 was at a high P/E ratio of 70.6 and a low P/E ratio 8.4 in 2011.
MSFT’s average annual Earnings growth of 19.51% over the past 6 years and 27.38% over a 14 year period. For the purposes of this analysis I am using the average of 19.51% increase to determine what MSFT should be valued at.
By estimating future earnings you can estimate the share price. In this case MSFT should earn about $3.20 in 2012 and using the average P/E the estimated trading range should be $46.52 (high) and $29.98 (low).
MSFT is a dividend payer which started in 2003. Over the past 3 years MSFT has increased its dividend by 12.53% annually, for the past 9 years MSFT has increased its dividend 39.25% compounded. Lets hope that the increases continue. MSFT’s dividend yield for the past 3 years ranged from 1.82 (high) to 2.8 (low). Currently MSFT is paying a 2.70% based on its current price $29.75. It is estimated that MSFT will increase its dividend to $0.67 per share in 2012.
Which makes the current price look attractive to buy.
Looking at the price per cash flow ratio (P/CF) MSFT has increased its CF/S with its 15 year CF/S ratio of 31.69 (high) and 18.77(low) however, the three year average gives a different picture. The current 3 year average is much better at 12.39 (high) and 8.0(low) Which gives MSFT a share price based on a cash flow of $54.57 (high) and $29.42 (low). With todays close of 29.75 is it appealing that its very near it’s estimated low price and a CF/S for 2012 of $3.68 per share. MSFT is closer to it’s low price based on its CF/S
Now on to, how to trade, as I’m looking to purchase shares of MSFT I would be writing a put near my price estimates in this case I’m looking to write a Put Option at $28 on the www.cboe.com So I’m looking to sell 10 June 2012 Put contracts for the 28 strike price and collect the premium of $.30 /share.
If your wondering on what the return would be? 28000 /300 = 1.07% at an annual rate of 12.86%
If you bought it today at the current price of $29.75 and wrote the call for one month June with the strike price of 30 dollars and a premium of $0.65 you would collect 65 dollars per contract for the premium and an additional $0.25 on the shares price increase. If MSFT was called away it would generate 3.02% for the month or 36.24% annualized. "Before fee’s"

Friday, May 4, 2012

Lets look at Telus (T), trades on the Toronto and (TU) on the NYSE.
For discussion and to determine the entry and exit points. Using P/E, CF/S and D/S
By using the historical P/E Ratio, CF/S ratio and the D/S ratio, one can determine what the entry and exit positions should be.
T is a public company with known products and services on the telco arena.

So here we go: for the past 3 years T, has had an average P/E trading range of 14.07 (high) and 10.4 (low). Over a longer term T, had an average P/E ratio of 19.75 (high) and 12.48 (low) over the past 13 years.

Telus has over time has an average annual Earnings growth of 14.07% (6 years) and over the past 3 years as had a more consistent growth rate of 8 %. For the purposes of this analysis I am using a 3 year average increase to determine what T should be valued at.

Knowing how to estimate future earnings you should be able to estimate the future share price. In this case T should earn about $4.04 in 2012 and using the average P/E the estimated trading range should be 56.82 (high) and 42.01 (low).

Looking at the price per cash flow ratio (P/CF) T has increased it’s CF/S. T’s 12 year P/CF has had a nice a low ratio with 6.45 (high) and 4.19 (low) comparing it to the 3 year average gives a better picture. The last 3 year averages is 5.37(high) and 3.97(low)

T’s CF/S is estimated to raise by 6 % in 2012 to 9.88 per share this gives me a share price range of 53.05 (high) and 39.26 (low).

D/S, dividends per share is another method to help in determinating what a reasonable price is to buy T.
Looking at the price per dividend ratio (P/D) T has a range in this area as well. T’s 12 year P/D is 2.62 (high) and 4.06 (low) however the three year averages give a different picture. The 3 year average is 4.36 (high) and 5.9 (low)

T’s current dividend is estimated to raise by 10% in 2012 to $2.43 per share this gives me a share price range of 55.71 (high) and 41.19 (low) with a current 4.1% implies that T is trading near its 3 year averages and above its 12 year average. I believe that T will remain flat in price for 2012.

Now on to how to trade, as I’m looking to purchase shares of T so I would be writing a put at my price estimates in this case I’m looking to write a Put Option at $42 on the www.m-x.ca. So I’m looking to sell 2 January 2013 Put contracts for the 42 strike price and collect the premium of $.30 /share. I am also a holder of T and I would also sell my current position at $58-60 range. So I’ll write 2 May calls at 60 strike price and collect a premium of $ .40 / share.

If your wondering on what the return would be? The Put = 8400 /60 = 0.71% at an annual rate of 1.5% where as the Call would be 8000/80 = 1% and 12 % for the year plus dividends which would make it closer to 16 %.

 
 

Wednesday, May 2, 2012

Lets look at TMX Group (X), trades on the Toronto exchange and is the operator of the Toronto Exchange.
For discussion and to determine the entry and exit points. Using P/E, CF/S and D/S
By using the historical P/E Ratio, CF/S ratio and the D/S ratio, one can determine what the entry and exit positions should be.
X is a public company that has well known products.
So here we go: for the past 2 years X has had an average P/E trading range of 14.3 (high) and 10.85 (low).

Over a longer term
X had a average P/E ratio of 21.9 (high) and 11.9 (low) over the past 10 years. X has also had some wild swings in the past, P/E values for example in 2005 X had a high P/E ratio of 31.50 and a 4.4 (low) in 2003 .
X has over time has an average annual Earnings growth of 50.23% over the past 10 years and a more consistent growth rate of 13.6% over the past 3 years. For the purposes of this analysis I am using the 3 year average increase to determine what X should be valued at.

Knowing or at least estimating future earnings you can estimate the share price. In this case X should earn about $3.61 in 2012 and using the average P/E the estimated trading range should be 51.68 (high) and 39.21 (low).

Looking at the price per cash flow ratio (P/CF) X has increased it’s CF/S. X’s 10 year P/CF has been in the nose bleed section of 70.2 (high) and 32.3 (low) however the three year average gives a better picture. The last 2 year averages is 12.5(high) and 9.5(low)
X’s CF/S is estimated to raise by 13% in 2012 to 4.02 per share this gives me a share price range of 50.19 (high) and 38.13 (low)

D/S, dividends per share is another method to help in determinating what a reasonable price is to buy X.
Looking at the price per dividend ratio (P/D) X has a range in this area as well. X’s 10 year P/D is 2.62 (high) and 5.2 (low) however the three year averages give a different picture. The 3 year average is 2.86 (high) and 5.42 (low)

X’s current dividend is estimated to raise by 10% in 2012 to 1.76 per share this gives me a share price range of 45.61 (high) and 32.49 (low) with a current 3.5% implies that X is trading below its 3 year averages. I believe that X will have an increase in price in 2012.

Now on to how to trade, as I’m looking to purchase shares of X so I would be writing a put at my price estimates in this case I’m looking to write 2 Put Options at $40 strike price on the www.m-x.ca.  I’m looking to sell them in October 2012, 2-Put contracts for the 40 strike price and collect the premium of $.90 /share. I am also a holder of X and I would also sell my current position at 50-52 range. So I’ll write 2 calls at 50 strike price and collect a premium of $ .90 / share in the same month (Oct).

If your wondering on what the return would be? The Put = 8000 /180 = 2.25% at an annual rate of 4.5% where as the Call would be 8600/180 = 2.09% and 4.18% for the year plus dividends which would make it close to 7.5% for the year. The rent collected is $360 for the 6 months plus any dividends.

*note* there is an offer to buy the TMX group for $50 per share.