For the first time in a long time, earnings season has been a bit
of a disappointment.
The typical earnings season will have a surprise
ratio (#beat/#miss) around 3:1 with a median surprise of about
3.0%. So far this season, the surprise ratio is 1.81 and the median
surprise is 1.9%.
According to Zacks' Chief Equity Strategist Dirk
Van Dijk, this is the weakest start to an earnings season since the
depths of the Great Recession.
As for estimate revision activity, the ratio of
S&P 500 companies with rising to falling estimates is 0.61 for
2012 - not a very bullish indicator.
And excluding financials, the year-over-year
increase in net income is 11.8% - down from 16.1% in the third
quarter.
Not All Bad
This earnings season may not be that hot so far,
but there are several companies that have reported exceptionally
strong quarters. You just have to hunt a little harder to find
them. I've highlighted 5 companies below that delivered the coveted
'triple play' this earnings season:
- A positive earnings surprise
- A positive sales surprise, and
- Guidance from management above the Zacks Consensus
Estimate
While some of these stocks have already moved
higher after their earnings announcement, I believe there is still
room for each of them to run higher.
For one, each stock is reasonably valued. Secondly,
the well-documented "post-earnings announcement drift" suggests
that companies with positive earnings surprises can see upward
stock price movements for several weeks, or even months.
5 Triple Plays:
Arctic Cat (ACAT)
EPS Surprise: 59%
Sales Surprise: 14%
Arctic Cat manufactures ATVs and snowmobiles.
Although this winter has been extremely mild, the company delivered
a huge quarter on January 26.
In addition to crushing the Zacks Consensus
Estimates on sales and EPS, management raised its EPS guidance to a
range of $1.60-$1.70 on sales growth of 22%-24%. This is up from
previous guidance of $1.10-$1.15 and well above the consensus of
$1.22 before the announcement.
Analysts raised their estimates for both 2012 and
2013 significantly higher after the beat, sending the stock to a
Zacks #1 Rank (Strong Buy) stock. And although shares jumped 20% on
the day of the announcement, valuation is still reasonable with
shares trading at just 17x forward earnings.
Caterpillar (CAT)
EPS Surprise: 34%
Sales Surprise: 10%
A different kind of "cat" delivered a big quarter
too. The Peoria, Illinois based maker of construction and mining
equipment reported record sales and profit for the fourth quarter
of 2011 on January 26.
Management initiated 2012 EPS guidance of $9.25,
well above the Zacks Consensus Estimate of $9.08 at the time. Now
the consensus is $9.42. The 2013 consensus estimate also increased.
CAT is Zacks #2 Rank (Buy) stock.
And the valuation picture still looks attractive
for CAT. Shares trade at just 12x the 2012 consensus estimate.
Apple (AAPL)
EPS Surprise: 38%
Sales Surprise: 19%
Following and extremely rare miss last quarter,
Apple delivered blowout results this quarter on January 24.
Known for its conservative guidance, the company said that it
expects EPS of about $8.50 next quarter, which was well above the
Zacks Consensus Estimate of $8.01 at the time (its $9.36 now). It
is a Zacks #1 Rank (Strong Buy) stock.
Shares jumped to a new all-time high after the
excellent quarter, but the valuation picture still looks very
attractive. Shares trade at a ridiculously low 10x 12-month forward
earnings, and the company has a whopping $103.66 per share in cash
and securities.
United Rentals, Inc. (URI)
EPS Surprise: 34%
Sales Surprise: 9%
United Rentals is the largest equipment rental
company in the world, with locations throughout the United States
and Canada. It offers approximately 3,000 classes of equipment,
ranging from heavy machinery to hand tools.
Despite a sluggish economy, the company delivered
outstanding Q4 results on January 25, and management gave a bullish
outlook for 2012. Although it did not give specific EPS guidance,
the company expects a 5% increase in rental rates year-over-year.
And CEO Michael Kneeland stated that he expects 2012 to be a
"transformative year" for the company and that URI is in an
excellent position to capitalize on the emerging up-cycle as well
as the broader secular shift toward equipment rental.
Analysts revised their estimates significantly
higher for both 2012 and 2013, sending the stock to a Zacks #1 Rank
(Strong Buy). Shares jumped 9% after the announcement, but
valuation is still very reasonable at 15x forward earnings.
CA Technologies (CA)
EPS Surprise: 18%
Sales Surprise: 5%
CA Technologies provides enterprise IT management
software. The company delivered very solid results for the third
quarter of its fiscal 2012 on January 24. On top of strong sales
and EPS beats, management raised guidance for the remainder of 2012
to a range of $2.21-$2.25 - well above the Zacks Consensus Estimate
of $2.02 at the time.
This prompted analysts to revise their estimates
significantly higher for both 2012 and 2013, sending the stock to a
Zacks #1 Rank (Strong Buy) stock.
Shares popped 10% on the earnings announcement. But
valuation still looks attractive for CA with shares trading at just
11x 12-month forward earnings.
Conclusion
This earnings season may not be off to a great
start. But these five companies each reported outstanding quarters
and have plenty of room to run higher over the coming weeks and
months.
Todd Bunton is the Growth & Income Stock
Strategist for Zacks.com and Co-Editor with Steve Reitmeister of
the Reitmeister Value Investor that snaps up discounted value
stocks and sells them after the market realizes their true worth
for long-term gains.
APPLE INC (AAPL): Free Stock Analysis Report
ARCTIC CAT INC (ACAT): Free Stock Analysis Report
CA INC (CA): Free Stock Analysis Report
CATERPILLAR INC (CAT): Free Stock Analysis Report
UTD RENTALS INC (URI): Free Stock Analysis Report
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