We used the following criteria to find the companies for which the analysts have been increasing the earnings estimates and which look attractive on the basis of the valuation. Here are the criteria:
- At least 4 analysts have provided the estimates for the company,
- The median EPS estimate for the current year has been revised up from the estimate last month,
- The median EPS estimate for the next year has been revised up from the estimate last month,
- At least two analysts have revised the estimate for the current year; none has revised it down,
- At least two analysts have revised the estimate for the next year; none has revised it down,
- The market cap of the company is over $1 billion,
- Seven year average return on equity for each company is over 12%,
- Current P/Earnings, P/FCF, P/Sales and P/Book ratios are near or below their 7 year averages,
Out of a list of over 9,500 companies in our universe, we brought the list down to the following 5 companies: Pool Corporation (POOL), J2 Global Inc (JCOM), Energizer Holdings, Inc (ENR), CIGNA Corporation (CI) and BMC Software, Inc. (BMC).
Electronics Instruments & Controls
Insurance (Accident & Health)
Software & Programming
52 week Prices
26.68 - 43.33
23.02 - 32.87
63.98 - 79.89
39.01 - 53.75
31.62 - 45.70
P/E 7Y avg
P/FCF 7Y avg
P/S 7Y avg
P/B 7Y avg
ROE 7Y avg
Pool Corporation: Pool Corporation distributes swimming pool supplies, equipment and leisure products on the wholesale level. It offers maintenance, repair and replacement parts, packaged pool kits, construction materials, and complementary products.
Pool Corporation has been very shareholder friendly by increasing dividends at 11% annual rate in the last 5 years and indulging in share repurchases including 1.5 million shares this year. It still has $115 Million left for the authorized buybacks. The company has been growing its market share steadily. A turnaround in the residential construction bodes well for the company although it has been growing its earnings and free cash flow despite the fact that housing construction is down 70% from the peak.
Ken Fisher of Fisher Investments owns 825,500 (1.77% of the outstanding) shares of Pool Corporation.
J2 Global Inc: J2 Global Communications, Inc. provides cloud services to businesses of all sizes, from individuals to enterprises. The Company offers fax, voicemail, email, document management and call handling services etc.
J2 has consistently increased its dividend ever since it was started last year and there is potential for further increases in the future. J2 has presence in North America, Europe and the Asia Pacific region. It has been making significant investments to expand its cloud based services in the new geographies across the globe. Long term potential for its services is enormous, particularly in the emerging markets.
Joel Greenblatt and John Hussman own 375K and 179K shares of J2 Global.
Energizer Holdings, Inc: Energizer Holdings, Inc is the manufacturers and marketers of primary batteries, portable lighting and personal care products in the wet shave, skin care, feminine care and infant care categories. The company owns many popular brands such as Energizer bunny, EVEREADY, Schick, Edge, Banana Boat, Hawaiian Tropic and Playtex etc.
Energizer has been facing challenges due to the macro economic factors, competitive pressure, sales mix and lately an appreciating dollar however the cost cutting initiatives by the management are encouraging for the margin expansions.
Energizer is owned by many gurus such as Brian Rogers, Ken Fishes, David Dreman, Joel Greenblatt and Mario Gabelli. The largest positions are held by Mario Gabelli and Brian Rogers 2% and 1.55% respectively, of the total outstanding shares.
CIGNA Corporation: Cigna Corp is a global health services organization with insurance subsidiaries that are providers of medical, dental, disability, life and accident insurance and related products and services.
Cigna has made many investments and divestitures over the years. The acquisitions include Healthsource Inc, Star-HRG, Great-West Healthcare and HealthSpring Inc. The divestitures include its retirement & benefits business and property & casualty business. Cigna has been growing its domestic customer base nicely e.g. it has added over one million customers to bring its US customer base to over 12.5 million. It is also working on cross selling services to the customers of the acquired companies. In addition, Cigna is growing in the emerging markets as well. It recently started operations in Singapore, India and Turkey. Cigna continues to have a very good balance sheet for further investments.
Cigna is held by many gurus, chief among them are Edward Owens, David Einhorn and Lee Ainslie holding 2.67%, 2.46% and 2.13% respectively, of the total outstanding shares.
BMC Software, Inc: BMC Software, Inc., is a software company and it provides IT management solutions for large, mid-sized and small enterprises and public sector organizations around the world.
In the latest financial year (ending in March, 2012) the license revenue mix was the following: Enterprise Service Management i.e. ESM 61.9% and Mainframe Service Management i.e. MSM 38.1%. The problems in the ESM segment are subsiding e.g. the Salesforce staffing is better now, revenue is improving, the maintenance renewal rate remains decent and the SaaS offerings becoming successful. MSM, which is the low growth segment is doing well and is poised to do even better with the new products and services offerings. BMS also plans to purchase $750 million worth of shares (~ 12% of the shares outstanding).
Dodge & Cox holds 13 million shares (8.31%) of BMC.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.