4 Stocks With A History Of Downside Earnings Surprises Show Encouraging Sales Trends

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 |  Includes: EPM, MR, PSSI, PXP
by: Kapitall

Looking for a contrarian play? We created a list of stocks that have the potential to surprise.

We started with a group of around 80 companies that have a history of surprising the market with negative earnings reports, with an average earnings downside of at least 5% over the last five quarterly reports.

From this list we found 30 companies that either reported earnings recently or are expected to report soon. We wanted to focus on companies with recent announcements as there might still be an opportunity to take advantage of the volatility around earnings.

We continued our analysis by looking at the financial statements of all companies to pick those companies with encouraging sales trends.

We focused on those stocks with strong sales trends, comparing growth in revenue to growth in accounts receivable. Since accounts receivable is the portion of revenue not yet received, and there is no guarantee the money will ever be received, the smaller the portion of revenue made up of receivables the healthier the company's revenue.

The stocks in our list are seeing faster growth in revenue than accounts receivable year-over-year, as well as accounts receivable comprising a smaller portion of current assets over the same time period.

Our final list consisted of 4 stocks, detailed below.

For an interactive version of this chart, click on the image below.

Do you think these stocks are ready to change history? Use the list below as a starting point for your analysis:

1. Evolution Petroleum Corp. (NYSEMKT:EPM): Engages in the acquisition, exploitation, and development of properties for the production of crude oil and natural gas in Louisiana.

  • Market cap at $267.04M, most recent closing price at $9.76.
  • Revenue grew by 10.57% during the most recent quarter ($4.29M vs. $3.88M y/y). Accounts receivable grew by -3.87% during the same time period ($1.74M vs. $1.81M y/y). Receivables, as a percentage of current assets, decreased from 12.77% to 11.13% during the most recent quarter (comparing 3 months ending 2012-09-30 to 3 months ending 2011-09-30).
  • The company reported earnings on February 5th, 2013.
  • In Dec 2011: Reported EPS at 0.04 vs. estimate at 0.06 (surprise of -33.3%). In Mar 2012: Reported EPS at 0.04 vs. estimate at 0.06 (surprise of -33.3%). In Jun 2012: Reported EPS at 0.03 vs. estimate at 0.05 (surprise of -40%). In Sep 2012: Reported 0.03 vs. estimate at 0.06 (surprise of -50%. [Average earnings surprise at -39.15%].

2. Mindray Medical International Limited (NYSE:MR): Through its subsidiary, Shenzhen Mindray Bio-Medical Electronics Co., Ltd., develops, manufactures, and markets medical devices worldwide.

  • Market cap at $4.41B, most recent closing price at $37.56.
  • Revenue grew by 17.7% during the most recent quarter ($257.09M vs. $218.43M y/y). Accounts receivable grew by 0.86% during the same time period ($222.74M vs. $220.85M y/y). Receivables, as a percentage of current assets, decreased from 25.1% to 19.84% during the most recent quarter (comparing 3 months ending 2012-09-30 to 3 months ending 2011-09-30).
  • The company is expected to report earnings on February 25th, 2013.
  • In Dec 2011: Reported EPS at 0.4 vs. estimate at 0.41 (surprise of -2.4%). In Mar 2012: Reported EPS at 0.31 vs. estimate at 0.35 (surprise of -11.4%). In Jun 2012: Reported EPS at 0.44 vs. estimate at 0.45 (surprise of -2.2%). In Sep 2012: Reported 0.3 vs. estimate at 0.4 (surprise of -25%. [Average earnings surprise at -10.25%].

3. PSS World Medical Inc. (NASDAQ:PSSI): Distributes medical products and equipment, pharmaceutical products, healthcare information technology, and billing services to alternate-site healthcare providers in the United States.

  • Market cap at $1.46B, most recent closing price at $28.93.
  • Revenue grew by 7.43% during the most recent quarter ($420.8M vs. $391.71M y/y). Accounts receivable grew by -20.59% during the same time period ($194.25M vs. $244.62M y/y). Receivables, as a percentage of current assets, decreased from 43.72% to 23.8% during the most recent quarter (comparing 13 weeks ending 2012-09-28 to 13 weeks ending 2011-09-30).
  • The company reports earnings on February 6th, 2013.
  • In Dec 2011: Reported EPS at 0.38 vs. estimate at 0.39 (surprise of -2.6%). In Mar 2012: Reported EPS at 0.38 vs. estimate at 0.43 (surprise of -11.6%). In Jun 2012: Reported EPS at 0.18 vs. estimate at 0.21 (surprise of -14.3%). In Sep 2012: Reported 0.26 vs. estimate at 0.29 (surprise of -10.3%. [Average earnings surprise at -9.7%].

4. Plains Exploration & Production Company (NYSE:PXP): An independent oil and gas company, primarily engages in acquiring, developing, exploring, and producing oil and gas in California, Texas, and Louisiana.

  • Market cap at $6.17B, most recent closing price at $48.32.
  • Revenue grew by 20.57% during the most recent quarter ($605.1M vs. $501.85M y/y). Accounts receivable grew by 12.63% during the same time period ($315.19M vs. $279.84M y/y). Receivables, as a percentage of current assets, decreased from 69.08% to 24.48% during the most recent quarter (comparing 3 months ending 2012-09-30 to 3 months ending 2011-09-30).
  • The company is expected to report earnings on February 18th, 2013.
  • In Dec 2011: Reported EPS at 0.2 vs. estimate at 0.34 (surprise of -41.2%). In Mar 2012: Reported EPS at 0.6 vs. estimate at 0.64 (surprise of -6.3%). In Jun 2012: Reported EPS at 0.35 vs. estimate at 0.65 (surprise of -46.2%). In Sep 2012: Reported 0.39 vs. estimate at 0.4 (surprise of -2.5%. [Average earnings surprise at -24.05%].

*EPS data sourced from Yahoo! Finance, all other data sourced from Finviz.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: Business relationship disclosure: Kapitall is a team of analysts. This article was written by Sabina Bhatia, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.