Past Performance: Siemens (SI) has missed EPS expectations 66% of the time over the past six earnings seasons they have reported (four out of the past six). Only twice have they reported earnings per share north of $1.93, which is what expectations are when they report in April, and both of those instances came from fourth quarter sales. However, the last EPS beat expectations by 20.6%.
Siemens opened the year at $111.17 per share, less than three dollars higher than current levels. Siemens has decidedly lagged the S&P 500's performance on the year, but has recovered from a low of $101.59 on February 23rd of this year. The stock has support at the $106.50 level and faces resistance at $109.
Fundamentals: Currently, Siemens trades with a P/E of 17.14, a Forward P/E of 11.27, a P/S of 0.90, and a PEG of 0.23. The industrial sector as a whole trades with a P/E of 21.7 and a Forward P/E of 17.0. The S&P 500 trades with a P/E of 20.6 and a Forward P/E of 17.5. Using those metrics, the industrial sector looks to be trading at a discounted rate to the S&P 500. With that in mind, Siemens is trading at lower multiples than both the S&P 500 and the industrial sector. That combination shows a possible value buy for Siemens.
The Forward P/E also trades cheaper than the S&P 500 and industrial sector. The P/S ratio seems fairly valued in my opinion. Most financial professionals look for a fairly valued stock to hold a P/S ratio of 1.00, but we're looking for a value play hence the desire for 0.90 or under P/S ratio. The PEG ratio of 0.23 shows that SI's sales growth is actually outpacing the stock's performance.
The Story: Siemens faces the same headwind that most industrial stocks face, the fabled sequester. The military and construction sector will be hit hard by the $1 trillion in budget cuts over the next decade. Siemens has the balance sheet to withstand slight cuts to the demand for their products. Siemens has a Debt/Equity ratio of 0.60, a 13.5% ROE, and a 3 year average EPS growth rate of 24.20. Siemens also has cut their total current liabilities by over 8% from September of 2011 to September of 2012.
Management is showing their ability to understand the economic landscape as well. They are cutting 8,000 jobs by selling a manufacturing plant in China, and cutting investment intensive projects in favor of more profitable programs. Siemens management is prepared to do what it takes to increase the profitably for the shareholder.
How to Play It: Siemens may have a slight disappointment this upcoming earnings season, if previous earnings are any indication of what's to come. If they do, it could represent a phenomenal buying opportunity. SI's 2.70% dividend yield also makes the stock attractive in an overbought market environment, especially considering the value nature of the fundamentals of Siemens. As the domestic economy recovers, as will Siemens' stock price. My personal 52-week price target: $137.25.
Additional disclosure: Always consult with a registered financial professional before adding a new position to your portfolio. Investing involves a significant risk of loss, as such never invest more than you can afford to lose.