Actuant (ATU) has missed in each of the last three earnings reports. It is a Zacks Rank No. 4 (Sell). It is the Bear of the Day.
Guiding Lower, Not comparable
Sometimes the Zacks Rank can move lower on a company that is actually doing just fine. This could be one of those situations, as Actuant reported a miss but then guided substantially lower. The reason for the lowered guidance is the expected sale of the electric equipment business, a move that was announced in early June. The removal of this business has caused estimates to drop precipitously.
Actuant designs and sells industrial products and systems. The industrial segment provides high-force hydraulic tools, heavy lifting solutions, production automation solutions, and concrete stressing products to the general maintenance and repair, industrial, infrastructure, and production automation markets. The company was founded in 1910 and is headquartered in Menomonee Falls, Wis.
Looking to the earnings history, we see three straight misses. Two times there was a miss of one cent, and the February 2013 quarter was a two- cent miss.
Trading Lower After Reporting
Investors might want to take special notice of this idea. In the session following the earnings report, ATU has fallen in each of the last five quarters. Ironically, the biggest decrease in stock price, 7.6%, came after a $0.01 beat following the May 2012 quarter.
Earnings Estimates Tick Lower
Despite a nice run by the stock, the estimates for ATU have been moving the other way for some time now. The Zacks Consensus Estimate for 2013 has moved from $2.28 in September 2012 to $2.18 in December of the same year. A tick lower by one cent happened in April 2013, and now the Zacks Consensus Estimate is calling for $1.88.
The same could be said of the 2014 Zacks Consensus Estimate as it fell from $2.49 in September to $2.42 in January 2013, and down to $2.41 in May. The recent guidance has pushed that number to $2.02. Earnings estimate revisions are the largest component of the Zacks Rank that can influence a change in rank.
The valuation picture for ATU shows the company already trading at a premium to the industry average on each metric that investors tend to look at. The trailing P/E of 16.5x is higher than the 13.8x industry average, while the forward P/E sports a bigger premium of 17.7x compared to the 13.4x industry average. Price to book carries a multiple of 2.4x compared to 2.3x for the industry average, which is not that much, but still a premium. The price-to-sales multiple of 1.7x is also higher than the 0.8x industry average.
There is a disturbing trend in earnings estimates for ATU. While a big move lower on earnings estimates can be explained by things like a divestiture, that could also end up impacting margins as well. The end idea is that investors might want to wait to see how everything shakes out before making an initial or follow-on investment in ATU. Other industrial stocks like Lincoln Electric (LECO) carry a higher Zacks Rank and might be worth a closer look.
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