2 Undervalued Companies With Consistent Upside Earnings Surprises

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 |  Includes: ITG, LRCX
by: Kapitall

Summary

Due to a positive earnings environment, this earnings season many stocks have beaten estimates.

Of the 900 companies reporting earnings this week, 126 have a history of positive earnings surprises.

Of those companies, 19 are undervalued with a PEG ratio below 1, and 7 have outperformed the market this month.

Of those 7 firms, 2 have had upward revisions of their EPS estimates within the last 30 days, suggesting that analysts are more optimistic about the stocks’ performances.

This earnings season has seen a number of companies beating analyst estimates. According to The Jackson Sun, 63% of S&P 500 companies have reported better-than-expected earnings, besting the long-term average. This week, more than 900 companies are set to release their quarterly results, and if the trend continues, hundreds of stocks will have estimate-beating earnings.

Of the 900 companies reporting earnings this week, 126 have a history of positive earnings surprises. This means that each company had four consecutive quarters of estimate-beating earnings reports, with an average surprise of at least 5%. While past performance isn't a guarantee of future success, it's interesting to see which companies have a consistent history of exceeding earnings expectations.

Sticking with the earnings theme, a screen of the 126 companies reveals that 19 are undervalued with a PEG ratio below 1. Of those 19 companies, 7 have outperformed the market this month. And of those 7 firms, 2 have had upward revisions of their EPS estimates within the last 30 days, suggesting that analysts are more optimistic about the stocks' performances.

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Investment Technology Group (NYSE:ITG) is expected to report earnings of $0.29 a share on Thursday, July 31, up from the earnings of $0.27 a share the research and execution broker reported a year ago. Within the last 30 days, Investment Technology Group received two upward revisions for analyst EPS estimates.

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n June 2013, Investment Technology Group's earnings of $0.27 a share beat the estimate of $0.20 a share. The company beat the estimate again the following quarter, reporting earnings of $0.20 a share that was five cents above the consensus. In December, the company posted earnings of $0.26 a share compared to an estimate of $0.19 a share. Then in March, Investment Technology Group reported earnings of $0.37 a share, beating the estimate of a $0.32 per share. Over the course of the last four quarters, Investment Technology Group has recorded an average earnings surprise of 30.18%.

The company boasts a PEG ratio of 0.51, and its EPS is expected to grow by 16.39% in the coming year. Per Fidelity, the capital markets industry average for projected EPS growth for next year is 17.28%, placing Investment Technology Group in the 63rd percentile.

The stock has outperformed the market by 13.20% the month.

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Semiconductor manufacturer Lam Research Corporation (NASDAQ:LRCX) is expected to see significant year-over-year growth in its fourth quarter fiscal 2014 earnings on Wednesday, July 30, with an average estimate of $1.23 a share compared to last year's earnings of $0.80 a share. Within the last 30 days, Lam received one upward revision for analyst EPS estimates.

Last year's fourth quarter fiscal 2013 earnings beat the estimate of $0.71 a share by 12.7%. In September, Lam reported earnings of $0.81 a share versus another average estimate of $0.71. Lam's earnings stood at $1.10 a share in December compared to the $1.03 estimate. And in March, Lam beat the estimate of $1.17 a share with earnings of $1.26 a share, resulting in an average earnings surprise of 10.33% over the last four quarters.

Lam has a PEG ratio of 0.72, and it's expected to see below-average EPS growth next year with a projected 8.41% compared to the industry's 26.30% average. This places Lam in the 10th percentile for the semiconductors and semiconductor equipment industry.

The stock has outperformed the market by 3.95% this month.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: Kapitall is a team of analysts. This article was written by Mary-Lynn Cesar, 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.