Upside Surprise: Despite Low Estimates, PPG Industries Shares Are Soaring

When a company's results beat Wall Street's estimates, its stock price often enjoys a bounce higher. Just look at the performance of Alcoa Inc. (AA) on Wednesday. A day after it kicked off earnings season with earnings per share [EPS] that blew past analyst estimates, the aluminum maker's stock gained over 5 percent by the afternoon. Digging through the Reuters Select Rising Expectations stock screen, which is designed to highlight companies with a penchant for upside surprises, chemical manufacturer PPG Industries Inc. (PPG) surfaced - although it was the only one from the basic materials segment.

The Rising Expectations screen captures candidates by screening for companies that beat analyst estimates in each of the last four quarters. Since we also want to identify companies where analysts are upbeat about earnings down the road, the consensus of analyst EPS estimates must currently stand above the level four weeks ago, and that reading must stand above the mean from another four weeks prior.

PPG was among the 29 names that recently landed on the Rising Expectations screen. No companies from the mining industry in the basic materials sector registered on this screen. (Click here for an Excel sheet comparing all the companies recently appearing on the Rising Expectations screen.)

As indicated below, PPG satisfied the screen's first hurdle with better-than-expected EPS in each quarter over the last year.

Further, analysts have been busy penciling in higher EPS estimates in recent months for 2006, from $5.20 two months back to $5.23 now. Thus, PPG satisfies another requirement of the Rising Expectations screen. Yet, it is important to note that analysts have pulled back a bit on their growth outlook for 2007, from EPS of $5.27 two months back to $5.22 currently. The company believes its completed acquisitions will boost earnings going forward, but some analysts think relatively weak construction market conditions will subdue earnings gains. Given the muted expectations for next year, it is not surprising to find that many analysts are relatively indifferent to the stock.

Nonetheless, PPG shares have edged ahead of the average gain in the chemical manufacturing industry, rising about 0.3 percent while the industry norm was a decline of 0.4 percent over the last month. However slight PPG's advantage is here, it was enough for the company to satisfy the screen's stock-price-performance requirement.

Despite the muted optimism for next year, institutions have been buying more PPG shares than they have been selling, and the recent level of buying has been higher than it was just a quarter ago, allowing the company to satisfy the final requirement for registering on the Rising Expectations screen.

Disclosure: At the time of publication, Erik Dellith did not directly own shares of any company mentioned in this article. He may be an owner, albeit indirectly, as an investor in a mutual fund or an Exchange Traded Fund.

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