6 Value Investor Plays for Earnings This Week

by: Vince Martin

As value investors, we are constantly on the lookout for new companies to add to our screens. Here then is a list of a few solid value stocks with earnings reports this week that might give us reason to add them to our portfolio -- or kick them off the watchlist.


Oplink Communications (NASDAQ:OPLK): I outlined the bullish case for Oplink a few weeks back, recommending the use of put options as a conservative way to play the company amidst the volatility in the sector. Indeed, optical networking stocks jumped 2.2% on Wednesday after Citigroup upgraded Finisar (NASDAQ:FNSR), only to slump on Friday when Oclaro (NASDAQ:OCLR) reported disappointing results after Thursday's close.

In its third quarter earnings release, Oplink gave guidance for its fiscal fourth quarter: Revenue between $43-$47 million, with GAAP income estimated to be $0.12-$0.18 per share (.22-.28 on a non-GAAP basis). At $0.15, the midpoint of guidance, the company will earn $1.22 in fiscal year 2011, giving the company an enterprise value to earnings ratio of 6.3. Cash flow numbers are similarly impressive, as the company has already earned nearly 14% of its enterprise value in free cash flow over the first three fiscal quarters. Investors may still want to look at selling January puts as a hedged way to play Oplink before or after this quarter's earnings. (The January 15 put, some 11% out of the money, still offers over a 10% return on risk capital with a current bid of $1.40.)


Kulicke & Soffa Industries (NASDAQ:KLIC): The maker of semiconductor bonding equipment reports before the bell on Tuesday. The stock has struggled heading into earnings, dropping some 20% since early July. In its second quarter earnings report, the company raised third quarter revenue guidance to $255-$275 million; analysts forecast $265 million and earnings of 85 cents per share (all analyst estimates taken from Yahoo! Finance).

With full-year (ending September) earnings forecast at $2.12 per share, and $1.93 in cash per share net of liabilities, Kulicke & Soffa is currently trading at an enterprise value of just 3.4 times earnings. And while revenues and earnings are projected to drop from 2010-11 figures of over $2/share on average, the company still should stay profitable in the years ahead. With many semiconductor manufacturers moving from gold bonding to copper bonding, Kulicke & Soffa should profit as the industry leader. The company has beaten earnings estimates for four straight quarters, so Tuesday may be an interesting day for Kulicke & Soffa bulls to step in and hope that strong earnings can put an end to the stock's recent slide.


Almost Family (NASDAQ:AFAM): The provider of home health care services has also had a long slide to its current level of $25.28 (Friday's close). First quarter earnings disappointed in late April, followed by a June 20 downgrade of the home health care sector by Baird & Co, citing declines in Medicare reimbursement and an ongoing SEC investigation into billing practices. Still, cuts have not been as painful as once feared, and Almost Family is trading at just over 6 times earnings on an enterprise basis, and only 7.4 times 2012 earnings. Analysts are expecting 66 cents per share on revenue of $84.6MM. (I will be writing more about the sector this week.)

Bridgepoint Education (NYSE:BPI): Bridgepoint was flying high, hitting an all-time high of $30.62 on July 22, following a strong run after the early June resolution of Department of Education regulations affecting financial aid at for profit institutions. (Click here for my analysis of the sector in late June.)

The following Monday, it was announced that Warburg Pincus, the private equity firm that took BPI public in 2009, was putting its entire 65% stake up for sale. The stock plunged 11% and has continued to drop. The company now trades at an EV/E ratio of about 7.4 based on trailing earnings, with analysts expecting slight earnings growth for fiscal years 2011 and 2012. Once again, Bridgepoint shareholders will be looking for solid earnings to stem the slide in the stock. Analysts are looking for 69 cents per share on revenue of $229.7 million. Non-holders of the stock may want to stay on the sidelines until after earnings, which should give some more clarity Bridgepoint's long-term earnings potential.


Vanda Pharmaceuticals (NASDAQ:VNDA): The pharmaceutical company markets an approved drug for schizophrenia (Fanapt), while developing a drug for insomnia (tasimelteon). Vanda traded at $7.18 at Friday's close, barely above its net cash of $6.92 per share. Analysts expect the company to swing to a narrow loss for FY's 2011 and 2012 after the company was profitable in 2010 thanks to a milestone payment from Novartis (NYSE:NVS) in conjunction with the approval of Fanapt.

While earnings are not a driver of the stock -- the progress of tasimelteon and Fanapt's overseas applications will cause major moves. A change in the burn rate, or proof that management is conserving capital while awaiting news on tasimelteon, may provide a short-term boost. If earnings disappoint, investors may look to purchase Vanda at its cash balance and get a cheap option on the approval of tasimelteon. Analysts are looking for a 5-cent per share loss on revenues of about $8 million.

PC Connection (NASDAQ:PCCC): The computer wholesaler reports after the close on Thursday; a single analyst expects earnings of 25 cents per share on revenue of $525 million. While there is general negative sentiment toward the PC cycle, PCCC has grown earnings and revenue over the last 5 years, suffering only a minor speed bump during the peak of the recent recession. The company does operate on razor-thin margins, but even in 2009 PCCC managed to post only a tiny loss ($680,000), while growing earnings 13% from 2006.

The stock is trading at $7.82 as of Friday's close, right at long-term support, with an enterprise value-to-earnings ratio of 6.3, around 80% of book value. The company has beaten estimates the last five quarters, so value investors may look to get in before Thursday to capture an upside bounce off support if earnings meet or exceed expectations.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in BPI, VNDA, PCCC, KLIC, OPLK, AFAM over the next 72 hours.