By Larry Gellar
These 6 stocks just announced earnings, and investors are sifting through the reports with fervor. This along with the employment data that’s set to come out on Friday could have a big impact on how these stocks trade in the short-term. Here’s what you need to know:
American Tower Corp. (AMT) – This provider of communications towers has been trading between $45 and $57 for the past year and now sits in the middle of that range. The company just released second quarter earnings, and this was by all accounts good news for shareholders. American Tower saw impressive gains over last year’s Q2 net income, and revenue was also up. Analyst expectations were beat by a solid 6 cents per share. American Tower cited success in the emerging markets as part of the reason for these strong earnings and also gave some positive outlook for the future based on that. Compared to competitors like Crown Castle International (CCI) and SBA Communications (SBAC), AMT offers significantly higher margins. Notably, gross margin is 75.95% and operating margin is 40.15%. PEG is 3.06 though, so it’s certainly possible this stock is overvalued. On the other hand, this company is actually converting its stock to a REIT, which may explain why investors are willing to pay a premium. Additionally, AMT”s industry is one that could have quite a bit of growth as the demand for wireless data continues to accelerate, especially as the transition from the 3G standard to the 4G standard is made. AMT will also benefit from the increasing number of devices that utilize its towers.
Duke Energy Corp. (DUK) – This gas and electricity provider has been on the rise for the past year, though at times has seen a surprising amount of volatility. Duke just reported earnings, and the company beat expectations as well as net income from this time last year. The company works primarily in the states of Indiana, Kentucky, and Ohio, which have had its share of weather extremes this year, so that certainly provided a boost. Specific details of the earnings report can be found here, but most importantly the company saw a good mix of increases in both residential and industrial demand. On the other hand, Duke said its costs are rising, which could hurt the company’s ability to grow in the future. In fact, Duke’s PEG may already be a bit inflated. Compare a PEG of 4.03 for Duke to 2.98 for American Electric Power (AEP) and 3.37 for Constellation Energy Group (CEG). Duke may be a wise play for dividend investors though – note that dividend yield is currently 5.40%. Another thing that is catching the eyes of some investors is Duke’s pending reverse split. Many shareholders are booing this decision and fear that it will simply provide the stock with more downside.
Allscripts Healthcare Solutions, Inc. (MDRX) – Allscripts Healthcare has seen its ups and down in 2011, and the latest earnings report provided mixed results. Revenue was up, but some found the earnings per share to be disappointing. Regardless, CEO Glen Tullman said, “I am confident Allscripts is poised for continued growth. Our leadership team is in place and our solutions portfolio is robust, positioning the Company to lead the digital transformation of healthcare.” Allscripts’ valuation measures are certainly worth taking a look at as they tell a very interesting story. Prior to today’s earnings, P/E was a whopping 181.96, but PEG was a more reasonable 0.80. Compared to competitors like athenahealth (ATHN), Cerner (CERN), McKesson (MCK), this represents the largest P/E ratio but also the lowest PEG. In other words, the company’s earnings right now are meager, but the potential for growth is enormous. Despite these low earnings, MDRX has been able to maintain positive cash flows, which is a very good sign. One more headline that could affect this stock is the plans that the company announced to buy back stock. At this point in time, $150 million remains for the company to buy back stock. This was originally announced in May and will last 3 years.
FirstEnergy Corp. (FE) – FirstEnergy owns a variety of electric companies in the northern United States as listed here. The stock has been on an upswing since the beginning of spring, although this could certainly change as the stock’s just-released earnings report was a disappointment to some. The company said the results were in line with its own expectations, but earnings per share were nearly half of what it was last year at this time. The company did see a sizable increase in revenue though, which leads one to believe that FirstEnergy’s problems are merely on the cost side of things. As one can imagine from the positive news in the Duke Energy section above, many investors think that FirstEnergy is losing ground. In particular, investors note Duke’s success at the World Smart Grid Congress, as seen here. Margins for FirstEnergy are mixed, with the company beating competitors like American Electric Power (AEP), Dominion Resources (D), and Public Service Enterprise (PEG) in gross margin but losing in terms of operating margin. FirstEnergy also boasts a higher P/E than these companies with the stock currently trading at 20.71 times earnings. (Note though that this does not include the earnings released today). Regardless, like Duke Energy, FirstEnergy may be a suitable choice for investors who are searching for dividends – yield is currently 4.92%.
Foster Wheeler AG (FWLT) – Although this company is involved in a variety of businesses, it’s best described as a construction company. It has been on a steady decline since February as poor economic data has continued to pour in, but fortunately for shareholders the company just posted strong earnings. Specifically, earnings beat analyst predictions by a solid margin and were up from last year. The company raised outlook for the future, but some areas of the business are seeing some very strong competition, particularly the construction and engineering segment. Compared to competitors like Fluor (FLR) and Jacobs Engineering (JEC), FWLT offers cheap earnings growth though. Specifically, PEG for FWLT is 1.13, while FLR’s PEG is 1.65 and JEC’s PEG is 1.18. Additionally, cash flow looks healthy – all 4 of this year’s past quarters have been green. One reason the stock may be trading lower than valuation would suggest is because Foster Wheeler has been affected by some executive turmoil – former CEO Robert Flexon left the company after only five months at the helm. This came as a surprise to many since he was on the board for 4 years before that. Regardless, the company has named Kent Masters as the new CEO, and many are looking forward to what he can do for Foster Wheeler.
Entergy Corporation (ETR) – Entergy has been on a downward trend for the past year now, and today’s earnings report did not help either. The company’s profit was nearly unchanged compared to a year ago, although some segments fared better than others. Specifically, utilities improved, while wholesale divisions were less profitable. Entergy also announced that it will continue to run a nuclear reactor that some believe will be shut down by the state. Regardless, ETR explained it was confident of having the situation resolved favorably. ETR’s P/E ratio should not change much after the new earnings are included, and it is certainly attractive. Specifically, it is only 9.39 compared to competitors like American Electric Power (AEP), CenterPoint Energy (CNP), and Southern Company (SO) who are in the mid-teens. Aside from ETR’s situation in Vermont, the company has also been affected negatively by Japan’s catastrophe since it has shaken people’s confidence in nuclear power. In fact, the company is also seeing some resistance to its products in states other than Vermont. Additionally, one should be wary of Entergy’s cash flows. In fact, 3 of the past 4 quarters have been negative in this regard. Entergy’s future will also be determined by the country’s economic status, which does not seem to be improving anytime soon.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.