Earnings season is back again. This time of year is one of the best periods to be on the bullish side of the market. So far, the markets performed pretty well in this quarter. The Dow Jones, S&P 500, NASDAQ and Russell 2000 indices are in strong recovery mood. After experiencing severe losses in the last quarter, I believe that investors will recoup their losses in October. Investing in undervalued stocks reporting strong earnings could be rewarding.
Here is a brief analysis of cheap companies reporting earnings on Monday. I have analyzed these stocks from a fundamental perspective, adding my FED+ valuations and O-Metrix scores where applicable:
Company | Q3 EPS Estimate | EPS Growth Estimate | Fair Value Range | O-Metrix Score | My Take |
Citibank (C) | $0.82 | 9.30% | $56.41 - $116.74 | 6.37 | Buy |
Wells Fargo (WFC) | $0.72 | 14.40% | $50.32 - $70.18 | 8.82 | Buy |
IBM (IBM) | $3.22 | 9.00% | $189.92 - $209.28 | 3.72 | Hold |
Stanley Black & Decker (SWK) | $1.33 | 14% | $80.78 - $125.51 | 6.52 | Buy |
Halliburton (HAL) | $0.92 | 16.50% | $65.16 - $77.84 | 7.71 | Buy |
Hasbro (HAS) | $1.30 | 10% | $43.99 - $54.87 | 5.76 | Buy |
Tessco Technologies (TESS) | $0.52 | 15% | $30.81 - $41.58 | 12.13 | Strong Buy |
(Data is from Finviz/Morningstar. You can download Fair Value Estimator here.)
Citibank will report its earnings on Monday before the market opens. Consensus EPS estimate for the 3rd quarter is $0.82, which is $0.12 higher than the previous year. In 2010, the same period EPS was $0.70. Mean revenue estimate is $19.25 billion for the current quarter.
Citibank is trading with a low trailing P/E ratio of 8.78, and a lower forward P/E ratio of 6.04. With a funky quarterly dividend of 1 cent, it has a symbolic yield of 0.1%. Nevertheless, based on an annualized EPS growth estimate of 9.30%, the stock has a fair value range of $56.41 - $116.74. O-Metrix score of 6.37 is above the market average. I rate Citibank as a buy.
Wells Fargo will report its earnings at 8:00 am on Monday. Consensus EPS estimate for the 3^{rd} quarter is $0.72, which is $0.12 higher than the previous year. In 2010, the same period EPS was $0.60. Mean revenue estimate is $20.21 billion for the current quarter.
Wells Fargo, a Warren Buffett favorite, is trading with a low P/E ratio of 10.34, and a lower forward P/E ratio of 8.03. With a payout ratio of 13%, it offers a yield of 1.80%. Based on an annualized EPS growth estimate of 14.40%, the stock has a fair value range of $50.32 - $70.18. O-Metrix score of 8.82 is well above the market average. I rate Wells Fargo as a strong buy.
IBM will release its tentative earnings on Monday at 16:30. Consensus EPS estimate for the 3^{rd} quarter is $3.22, which is $0.40 higher than the previous year. In 2010, the same period EPS was $2.82. Mean revenue estimate is $26.25 billion for the current quarter.
As of Friday's close, IBM was trading at a trailing P/E ratio of 15.47, and a forward P/E ratio of 12.93. With a payout ratio of 22%, IBM has a yield of 1.60%. Based on an annualized EPS growth estimate of 9%, the stock has a fair value range of $189.92 - $209.28. O-Metrix score of 3.72 is slightly below the market average. Therefore, I rate IBM as a hold.
Stanley Black & Decker will report its earnings on Monday after the market close. Consensus EPS estimate for the 3rd quarter is $1.33, which is $0.36 higher than the previous year. In 2010, the same period EPS was $0.97. Mean revenue estimate is $2.56 billion for the current quarter.
The stock is trading with a relatively high trailing P/E ratio of 16.17. Forward P/E ratio is 9.64. With a payout rate of 41%, the company offers a yield of 2.9%. Based on an annualized EPS growth estimate of 14%, the stock has a fair value range of $80.78 - $125.51. O-Metrix score of 6.52 is above the market average. I rate the stock as a buy.
Halliburton will report its earnings on Monday. Consensus EPS estimate for the 3rd quarter is $0.92, which is $0.34 higher than the previous year. In 2010, the same period EPS was $0.58. Mean revenue estimate is $6.39 billion for the current quarter.
The stock is trading with a relatively high trailing P/E ratio of 14.29, but the forward P/E ratio falls to 8.37. With a payout rate of 14%, the company offers a yield of 1%. Based on an annualized EPS growth estimate of 16.5%, the stock has a fair value range of $65.16 - $77.84. O-Metrix score of 7.71 is well below the market average. I rate Halliburton as a buy.
Hasbro will report its earnings on Monday before the market opens. Consensus EPS estimate for the 3^{rd} quarter is $1.30, which is $0.21 higher than the previous year. In 2010, the same period EPS was $1.09. Mean revenue estimate is $1.45 billion for the current quarter.
The stock is trading with a trailing P/E ratio of 13.19. Forward P/E ratio is 10.16. With a payout rate of 40%, the company offers a yield of 3.5%. Based on an annualized EPS growth estimate of 10%, the stock has a fair value range of $43.99 - $54.87. O-Metrix score of 5.76 is above the market average. I rate Hasbro as a buy.
Tessco Technologies will report its earnings on Monday after the market close. Consensus EPS estimate for the 3rd quarter is $0.52, which is $0.09 higher than the previous year. In 2010, the same period EPS was $0.43. Mean revenue estimate is $178.13 million for the current quarter.
The stock is trading with a pretty low trailing P/E ratio of 8.76. Forward P/E ratio is 7.15. With a payout rate of 25%, the company offers a yield of 4.4%. Based on an annualized EPS growth estimate of 15%, the stock has a fair value range of $30.81 - $41.58. Tessco has an A+ O-Metrix score of 12.13. I rate Tessco as a strong buy.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.