Monday was a great day for equities. Industrial stocks performed the best (2.8%), followed by financials (2.7%), and conglomerates (2.7%). As I expected, Caterpillar (CAT) was one of the day’s super-performers. The industrial giant reported strong earnings. Both Q3 EPS of $1.71 and revenue of $15.7 billion were much higher than analyst expectations. Thanks to strong earnings report, Caterpillar closed the day 5.01% higher.
So far, most earnings reports have been cheerfully received by investors. We are in the last quarter, which is known as the harvest season of equities. I am expecting the October momentum to continue for awhile. It is mostly the case that undervalued companies report blow-out earnings, pushing their stock prices to higher levels. Investing in undervalued stocks with strong earnings potentials could be highly profitable. On the other hand, a minor deviation from expectations can cause a sharp sell-off for high-fliers. Therefore, one needs to be careful when it comes to playing the earnings season.
Here is a brief analysis of 6 companies reporting earnings on Wednesday. I have analyzed these stocks from a fundamental perspective, adding my FED+ valuations and O-Metrix scores where applicable:
Company | EPS Est. | Revenue Est. | Fair - Value | O - Metrix |
Boeing (BA) | $1.09 | $17.87 Billion | $84 - $90 | 6.41 |
Sprint (S) | -$0.22 | $8.38 Billion | N/A | N/A |
Ford (F) | $0.45 | $29.86 Billion | $22 - $23 | 4.59 |
Visa (V) | $1.25 | $2.39 Billion | $100 - $138 | 5.19 |
ConocoPhillips (COP) | $2.18 | $63.18 Billion | $110 - $160 | 6.52 |
Wyndham (WYN) | $0.88 | $1.22 Billion | $42 - $58 | 6.15 |
(Company data from Finviz/Morningstar. Earnings data from Earnings.com and Yahoo Finance. You can download my FED+ Fair Value Estimator here.)
Boeing will report its earnings on Wednesday at 7:30 a.m. Consensus EPS estimate for the 3rd quarter is $1.09. In 2010, the same period EPS was $1.12. Mean revenue estimate is $17.87 billion for the current quarter. Here is the recent earnings history:
Earnings History | Sep 10 | Dec 10 | Mar 11 | Jun 11 |
EPS Est | 1.06 | 1.11 | 0.70 | 0.97 |
EPS Actual | 1.12 | 1.56 | 0.78 | 1.25 |
Difference | 0.06 | 0.45 | 0.08 | 0.28 |
Surprise % | 5.70% | 40.50% | 11.40% | 28.90% |
Boeing was able to beat analyst estimates with a strong margin. The company’s performance is striking. Given higher fuel costs, there is an increasing demand for more fuel efficiency among airline companies. That gave a huge boost to Boeing's profitability.
Boeing is trading with a trailing P/E ratio of 13.72, and a lower forward P/E ratio of 12.48. Based on an annualized EPS growth estimate of 14.20%, the stock has a fair value range of $84 - $90. Its O-Metrix score of 6.41 is well-above the market average. I think it is trading below its fair value.
Sprint will report its earnings on Wednesday, before market open. Consensus EPS estimate for the 3rd quarter is -$0.22. In 2010, the same period EPS was -$0.30. Mean revenue estimate is $8.38 billion for the current quarter. Here is the recent earnings history:
Earnings History | Sep 10 | Dec 10 | Mar 11 | Jun 11 |
EPS Est | -0.28 | -0.30 | -0.22 | -0.12 |
EPS Actual | -0.30 | -0.29 | -0.15 | -0.28 |
Difference | -0.02 | 0.01 | 0.07 | -0.16 |
Surprise % | -7.10% | 3.30% | 31.80% | -133.30% |
Since the company does not have any earnings, it is not possible to a make fair value estimation. The stock lost almost 48% in the last quarter. Year-to-date return is -36%. The stock can go either way. There are rumors about possible bankruptcy. On the other hand, a rally is possible. The movement of the stock after the earnings is worth to watch.
Ford will report its earnings on Wednesday, at 7 a.m. Consensus EPS estimate for the 3rd quarter is $0.45. In 2010, the same period EPS was $0.48. Mean revenue estimate is $29.86 billion for the current quarter. Here is the recent earnings history:
Earnings History | Sep 10 | Dec 10 | Mar 11 | Jun 11 |
EPS Est | 0.38 | 0.48 | 0.50 | 0.60 |
EPS Actual | 0.48 | 0.30 | 0.62 | 0.65 |
Difference | 0.10 | -0.18 | 0.12 | 0.05 |
Surprise % | 26.30% | -37.50% | 24.00% | 8.30% |
Ford is trading with a trailing P/E ratio of 7.45, and a lower forward P/E ratio of 7.15. Based on an annualized EPS growth estimate of 6.70%, the stock has a fair value range of $22 - $23. Its O-Metrix score of 4.59 is in line with the market average.
Ford surprised its investors in three of the last four quarters. Whether the company makes another surprise or not, the stock is dirt-cheap. Even after 27% recovery in the last month, it is still trading 34% below its 52-week high. Sure the debt/equity ratio of 18.56 is a strong red flag, but with a single digit P/E ratio, I expect this American icon to be an outperformer in the long-term.
Visa will report its earnings on Wednesday, after market close. Consensus EPS estimate for the 3rd quarter is $1.25. In 2010, the same period EPS was $1.06. Mean revenue estimate is $2.39 billion for the current quarter. Here is the recent earnings history:
Earnings History | Sep 10 | Dec 10 | Mar 11 | Jun 11 |
EPS Est | 0.94 | 1.21 | 1.20 | 1.23 |
EPS Actual | 1.06 | 1.23 | 1.23 | 1.26 |
Difference | 0.12 | 0.02 | 0.03 | 0.03 |
Surprise % | 12.80% | 1.70% | 2.50% | 2.40% |
Analysts have a tendency to underestimate Visa’s growth potential. The company was able to beat their estimates in the last four quarters. Visa is trading with a trailing P/E ratio of 22, and a lower forward P/E ratio of 16. Based on an annualized EPS growth estimate of 19.10%, the stock has a fair value range of $100 - $138. Its O-Metrix score of 5.19 is slightly above the market average. Visa has been an outperformer, and I expect the stock to continue its performance.
ConocoPhillips will report its earnings on Wednesday at 8 a.m. Consensus EPS estimate for the 3rd quarter is $2.18. In 2010, the same period EPS was $1.50. Mean revenue estimate is $63.18 billion for the current quarter. Here is the recent earnings history:
Earnings History | Sep 10 | Dec 10 | Mar 11 | Jun 11 |
EPS Est | 1.46 | 1.32 | 1.97 | 2.19 |
EPS Actual | 1.50 | 1.32 | 1.82 | 2.41 |
Difference | 0.04 | 0.00 | -0.15 | 0.22 |
Surprise % | 2.70% | 0.00% | -7.60% | 10.00% |
COP is trading with a trailing P/E ratio of 9.1, and a lower forward P/E ratio of 8.8. Analysts target price of $78 is pretty conservative. Based on an annualized EPS growth estimate of 8%, the stock has a fair value range of $110 - $160. It pays a nifty dividend of 3.66%. Its O-Metrix score of 6.52 is well-above the market average.
Wyndham Worldwide will report its earnings on Wednesday. Consensus EPS estimate for the 3rd quarter is $0.88. In 2010, the same period EPS was $0.68. Mean revenue estimate is $1.22 billion for the current quarter. Here is the recent earnings history:
Earnings History | Sep 10 | Dec 10 | Mar 11 | Jun 11 |
EPS Est | 0.63 | 0.44 | 0.40 | 0.56 |
EPS Actual | 0.68 | 0.46 | 0.44 | 0.64 |
Difference | 0.05 | 0.02 | 0.04 | 0.08 |
Surprise % | 7.90% | 4.50% | 10.00% | 14.30% |
WYN is trading with a trailing P/E ratio of 13.8, and a lower forward P/E ratio of 11.8. Based on an annualized EPS growth estimate of 13.90%, the stock has a fair value range of $42 - $58. Its O-Metrix score of 6.15 is well-above the market average. The company was able beat analyst estimates in the last 4 quarters. Deutsche Bank has a target price of $41.
