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Optimism was high on Wednesday. After suffering losses on Tuesday, markets recouped those losses during the day. Basic materials gained the most (1.4%), followed by financials (0.8%), and industrial producers (0.7%). Boeing (NYSE:BA) was among the star performers. The stock gained more than 4.4% after reporting impressive earnings. The company reported Q3 EPS of $1.46, which was much higher than the consensus estimate of $1.1. Boeing also raised its full-year earnings guidance to $4.30 - $4.40 per share.

During the earnings season, 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 5 companies reporting earnings on Friday. 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

Biogen (NASDAQ:BIIB)

$1.53

$1.27 billion

$75 - $99

1.91

Chevron (NYSE:CVX)

$3.44

$67.93 billion

$145 - $203

4.45

Dominion (NYSE:D)

$0.94

$3.87 billion

$36 - $57

2.36

Merck (NYSE:MRK)

$0.91

$11.61 billion

$32 - $50

3.04

Newmont Mining (NYSE:NEM)

$1.24

$2.75 billion

$69 - $98

3.21

Company data from Finviz/Morningstar. Earnings data from Earnings.com and Yahoo Finance. You can download my FED+ Fair Value Estimator here.

Biogen will report its earnings on Friday, before market open. Consensus EPS estimate for the 3rd quarter is $1.53. In 2010, the same period EPS was $1.35. Mean revenue estimate is $1.27 billion for the current quarter. Here is the recent earnings history:

Earnings History

Sep 10

Dec 10

Mar 11

Jun 11

EPS Est

1.23

1.23

1.41

1.37

EPS Actual

1.35

1.42

1.43

1.36

Difference

0.12

0.19

0.02

-0.01

Surprise %

9.80%

15.40%

1.40%

-0.70%

Biogen is trading with a trailing P/E ratio of 26.51, and a lower forward P/E ratio of 18.47. Based on an annualized EPS growth estimate of 8.60%, the stock has a fair value range of $75 - $99. Its O-Metrix score of 1.91 is well-below the market average.

Biogen recently announced excellent results from a second Phase 3 trial of its BG-12 MS treatment. The stock gained almost 15% in the last 5 trading days. The year-to-date return of 75% is spectacular. However, with a market cap of $28.5, the stock is over-priced. An earnings miss can put the stock back into the fair-value range.

Chevron will report its earnings on Friday, before market open. Consensus EPS estimate for the 3rd quarter is $3.44. In 2010, the same period EPS was $1.87. Mean revenue estimate is $67.93 billion for the current quarter. Here is the recent earnings history:

Earnings History

Sep 10

Dec 10

Mar 11

Jun 11

EPS Est

2.15

2.41

3.00

3.57

EPS Actual

1.87

2.44

3.09

3.85

Difference

-0.28

0.03

0.09

0.28

Surprise %

-13.00%

1.20%

3.00%

7.80%

Chevron is trading with a trailing P/E ratio of 9.32, and a lower forward P/E ratio of 8.48. Based on an annualized EPS growth estimate of 5%, the stock has a fair value range of $145 - $203. Its O-Metrix score of 4.45 is in line with the market average.

Chevron’s sister company ConocoPhillips (NYSE:COP) reported higher-than-expected earnings. Q3 EPS of $2.52 was $0.35 higher than the consensus estimates. Similar to ConocoPhillips, Chevron might also report unexpectedly higher profits, driving the stock back to its 52-week highs.

Dominion Resources will report its earnings on Friday. Consensus EPS estimate for the 3rd quarter is $0.94. In 2010, the same period EPS was $1.03. Mean revenue estimate is $3.87 billion for the current quarter. Here is the recent earnings history:

Earnings History

Sep 10

Dec 10

Mar 11

Jun 11

EPS Est

1.07

0.66

0.91

0.60

EPS Actual

1.03

0.63

0.93

0.59

Difference

-0.04

-0.03

0.02

-0.01

Surprise %

-3.70%

-4.50%

2.20%

-1.70%

Dominion is trading with a trailing P/E ratio of 17.52, and a lower forward P/E ratio of 15.74. Based on an annualized EPS growth estimate of 4%, the stock has a fair value range of $36 - $57. Its O-Metrix score of 2.36 is well below the market average.

While analysts are good at estimating Dominion's profits, they have a tendency to slightly overestimate. Nevertheless, the stock gained 24% since January, which is unusual for a utility company. Dominion is trading at the upper end of its fair value range.

Merck will report its earnings on Friday. Consensus EPS estimate for the 3rd quarter is $0.91. In 2010, the same period EPS was $0.85. Mean revenue estimate is $11.61 billion for the current quarter. Here is the recent earnings history:

Earnings History

Sep 10

Dec 10

Mar 11

Jun 11

EPS Est

0.82

0.83

0.84

0.95

EPS Actual

0.85

0.88

0.92

0.95

Difference

0.03

0.05

0.08

0.00

Surprise %

3.70%

6.00%

9.50%

0.00%

Merck is trading with a trailing P/E ratio of 24.3, and a lower forward P/E ratio of 8.73. Based on an annualized EPS growth estimate of 5.5%, the stock has a fair value range of $32 - $50. Its O-Metrix score of 3.04 is below the market average.

Merck has been a disappointment so far, returning -4% in 2011. However, the company pays a nifty yield of 4.53%. Analysts also have a tendency to underestimate Merck’s profits. An earnings surprise can ride the stock to higher levels.

Newmont Mining will report its earnings on Friday, before market open. Consensus EPS estimate for the 3rd quarter is $1.24. In 2010, the same period EPS was $1.08. Mean revenue estimate is $2.75 billion for the current quarter. Here is the recent earnings history:

Earnings History

Sep 10

Dec 10

Mar 11

Jun 11

EPS Est

0.95

1.14

0.99

0.99

EPS Actual

1.08

1.16

1.04

0.90

Difference

0.13

0.02

0.05

-0.09

Surprise %

13.70%

1.80%

5.10%

-9.10%

Newmont Mining is trading with a trailing P/E ratio of 13.68, and a lower forward P/E ratio of 10.65. Based on an annualized EPS growth estimate of 6%, the stock has a fair value range of $69 - $98. Its O-Metrix score of 3.21 is below the market average.

Newmont is involved in both gold and copper production. The Colorado-based mining giant has operations worldwide. The stock has a low Beta of 0.29. Since its performance is highly correlated with commodity prices, it might be a good play for commodity exposure. RBC Capital has an upgraded target price of $87.

Source: Playing Earnings Season: 5 Stocks To Bet On