Earnings season has kicked into high gear, and a number of companies with strong value characteristics are reporting this week. Below, I've highlighted a few interesting stocks whose reports this week should be of interest to fundamental-minded value investors:
Marinemax (HZO): The boat dealer reports before the market open on Tuesday, with analysts expecting a loss of 20 cents per share on revenue of $94.6 million. The stock had been on a tear in 2012, up over 30% year-to-date before a 6% drop on Monday, heading into earnings. That action might scare investors; the stock made a similar one-day 10% plunge in early November, two days before a fourth quarter earnings miss knocked the stock down another 11%.
The company has showed signs of returning to profitability; same-store sales rose 8% in 2011. As baby boomers retire, demand may increase; and, indeed, new boat sales are beginning to rise here in the U.S. The fixed-cost nature of the business allows for substantial profitability if the company can grow the top line. In the meantime, the stock is still trading below its tangible book value of about $8.66 per share.
The 35% bull run after November's earnings miss has, in my opinion, moved the stock a bit too high for a solid entry point. It also, most likely, has set up high expectations for Tuesday's report (which may explain the stock's weakness on Monday). Any weakness after that report may move the volatile stock (beta is at least 3, depending on the source) back down toward November levels. Below $7/share, Marinemax might be worth a flyer as a high-risk bet on an economic rebound here in the U.S.
Kulicke & Soffa (KLIC): The maker of semiconductor bonding equipment has run up sharply from October lows, gaining 67% in less than four months. Strength in the semiconductor sector has helped, as the Philadelphia Semiconductor Index (SOX) is up 27% over the same time period.
Despite the run-up, Kulicke & Soffa still looks undervalued, pending Tuesday morning's report. Analysts are expecting earnings of 4 cents per share on revenue of $116 million; the company guided for sales of $100-$120 million in its fourth quarter report back in November. Kulicke & Soffa offers over $3/share in net cash, and trailing earnings of $1.73. Those earnings will no doubt fall in 2012 as the top line faces pressure from a weak broader economy. But the stock still trades at roughly 7 times forward earnings after backing out its cash.
The move from gold bonding to copper bonding has benefited the company, and many analysts believe the semiconductor industry is at a bottom. If they're correct, this equipment maker could see strong earnings growth from current depressed levels. Tuesday's report should give investors more information, while the strong balance sheet and history of cash generation provide downside cushion if Kulicke & Soffa's customers are not as aggressive as hoped.
Tellabs (TLAB): Tellabs has been range-bound for most of the past six months, as struggles in its legacy communication equipment business have knocked down the stock, and investors have waited for a turnaround.
Analysts are expecting the company to post a loss of 1 cent, roughly in line with the company's guidance for a fourth quarter similar to that of the third quarter, when the company lost a penny (and disappointed investors). Any growth would be good news for the stock, which is struggling as the pace of networking build has slowed. The dissolution of AT&T's (T) merger with T-Mobile, which paused much of AT&T's network expansion plans, may help in the near term.
Tellabs is purely a turnaround play; with $3.07 per share in net cash, and a book value of $4.59 per share, the stock offers substantial downside cushion. Investors can get more color on the company's growth prospects -- or attempts to lower expenses, which have stayed stubbornly flat for the year -- in fourth quarter earnings. With the strong cash cushion and a 1.9% dividend yield, any signs of life at Tellabs might make the company an interesting long-term play for patient investors.
Entropic Communications (ENTR): One of my favorite stock picks has rebounded nicely since summer weakness, gaining 80% from August lows reached after a second quarter earnings miss. Despite the recent strength, however, the volatile stock is still down nearly 50% for the year.
Analysts expect the maker of chips for home entertainment networking to earn 11 cents per share on $55.9 million in revenue when it reports after the bell on Wednesday. Those figures are in line with the company's guidance given earlier this month. Should the company reach its announced target, it will have earned 38 cents in 2011. Backing out the company's $1.50 in share in net cash (less the cost of its recent acquisition of bankrupt Trident Microsystems) gives the stock a P/E of about 12 on a GAAP basis (non-GAAP earnings are substantially higher at 62 cents per share estimated, giving a P/E below 10 at Monday's close of $6.07). Given the growth potential in the company's business as home networking becomes more popular and more powerful, and the revenue expansion from the Trident purchase, that multiple seems low. Analysts are expecting little or no top or bottom line growth in 2012, but the company's guidance on Wednesday may change their minds.
Entropic moves sharply around its earning reports -- it dropped 23% after second quarter earnings, and 6% after the third quarter -- so risk-averse investors may want to wait for Wednesday's move. (Given the company's recent history, traders may look to short the stock ahead of earnings as well.) If the company can show signs of growth, it looks undervalued at current levels. If the market responds unfavorably, the company's strong balance sheet may provide some downside cushion to a lower entry point.
U.S. Global Investors (GROW): The microcap asset manager which specializes in mining and natural resources plays reports Thursday morning. The stock has bounced off a multiple bottom around $6/share and performed strongly, up 16% year-to-date despite a 3.6% drop in Monday's session.
U.S. Global Investors looks like a classic value play: The stock offers $1.82 per share in net cash, and trailing earnings of 48 cents, putting the P/E at a reasonable 14.6, and just 10.8 when backing out its net cash. Like most financial stocks, the company was hit hard by the 2008-09 financial crisis, but has managed to rebuild its revenue and earnings. Continued outflows from mutual funds are providing a new headwind, but U.S. Global has continued to generate free cash and strengthen its balance sheet.
At Monday's close of $6.99, U.S. Global looks reasonably valued and has shown success in a challenging market environment. Given the broad market's strength in the fourth quarter, which was amplified in the high-beta energy and resources segment, it seems likely Thursday's report will be solid, at least. In the meantime, the stock offers a 3.48% dividend yield, paid monthly, and the experience and balance sheet to navigate the current choppy, volatile market. The well-managed company should survive any market downturn, and is poised to grow sharply should the retail investor come back.