5 Companies That Recently Reported Earnings Selling At A Significant Discount To Fair Value

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 |  Includes: CAR, CBS, DE, DPS, NVDA
by: Investment Underground

by Larry Gellar

I have identified five stocks that just reported earnings and are selling at a significant discount to their fair values. I am a value hunter, but I also need to see a catalyst to propel shares higher. While Avis (NASDAQ:CAR) reported a loss, Nvidia (NASDAQ:NVDA), Deere (NYSE:DE), Dr Pepper Snapple (NYSE:DPS), and CBS all had positive net income. Let's see if these earnings releases have created any good buying opportunities on which investors may capitalize:

Avis Budget Group, Inc. is a provider of automobile rentals that reported a loss of $170 million for the fourth quarter. Revenue ($1.63 billion) was lower than expected, but there were still a few bright spots. International sales skyrocketed because of the acquisition of Avis Europe, and even sales in North America went up a little. Although Avis had lower prices during the quarter, an increase in rental volume more than made up for the difference.

While much of Avis's fourth quarter can be attributed to the acquisition of Avis Europe and the failed acquisition of Dollar Thrifty Automotive Group, the company isn't necessarily optimistic about the future. In a surprise move, the company announced that it is predicting EBITDA of between $55 million and $65 million for the first quarter. That number was $83 million one year ago, although Avis may just be acting conservative. After all, it also noted that earnings are tough to predict because of the new addition of Avis Europe and unpredictability in the beginning of the year.

Regardless, I can't really recommend an Avis buy right now. The current situation is simply too ambiguous to make an effective investing decision. Those who already own the stock may wish to ride out the uncertainty, however. I value shares at $15 apiece using a 10% weighted average cost of capital. I do not see a short-term catalyst just yet, however.

NVIDIA Corporation is a provider of computer hardware that reported earnings of $116 million for the fourth quarter. Revenue beat analyst expectations by $3 million, and adjusted earnings per share were in line with Wall Street estimates. On the other hand, the big news for Nvidia was a grim corporate outlook.

The company expects the current quarter to yield poor results due to tough competition and a weak personal computing market. Specifically, the problem is that Nvidia hasn't always been the go-to hardware maker for mobile processors, but the company hopes to change that with its Tegra unit. Texas Instruments (NASDAQ:TXN) and Qualcomm (NASDAQ:QCOM) currently have a bit of an edge in that market for smartphones and tablets, but I think Nvidia is still a reasonably solid investment.

The stock price at the time of this writing implies a market capitalization of less than $10 billion, and I think the company is worth more than that. Tegra sales should improve as the year goes on, especially once the ARM-based Windows 8 products come out. Furthermore, I expect Tegra to see solid growth in China, and Nvidia's other products are nothing to sneeze at either. The company has a solid personal computing lineup that will be boosted by improving PC sales as the economy continues to recover. I value shares at no less than $20 apiece on a discounted cash flow basis.

Deere & Company is a maker of agriculture and forestry equipment that reported earnings of $532.9 million for the fourth quarter. The company beat analyst expectations for both revenue and earnings per share, but there were some things left to be desired. Sales growth was significantly lower than Deere had previously predicted, and the company's latest projections aren't particularly optimistic. That could be a part of an effort to correct for the wrong sales growth prediction, but it's hard to say. Deere has been negatively affected by currency conversions, and the conservative estimates are probably an attempt to account for those uncertainties.

In my opinion, Deere has a lot of good things going for it. The company plans to increase research and development spending by 12% this year, and this is an important move for continued growth. Additionally, the construction and forestry division experienced a 22% growth in revenue year-over-year. I expect this unit to post strong growth numbers this year as well, as Deere's business benefits from an improving economy.

Furthermore, Deere has been a bit sheepish about its potential growth in Asia and South America, noting a variety of peripheral factors. I think investors can safely look past these and feel confident about where the company is going in those markets. Shares are fairly valued at $95 apiece using a 10% cost of equity assumption.

Dr Pepper Snapple Group, Inc. is a beverage maker that reported earnings of $166 million. Both earnings per share and revenue beat analyst expectations, and the company was also very optimistic about the future. Specifically, Dr. Pepper expects profit per share for fiscal 2012 to be between $2.90 and $2.98, while the average analyst estimate was $2.91.

Here's one particularly enthusiastic statement from CEO Larry Young: "Looking forward we are cautiously optimistic about the economic recovery. With plans that are stronger than ever in 2012, I am confident that we will continue to execute our focused strategy and deliver strong shareholder return."

I am inclined to agree with Mr. Young, and one great thing about Dr Pepper Snapple stock is its 3.5% dividend yield. In fact, between strong sales of 7UP and Sunkist here in the U.S. and more growth in Latin America, I wouldn't be surprised if Dr Pepper Snapple increases those dividends soon. After all, the company had $760 million of operating cash inflow during 2011, and much of that money was used to buy back stock. If those inflows keep growing (which is what I'm predicting), it seems inevitable that Dr Pepper Snapple will raise dividends.

Meanwhile, I applaud some of Dr Pepper Snapple's recent marketing moves, such as the "It's Not for Women" campaign for Dr. Pepper TEN. Shares should trade at $45 apiece when fairly valued on a discounted cash flow basis.

CBS Corporation is a mass media distributor that earned $370 million in the fourth quarter. While adjusted earnings per share of $0.57 beat analyst expectations by a wide margin, revenue was a bit disappointing. Essentially, CBS has been successful with cutting costs and licensing shows to Netflix (NASDAQ:NFLX) and Hulu, but advertising revenue dipped somewhat.

Here's how CEO Leslie Moonves explained the change in revenue source: "As our momentum builds and our revenue mix becomes more steady and recurring, we are positioned to enhance margins, drive earnings, and return significant value to our shareholders for many years to come."

I think Mr. Moonves makes some good points. The advertising revenue of old was rather volatile, and CBS's latest moves are an ingenious way to take advantage of the digital era. The company's strong TV and radio programming has found ways to use the Internet to generate new revenue, and peripheral businesses are doing well also. For instance, Simon & Schuster, the book publisher, is finding new customers who enjoy reading on Amazon's (NASDAQ:AMZN) Kindle and Barnes & Noble's (NYSE:BKS) Nook. Meanwhile, shows like NCIS, Two and a Half Men, and The Big Bang Theory continue to draw viewers to CBS's network the old-fashioned way. On a discounted cash flow basis, CBS shares are fairly valued at $34 apiece.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.