StarMine's Q1 Positive Predicted Surprises For North America

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Includes: AMC, CX, JCP, LEA, NEM
by: Lipper Alpha Insight

By Sridharan Raman

As the StarMine team does each quarter, we selected 10 companies using the Eikon Screener that we expect to either beat or miss earnings estimates, based on the SmartEstimate and Predicted Surprise data. We have summarized that data and the facts behind it for the five positive picks below for companies based in North America. Historically, our selections have demonstrated an accuracy rate of about 75%, giving investors an edge when it comes to positioning themselves ahead of these earnings announcements. To take a look at how we did last quarter click here.

Our picks for positive Predicted Surprises this quarter are - Lear Corp. (NYSE:LEA), J.C. Penney Co. Inc. (NYSE:JCP), Cemex S.A.B. de C.V. (NYSE:CX), AMC Entertainment Holdings Inc. (NYSE:AMC) and Newmont Mining Corp. (NYSE:NEM).

It's worth noting that the last edition of this newsletter for Q4 2015 correctly anticipated the surprise direction in eight out of the ten stocks chosen.

SmartEstimates aim to provide earnings forecasts that are more accurate than I/B/E/S Consensus Estimates, by putting more weight on the recent forecasts of top-rated analysts. When SmartEstimates diverge significantly from Consensus, you can anticipate the occurrence of earnings surprises with an accuracy rate of 70%. Revenue SmartEstimates are even more predictive of surprises, with a historical accuracy rate of 78%.

POSITIVE SURPRISE PREDICTIONS

Lear Corp.

Industry Report Date Mean SmartEstimate Predicted Surprise
Auto Components 27-Apr-16 $2.76 $2.83 2.4%
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Source: Thomson Reuters Eikon/StarMine

Earnings not taking a back seat

After several years of torrid growth in the automobile growth, analysts currently are calling for a slowdown in sales. However, luxury and performance car sales continue to do well. One area that is driving earnings at Lear is seating. With the myriad of seating options available to customers, Lear is charging a premium and driving margins higher. Return on net operating assets, which measures the company efficiency, has been climbing over the past two years, from 23% to 30% in the last quarter. The company is also generating strong free cash flow, which bodes well for future earnings.

J.C. Penney Co. Inc.

Industry Report Date Mean SmartEstimate Predicted Surprise
Multiline Retail 11-May-16 -$0.36 -$0.32 9.6%
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Source: Thomson Reuters Eikon/StarMine

Attention, shoppers

J.C. Penney has targeted lowering its debt, aided by strong cash flows over the last year. That deleveraging is a step in the right direction for a company that, just a couple of years ago, was on bankruptcy watch. While Penney still has some challenges ahead, expected same-store sales growth of almost 4% is nothing to sneeze at. Further, it looks like that increased traffic is not coming at the cost of margins. In one of the surest signs of a recovery, the chart above depicts how trailing 4Q operating margins have bounced back from the lows of 2013. Analysts raised their earnings estimates for the current quarter, the full year and even next year, as they expect the company to continue to improve. There are fewer sell recommendations and more buy recommendations than just 90 days ago. It's no wonder that J.C. Penney scores a best possible 100 on the Analyst Revisions Model - a sign that analysts are likely to continue their upward revisions.

Cemex S.A.B. de C.V.

Industry Report Date Mean SmartEstimate Predicted Surprise
Construction Materials 21-Apr-16 ($0.05) ($0.03) 18.9%
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Source: Thomson Reuters Eikon/StarMine

Strong pricing

This Mexico-based cement maker is focusing on pricing instead of volume across all markets, and that means the margins are likely to increase. Even with a focus on pricing, Cemex also has seen revenues and volumes grow year over year. When you can improve both prices and volume, it's a good sign for future earnings. With strong growth expectations for single-family homes in the U.S., the cement maker is also expecting growth in Mexico, its second-largest market. Management stated that it expects pricing to improve further in the 10% range in the next year. No wonder analysts have been busy upgrading the stock. There are now fewer hold recommendations and more strong buy recommendations.

AMC Entertainment Holdings Inc.

Industry Report Date Mean SmartEstimate Predicted Surprise
Media 27-Apr-16 $0.06 $0.07 6.7%
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Source: Thomson Reuters Eikon/StarMine

Box office superhero

Moviegoers ignored critics and showed up in droves to see "Batman vs. Superman." That propelled the box office this quarter, and it's good news for AMC. The company is also doing well with its AMC Stubs program, which will help it not only retain loyal members, but also better track their activities. AMC continues to build out its theaters, which will likely contribute to earnings this quarter. The company also continues to improve its free cash flows, which are funding the theater growth. Trailing 4Q operating profit margin has increased from 4.7% to 7.4% in the most recent quarter. There is even a Bold Estimate of 21 cents per share for the quarter. This highly-rated analyst has a track history of being accurate.

Newmont Mining Corp.

Industry Report Date Mean SmartEstimate Predicted Surprise
Metals & Mining 20-Apr-16 $0.18 $0.19 8.1%
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Source: Thomson Reuters Eikon/StarMine

Glittering earnings

Gold prices have been on a tear in 2016, up almost 20% since the beginning of the year, consistently trading above the $1,200 per ounce mark over the past two months. Newmont Mining, which was operating with lower gold price assumptions, now immediately benefits from this windfall. It is also one of the few North American miners that do not have a stressed balance sheet, and is consistently generating strong cash flows. That could help Newmont make key acquisitions of companies that may not be as financially strong and need a cash infusion. Analysts have raised earnings estimates for the quarter, the full year and next year, while the number of buy and strong buy recommendations for the stock has increased. There is even a Bold Estimate of 23 cents per share. That analyst optimism leads us to believe that this quarter will see an earnings beat for Newmont.