Pleased by Strong Earnings from Gentex, Aaron Rents and Hanesbrands

So far I have been extremely pleased with the overall results from the companies which have reported this earnings season in the portfolio with many beating expectations by very wide margins. I would point out that although the portfolio is fairly well diversified across multiple sectors, I am not searching in either the deep value or momentum growth areas and therefore both valuation and growth are important factors that play into my selection of securities. Below is a look at the earnings results for those who have reported thus far along with the market reaction and a couple of potential catalysts for the stocks going forward. I will be posting a similar report for subscribers for the other 9 companies which have not yet reported at the end of the earnings season which can be accessed via www.vestopia.com/danw.

Companies that have reported:

1) Hanesbrands (HBI): Hanes was able to easily exceed bottom line earnings estimates by Wall Street. The company reported 42 cents in earnings, ahead of the 33 cent estimate by The Street and slightly ahead of my own estimate as well, despite a top line roughly in-line to slightly below expectations due to a difficult consumer environment. The company was able to deliver growth by continuing to execute their plan of cutting costs and by significantly reducing interest expense by paying down debt over the past year and from lower interest rates. Looking ahead, the company reiterated double digit EPS growth guidance. I still believe that Street estimates for the stock are far too low and this is my favorite stock and top holding in the portfolio.

Market Reaction: The stock actually fell $1 to 32.57 on the news, but has subsequently regained the lost ground and a bit more. I would note that the stock had also run up significantly from its lows in the first quarter.

Catalysts going forward: The company is only roughly half way into the restructuring after the spinoff from Sara Lee and therefore still has substantial room for continued cost cutting and for potentially leveraging more deals such as the Disney deal announced a few months ago. The company would also benefit from any stabilization or reduction in the price of cotton or in continued low interest rates.

2) Exponent (EXPO): Exponent has a long history of delivering significant positive earnings surprises and it did once again this quarter with EPS coming in at 40 cents against an estimate (by only 1 analyst) of 33 cents per share. Exponent saw strong business across the board and they were able to raise revenue guidance to roughly 10%. I would note that the one analyst who covers the stock seems to be extremely conservative. This analyst's expectation is for EPS of $1.39 for the year and flat sales growth while my own estimate is roughly $1.56.

Market Reaction: The stock climbed about 20% to $37 on the news and has since given back about 3-4% on some profit taking. The stock is still about 15-20% undervalued in my opinion and they have consistently executed on their business plan.

Catalysts: The company is seeing strong growth across all of their product lines and my expectations are for much faster growth than what is currently forecasted by the marketplace. The company also has a very strong balance sheet and nice generation of cash flows.

3) Gentex (GNTX): I just posted on this company's earnings so I will keep this one relatively brief but the company delivered a strong result with strong growth from international auto suppliers and also announced the continued share buyback and increased guidance.

Market Reaction: The stock popped about 10% on the news to $18.45 and is currently up another couple of percent from that level

Catalysts: The largest catalysts going forward are any types of new technology, the Boeing Dreamliner aircraft which they are outfitting dimming mirrors for and the Kids Transportation Safety Act which could require rearview cameras for automobiles in the future. The company is also rapidly expanding their international presence.

4) Industrias Bachoco (IBO): These numbers are just coming in as I am typing this so I have not had a lot of time to look them over. They easily beat analyst expectations delivering 37 cents against Wall Street estimates of 24 cents. It looks like much of this has been because the company has been able to pass on price increases for eggs and poultry to consumers in Mexico.

Market Reaction: To be determined.

Catalysts: The company is in the process of expanding its business into the United States. IBA is a very well managed and a heavily insider-owned company that has delivered strong and consistent cash flow and dividends to shareholders.

5) Aaron Rents (RNT): RNT was able to deliver a very impressive quarterly result with EPS of 46 cents, 6 cents ahead of the average estimate of 40 cents. Business was actually fairly strong for the company and the amount of delinquencies declined from 3.1% to 2.5% in the most recent quarter. The company continues to close underperforming stores and has also slowed new store growth until the economic picture improves. The company said in their conference call that business now is better than a year ago and they signed up a record number of new customers in the first quarter. The company will also be benefiting from accelerated deprecation laws recently put in place which will add to cash flow this year.

Market Reaction: The stock climbed 15% the day of earnings and another 5% the following day (which was today). I would note however that this stock took a big hit in the fourth quarter and first half of the first quarter due to concerns of an economic slowdown so it has now only returned to its levels seen in September of last year.

Catalysts: Rebate checks going out throughout the next couple of months should help them in the 2nd and 3rd quarters along with the slowing of new store openings (which are a drag on profits at the beginning). Valuation is also still very inexpensive with the stock likely trading at under 14x next years earnings.

6) Penn Gaming (PENN): Penn reported earnings which were slightly lower than estimates due to some costs in opening some new casinos, however, I would point out that this company has fundamentally (not share price wise) held up much better than others in the gaming sector. The company has new properties which are thus far doing extremely well and continues to deliver strong cash flow figures. The company had little to say in its press release in regards to the merger except to give an update on the regulatory approvals by state. The deal is expected to close on 6/15 at $67 per share at this time with about 1 1/2 cents added each day after that to the share price.

Stock Reaction: The stock climbed 2% to 40.43.

Catalysts: Clearly, the catalyst on this stock would be the acquisition by Fortress and Centerbridge for $67 per share.

Next week, earnings reports will be coming out from at least 2 (utility and technology) and possibly as many as 4 portfolio holdings (financial and defense company) (some of the smaller holdings do not give out dates prior to the release) and an FDA panel will be reviewing one of the health care names treatments. Overall, a good start to the earnings season for names in sectors which many people felt would deliver poor results.