4 Cheap And 3 Expensive Stocks Reporting Earnings On Tuesday

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Includes: AMZN, DWDP, FFIV, MMM, NOV, RAI, XRX
by: Efsinvestment

Last week was a profitable one for investors. Although the markets started the week with negative returns, they finished in the green territory. Utilities gained the most (2.5%), followed by financials (1.8%), and conglomerates (1.4%). Around 64% of the earnings reports have beaten the consensus earnings estimates so far. Thanks to stronger-than-expected earnings, most of the stocks that reported earnings made considerable gains.

We are in the last quarter, which is known as the harvest season of equities. I am expecting the October momentum to continue for a while. 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 carefull when it comes to playing the earnings season.

Here is a brief analysis of 4 cheap and 3 expensive companies reporting earnings on Tuesday. I have analyzed these stocks from a fundamental perspective, adding my FED+ valuations and O-Metrix scores where applicable:

Company

EPS

Estimate

Revenue

Estimate

Fair-Value

Range

OMetrix

Score

MMM (NYSE:MMM)

$1.61

$7.78 billion

$103 - $128

6.30

El DuPont (DD)

$0.56

$8.79 billion

$55 - $68

5.25

National Oilwell (NYSE:NOV)

$1.16

$3.65 billion

$77 - $117

4.76

Xerox (NYSE:XRX)

$0.25

$5.59 million

$14 - $23

7.41

F5 Networks (NASDAQ:FFIV)

$0.98

$308.5 million

$69 - $83

3.47

Amazon (NASDAQ:AMZN)

$0.24

$10.93 billion

$73 - $90

1.54

Reynolds American (NYSE:RAI)

$0.73

$2.28 billion

$39 - $51

5.11

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

Cheap Stocks

3M will report its earnings on Tuesday. Consensus EPS estimate for the 3rd quarter is $1.61. In 2010, the same period EPS was $1.53. Mean revenue estimate is $7.78 billion for the current quarter. Here is the recent earnings history:

Earnings History

Sep 10

Dec 10

Mar 11

Jun 11

EPS Est

1.51

1.27

1.44

1.60

EPS Actual

1.53

1.28

1.49

1.60

Difference

0.02

0.01

0.05

0.00

Surprise %

1.30%

0.80%

3.50%

0.00%

3M is trading with a trailing P/E ratio of 13.66, and a forward P/E ratio of 12.1. Based on an annualized EPS growth estimate of 13.50%, the stock has a fair value range of $103 - $128. Its O-Metrix score of 6.30 is above the market average. While the growth estimates seem too optimistic, the analysts have been pretty good at predicting 3M’s earnings.

El DuPont will report its earnings on Tuesday, before the market opens. Consensus EPS estimate for the 3rd quarter is $0.56. In 2010, the same period EPS was $0.40. Mean revenue estimate is $8.79 billion for the current quarter. Here is the recent earnings history:

Earnings History

Sep 10

Dec 10

Mar 11

Jun 11

EPS Est

0.34

0.32

1.36

1.34

EPS Actual

0.40

0.50

1.52

1.37

Difference

0.06

0.18

0.16

0.03

Surprise %

17.60%

56.20%

11.80%

2.20%

El DuPont is trading with a trailing P/E ratio of 12.54, and a forward P/E ratio of 10.17. Based on an annualized EPS growth estimate of 8.30%, the stock has a fair value range of $55 - $68. El DuPont offers a nifty yield of 3.63%. Its O-Metrix score of 5.25 is slightly above the market average. El DuPont beat the analyst estimates in the last 4 quarters. It is highly possible that it might report higher-than-expected earnings again.

National Oilwell will report its earnings on Tuesday, before markets open. Consensus EPS estimate for the 3rd quarter is $1.16. In 2010, the same period EPS was $0.97. Mean revenue estimate is $3.65 billion for the current quarter. Here is the recent earnings history:

Earnings History

Sep 10

Dec 10

Mar 11

Jun 11

EPS Est

0.90

0.96

1.00

1.01

EPS Actual

0.97

1.05

1.00

1.14

Difference

0.07

0.09

0.00

0.13

Surprise %

7.80%

9.40%

0.00%

12.90%

National Oilwell is trading with a trailing P/E ratio of 16.03, and a forward P/E ratio of 11.65. Based on an annualized EPS growth estimate of 12.50%, the stock has a fair value range of $77 - $117. Its O-Metrix score of 4.76 is inline with the market average. Although the stock gained 21% in the last month, it is still trading almost 25% below its 52-week high. A surprising earnings report can ride the stock back to its 52-week highs.

Xerox will report its earnings on Tuesday, before markets open. Consensus EPS estimate for the 3rd quarter is $0.25. In 2010, the same period EPS was $0.22. Mean revenue estimate is $5.59 billion for the current quarter. Here is the recent earnings history:

Earnings History

Sep 10

Dec 10

Mar 11

Jun 11

EPS Est

0.21

0.28

0.22

0.24

EPS Actual

0.22

0.29

0.23

0.27

Difference

0.01

0.01

0.01

0.03

Surprise %

4.80%

3.60%

4.50%

12.50%

Xerox is trading with a trailing P/E ratio of 11.19, and a forward P/E ratio of 6.58. Based on an annualized EPS growth estimate of 11%, the stock has a fair value range of $14 - $23. Its O-Metrix score of 7.41 is well-above the market average. Xerox was able to beat analyst estimates in the last 4 quarters. On the contrary, the stock lost 30% since January. It is one of the rare technology stocks trading below the book value.

Expensive Stocks

F5 Networks will report its earnings on Tuesday; at 4:00 pm. Consensus EPS estimate for the 3rd quarter is $0.98. In 2010, the same period EPS was $0.79. Mean revenue estimate is $308.5 million for the current quarter. Here is the recent earnings history:

Earnings History

Sep 10

Dec 10

Mar 11

Jun 11

EPS Est

0.72

0.83

0.85

0.91

EPS Actual

0.79

0.88

0.88

0.97

Difference

0.07

0.05

0.03

0.06

Surprise %

9.70%

6.00%

3.50%

6.60%

F5 Networks is trading with a trailing P/E ratio of 32.69, and a forward P/E ratio of 20.87. Based on an annualized EPS growth estimate of 18.60%, the stock has a fair value range of $69 - $83. Its O-Metrix score of 3.47 is below the market average. While the company performed better than analyst estimates in the last 4 quarters, it is trading at a P/B ratio of 6.16. Insiders have been selling their stocks and exercising options for a while. The stock lost one third of its value since January, but it is still expensive based on my models.

Amazon will report its earnings on Tuesday. Consensus EPS estimate for the 3rd quarter is $0.24. In 2010, the same period EPS was $0.51. Mean revenue estimate is $10.93 billion for the current quarter. Here is the recent earnings history:

Earnings History

Sep 10

Dec 10

Mar 11

Jun 11

EPS Est

0.48

0.88

0.61

0.35

EPS Actual

0.51

0.91

0.44

0.41

Difference

0.03

0.03

-0.17

0.06

Surprise %

6.30%

3.40%

-27.90%

17.10%

Amazon is trading with a triple-digit trailing P/E ratio of 103.43, and a forward P/E ratio of 71.45. Based on an annualized EPS growth estimate of 26.90%, the stock has a fair value range of $73 - $90. Its O-Metrix score of 1.54 is well-below the market average. Amazon’s biggest advantage has been its tax-free status. However, given the states' desperate need for more tax revenues, it is very possible that Congress might adopt a uniform online sales tax policy. If that happens, Amazon's razor thin net profit margin might diminish.

Reynolds American will report its earnings on Tuesday, before market open. Consensus EPS estimate for the 3rd quarter is $0.73. In 2010, the same period EPS was $0.68. Mean revenue estimate is $2.28 billion for the current quarter. Here is the recent earnings history:

Earnings History

Sep 10

Dec 10

Mar 11

Jun 11

EPS Est

0.67

0.61

0.58

0.71

EPS Actual

0.68

0.60

0.59

0.67

Difference

0.01

-0.01

0.01

-0.04

Surprise %

1.50%

-1.60%

1.70%

-5.60%

Reynolds American is trading with a trailing P/E ratio of 17.27, and a forward P/E ratio of 12.73. Based on an annualized EPS growth estimate of 10%, the stock has a fair value range of $39 - $44. Thanks to the nifty yield of 5.34%, its O-Metrix score of 5.11 is above the market average. Reynolds is fairly-valued compared to its peers, but there are much cheaper stocks in the market. Therefore, I would rate RAI as a hold.

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