For Value Investors: Previewing This Week's Earnings

by: Vince Martin

Even with the shortened trading week due to the Thanksgiving holiday, several companies are reporting earnings this week, including Hewlett-Packard (NYSE:HPQ) and John Deere (NYSE:DE). Below I've previewed some companies of interest to value investors who are also reporting this week:


Tech Data (NASDAQ:TECD): TECD reports before the bell on Monday morning, with analysts on average expecting $1.27 in earnings per share on $6.74 billion in sales. The IT reseller has beaten estimates in the three of the past four quarters, but the current economic fears in Europe -- which produced 58% of the company's sales last quarter -- may hurt fiscal third quarter earnings.

TECD offers $16.74 per share in net cash, over one-third of the company's market cap at Friday's close of $47.90. The company has guided for double-digit percentage growth in earnings for fiscal year 2012 (ending in January), which would represent per-share earnings of at least $4.80 for the year. The substantial net cash and the single-digit forward P/E make the company an interesting play for value investors. On the other hand, the company's exposure to Europe and struggling Hewlett-Packard (whose products accounted for 26% of sales over the past four quarters, according to the most recent 10-Q) are of definite concern.

This quarter's earnings should give some clarity, particularly relating to the effects of the European debt crisis on the company's sales. As a reseller, TECD's margins are razor-thin, and a slowdown in European sales could have a major impact on the company's bottom line. If the company can show its ability to profit even amid uncertainty on the Continent, the reverse head-and-shoulders pattern may continue and the stock could jump past $50. But any weakness in the earnings report might lead to a replay of the company's struggles in May, when disappointing profits led to a 12% drop, from which the stock has yet to fully recover. Either way, it seems likely that Monday's earnings will be an inflection point for the stock.

Brocade Communications (NASDAQ:BRCD): BRCD reports after the bell on Monday, with analysts expecting non-GAAP earnings of 10 cents per share on $527.4 million. Investors may be re-assured by the company's decision not to pre-announce results for its fiscal fourth quarter; when Brocade announced disappointing preliminary results in August, the stock dropped 30 percent, hitting lows not seen since the depths of the 2009 bear market.

BRCD has marched steadily upward since then, aided in part by news that the company's two-year effort to find a buyer has been renewed. No doubt, analysts will be looking for more information on the company's progress during the Q&A on the company's conference call.

In the meantime, at Friday's close of $4.64, the stock is trading at just over ten times trailing non-GAAP earnings of 45 cents, and just above book value. The move to "cloud computing" and the continually growing network needs worldwide would seem to bode well for the company's long-term future. In the short term, the lack of a pre-announcement should lessen the possibility of an earnings miss, and strength in the quarterly results should continue the stock's recent bull run. Long-term investors -- and traders -- could consider going long BRCD during Monday's trading, ahead of the company's release after the market close.

Collective Brands (NYSE:PSS): PSS reports after the market closes on Monday; analysts are projecting adjusted earnings of 49 cents per share on revenues of $908 million. The owner of Payless Shoe Stores, and shoe brands Saucony, Sperry and Keds jumped nearly 19% after second quarter earnings, as sales beat expectations and the company announced the closure of 475 stores and a "strategic review" of its assets.

That announcement invigorated the stock, which ran up another 20% before faltering in November, closing Friday at $13.79. PSS bulls are anticipating a sale or spin-off of some of the company's divisions, with some analysts projecting a "sum of the parts" value for the stock over $20 per share.

As such, the focus on Monday afternoon will likely be less on the pure profit numbers than the progress at the corporate level, and the company's plans for the struggling Payless Domestic segment. The company anticipated that 300 locations would be closed by the end of the year; is the company moving toward that end? How much will it cost? And how is the closure of underperforming locations affecting sales and earnings in the remaining locations?

With PSS trading just above book value, another optimistic report could provide a significant boost to the stock, as the bullish thesis becomes more viable. Either way, Monday's earnings release should at the least provide an update on Collective's strategy going forward, and management's ability to execute its plans.


Medtronic (NYSE:MDT): The medical device maker reports Tuesday morning, with analysts expecting 82 cents per share on a little over $4 billion in revenue. The stock has been relatively flat since I covered the stock after last quarter's earnings.

Indeed, the story has changed little. New CEO Omar Mishrak offered a blunt analysis of the company on the August conference call, questioning the company's R&D and acquisition strategies and promising better execution in the future. Tuesday's report, and accompanying conference call, may provide some color on Medtronic's progress in those areas.

The company has guided for $4 billion in free cash flow and $3.43-$3.50 in earnings per share for fiscal year 2012 (ending in April), both strong figures given the company's market cap of $35.8 billion and Friday's closing share price of $33.94. Still, constraints on the American market and the company's low rate of revenue growth mean the stock doesn't seem to merit a much higher valuation. International growth -- 7% year-over-year last quarter -- and expense control would seem to be the company's most likely way to earnings expansion. Mishrak has promised to focus on both of those areas; on Tuesday, investors should get their first ideas of his plans, and their potential for success.

LTX-Credence (LTXC): The manufacturer of semiconductor testing equipment also reports Tuesday morning, with consensus estimates of $37 million in sales and a loss of 7 cents per share. The company guided for sales of $35 to $39 million, and a non-GAAP loss between 6 and 10 cents, in conjunction with fiscal year 2011 earnings released in August. (That guidance spooked investors, who knocked the share price down 14%.)

Both analyst opinion and the company's guidance show the dramatically reduced expectations for LTXC amid severe headwinds in the semiconductor sector. Fiscal fourth quarter revenues were $62.7 million, meaning sales are expected to fall some 40% sequentially. The company earned $1.19 ($1.12 adjusted) per share for fiscal year 2011, though FY2012 estimates are for just 8 cents per share, with several analysts predicting a full-year loss.

Given the company's past success -- free cash flow for the last fiscal year was $71 million, nearly half of LTXC's enterprise value -- the key going forward is how well the company can manage the current downturn in spending for semiconductor capital equipment. At Friday's close of $6.06, the company has nearly half of its share price in net cash, an impressive cushion for long-term investors. If the company can manage the current depressed cycle, the current stock price could provide an attractive entry point for patient investors. Tuesday's earnings should give the market an idea of just how bad things are right now in the semiconductor sector, and how long they should wait for LTXC to return to the lofty earnings of the most recent fiscal year.

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