In this article, I will run you through my quick analysis for two small cap stocks with attractive valuations and solid upside potential. The following information only serves as an introduction and your further research is warranted.
Orbital Science (ORB)
ORB develops rockets and satellite launch vehicles for both military and commercial uses. The stock has declined 28.29% over the past 12 months and is close to its 52-week low of $10.59, amounting to a market capitalization of $722M. I believe the current valuation is very attractive and investors should consider building up positions based on the following reasons:
Analysts expect the top line to rise by 9.7% and 10.1% over the current and next fiscal years, and EPS to decline by 10.0% in the current fiscal year but recover by 18.6% in the next fiscal year. Taking the growth prospects into consideration, the stock is trading at a low 3-year expected PEG of 0.67, suggesting a discount to the future growth.
At the current stock price of $12.16, ORB is trading at 53% of the LTM sales, 11.94x the current fiscal year estimated EPS, and 4.93x the LTM EBITDA. According to the chart below, the current P/E is at a 5-year bottom.
ORB has a very healthy balance sheet. As at Q1 2012, the firm has $227M cash and $133 debt, equaling a net cash position of $94M. Its current and quick ratios are very healthy at 2.2x and 1.7x, respectively. The LTM interest coverage ratio is very solid at 7.8x.
Analysts are very bullish on ORB. Of the eight ratings, there are four strong buys and four buys with a mean target price of $21.40, implying a solid 76% upside potential. Imperial Capital recently initiated its research coverage on the stock with a outperform rating and a target price of $19.
According to the table below, the current and next fiscal year estimated EPS trends are solid and tilted upwards.
The chart below shows that there has been a long-term technical support level at around $12-$13 since 2009.
Titan International (NYSE:TWI)
TWI designs and manufactures equipment wheels and tires for industrial uses such as agriculture, mining, and constructions etc. Its major customers include Deere (NYSE:DE) and Caterpillar (NYSE:CAT). The stock has declined 9.91% over the past 12 months and is current trading at the mid-point of its 52-week range between $12.97 and $29.95, amounting to a market capitalization of $895M. I am bullish on the stock based on the following reasons:
TWI has strong growth potential. Analysts expect the top line to grow at 30.3% and 9.3% over the current and next fiscal years, and EPS to rise by 121.4% and 12.5% over the same horizons. Taking the growth prospects into consideration, the stock is trading at a very low 3-year expected PEG of 0.45x, suggesting a discount to the growth potential.
At the current price of $21.12, TWI is trading at 53% of the LTM sales, 8.22x the current fiscal year estimated EP, and 5.15x the LTM EBITDA. The valuations are at a significant discount to its peer group including Accruride (NYSE:ACW), Cooper Tire & Rubber (NYSE:CTB), and Carlisle (NYSE:CSL).
TWI has a solid balance sheet. As of Q1 2012, the firm is sitting on $129M cash and $318M debt. It has a solid interest coverage ratio of 6.6x. Its current and quick ratios are very healthy at 3.1x and 1.8x, respectively.
Analysts are extremely bullish on the stock. All of the six ratings are strong buys with a target price of $32.75, implying a 55% upside potential.
According to the table below, the estimated EPS trends are in an upward momentum, with multiple positive revisions over the past 90 days.
Over the past eight consecutive quarters (besides that) TWI only missed its EPS estimate once for Q3 2011; the firm has consistently beaten both revenue and EPS estimates by substantial surprises.
Insiders are also bullish on the company. There are three insider buy transactions YTD, amounting to $10M at an average cost between $28 and $29.
EPS tables are sourced from Yahoo Finance, stock charts are sourced from YCharts and Finviz.com, and financial data is sourced from company 10-Q, 10-K, press release, Yahoo Finance, YCharts, Wall Street Journal, Thomson One, Bloomberg and Morningstar.
Disclosure: I am long TWI, ORB.