• The First Cut
  • Positive Surpries With Below-Average P/Es

    by John Bajkowski

    Positive Surpries With Below Average P/Es Splash image

    When the markets are volatile, investors take comfort in stocks announcing better-than-expected earnings. Notably, contrarian investors have observed that positive surprises are even more dramatic events for value-oriented stocks since the surprise often triggers a change (for the better) in the market perception of a company.

    This issue’s First Cut screens for stocks with below-average forward price-earnings ratios (price divided by expected earnings per share) that have reported quarterly earnings that surpassed the consensus forecast—a positive earnings surprise.

    Changes in a stock’s price resulting from an earnings surprise may be immediate, but the surprise may also have a long-term price effect. This means that it may not be too late to buy into an attractive company after a better-than-expected earnings report is released. Studies indicate that the effect can persist for as long as a year after the announcement. Firms with a significant surprise also often have earnings surprises in subsequent quarters.

    The stocks that made this issue’s First Cut are exchange-listed companies tracked by at least four analysts that have had a significant positive quarterly surprise since the end of September 2007 with a forward price-earnings ratio below the average of all companies tracked by AAII’s Stock Investor Pro. These companies are also expected by analysts to have positive earnings for their current and following fiscal year, and they have not had downward quarterly or annual earnings estimate revisions during the past month.

    Only the top 30 stocks with the largest percentage surprise made the First Cut.

    The listing also includes the monthly percentage change in the consensus fiscal-year estimate to indicate how analysts have adjusted their near-term expectations, and the four-week and 52-week price changes to highlight investor reaction to the announcement.

    Company (Exchange: Ticker) Quarterly EPS Current Fiscal- P/E
    Ratio
    (Est
    EPS)
    (X)
    Price Change Description
    Year EPS
    Ann'l
    Est
    ($)
    Monthly
    Change
    (%)
    Est Actual Surprise 4-Wk 52-Wk
    ($) ($) (%) (%) (%)
    Hutchinson Technology (M: HTCH) 0.12 0.32 166.7 1.19 3.5 21.9 -6 9 disk drive components; biomeasure
    America's Car-Mart, Inc. (M: CRMT) 0.16 0.29 81.3 1.01 32.9 11.5 2 4 used car market
    W&T Offshore, Inc. (N: WTI) 0.31 0.53 71 1.91 2.1 15.2 5 -11 oil & gas company
    Terra Industries Inc. (N: TRA) 0.46 0.75 63 2.32 0.4 17.2 12 273 nitrogen prods for agri & indus
    CF Industries Holdings, Inc. (N: CF) 0.97 1.52 56.7 5.83 4.1 16.6 14 308 nitrogen & phosphate fertilizer
    Western Digital Corp. (N: WDC) 0.57 0.79 38.6 3.25 19 9.2 12 45 hard drive mfr & sales
    Perrigo Company (M: PRGO) 0.26 0.36 38.5 1.38 7 23.6 8 94 pharmaceuticals & nutrition prods
    SiRF Technology Holdings (M: SIRF) 0.22 0.29 31.8 1.05 1 23 -10 -8 GPS semiconductor solutions
    American Physicians Capital (M: ACAP) 0.94 1.21 28.7 4.54 1.6 9.5 3 9 medical liability insurance
    hhgregg, Inc. (N: HGG) 0.14 0.18 28.6 1 5.3 14 -7 0 appliances & audio/video prods
    Fossil, Inc. (M: FOSL) 0.34 0.43 26.5 1.68 1.2 25.8 5 95 consumer fashion accessories
    Bristow Group Inc. (N: BRS) 0.76 0.93 22.4 3.43 1.2 16.1 3 50 helicopters to offshore indus
    Infinity Property & Casualty (M: IPCC) 0.82 1 22 3.82 0.5 9.6 -7 -23 auto insurance
    Tech Data Corporation (M: TECD) 0.6 0.73 21.7 2.42 6.6 15.3 2 -8 distribs info technology prods
    Travelers Companies, Inc. (N: TRV) 1.49 1.81 21.5 6.69 0.3 7.9 0 0 property & casualty insurance
    Archer Daniels Midland (N: ADM) 0.59 0.71 20.3 2.63 1.5 14.9 3 20 agri commodities & prods
    Humana Inc. (N: HUM) 1.49 1.78 19.5 4.79 0.4 15.8 4 37 health insurance coverage
    Casey's General Stores (M: CASY) 0.46 0.54 17.4 1.72 8.9 16.4 -3 16 convenience stores
    Verigy Ltd. (M: VRGY) 0.5 0.58 16 2.03 9.7 13.1 31 49 tests & solutions for semicond
    Aladdin Knowledge Systems (M: ALDN) 0.26 0.3 15.4 1.14 0.9 23.3 7 50 network security & software rights
    Plexus Corp. (M: PLXS) 0.48 0.55 14.6 1.9 0.5 14 -8 9 prod realization servs to equip mfrs
    Clean Harbors, Inc. (M: CLHB) 0.57 0.63 10.5 2 0.5 25.5 -7 11 environmental services
    Donaldson Company, Inc. (N: DCI) 0.48 0.53 10.4 2.05 3 22.2 13 29 filtration systems & parts
    Comtech Telecomm. Corp. (M: CMTL) 0.49 0.54 10.2 2.58 1.2 20.3 5 35 sys & servs for communications
    Hasbro, Inc. (N: HAS) 0.71 0.78 9.9 2.03 1 12.7 -6 -5 games and toys
    Tyco Electronics Ltd. (N: TEL) 0.54 0.59 9.3 2.45 4.3 14.9 4 0 electronic components
    Aircastle Limited (N: AYR) 0.45 0.49 8.9 1.76 0.6 15.1 -5 -8 aircraft leasing
    National-Oilwell Varco, Inc. (N: NOV) 0.94 1.02 8.5 3.73 0.3 20.7 20 127 oil & gas drilling equip
    Copart, Inc. (M: CPRT) 0.38 0.41 7.9 1.75 4.2 23.9 18 37 vehicle remarketing servs
    optionsXpress Holdings (M: OXPS) 0.38 0.4 5.3 1.53 2 20.7 8 31 brokerage servs

     

    John Bajkowski is president of AAII.


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