Are you looking for undervalued companies with a long history of beating analyst expectations and a current high return on equity? If so, the following may be of interest to you.
We ran a screen for stocks with a recent history of earnings surprises, that are currently trading below their lowest analyst target price, and have encouraging DuPont trends.
Earning Surprises
The concept of an earnings surprise is pretty straight-forward – the quarterly earnings come out, and earnings analysts are “surprised” by how they don’t match up to their predictions. A surprise can indicate either positive or negative earnings, meaning the annual reports are above or below analysts’ earnings estimates. For this list we only use positive surprises.
“Surprise” doesn’t necessarily have to mean shocking either, it can be the difference of a few cents between what earning analysts predicted and what the company actually reports. To be clear, earnings typically refer to after-tax net income.
Undervalued to Target Price
Analyst target prices can be very useful guides for investors. The target price is a price level set by analysts that, based on their data and estimates, represents their predictions for that company in the upcoming year. When a company’s current market price is deeply lagging to the target price, it may signal that the company has more value to price in (meaning, the stock price may rise).
We explore this idea by forming a universe of companies that are currently undervalued to target price. And because analysts often have different opinions, and tend to be overly optimistic, we use the lowest analyst target price.
Especially if the company has a history of outperforming these targets, the potential upside if this trend continues could be significant.
DuPont
The DuPont equation takes into account the firm’s Return on Equity (ROE). In its simplest form ROE represents (Net Profits/Average Equity). Generally, the higher the ROE, the more profitable the company is.
Dupont stretches that equation into 3 parts:
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)
This way we can examine the strength of major sources of profitability. A rise in net profits or asset efficiency is considered positive, while a rise in the leverage ratio (debt) is generally considered a negative characteristic. We screened for firms with an increasing Net Profit margin and Asset turnover, and a decreasing Leverage ratio.
If companies are still performing profitably, and at an increasing rate- should we be so quick to dismiss the possibility of another earnings suprise?
The List
Ready to explore these ideas? These stocks have a track record or beating out analyst expectations, do you think this quarter will be any different?
Use the list and relevant information below as a starting-off point for your own analysis.
Interactive Chart: Use the Compar-O-Matic to compare market caps for the stocks mentioned below:
1. On Assignment Inc. (ASGN, Earnings, Analysts, Financials): Provides flexible and permanent staffing solutions in the United States, Europe, Canada, Australia, New Zealand, and Bermuda. Market cap at $572.2M, most recent closing price at $15.21. In Jun 2011: Reported EPS at 0.16 vs. estimate at 0.13 (surprise of 23.1%). In Sep 2011: Reported EPS at 0.21 vs. estimate at 0.18 (surprise of 16.7%). In Dec 2011: Reported EPS at 0.2 vs. estimate at 0.16 (surprise of 25%). In Mar 2012: Reported 0.18 vs. estimate at 0.16 (surprise of 12.5%. [Average earnings surprise at 19.32%].
Of the 5 analysts covering the stock, the lowest target price stands at 20, which implies an upside of 31.23% from current levels around 15.24. MRQ net profit margin at 3.22% vs. 2.44% y/y. MRQ sales/assets at 0.398 vs. 0.344 y/y. MRQ assets/equity at 1.64 vs. 1.675 y/y.
2. Clean Harbors, Inc. (CLH, Earnings, Analysts, Financials): Provides environmental, energy, and industrial services. Market cap at $3.13B, most recent closing price at $58.64. In Jun 2011: Reported EPS at 0.55 vs. estimate at 0.42 (surprise of 31%). In Sep 2011: Reported EPS at 0.7 vs. estimate at 0.52 (surprise of 34.6%). In Dec 2011: Reported EPS at 0.6 vs. estimate at 0.48 (surprise of 25%). In Mar 2012: Reported 0.6 vs. estimate at 0.58 (surprise of 3.4%. [Average earnings surprise at 23.5%].
Of the 13 analysts covering the stock, the lowest target price stands at 66, which implies an upside of 20.15% from current levels around 54.93. MRQ net profit margin at 5.6% vs. 5.23% y/y. MRQ sales/assets at 0.273 vs. 0.231 y/y. MRQ assets/equity at 2.2 vs. 2.288 y/y.
3. Cummins Inc. (CMI, Earnings, Analysts, Financials): Designs, manufactures, distributes, and services diesel and natural gas engines, electric power generation systems, and engine-related component products worldwide. Market cap at $17.9B, most recent closing price at $93.15. In Jun 2011: Reported EPS at 2.41 vs. estimate at 2.01 (surprise of 19.9%). In Sep 2011: Reported EPS at 2.35 vs. estimate at 2.25 (surprise of 4.4%). In Dec 2011: Reported EPS at 2.56 vs. estimate at 2.23 (surprise of 14.8%). In Mar 2012: Reported 2.38 vs. estimate at 2.22 (surprise of 7.2%. [Average earnings surprise at 11.58%].
Of the 15 analysts covering the stock, the lowest target price stands at 120, which implies an upside of 32.53% from current levels around 90.54. MRQ net profit margin at 10.17% vs. 8.89% y/y. MRQ sales/assets at 0.369 vs. 0.36 y/y. MRQ assets/equity at 2.016 vs. 2.204 y/y.
4. DXP Enterprises, Inc. (DXPE, Earnings, Analysts, Financials): Distributes maintenance, repair, and operating products (mro), equipment, and services to industrial customers in the U. Market cap at $627.31M, most recent closing price at $44.27. In Jun 2011: Reported EPS at 0.5 vs. estimate at 0.46 (surprise of 8.7%). In Sep 2011: Reported EPS at 0.55 vs. estimate at 0.52 (surprise of 5.8%). In Dec 2011: Reported EPS at 0.61 vs. estimate at 0.54 (surprise of 13%). In Mar 2012: Reported 0.77 vs. estimate at 0.62 (surprise of 24.2%. [Average earnings surprise at 12.92%].
Of the 5 analysts covering the stock, the lowest target price stands at 47, which implies an upside of 23.23% from current levels around 38.14. MRQ net profit margin at 4.62% vs. 3.46% y/y. MRQ sales/assets at 0.597 vs. 0.548 y/y. MRQ assets/equity at 2.506 vs. 2.555 y/y.
5. EOG Resources, Inc. (EOG, Earnings, Analysts, Financials): Engages in the exploration, development, production, and marketing of natural gas and crude oil primarily in the United States, Canada, the Republic of Trinidad, Tobago, the United Kingdom, and the People’s Republic of China. Market cap at $25.47B, most recent closing price at $94.46. In Jun 2011: Reported EPS at 1.11 vs. estimate at 0.79 (surprise of 40.5%). In Sep 2011: Reported EPS at 0.83 vs. estimate at 0.78 (surprise of 6.4%). In Dec 2011: Reported EPS at 1.15 vs. estimate at 0.88 (surprise of 30.7%). In Mar 2012: Reported 1.17 vs. estimate at 1.16 (surprise of 0.9%. [Average earnings surprise at 19.62%].
Of the 26 analysts covering the stock, the lowest target price stands at 99, which implies an upside of 15.51% from current levels around 85.7. MRQ net profit margin at 11.54% vs. 7.06% y/y. MRQ sales/assets at 0.11 vs. 0.081 y/y. MRQ assets/equity at 1.967 vs. 1.997 y/y.
6. Helix Energy Solutions Group, Inc. (HLX, Earnings, Analysts, Financials): Operates as an offshore energy company. Market cap at $1.68B, most recent closing price at $15.86. In Jun 2011: Reported EPS at 0.39 vs. estimate at 0.2 (surprise of 95%). In Sep 2011: Reported EPS at 0.43 vs. estimate at 0.42 (surprise of 2.4%). In Dec 2011: Reported EPS at 0.66 vs. estimate at 0.35 (surprise of 88.6%). In Mar 2012: Reported 0.73 vs. estimate at 0.43 (surprise of 69.8%. [Average earnings surprise at 63.95%].
Of the 6 analysts covering the stock, the lowest target price stands at 20, which implies an upside of 28.12% from current levels around 15.61. MRQ net profit margin at 16.12% vs. 8.87% y/y. MRQ sales/assets at 0.111 vs. 0.082 y/y. MRQ assets/equity at 2.44 vs. 2.793 y/y.
7. Navigant Consulting Inc. (NCI, Earnings, Analysts, Financials): Provides dispute, investigative, economic, operational, risk management, and financial and risk advisory solutions to governmental agencies, legal counsels, and large companies facing the challenges of uncertainty, risk, distress, and significant change in the United States, the United Kingdom, and internationally. Market cap at $586.31M, most recent closing price at $11.31. In Jun 2011: Reported EPS at 0.21 vs. estimate at 0.18 (surprise of 16.7%). In Sep 2011: Reported EPS at 0.21 vs. estimate at 0.19 (surprise of 10.5%). In Dec 2011: Reported EPS at 0.22 vs. estimate at 0.19 (surprise of 15.8%). In Mar 2012: Reported 0.23 vs. estimate at 0.21 (surprise of 9.5%. [Average earnings surprise at 13.12%].
Of the 6 analysts covering the stock, the lowest target price stands at 14, which implies an upside of 15.22% from current levels around 12.15. MRQ net profit margin at 5.63% vs. 4.65% y/y. MRQ sales/assets at 0.232 vs. 0.216 y/y. MRQ assets/equity at 1.689 vs. 1.843 y/y.
8. Sally Beauty Holdings Inc. (SBH, Earnings, Analysts, Financials): Engages in the distribution and retail of professional beauty supplies. Market cap at $4.99B, most recent closing price at $26.67. In Jun 2011: Reported EPS at 0.3 vs. estimate at 0.28 (surprise of 7.1%). In Sep 2011: Reported EPS at 0.29 vs. estimate at 0.27 (surprise of 7.4%). In Dec 2011: Reported EPS at 0.29 vs. estimate at 0.26 (surprise of 11.5%). In Mar 2012: Reported 0.35 vs. estimate at 0.32 (surprise of 9.4%. [Average earnings surprise at 8.85%].
Of the 6 analysts covering the stock, the lowest target price stands at 30, which implies an upside of 16.73% from current levels around 25.7. MRQ net profit margin at 7.63% vs. 6.15% y/y. MRQ sales/assets at 0.497 vs. 0.47 y/y. MRQ assets/equity at -25.862 vs. -5.001 y/y.
9. Triumph Group, Inc. (TGI, Earnings, Analysts, Financials): Engages in the design, engineering, manufacture, repair, overhaul, and distribution of aircraft components. Market cap at $2.85B, most recent closing price at $57.22. In Jun 2011: Reported EPS at 1 vs. estimate at 0.84 (surprise of 19%). In Sep 2011: Reported EPS at 1.15 vs. estimate at 1.04 (surprise of 10.6%). In Dec 2011: Reported EPS at 1.3 vs. estimate at 1.12 (surprise of 16.1%). In Mar 2012: Reported 1.57 vs. estimate at 1.31 (surprise of 19.8%. [Average earnings surprise at 16.38%].
Of the 11 analysts covering the stock, the lowest target price stands at 65, which implies an upside of 18.28% from current levels around 54.95. MRQ net profit margin at 11.23% vs. 5.69% y/y. MRQ sales/assets at 0.208 vs. 0.205 y/y. MRQ assets/equity at 2.54 vs. 2.743 y/y.
10. WellCare Health Plans, Inc. (WCG, Earnings, Analysts, Financials): Provides managed care services for government-sponsored healthcare programs in the United States. Market cap at $2.18B, most recent closing price at $50.67. In Jun 2011: Reported EPS at 1.77 vs. estimate at 0.95 (surprise of 86.3%). In Sep 2011: Reported EPS at 2.15 vs. estimate at 1.31 (surprise of 64.1%). In Dec 2011: Reported EPS at 2.15 vs. estimate at 1.18 (surprise of 82.2%). In Mar 2012: Reported 1.32 vs. estimate at 0.54 (surprise of 144.4%. [Average earnings surprise at 94.25%].
Of the 10 analysts covering the stock, the lowest target price stands at 61, which implies an upside of 22.95% from current levels around 49.61. MRQ net profit margin at 2.86% vs. 1.45% y/y. MRQ sales/assets at 0.666 vs. 0.656 y/y. MRQ assets/equity at 2.276 vs. 2.623 y/y.
(Written by Ryan Horch)
Use Kapitall’s Tools: Looking for ways to analyze this list?
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Analyze These Ideas: Getting Started
- Read descriptions for all companies mentioned
- Access a performance overview for all stocks in the list
- Compare analyst ratings for the companies mentioned
- Compare analyst ratings to annual returns for stocks mentioned
- Real-Time Opinion: Scan the latest tweets about these companies (feed will open in a new window)
Dig Deeper: Access Company Snapshots, Charts, Filings
- On Assignment Inc. (ASGN, Chart, Download SEC Filings)
- Clean Harbors, Inc. (CLH, Chart, Download SEC Filings)
- Cummins Inc. (CMI, Chart, Download SEC Filings)
- DXP Enterprises, Inc. (DXPE, Chart, Download SEC Filings)
- EOG Resources, Inc. (EOG, Chart, Download SEC Filings)
- Helix Energy Solutions Group, Inc. (HLX, Chart, Download SEC Filings)
- Navigant Consulting Inc. (NCI, Chart, Download SEC Filings)
- Sally Beauty Holdings Inc. (SBH, Chart, Download SEC Filings)
- Triumph Group, Inc. (TGI, Chart, Download SEC Filings)
- WellCare Health Plans, Inc. (WCG, Chart, Download SEC Filings)
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