) is coming off back to back negative earnings surprises and the
most recent one carried a big top line disappointment. It is a
Zacks Rank #5 (Strong Sell). It is the Bear of the Day.
Picking the bear of the day is a difficult thing as it doesn't mean
that SHLM is a bad company or even a bad stock. It just means the
stock has hit a rough patch with estimates moving lower.
The rubber hit the road for SHLM, a public company since 1972 with
34 manufacturing facilities and 3,300 associates following the most
recent earnings report.
A. Schulman supplies plastic compounds and resins for packaging,
automotive, consumer products, and industrial applications. The
company was founded in 1928 and is headquartered in Akron, Ohio.
Back To Back Misses
The last two quarters have not been that strong. The Feb 2013
quarter saw earnings of $0.27, which were $0.13 less than the Zacks
Consensus Estimate of $0.40. That translated into a negative
earnings surprise of 32%.
The May 2013 quarter was another miss of $0.13, but since
expectations for this quarter were higher, the miss was only 20%.
Still back to back misses like this are not what investors want to
Driving the Miss
The real problem with the most recent miss was the softness on top.
By that, I mean that the company came in well below the Zacks
consensus Revenue estimate. A 5.6% short fall on top makes it
exceedingly hard for this company to outperform on the bottom line.
Earnings Estimates Tick Lower
Of late, earnings estimates have declined. The Zacks Consensus
Estimate for 2013 has slipped from $2.18 in March to $1.72 August.
That sort of decline is something makes a lot of people take notice
is and is the major reason this stock has its low Zack Rank.
The same could be said of the 2014 Zacks Consensus Estimate as it
fell from $2.55 in March to the present level of $2.05. Earnings
estimate revisions are the largest component of the Zacks Rank that
can influence a change in rank.
The valuation picture for SHLM is in line with the industry average
right now, but that could change over time. A 15.5x forward PE is
slightly above the 14.9x industry average, so a tiny premium there.
The 1.5x price to book multiple is less than half the 3.3x industry
average and a price to sales multiple of 0.4x is almost a third of
the 1.1x industry average. Almost a value stock, but the revenue
growth for this year is negative and next year is only supposed to
be in line with the industry average. Factor in a 1.9% net margin
vs a 7.7% net margin for the industry average and investors may
want to wait till the bottom line improves.
The price and consensus chart shows a disturbing trend in earnings
estimates. The stock has moved up through the changes in earnings
estimates, which start the year with some growth but have given
that all back down the road. As a big Buckeye fan, I can say they
are headquartered in the right spot, but SHLM needs to improve
margins and grow revenue to get back on the right track.
Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor
in charge of the
Run Investor service
, a Buy and Hold service where he oversees the 20 stocks in the
portfolio, telling investors when and what to buy and sell.
Brian is also the editor of
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a trading service that focuses on small cap stocks and also carries
a risk limiting strategy. Subscribers get daily emails along with
buy, and sell alerts.
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SCHULMAN(A) INC (SHLM): Free Stock Analysis
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