) is a Zacks #1 Rank (Strong Buy) and has a streak of five straight
positive earnings surprises.
Towers Watson operates as a global professional services company
that provides consulting and other professional services. It
provides its services related to employee benefits, human capital,
and risk and financial management. The company was formed after the
$4 billion merger between Watson Wyatt Worldwide and Towers Perrin
Forster & Crosby in 2010.
Five in a row
TW has beat earnings expectations in each of its last five earnings
reports. The last two have been solid beats of $0.14 and $0.15
respectively. The March 2011 quarter saw the biggest earnings beat
of late. The company reporting earnings of $1.26 which was $0.32
ahead of the Zacks Consensus Estimate of $0.94. Following the
earnings report, the stock moved higher by more than 8%.
After beating the Zacks Consensus Estimate for the December 2011
quarter, the stock moved higher by 7%. A major reason for the beat
was the performance in the Talent and Rewards segment. Talent and
Rewards had revenues of $169 million, an increase of 15% from $147
million in the year ago period.
Estimates Move Higher
Following the recent earnings announcement, analysts have moved
future expectations higher. The June 2012 fiscal year-end earnings
have moved from $4.68 in January to the current level of $4.89. For
the fiscal year of 2013, estimates are also rising. The Zacks
Consensus Estimate was $5.03 but has moved to $5.35 following the
recent earnings report.
From most perspectives, the valuation for TW looks good. The stock
trades at a premium in terms of forward PE when compared to the
industry average, but the premium is about half a point. All other
metrics show TW trading at a discount to the industry average. Of
note, the price to sales metric for TW of 1.3x is well below the
industry average of 2.2x. Reliable earnings and sales growth should
serve to push these metrics towards parity.
A look at the price and consensus chart shows that Wall Street
analysts are expecting good things from TW for the foreseeable
future. When we see the earnings expectations well above the stock
price, it is generally an indication of a stock being undervalued.
Towers Watson is a Zacks #1 Rank (Strong Buy).
Brian Bolan is the Aggressive Growth Stock Strategist for
Zacks.com. He is also the Editor in charge of the
Run Investor service
TOWERS WATSON (
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