Earnings momentum for
Valassis Communications Inc.
) continues to advance following an earnings surprise of 23.3% in
the third quarter and a raised earnings forecast for 2012.
Moreover, this Zacks #2 Rank (Buy) media and marketing services
company has a forward price-to-earnings (P/E) multiple of just 8.2
and a price-to-sales (P/S) ratio as low as 0.5, making it a
promising value proposition for investors.
Third Quarter Highlights
On October 25, Valassis Communications posted third quarter
earnings of 90 cents per share, eclipsing the Zacks Consensus
Estimate of 73 cents and improving by 55.2% from a year ago.
Quarterly earnings benefited from significant gains in the
Free-standing Insert business, enduring operational improvements in
Shared Mail, continued cost containment efforts and a reduced share
Net revenue dipped 0.9% year over year to $523.8 million, missing
the Zacks Consensus Estimate of $525 million.
Despite the sales decline, the company's operating profits grew
20.3% to $58.9 million, driven by an 8.9% decline in selling,
general and administrative (SG&A) expenses, offset by a 2.8%
rise in amortization expenses. The decline in SG&A expenses
mainly resulted from the restructuring and cost reduction measures
adopted at the end of the previous quarter.
Encouraged by the third quarter performance and ongoing
initiatives, the company raised its forecast for 2012 earnings per
share to $3.23, compared with the earlier projection of $3.11. The
company also raised its capital expenditure guidance to between $20
million and $22 million, against the previous guidance of $26
Earnings Estimates Move Higher
In the last 7 days, the Zacks Consensus Estimate for 2012 increased
3.9% to $3.21, based on upward revisions by all 6 estimates. The
Zacks Consensus Estimate for 2013 advanced 0.6% to $3.55 over the
same timeframe. The estimates for 2012 and 2013 reflect annualized
growth of 17.1% and 10.6%, respectively.
Shares of Valassis Communications have gained since the start of
2012, with a year-to-date return of 31.7%. Furthermore, the
valuation for Valassis Communications looks attractive as the
company's forward P/E of 8.2x stands significantly below the
benchmark of 15.0x for a value stock. The P/S and P/B ratios also
remain low at 0.5x and 2.2x, respectively, compared to the cut-off
of 1.0 and 3.0 used to indicate value. The company's PEG ratio of
1.0 stands on par with the benchmark indicator.
Moreover, Valassis Communications has a 1-year ROE of 30.0%, very
much higher than its peer group average of 6.2%, implying better
reinvestment of earnings compared to peers. Long term earnings
growth is projected at 8.5%, compared to the peer group average of
2.0%, making the stock attractive for value-seeking investors.
Valassis Communications provides media and marketing services in
the United States and Europe. Through its four business segments -
Shared Mail, Neighborhood Targeted, Free-standing Inserts and
International, Digital Media & Services - the company offers
supreme reach and scale to more than 15,000 advertisers. The
company employs nearly 7,000 associates in 28 states and eight
countries. Valassis companies include Valassis Direct Mail Inc.,
Valassis Canada, Promotion Watch, Valassis Relationship Marketing
Systems LLC, NCH Marketing Services Inc. and Brand.net. Valassis
Communications has a market cap of $1.07 billion.
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