Value Ideas: 10 Undervalued Stocks with a History of Earning Surprises

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(Written by Rebecca Lipman. List compiled by Eben Esterhuizen, CFA. EPS data sourced from Yahoo! Finance)

Are you looking for undervalued companies with a long history of beating analyst expectations? If so, the following may be of interest to you:

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 wanted to 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.

Earning Surprises

To further refine our list of stocks we wanted to find the names with a history of 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 a 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.

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.

Analyze These Ideas (Tools Will Open In A New Window)

1. Access a thorough description of all companies mentioned
2. Compare analyst ratings for all stocks mentioned below
3. Visualize annual returns for all stocks mentioned

1. Dollar Financial Corp. (DLLR): Provides retail financial services to unbanked and under-banked consumers, and small businesses. Of the 7 analysts covering the stock, the lowest target price stands at 25, which implies an upside of 34.19% from current levels around 18.63. In Dec 2010: Reported EPS at 0.35 vs. estimate at 0.34 (surprise of 2.9%). In Mar 2011: Reported EPS at 0.42 vs. estimate at 0.39 (surprise of 7.7%). In Jun 2011: Reported EPS at 0.46 vs. estimate at 0.41 (surprise of 12.2%). In Sep 2011: Reported 0.5 vs. estimate at 0.48 (surprise of 4.2%. [Average earnings surprise at 6.75%].

2. TETRA Technologies Inc. (TTI): Operates as a diversified oil and gas services company. Of the 7 analysts covering the stock, the lowest target price stands at 12, which implies an upside of 33.33% from current levels around 9. In Dec 2010: Reported EPS at 0.1 vs. estimate at 0.07 (surprise of 42.9%). In Mar 2011: Reported EPS at 0.07 vs. estimate at 0.03 (surprise of 133.3%). In Jun 2011: Reported EPS at 0.24 vs. estimate at 0.21 (surprise of 14.3%). In Sep 2011: Reported 0.18 vs. estimate at 0.17 (surprise of 5.9%. [Average earnings surprise at 49.1%].

3. GrafTech International Ltd. (GTI): GrafTech International Ltd. manufactures graphite and carbon material science-based solutions. Of the 8 analysts covering the stock, the lowest target price stands at 20, which implies an upside of 33.16% from current levels around 15.02. In Dec 2010: Reported EPS at 0.32 vs. estimate at 0.26 (surprise of 23.1%). In Mar 2011: Reported EPS at 0.19 vs. estimate at 0.16 (surprise of 18.8%). In Jun 2011: Reported EPS at 0.2 vs. estimate at 0.18 (surprise of 11.1%). In Sep 2011: Reported 0.28 vs. estimate at 0.24 (surprise of 16.7%. [Average earnings surprise at 17.42%].

4. Smith & Wesson Holding Corporation (SWHC): Offers metal processing services and manufactures firearms and handcuffs as well as apparel and sportsmen's articles. Of the 5 analysts covering the stock, the lowest target price stands at 4, which implies an upside of 32.45% from current levels around 3.02. In Oct 2010: Reported EPS at 0.02 vs. estimate at 0 (surprise of N/A). In Jan 2011: Reported EPS at -0.08 vs. estimate at 0 (surprise of N/A). In Apr 2011: Reported EPS at 0.15 vs. estimate at 0.04 (surprise of 275%). In Jul 2011: Reported 0.01 vs. estimate at 0 (surprise of N/A. [Average earnings surprise at 275%].

5. Cninsure Inc. (CISG): Provides insurance brokerage and agency services, and insurance claims adjusting services in the People's Republic of China. Of the 6 analysts covering the stock, the lowest target price stands at 10, which implies an upside of 30.55% from current levels around 7.66. In Sep 2010: Reported EPS at 0.32 vs. estimate at 0.3 (surprise of 6.7%). In Dec 2010: Reported EPS at 0.37 vs. estimate at 0.34 (surprise of 8.8%). In Mar 2011: Reported EPS at 0.24 vs. estimate at 0.23 (surprise of 4.3%). In Jun 2011: Reported 0.33 vs. estimate at 0.29 (surprise of 13.8%. [Average earnings surprise at 8.4%].

6. SLM Corporation (SLM): Provides education finance in the United States. Of the 5 analysts covering the stock, the lowest target price stands at 18, which implies an upside of 30.53% from current levels around 13.79. In Dec 2010: Reported EPS at 0.75 vs. estimate at 0.71 (surprise of 5.6%). In Mar 2011: Reported EPS at 0.48 vs. estimate at 0.4 (surprise of 20%). In Jun 2011: Reported EPS at 0.48 vs. estimate at 0.42 (surprise of 14.3%). In Sep 2011: Reported 0.36 vs. estimate at 0.34 (surprise of 5.9%. [Average earnings surprise at 11.45%].

7. Bravo Brio Restaurant Group, Inc. (BBRG): Operates two Italian restaurant brands in the United States. Of the 6 analysts covering the stock, the lowest target price stands at 22, which implies an upside of 29.87% from current levels around 16.94. In Dec 2010: Reported EPS at 0.27 vs. estimate at 0.25 (surprise of 8%). In Mar 2011: Reported EPS at 0.18 vs. estimate at 0.14 (surprise of 28.6%). In Jun 2011: Reported EPS at 0.22 vs. estimate at 0.2 (surprise of 10%). In Sep 2011: Reported 0.13 vs. estimate at 0.12 (surprise of 8.3%. [Average earnings surprise at 13.72%].

8. CAI International Inc. (CAP): Engages in the intermodal marine cargo container leasing business worldwide. Of the 5 analysts covering the stock, the lowest target price stands at 19, which implies an upside of 29.34% from current levels around 14.69. In Dec 2010: Reported EPS at 0.57 vs. estimate at 0.44 (surprise of 29.5%). In Mar 2011: Reported EPS at 0.65 vs. estimate at 0.46 (surprise of 41.3%). In Jun 2011: Reported EPS at 0.55 vs. estimate at 0.51 (surprise of 7.8%). In Sep 2011: Reported 0.7 vs. estimate at 0.56 (surprise of 25%. [Average earnings surprise at 25.9%].

9. Array BioPharma, Inc. (ARRY): Focuses on the discovery, development, and commercialization of small molecule drugs to treat patients afflicted with cancer and inflammatory diseases in North America, Europe, and the Asia Pacific. Of the 5 analysts covering the stock, the lowest target price stands at 3, which implies an upside of 26.58% from current levels around 2.37. In Dec 2010: Reported EPS at -0.23 vs. estimate at -0.28 (surprise of 17.9%). In Mar 2011: Reported EPS at -0.2 vs. estimate at -0.25 (surprise of 20%). In Jun 2011: Reported EPS at -0.17 vs. estimate at -0.27 (surprise of 37%). In Sep 2011: Reported -0.06 vs. estimate at -0.19 (surprise of 68.4%. [Average earnings surprise at 35.82%].

10. Titan Machinery, Inc. (TITN): Operates a network of full service agricultural and construction equipment stores in the United States. Of the 5 analysts covering the stock, the lowest target price stands at 28, which implies an upside of 25.34% from current levels around 22.34. In Oct 2010: Reported EPS at 0.42 vs. estimate at 0.36 (surprise of 16.7%). In Jan 2011: Reported EPS at 0.57 vs. estimate at 0.36 (surprise of 58.3%). In Apr 2011: Reported EPS at 0.4 vs. estimate at 0.22 (surprise of 81.8%). In Jul 2011: Reported 0.3 vs. estimate at 0.26 (surprise of 15.4%. [Average earnings surprise at 43.05%]. 



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets


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