Value Ideas: Profitable Companies Undervalued to Analyst Target Price

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(Written by Rebecca Lipman. List compiled by Eben Esterhuizen, CFA)

Investors have many techniques for deciding if a company is undervalued. One approach is to compare a company’s current share price to its analyst 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.

The data points that go into compiling a target price vary greatly and can encompass a number of accounting data, valuation multiples and technical analysis. Analysts consider sales, growth expectations, industry trends, economic conditions, and much more.

Because analysts often have different opinions, investors often use the most pessimistic analyst target price. 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).

Of course, analysts ratings tend to be inflated most of the time so they should be taken with a grain of salt. And not all companies attract the attention of qualified analysts, leaving some names with fewer estimates for investors to use. These should be approached with care.

Investing Ideas

Looking for companies that are trading at deep discounts to their analyst target prices?

To help you find ideas, we scanned over 4200 stocks to identify the ones trading at the deepest discounts to analyst target prices (which we used as a proxy for fair value).

To counter the inherent optimism of analysts we used the most pessimistic analyst target price as the benchmark for our analysis.

In addition, we only focused on companies that have more than 5 analyst target prices (to make sure we only focus on companies that have decent analyst coverage).

To further refine the quality of our list, we collected profitability data, and identified the final list of companies that have reported higher than average profit margins over the trailing twelve months (TTM).

Wall Street analysts seem to think these stocks offer great upside. Considering their profitability track record–do you agree?

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

List sorted by the potential upside from current prices to the lowest analyst target price.

1. Orbotech Ltd. (ORBK): Engages in the design, development, manufacture, marketing, and service of yield-enhancing and production solutions for specialized applications in the supply chain of the electronics industry. Of the 6 analysts that cover the stock, the lowest target price stands at $13.0, which implies an upside of 28.97% from current levels at $10.08. TTM gross margin at 40.45% vs. industry average at 36.17%. TTM operating margin at 12.32% vs. industry average at 9.22%. TTM pretax margin at 11.15% vs. industry average at 8.7%.

2. Green Mountain Coffee Roasters Inc. (GMCR): Engages in the specialty coffee and coffee maker business. Of the 9 analysts that cover the stock, the lowest target price stands at $90.0, which implies an upside of 28.0% from current levels at $70.31. TTM gross margin at 37.12% vs. industry average at 33.15%. TTM operating margin at 14.13% vs. industry average at 12.12%. TTM pretax margin at 10.51% vs. industry average at 9.68%.

3. Rofin-Sinar Technologies Inc. (RSTI): Designs, develops, engineers, makes, and markets industrial lasers and supplies used for material-processing applications worldwide. Of the 9 analysts that cover the stock, the lowest target price stands at $28.0, which implies an upside of 23.40% from current levels at $22.69. TTM gross margin at 40.02% vs. industry average at 36.17%. TTM operating margin at 14.% vs. industry average at 9.22%. TTM pretax margin at 14.58% vs. industry average at 8.7%.

4. Dice Holdings, Inc. (DHX): Provides online recruiting and career development services. Of the 6 analysts that cover the stock, the lowest target price stands at $10.0, which implies an upside of 18.48% from current levels at $8.44. TTM gross margin at 92.64% vs. industry average at 69.12%. TTM operating margin at 29.23% vs. industry average at 25.31%. TTM pretax margin at 25.14% vs. industry average at 17.79%.

5. Jarden Corp. (JAH): Distributes consumer products worldwide. Of the 8 analysts that cover the stock, the lowest target price stands at $37.0, which implies an upside of 16.94% from current levels at $31.64. TTM gross margin at 30.59% vs. industry average at 27.49%. TTM operating margin at 9.38% vs. industry average at 5.93%. TTM pretax margin at 5.79% vs. industry average at 3.59%.

6. Grupo Aeroportuario Del Sureste SA de CV (ASR): Grupo Aeroportuario del Sureste, S.A.B. de C.V., through its subsidiaries, holds concessions to operate, maintain, and develop airports in the southeast region of Mexico. Of the 6 analysts that cover the stock, the lowest target price stands at $66.0, which implies an upside of 16.05% from current levels at $56.87. TTM gross margin at 55.16% vs. industry average at 46.86%. TTM operating margin at 42.74% vs. industry average at 27.58%. TTM pretax margin at 43.52% vs. industry average at 21.95%.

7. Time Warner Cable Inc. (TWC): Operates as a cable operator in the United States. Of the 24 analysts that cover the stock, the lowest target price stands at $72.0, which implies an upside of 15.72% from current levels at $62.22. TTM gross margin at 53.09% vs. industry average at 41.75%. TTM operating margin at 20.93% vs. industry average at 16.52%. TTM pretax margin at 12.51% vs. industry average at 12.44%.

8. American Public Education, Inc. (APEI): Provides online higher education focused primarily on serving the military and public service communities. Of the 9 analysts that cover the stock, the lowest target price stands at $40.0, which implies an upside of 15.67% from current levels at $34.58. TTM gross margin at 62.05% vs. industry average at 52.55%. TTM operating margin at 23.71% vs. industry average at 21.26%. TTM pretax margin at 23.76% vs. industry average at 18.17%. 



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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