Are These Stocks a Buy Post Earnings?
Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Monday morning was quiet on the earnings front, but there were still several big-name companies to report quarterly results. In this piece, I am looking at those stocks, determining if any are good post-earning buys, and asking if any should be added to my Motley Fool CAPS.
The publishing giant Gannett (NYSE: GCI) traded lower by more than 3% on Monday after missing second quarter (Q2) earnings expectations. The quarter itself was a slight miss as revenue declined 0.3% year-over-year to $1.3 billion.
However, the company’s broadcasting and digital segments were very strong, with $210 million and $186 million in revenue respectively. The problem is that advertising revenue declined 5.3% year-over-year, and is the company’s largest segment with $532 million in revenue.
Gannett is not an expensive stock, at 1.1 times sales, and does pay a dividend of 3%. Moreover, the company announced a new $300 million share repurchase plan. Therefore, I don’t think Gannett is a “buy” on this earnings report alone, but if you’re a long term dividend investor then I don’t think you can go wrong with Gannett.
Is it sustainable?
PetMed Express (NASDAQ: PETS) exploded higher with gains over 12% after posting an EPS of $0.24 ($0.02 beat) and revenue of $74.2 million ($4.65 million beat). The company’s quarter was phenomenal, as net sales, Earnings Per Share (EPS), and new order sales rose 7.6%, 22%, and 9.6%, respectively, year-over-year. The big boost in EPS relative to sales growth reflects margin improvements and a $4 rise on the average order size to $77.
PetMed is also known as 1800-PetMeds, or an online pet pharmacy. Consumers can go online and order their pet's medication for prices that are often lower than what's paid at a local vet. Moreover, vets also use PetMeds, and it has rapidly become the primary go-to pharmacy for animals. Therefore, the business is a bit non-cyclical by nature.
Like I said, PetMed’s quarter was phenomenal, but my biggest concern is whether it is sustainable. The company has a history of being fundamentally erratic. At 19 times earnings and a price/sales ratio of 1.32 the company isn’t expensive, but after revenue declines of 8% in the previous quarter, I can’t be too bullish about this solid quarter. Therefore, I still want to see one more good quarter before I am ready to buy this stock.
Too big to grow
McDonald’s (NYSE: MCD) is a massive restaurant chain. In fact, McDonald’s is so large that it’s hard for the company to find growth. As a result, the stock is trading lower by 3% on Monday, after slightly missing EPS expectations and meeting revenue expectations.
The company’s revenue grew 2% in the quarter, which was decent, but words such as “our results for the remainder of the year are expected to remain challenged” spooked many investors, and complemented a very conservative full-year outlook.
McDonald’s trades at 18 times earnings and 3.60 times sales. Hence, it is not cheap. With a dividend of 3%, it may be OK for long-term dividend investors, but there is nothing within the quarterly report that presents an underlying value for retail investors.
Seeking a long-term growth source
Halliburton (NYSE: HAL) is ticking lower by 1% on Monday after the company beat earnings expectations. The company’s beat wasn’t large, but its growth in the Middle East and Africa of 12% was particularly encouraging. The company said that it expects revenue growth in the mid-teens and improving margins in the Eastern hemisphere over the next two quarters.
Halliburton is falling lower because it said settlement talks with victims of the 2010 Gulf of Mexico oil spill have slowed. Earlier this year Halliburton said that talks were in advanced stages, and this shows that talks have regressed.
For long-term investors these talks are just a bump in the road, but could further weaken the stock. Furthermore, I do worry about long-term growth. Right now, the company is developing the Middle East and Africa, but with no growth in the U.S. and in Latin America, I am not sure that the catalysts for the company are sustainable. Therefore, I wouldn’t buy on this post-earnings weakness.
After two weeks, I am still yet to find a clear cut post-earnings buy outside of large banks and Goldman Sachs. This earnings season has started slowly, but now with smaller and more volatile companies set to report, I am curious to see if we will get a higher number of “buys.” With that said, I will continue to seek value, and will let you know when post-earning value presents itself.
Brian Nichols has no position in any stocks mentioned. The Motley Fool recommends Halliburton and McDonald's. The Motley Fool owns shares of McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!