And the Beat Goes On!
Damon is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
(with apologies to the late Sonny Bono, and to Cher)
The beat goes on, the beat goes on
Drums keep pounding a rhythm to the brain
The grocery store's the super mart, uh huh
Little girls still break their hearts, uh huh
And men still keep on marching off to war
Electrically they keep a baseball score
And the beat goes on…
Grandmas sit in chairs and reminisce
Boys keep chasing girls to get a kiss
The cars keep going faster all the time
Bums still cry "hey buddy, have you got a dime"
And the beat goes on…
Lyrics courtesy of:
Earnings beats announced after market close last week included:
IBM, Intel, Microsoft
Why do investors care if a company beat analyst estimates? And what else about an earnings beat should be considered before making an investment decision?
When revenues for the reporting period exceed analyst estimates then a company is demonstrating better than expected income from operations. It’s a revenue beat. When the earnings per share (EPS) reported exceeds the average of analysts’ estimates, that’s another beat - an earnings beat. Kind of like the heartbeats of a stock. A lovely stock that you may wish to own.
In addition to the current quarter’s “beats” investors should pay attention to guidance for the next reporting period. If they issue upside guidance on top of an earnings beat, that is a good time to consider buying. If they report a revenue beat but missed on earnings, or issue downside guidance for the coming quarter (or year) then you should carefully review your holdings and determine whether to sell before the share price drops further, or look at adding more when the price drops if you believe in the stock’s long-term fundamentals.
Here are some recent earnings beats, with revenue beats, and upside guidance on both revenues and earnings. The strongest beats of all! Expect shares to rise barring any potential negative indicators that could be at play. Do your own research before investing. This method is just one technique for identifying buy candidates.
Teradyne (NYSE: TER)
Teradyne beats by $0.04, beats on revs; guides Q1 EPS above consensus, revs above consensus 16.13 -0.17 : Reports Q4 (Dec) earnings of $0.16 per share, excluding non-recurring items, $0.04 better than the Capital IQ Consensus Estimate of $0.12; revenues fell 4.3% year/year to $297 mln vs the $284.75 mln consensus. Co issues upside guidance for Q1, sees EPS of $0.22-0.33, excluding non-recurring items, vs. $0.19 Capital IQ Consensus Estimate; sees Q1 revs of $360-400 mln vs. $305.63 mln Capital IQ Consensus Estimate.
Teradyne reported a good fourth quarter and announced strong guidance for Q1 of FY 2012. According to CEO, Mike Bradley, the company generated nearly $200 million of free cash flow during the year. The Systems Test group had an exceptional year with record revenues and solid bottom line performance. Teradyne is experiencing much higher demand across several markets. The addition of LitePoint is also a positive - the company expects that LitePoint will deliver at least 20% top line growth in 2012. The current P/E ratio at today’s closing price of $16.13 is a mere 12.2 with a 22.5% ROE. The have $1.2B in cash and only $160M in debt. The stock has recovered from a 52-wk low on Oct. 4, 2011 of $10.37 and looks like it will continue going up from here.
I would consider adding shares at a price under $18.
United Rentals (NYSE: URI)
Reports Q4 (Dec) earnings of $0.82 per share, excluding non-recurring items, $0.24 better than the Capital IQ Consensus Estimate of $0.58; revenues rose 25.0% year/year to $746 mln vs the $689.68 mln consensus. The co provided the following outlook for the full year 2012: An increase of rental rates of 5% YoY ; An increase in time utilization of ~0.5 percentage points year-over-year; Net rental capital expenditures of between $770 million and $820 million, after gross purchases of ~$1.0 billion; and Free cash usage (negative flow) in the range of $50 million to $100 million.
The stock closed today at $34.77 and is already up to $36.56 in the after hours market. I think it will continue going up from there but it could be shorts driving up the price. On the conference call discussing Q4 results, Michael Kneeland, United Rentals' CEO stated that 2011 was a good year and 2012 is looking like it will be an "important" year for them (note that he did not unequivocally state that it will be another great year!). With "bumpy" demand both geographically and month to month it is hard to gauge whether this year's results will be as good or better than 2011. Then there is the RSC acquisition adding another degree of uncertainty. That's a big unknown at this point, however, in my estimation the costs of the acquisition will most likely overshadow any additional revenue recognition in 2012. Longer term it may prove to be a good move but I would not be a buyer of URI stock at the current share price.
Silicon Labs (NASDAQ: SLAB)
Reports Q4 (Dec) earnings of $0.49 per share, $0.06 better than the Capital IQ Consensus Estimate of $0.43; revenues rose 13.2% year/year to $126.69 mln vs the $119.8 mln consensus. Co issues upside guidance for Q1, sees Q1 revs of $120-125 mln vs. $118.04 mln Capital IQ Consensus Estimate. Gross margin remained stable at 61.2 percent. R&D investment increased to $29.6 million due primarily to increased tape out activity, and as planned, SG&A remained flat at $22.5 million.
The company's shares fell 30 cents to end the day at $46.77. While most chip stocks did not report good Q4 results, Silicon Labs had the impertinence of reporting actual growth. The company has good management and a diversified market for the their products, which allows them to take advantage of the cyclical nature of chip manufacturing. Although the TV market has been down overall, fourth quarter revenue upside was driven by new product cycles in video and touch controllers. The company’s touch controllers designed into mobile handsets exceeded initial forecasts which added strong validation for the company’s touch technology and a good foundation for expanding market share in 2012.
The stock is near its 52-week high and could go up from here but I would not be looking to buy at these levels as I believe that most of the near-term growth is already priced into the stock.
Notes: All quarterly report summaries and key financial statistics courtesy of Yahoo Financial. Opinions expressed are my own. And the beat goes on…
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