Revised Outlooks for a Trio of 3-Star Stocks
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In the investing world, revised outlooks usually represent a disappointing quarter or a dismal forecast for either the current year or next financial year, at least in comparison to the analysts. While this can be seen as bad news for current shareholders, it can often represent a good spot for new investors to buy into the company at a lower price and a chance for previous shareholders to lower their average price. Whether it is currency exchanges, a global slowdown, or the dreaded "investment year," there are many reasons a stock can see its price drop during earnings season. It is our job as investors to do our homework and see if any of these sell-offs present a buying opportunity over the long haul. Today we will look at a trio of 3-star stocks that have fallen out of favor due to their outlooks for the upcoming year and their most recent 10-Q's.
The Companies
Batting leadoff for our blog today is hand and power tool supplier Stanley Black & Decker (NYSE: SWK). Reporting earnings on Wednesday Stanley Black & Decker disappointed with 3rd quarter earnings of only $1.40 versus analysts expectations of $1.45. Furthermore, they expect full year 2012 earnings to come in around the $5.25 mark, versus the $5.50 they had aimed for. Blaming a slowdown in Europe and an investment in emerging markets for the missed earnings, Stanley Black & Decker has seen its share price drop over 4% on the first day of its earnings report.
Holding down the second spot today is industrial products and services supplier W.W. Grainger (NYSE: GWW). As Seth Jayson reported, W.W. Grainger missed on both its revenues and EPS for the quarter with revenues missing by a slight margin and earnings 9 cents short of the $2.90 expected by analysts. Despite this, they reaffirm their full year 2012 EPS outlook of $10.50 to $10.80 which represents 11% yearly revenue growth. W.W. Grainger was down to $200 before rebounding back up to $209 when they reaffirmed their 2012 guidance.
Last but not least is ATM provider Diebold (NYSE: DBD), who isn't planning on reporting earnings until the 25 of October. Despite being over a week away from its earnings release, Diebold has watched its price drop 7% as it trimmed its forecast to $.39 for the 3rd quarter versus analysts expectations of $.50. Diebold attributes most of this to a delay in purchases from Brazil, as Travis Hoium explained.
The Valuations
| Company | PE/FPE | 5 Yr. PEG | P/CF | Dividend % | Payout % | Revenue Growth (5 Yr.) |
|
Stanley Black & Decker |
19.6/10.9 | 1.12 | 11.8 | 2.7% | 46% | 22% |
| W.W. Grainger | 21.5/17.2 | 1.35 | 16.9 | 1.5% | 29% | 5.5% |
| Diebold | 10.3/12.1 | 1 | 7.1 | 3.6% | 38% |
-.8% |
A Few Foolish Thoughts on These Numbers
Coming in with the most appealing valuations is Diebold with a mere 10.3 Price/Earnings and a 7 Price/Cash Flow. However, with revenue growth for 5 years coming in on the negative side, and a dividend yield above 3, Diebold can be seen as more of a value play than a growth story. Having announced 59 consecutive years of dividend increases and sporting a payout ratio of only 38%, there is still room for Diebold to continue paying out cash to investors for years to come.
The biggest historical growth story of the group over the last decade was Stanley Black & Decker as they have gone from $2.6 million in revenue to $10.8 in the trailing twelve months. While a lot of this was achieved through its merger in 2010 with Black & Decker joining Stanley, it still showed great growth beforehand and even afterwards as profitability is starting to rebound. Throw in a 2.7% dividend with a manageable payout ratio and Stanley Black & Decker could make a great pick for the future.
Finally, with W.W. Grainger we have a stock with a 1.5% dividend and some fairly hefty valuations. Despite having nearly doubled its revenues over the last decade and raising its EPS from $2.24 to $9.93 in the same time frame, this stock has seemingly outrun its valuations. With a P/E, P/B, P/CF, and Price/Sales well over its 5 year average, W.W. Grainger has become at least fairly valued in the market, if not overvalued.
Foolish Final Thought
While all three companies are worth keeping an eye on as the right price might present itself, I believe Diebold and W.W. Grainger are just a little bit too highly valued for my taste at the moment. However, with the slight pullback in price for Stanley Black & Decker I will place a 5+ year outperform CAPS call on them. With 83% of its revenues coming from North America and Europe, they still have a tremendous runway for international growth and they announced on Wednesday that they are aiming for 20% of its revenue to come from emerging markets in two years. All in all, I consider Stanley Black & Decker a great company at a fair price and confidently believe it will outperform the market over the long haul for my CAPS account.
Fool blogger Josh Kohn-Lindquist does not own any of companies mentioned in this entry, long or short. The Motley Fool has no positions in the stocks mentioned above. 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.If you have questions about this post or the Fool’s blog network, click here for information.
