3 Companies With High EPS Growth Forecasts
Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Earnings per share, or EPS, shows the rate at which a company has grown its profitability. EPS growth is a good fundamental indicator of the future prospects of a company. Increased revenue and high profit margin drive the EPS growth of a company, and investors generally look for companies with higher EPS growth. Let’s delve into the strategies of three companies that are estimated to have more than 25% annual EPS growth in the long-term.
Marketing software segment resulting high growth
In June 2013, Salesforce announced the acquisition of ExactTarget (NYSE: ET) for $2.5 billion. This deal will be complete by July 31, 2013. ExactTarget provides internet-based marketing software that helps companies run ad campaigns via email, mobile, and social networks. At present, the company has 7% market share of the marketing software segment. ExactTarget earns about 80% of its revenue from email marketing.
With this acquisition, Salesforce will increase its presence in the email marketing segment. It will also gain access to more than 6,000 of ExactTarget’s customers, including Coca-Cola, The Gap, and Nike. This acquisition will generate additional revenue of $120 million-$125 million in fiscal year 2014.
The increased number of online users is generating large amounts of digital data. With the help of marketing software tools, companies filter this data and analyze the information. Companies use this valuable information to deliver timely and targeted messages unique to the customer at various stages of the buying process to generate higher sales. According to IDC, the marketing software market is expected to grow to $5.5 billion in 2016, up from $4 billion in 2012.
Radian6 and Buddy Media software, products of Salesforce, provide tools to monitor and engage with the online users through social media. The company expects to earn more revenue as social media becomes the preferred platform to address customer service or product issues. The company’s marketing software segment will grow from 2% market share in 2012 to about 20% in 2016, generating around $1 billion in revenue.
EUV lithography to the rescue
ASML Holding is working on improving the rate of producing its Extreme Ultraviolet, or EUV, tools. EUV lithography is the latest technology used for the manufacturing of computer chips. At present, ASML takes 18 months, from the time of order, to deliver EUV tools. The company aims to reduce this time to around 12 months in 2014.
The company has decreased its revenue estimation from EUV tools to $367.64 million from $590.85 million in 2013. ASML will deliver four out of six EUV tools scheduled for delivery in 2013. However, in 2014, it anticipates delivery of 12 tools, with plans to double this amount in 2015. The semiconductor industry is continuously shifting to latest EUV lithography. Therefore, ASML expects to earn more revenue in 2014 and 2015.
ASML completed the acquisition of Cymer on May 30, 2013. Cymer has been developing EUV laser technology for a decade. This laser technology is an important part of ASML's EUV tool. The acquisition will help ASML to increase the production of EUV tools, reducing the risk of further delays.
ASML will also have access to Cymer's installed base products, or IBP business. Cymer reported around $370 million in revenue from its IBP business in 2012. It also had 70% market share of deep ultraviolet light source in 2012. This acquisition will further add to ASML's revenue.
Potential opportunity in Japan and the U.S.
Regeneron’s drug Eylea improves the vision of patients with age-related macular degeneration, or AMD, and myopic choroidal neovascularization, or mCNV. AMD destroys the central vision needed to see objects clearly and causes vision loss. mCNV is a disease related to the retina and also leads to vision loss. mCNV is the second-most common cause of vision loss in Japan.
Regeneron recorded revenue of $13.3 million from Eylea in Japan in April 2013. The revenue increased by 22% as compared to $11.7 million in March 2013. Eylea has captured about 50% market share in Japan, and Japanese sales will total around $166 million by the end of this year.
Regeneron, along with Sanofi, developed Dupilumab, a new drug for asthma patients. The drug is given to patients whose conditions are not well controlled by existing medicines. The phase IIa study of Dupilumab, conducted for moderate-to-severe allergic asthma, showed positive results. The drug resulted in improved breathing conditions and better control of asthma. Phase IIb study of Dupilumab will be initiated in mid-2013. It is estimated that 25 million people in the U.S. have asthma. The disease in not well controlled with normal medication or therapy in about 15% of these patients. The success of this drug will increase Regeneron’s addressable market in the U.S.
Salesforce acquired ExactTarget to increase its presence in the email marketing channel. With this acquisition and its existing software, the company is expected to generate additional revenue in the growing marketing software segment.
ASML aims to reduce the lead time for EUV tools in order to meet increasing demand. The acquisition of Cymer will further help ASML to increase production of EUV tools. With about 80% market share of EUV tools, the company expects to earn additional revenue.
With Eylea capturing large market share in Japan, and dupilumab showing positive results in its phase IIa study, Regeneron has excellent potential to increase its revenue.
These growth strategies and potential for increasing revenue will help these companies to increase their EPS in the future. I recommend a buy for all three stocks.
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Shweta Dubey has no position in any stocks mentioned. The Motley Fool recommends Salesforce.com. 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!