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Jubak: 3 stocks that could post earnings surprises
Central Parking, Audiovox and Toro each have the ability to deliver earnings that could add some juice to their stocks. But they may not all be long-term purchases.
By Jim Jubak
First-quarter earnings should be good or maybe even strong.
But those are pretty vague measures in my book. Nonetheless, stocks rallied recently on those hopes. I'm not convinced these gains mark anything more than a brief interruption to the correction that set in around the end of February, and that makes me hesitant to buy much now.
But I do have to acknowledge that earnings season, and this one kicks off in earnest on April 14 when both IBM (IBM, news, msgs) and Intel (INTC, news, msgs) report, can move stocks in the short term. The biggest effect, however, isnt on the stock market, but on individual stocks that report results above investor expectations.
What's the formula most likely to fuel earnings-season gains? A big positive earnings surprise built on top of a positive surprise in the previous quarter. It also needs to come after the company has raised guidance, which makes it much more impressive than a company topping lowered expectations.
Im not looking to own stocks like these for the long-haul -- as Ive said I dont trust this market -- but I dont see any reason to turn up my nose at a gain over the next month or so.
Here are three stocks Ive found with big earnings surprise potential.
Spaces open
Central Parking (CPC, news, msgs). In the December quarter, the worlds biggest provider of parking spaces finally delivered the turnaround that investors had been waiting for over the last year. On Jan. 29, Central Parking reported earnings of 27 cents a share, 145% above the Wall Street consensus forecast of 11 cents.
At the same time, the company raised its earnings forecast for fiscal 2004, which ends in September. Over the last 90 days, Wall Street has followed suit: The consensus for fiscal 2004 earnings per share now stands at 66 cents, up from 48 cents. The size of the companys December quarter earnings surprise and the well-established lag between Wall Street projections and actual earnings when a turnaround has started argue for another surprise from Central Parking this quarter, which could give the stock another pop.
Audiovox (VOXX, news, msgs). Investors will have to wait a while for this companys next earnings report since Audiovox didnt announce earnings for the quarter that ended on Nov. 30 until Feb. 24. But the surprise is likely to be worth the wait. And theres plenty else going on at the company to keep investors attention until then.
Last month, the company announced a bid from Korean wireless handset maker Curitel Communications for its handset division. Details on that deal could lead to a revaluation of all of Audiovox since the handset business is likely to be worth more as a independent asset to an acquirer such as Curitel than it is to U.S. investors as a part of Audiovox. And since the handset division is the least profitable part of Audiovox, a sale could push up the value of rest of the company.
Then theres the earnings surprise potential: For the November quarter, Audiovox earned 33 cents a share, 136% above the Wall Street consensus expectation. Wall Street projections for the February quarter have climbed to 26 cents from 13 cents just 60 days ago. But with the companys new color camera phones selling better than expected, theres clearly the possibility for even better results.
Plenty of green from cutting grass
Toro Co. (TTC, news, msgs). On Feb. 24, Toro announced earnings of 36 cents a share for the quarter that ended Jan. 30, 80% above the Wall Street consensus. Not bad for a company selling lawn mowers in January. Wall Street has since raised its estimates for the quarter that ends in April to $1.81 a share from $1.77.
The new consensus estimate is low considering that Toro typically sees revenues pop by 66% or so from the weak winter quarter to its key spring quarter. In addition, much of the companys last surprise resulted from improvements in its cost structure, which drop larger and larger profits to the bottom line as revenues grow. The company has also begun a tender offer to buy back as much as 10% of its outstanding shares by April 14. The buyback should reduce share count and could contribute to a positive surprise as well.
Toro is the only one of these Id consider for more than a short-term trade. The stock still sells at a price-to-earnings ratio of just 18.7 on trailing earnings per share. Our StockScouter gives the shares a rating of 10 out of 10 for the next 12 months.
Editor's Note: A new Jubaks Journal is posted every Tuesday and Friday.
E-mail Jim Jubak at jjmail@microsoft.com.
At the time of publication, Jim Jubak did not own or control shares in any of the equities mentioned in this column. He does not own short positions in any stock mentioned in this column.
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