Earnings Scope / Byrne Investment Research - We went 9-for-15 in terms of earnings predictions last week, but owing to one big loser, the stocks lost a combined 41%. This brought the annual return for The Earnings Scope in 2014 down to 49%.
We said Top Recommendation John Bean Technologies (JBT) would hit breakeven, missing sell-side estimates for $0.02 per share. But this is a great company with tremendous earnings power going forward, so buy on weakness. We were wrong. Revenue increased 7% YoY to $198 million, and operating profit improved 14% to $14 million, much higher than we expected. Adjusted earnings hit $0.15 per share, which clobbered estimates. Strong demand for AeroTech equipment from the airframe industry and global airports drove the gains. For the full-year 2014 management expected net earnings of $1.35 – $1.50 per share. The stock gained 1% after the report.
We stated that Top Recommendation MTS Systems (MTSC) added 35 new salespeople in the Service business in fiscal 2013. It takes them 6 – 9 months to contribute to results, so they should all be profitable in fiscal 2014. But these hires would cause MTSC to miss the estimate for $0.71 per share this quarter and the stock would fall on the news. We said to load up on the stock under $65. We nailed both forecasts. Revenue was flat YoY at $137 million, or about $5 million less than we expected. But new orders were up 18% to $163 million, which was a good sign. Backlog was a record high of $304 million, up 6% over last year. Due to higher costs, Net Income declined 30% to $7.8 million, or $0.53 per share, which badly missed estimates. Plus, management lowered its outlook for fiscal 2014 because the “current product mix in the Test business has pushed more of the backlog conversion into fiscal 2015 than previously expected.” Revenue is expected to be $580 – $590 million, down from prior guidance of $585 – $605 million. Net earnings are expected to be $3.35 – $3.50 per share, down from prior guidance of $3.55 – $3.70 per share. The stock fell 2% to $64 where it is trading for 10 times expected earnings.
We said Evolving Systems (EVOL) would beat estimates for $0.04 per share, but we did not like the stock because the company has posted seven straight quarters of declining earnings. We were right on both counts. Revenue was flat YoY at $6.6 million. Net Income fell 42% to $700,000, or $0.05 per share. The stock lost 5%. We do not see how this company is going to turn around after eight straight quarters of weak results.
We stated that Top Recommendation PegaSystems (PEGA) would crush estimates for $0.13 per share and the stock would react well to the news. Again, we were right on both predictions. Revenue increased 22% YoY to $142 million. On a Non-GAAP basis, Net Income improved 22% to $15.7 million, or $0.20 per share. Cash Flow from Operations increased 10% to $73 million. Free Cash Flow was $72 million. PEGA finished the quarter with $221 million in Cash, up 41% from the prior quarter. The stock took off after the report, rising 13% to $18.85.
We thought the $0.32 per share estimate for Top Recommendation Sparton (SPA) was too aggressive because it was more than double year-ago earnings. But we said to load up on the stock because revenues are expected to double in two years, and SPA has no competition in the sonobuoy market. We were right about the stock price. Sales increased 29% YoY to $84 million, which was higher than we expected. Operating income tripled to $6.3 million. Net Income hit $4.2 million, or $0.42 per share, which crushed the sell-side estimate and much higher than we expected, but making quarterly estimates for SPA is nearly impossible due to the nature of government contracts. The stock rose 2%. We think the stock could double within two years so keep buying.
As we have been saying for ten years, Martha Stewart Living Omnimedia (MSO) is a complete disaster and a company that should have never came public. Here is what we said last week: “Frankly, we do not know exactly how much money MSO will lose this quarter, but we do know it will never post a profit on a consistent basis. Short this company down to zero.” MSO posted another horrible quarter. Revenue fell 11% YoY to $33.3 million, leading to an operating loss of ($2.2) million. The net loss was ($2.6) million, or ($0.05) per share, which beat estimates by a penny but we don’t care. These guys couldn’t find hay in a haystack. The stock lost 5% after the report, but a day later it was upgraded by a brokerage firm who obviously was not on the conference call.
Analysts were expecting a small profit of $0.01 per share for I.D. Systems (IDSY) on $10.6 million in revenue. We thought IDSY would miss estimates and we said to stay away from the stock. We were dead right on both counts. Revenue increased 21% YoY to $9.7 million, but the company posted a net loss of ($947,000), or ($0.08) per share, which badly missed estimates. The stock tanked 17% on the news, as we expected.
There are no sell-side estimates for Top Recommendation Miller Industries (MLR). We were looking for sales of $110 million, and Net Income of $2.5 million, or $0.22 per share. We were close. Sales increased 23% YoY to $104.2 million, and net income doubled to $2.4 million, or $0.21 per share. The company also declared a quarterly cash dividend of $0.15 per share, which gives the stock a yield of 3.3%. Despite the strong quarter, the stock lost 4%. MLR has over $2.00 per share in earnings power. Taking out the large Cash position of $45 million, that puts the stock at five times earnings, too cheap to ignore. Buy this market dominator.
We said PowerSecure Intl. (POWR) would crush estimates for $0.02 per share, just it has for the last three quarters. POWR turned in a disaster. The company posted a net loss of ($0.17) per share, down from net income of $0.04 per share a year ago. Nobody was expecting this huge loss and investors panicked. The stock fell 66%, which makes this the worst loss on any stock covered in this newsletter.
Based on trends we saw over the last two quarters, we thought Arabian American Development Corp. (ARSD) would beat estimates for $0.18 per share by a wide margin. We were dead wrong. Revenue increased 22% YoY to $64.1 million. Volume for the quarter was 18.8 million gallons, a 28% increase over last year, but less than we expected. Net Income fell to $2.6 million, or $0.10 per share, down from $4.8 million a year ago. The AMAK unit had no shipments in the quarter, which caused the decrease in EBITDA and Net Income. We had no idea that AMAK would be worthless this quarter. The stock was flat on the news.
We said Amedisys (AMED) would miss loss estimates for ($0.06) per share and the company has been headed in the wrong direction for two years. We were correct. Net service revenue declined 9% YoY to $299 million. The company posted a net loss of ($2.2) million, or ($0.07) per share. The stock lost 1%.
We said Top Recommendation Calgon Carbon (CCC) would beat estimates by a penny. We did not account for currency translation. Sales declined 3% YoY to $135 million, mainly due to the weaker yen. Income from operations improved slightly to $15.6 million, up from $15.0 million a year ago. Net income was flat at $9.8 million, or $0.18 per share, which met estimates. But the stock rose 2% due to a very upbeat conference call. CCC remains our number one recommendation because strong growth starts in 2015 when government regulations kick in to treat drinking water, ballast water, mercury removal, and pollution control. Buy aggressively.
We said a new COO at Heska (HSKA) would surprise the sell-side with a profit this quarter, beating their estimates for ($0.01) per share loss. Revenue increased 10% YoY to $20.8 million, right in line with our estimate. The company reported a small net profit of $192,000, or $0.03 per share, which clobbered estimates. Despite the great quarter, the stock fell 3%.
In the prior quarter, TransAct Technologies (TACT) missed estimates by three cents. Analysts lowered their estimates for this quarter to $0.10 per share, down from original estimates for $0.17 per share. We said it was not low enough and investors would not like the miss. We were on target. Sales dropped 10% YoY to $13.6 million, and net income fell 70% to $400,000, or $0.05 per share, which badly missed estimates. The only good news was that TACT raised its dividend 14% to $0.08 per share, but this is higher than earnings, a very dangerous scenario. The stock lost 5%.
We said Top Recommendation FutureFuel (FF) would crush estimates for $0.16 per share because the sell-side has no idea of the earnings power of this company. We were completely bamboozled. Revenues declined 11% YoY to $82.2 million, or about $10 million less than we had expected. EBITDA was $10.1 million, down from $17.7 million a year ago. Net income decreased 55% to $6.3 million, or $0.14 per share, which missed estimates by two cents. The first quarter had much lower profitability in biodiesel due to the expiration of the $1 blender’s tax credit on 12/31/13 and volume at the chemical division. The stock lost 21%, which is an over-reaction. Load up at $16 because earnings are going to explode in 2015 as new government regulations kick in to boost biodiesel demand.
Following is the table for the week ahead:
|Earnings Estimates provided by Zacks|
|HEAR||Parametric Sound Corp.||$8.00||05/12/14||($0.02)|
|OTIV||On Track Innovations||$2.30||05/14/14||($0.07)|
|OCLS||Oculus Innovative Sciences||$2.96||05/15/14||($0.19)|