Q1'17 Earnings Season Underway
The new earnings season has officially begun and as expected, has been a story of growth so far. According to Zack’s Investment Research, 57 members of the S&P 500 have reported as of Wednesday, April 19th. Total earnings from these companies have grown 18.7% in Q1'17 compared to 11.0% in Q4'16. Revenues are also up 6.4% in Q1'17 compared to 3.7% in Q4'16. Additionally, 75% of these companies have also beat their EPS estimates. Overall, S&P 500 member earnings are on pace to reach their highest level in nearly two years.
While only 11% of the S&P 500 member companies have reported, one sector that has outperformed has been materials. So far these companies have reported total earnings growth of 31.6% on 12.0% revenue growth while 100% have beat their estimates. These materials stocks have seen a positive 1.1% price impact immediately following earnings which compares favorably to the -0.6% impact for the entire 57 company group that has reported thus far.
Here are five stocks in the materials sector that are fundamentally undervalued and ready to takeoff on earnings.
5 Materials Stocks That Could Takeoff On Earnings
Using this stock screen, we found five materials stocks expected to report earnings this week (4/24 - 4/28) that are trading below their finbox.io fair value estimate: Allegheny Technologies (NYSE:ATI), Owens-Illinois (NYSE:OI), Carpenter Technology (NYSE:CRS), Coeur Mining (NYSE:CDE) and Huntsman (NYSE:HUN).
Allegheny Technologies Incorporated produces and sells specialty materials and components worldwide. The company is expected to report earnings on Tuesday before the market opens and appears 30% undervalued when applying Wall Street estimates to seven separate cash flow analyses
<img src='http://res.cloudinary.com/finbox/image/upload/v1492700830/1_-_ATI_Fair_Value_Estimate_turbwo.jpg' alt= ‘ ATI finbox.io fair value estimate’>
View all 7 valuation models that derive ATI's fair value estimate.
Owens-Illinois manufactures and sells glass containers to food and beverage manufacturers worldwide. The company is expected to report earnings on Monday after the market closes. Although shares currently trade near their 52 week high, the stock still has roughly 15% upside purely on a fundamental basis.
<img src='http://res.cloudinary.com/finbox/image/upload/v1492700830/3_-_OI_Fair_Value_Estimate_fokecq.jpg' alt= ‘OI finbox.io fair value estimate’>
View all 6 valuation models that derive OI's fair value estimate.
Carpenter Technology manufactures, fabricates, and distributes specialty metals worldwide and is expected to report earnings on Thursday before the market opens. Finbox.io's $39.27 intrinsic value estimate is right in line with Wall Street's $39.33 target which implies over 12% upside.
<img src='http://res.cloudinary.com/finbox/image/upload/v1492700830/4_-_CRS_Fair_Value_Estimate_c51tbf.jpg' alt= ‘CRS finbox.io fair value estimate’>
View all 7 valuation models that derive CRS' fair value estimate.
Coeur Mining owns, operates, explores for, and develops silver and gold properties. Earnings are expected to be reported on Wednesday after the market closes while nine cash flow models imply 12% upside. This is well below the $12.39 average price target derived from nine Wall Street analysts suggesting the stock is 30% undervalued.
<img src='http://res.cloudinary.com/finbox/image/upload/v1492700830/5_-_CDE_Fair_Value_Estimate_vuihvg.jpg' alt= ‘CDE finbox.io fair value estimate’>
View all 9 valuation models that derive CDE's fair value estimate.
Huntsman manufactures and sells differentiated organic and inorganic chemical products worldwide. The company recently announced the spin-off of its pigments & additives segment on September 7, 2016 which is expected to close in the first half of this year. The reasoning for the spin-off is that Venator Materials (SpinCo) is expected to command a higher valuation
However, on a combined basis Huntsman still appears fundamentally undervalued. Expect an update on the spin-off when the company reports earnings on Wednesday before the market opens.
<img src='http://res.cloudinary.com/finbox/image/upload/v1492700830/6_-_HUN_Fair_Value_Estimate_lyuegz.jpg' alt= ‘HUN finbox.io fair value estimate’>
View all 8 valuation models that derive HUN's fair value estimate.
These stocks in the materials sector all have strong fundamentals and could easily trade higher following a positive earnings announcement.
If the first week of the Q1'17 earnings season is any indicator for how the materials sector is going to fare, investors may want to take a closer look at these names prior to them reporting.
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photo credit: Evergreen Engineering
Note this is not a buy or sell recommendation on any company mentioned.