AZZ Inc (AZZ) has missed earnings in three of the last four quarters and anlaysts are taking estimates lower. That is an equation that ends up becoming a Zacks Rank #5 (Strong Sell) and the Bear of the Day.
Recent Misses Aren't Small
The last two quarters have seen some pretty sizable misses of the Zacks Consensus Estimate. A negative 8% earnings surprise was followed up by a 14% decline in the stock price in late June. Then there was a negative 12% earnings surprise came in late September and the stock slid by 3% in the session following the report.
AZZ incorporated manufactures electrical equipment and components for power generation, transmission and distribution, and the general industrial markets. AZZ incorporated was founded in 1956 and is based in Fort Worth, Texas.
outside of the recent misses, AZZ generally has a clean earnings history. To find the last miss, one needs to go all the way back to 2009. There were a few 'meets' sprinkled in there, but the majority of reports have been earnings beats.
Still the concern over the recent quarters can be linked to one significant factor. The Zacks Consensus Estimate for revenues for AZZ has been missed in each of the last four quarters. The two most recent quarters were misses of 7.8% and 6.6% respectively.
Earnings Estimates Slip
Estimates for AZZ have been sliding of late. Starting in May, the 2013 Zacks Consensus Estimate was $3.00, but that soon fell to $2.98 the following month. Estimates dropped to $2.80 in July and are now at $2.49.
2014 Estimates have also been slashed. Over the same time horizon mentioned above, estimates have fallen from $3.65 to $3.39 and are now at $3.26.
The valuation picture for AZZ is rather good despite the recent misses. That could be due to the fact the stock has lost ground after each report and is trailing the broader market year to date. The forward PE multiple of 18x is right in line with the industry average and is the trailing PE multiple of 20x. The price to book shows a small discount to the industry average coming in at 3.2x versus a 4.2x multiple. The price to sales multiple is in line with the industry average as well at 1.8x.
When we look at the chart your eye is probably drawn to the big dip at the end of June. While the stock has recovered just about all of those gains it's still seen some volatility. With earnings estimates. The potential for another drop like that exists and with earnings estimates falling, there is probably a better place to invest. When earnings estimate revision turn around, AZZ would become a more attractive investment opportunity.
Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.
Brian is also the editor of Breakout Growth Trader a trading service that focuses on small cap stocks and also carries a risk limiting strategy. Subscribers get daily emails along with buy, and sell alerts.
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