Rockwood Holdings (ROC) recently posed a big negative earnings surprise and has seen estimates drop significantly. The stock has a Zacks Rank #5 (Strong Sell) and is today's Bear of the Day.
Recent Big Miss
On November 12, the company reported earnings of $0.14, which was $0.34 below the Zacks Consensus Estimate. That translates to a -70% earnings surprise. Investors, however, shrugged off the big miss and sent the stock higher by 7% in the session following the report.
Rockwood Holdings develops specialty chemicals and advanced materials for industrial and commercial applications. The company operates in four segments: Specialty Chemicals, Performance Additives, Titanium Dioxide Pigments, and Advanced Ceramics. Rockwood Holdings was incorporated in 2000 and is based in Princeton, New Jersey.
Estimates Moving Lower
Despite a stock prices that has moved higher for most of the year, estimates have been dropping on all year. At the start of 2013, the Zacks Consensus Estimate was calling for 2013 EPS of $3.86. That was the high-water mark for the year.
By April, the estimate was down to $3.57 and the number tumbled to $2.82 in August and is now down to $2.20.
The Zacks Consensus for next year isn't much better, although the high-water mark came in March, when analysts were calling for $4.87 in EPS. By August it had dipped to $3.61 and is now $2.28. That means analysts are now modeling in $0.08 of eps growth for next year, and off a base of $2.20, you could imagine how low the implied growth rate is.
ROC trades at a premium to the industry average in terms of both PE multiples. The forward PE of 30.8x is well above the 16.6x industry average, as is the 33x trailing PE compared to the 19x industry average. The price to book shows a modest discount to the industry average, but the price to sales multiple carries a premium to the industry average. One reason for the stiff valuation could be the 40% net margin the ROC has compared to an 8% industry average... that is quite an advantage.
The price and consensus chart paints an ugly picture for ROC. Analysts have been taking their estimates down over the entire year, and if you are a believer that earnings are a primary driver of stocks, then this is a chart you don't want to miss.
Investors might want to look at another stock in the same sector with a better Zacks Rank. One example of that is Ferro (FOE) which is a Zacks Rank #1 (Strong Buy).
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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