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3 Strong Buys that Crushed Earnings Season

James Giaquinto

That turned out to be a much better earnings season than we thought! Remember the weeks leading up to the reports? They were going to foreshadow a looming recession for 2020... or maybe even sooner.

Instead, more than 72% of S&P 500 companies beat earnings expectations... and this season is almost over.

Fortunately, we can still make money from this earnings season.

The EPS Growth, Revisions & Positive Surprises premium screen looks for Zacks Rank #1s (Strong Buys) with a history of outperforming expectations. These types of companies are winners and will continue being successful moving forward.

Below are three stocks that continued outperforming in their recent reports and could have a nice post-earnings drift higher:

PulteGroup (PHM)

If you build it, they will come… especially if a lower interest rate environment and strong economy is making it more affordable to buy a home.

That’s why the homebuilding industry is in the Top 4% of the Zacks Industry Rank with the 11th spot out of more than 250 spaces.

And one of the biggest reasons for the success is PulteGroup (PHM), which has gained more than 50% this year and has put together 12 straight quarters of positive surprises.

It reported third quarter earnings per share of $1.01 late last month, which beat the Zacks Consensus Estimate by nearly 10%. The company hasn’t missed in over 4 years.

The past four quarters have seen an average surprise of more than 10%.

Total revenues climbed to $2.7 billion, or 2.3% better than last year and more than 4% atop our expectations.

Orders jumped 13% with growth across all buyer groups and reporting segments. It’s the largest percentage increase since the end of 2017, showing how this company (and its space) is recovering from a rough second-half of 2018.

One of PHM’s strengths is its focus on first-time or entry-level buyers. A low interest rate environment is great, but it also takes lower-priced homes to convince younger potential buyers to make a move (literally and figuratively).

It’s been working for PHM, as 31% of orders and 29% of closings in the third quarter were first timers. Also, the 13% growth in orders included a 39% surge in first-time buyer orders.

Earnings estimates have been on the rise since the quarterly report. The Zacks Consensus Estimate for this year is up 3.5% in the past 30 days to $3.54.

As for next year, analysts have boosted earnings by 5.1% in that time to $3.91. Therefore, we currently expect 10.5% growth for 2020 over 2019.




Crocs (CROX)

You can’t keep an ugly shoe down! Especially when its comfortable and just old enough to be considered retro by teenagers.

Such is the case right now for Crocs (CROX), which is in the midst of its second renaissance of the past 20 years as kids are loving the therapeutic look once again while the older folks get to pretend that they’re still cool (if they ever were in the first place).

The company jumped more than 36% this year and has beaten the Zacks Consensus Estimate in 10 of the last 11 quarters.

Late last month, CROX posted earnings per share of 57 cents for the third quarter, which stomped last year’s 7 cents and topped our consensus by 39%.

It was the seventh straight quarter with a beat, amassing an average surprise of 38% over the past four.

Revenue jumped nearly 20% from last year to $312.8 million. The result also eclipsed the Zacks Consensus Estimate by more than 3%.

The first wave was a fad… and we all knew it at the time. But this new resurgence feels more substantial as CROX is a much better-run company these days and has diversified away from its classic clog offering.

Revenue for 2019 is expected to grow 11% to 12% over 2008, which would mark record annual sales for the company. Revenue for 2020 is then expected to grow an additional 12% to 14% over this year.

Earnings estimates are reflecting this growth. The Zacks Consensus Estimate for this year is up 12.5% in the past 30 days to $1.62 per share.

Analysts have boosted next year’s consensus by nearly 33% in that time to $2.10 per share, In other words, earnings are expected to grow nearly 30% in 2020 over 2019. Now that’s way more than a fad!




Fortinet (FTNT)

When an investor talks about security, he or she probably doesn’t mean house alarms and mall cops. It’s all about cybersecurity these days, which is the Top 4% of the Zacks Industry Rank with a year-to-date gain of 25%.

By the way, we just call the space “Security”… no “cyber” needed.

According to Gartner, worldwide spending on IT security is expected to grow 10.5% in 2019 from $114 billion last year.

Fortinet (FTNT) plans to get a good-sized piece of that action. The company provides network security appliances and Unified Threat Management (UTM) network security solutions to enterprises, service providers and government entities worldwide.

Shares of the company have climbed more than 42% so far this year, which easily beats its highly-ranked industry.

FTNT has beaten the Zacks Consensus Estimate for 13 straight quarters. Late last month, it reported earnings per share of 67 cents for its third quarter, which improved upon last year’s 44 cents and beat the Zacks Consensus Estimate by nearly 20%.

If you average all of its positive surprises over the past four quarters, it comes to a little over 18%.

Revenue jumped 21% from last year to $548 million, which also topped our expectations. This performance was driven by strong growth in Fortinet Security Fabric, cloud and SD-WAN offerings.

FTNT has a lot of potential pushing forward, especially product launches, deal wins, strategic acquisitions and, of course, that strong industry. Therefore, it makes sense that the company would raise its outlook for 2019.

It now expects revenue between $2.135 billion and $2.15 billion this year, instead of $2.1 billion to $2.12 billion. Earnings are now seen at $2.39 to $2.41, compared to the prior outlook of $2.23 to $2.26.

Based on the strong quarter, positive outlook and solid space, analysts have raised their expectations in the past 30 days. The Zacks Consensus Estimate for this year is up 6.7% in that time to $2.40.

For 2020, we’re expecting $2.64 per share, which is up 7.3% from a month ago and suggests year-over-year growth of 10%.

 

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PulteGroup, Inc. (PHM) : Free Stock Analysis Report
 
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