Teledyne Technologies (NYSE:TDY - News) shows a solid history of positive earnings surprise and sees expectations moving higher. These factors play a role in the stock becoming a Zacks #1 Rank (Strong Buy).
Teledyne Technologies Incorporated provides instrumentation, digital imaging products and software, aerospace and defense electronics, and engineered systems in the United States and internationally.
TDY Tops Earnings Expectations
TDY reported revenue of $75 million and earnings per share of $0.99 on January 26 2012 for the December 2011 quarter. Although sales came in a little below expectations, earnings were fully 15% ahead of the Zacks Consensus Estimate. The stock reaction to the earnings was a loss of 3%.
Over the last seven quarters, the company has tallied up 6 beats and one earnings meet. In those same quarters, there were four instances where sales did not meet expectations. As result, the price impact for these reports is smaller and not always the direction investors may expect. The price appreciation since February 2010, however, is approximately 50%. That is the type of gain that makes aggressive growth investors take notice.
Budget Cutbacks cause some concern
Defense spending has been targeted for cutbacks and those cutbacks have caused investors to be concerned for TDY's future revenue and earnings. Most of those concerns, however, have been priced into the defense stocks and earnings estimates have increased.
2012 and 2013 Estimates Increase
Despite concerns over smaller government and defense budgets, earnings estimates have moved higher for TDY. In February of 2011, the Zacks Consensus Estimate for 2012 was $3.44 and has since moved to $4.03. Similarly the 2013 estimate moved from $3.64 to $4.26 over the same time period. These higher earnings estimates are the key driver for higher stock prices.
TDY trades at a premium to the industry on most standard metrics. As a leader in the industry, we should expect that premium valuation, but one metric sticks out, price to sales. With a 1x multiple, TDY is well ahead of an industry average of 0.5x, a figure that indicates the sector is mostly out of favor. A price to sales multiple below 1 is often considered a bearish indicator.
Despite the premium valuation, when looking at the Price and Consensus chart, we see that TDY has seen consistent earnings growth. With the stock price so close to the expected earnings, TDY has room for multiple expansion and an even larger premium going forward. TDY is a Zacks #1 Rank (Strong Buy).