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.
Company Description
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.
Valuation
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 Chart
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.
Follow Brian Bolan on twitter at
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