Monthly Archives: March 2015

Acacia Research: Zacks’ Bear of the Day Play

Acacia Research (ACTGSnapshot Report) has consistently been a Zacks #4 Rank (Sell) or #5 Rank (Strong Sell) for most of the past two years. In that time, the stock has fallen from $30 to new 5-year lows last week under $11.

Acacia Research Corporation, through its subsidiaries, develops, acquires, and licenses patented technologies. It assists patent owners with the prosecution and development of their patent portfolios, protection of their patented inventions from unauthorized use, generation of licensing revenue from users of their patented technologies and enforcement against unauthorized users of their patented technologies.

The slide in ACTG shares really accelerated this year as analyst earnings estimates plummeted further. In just the past 60 days, the consensus EPS estimate for this year dropped from $0.62 to $0.50 while those for next year fell from $1.23 to $0.86, a 30% wipeout.

You can see the longer-term EPS decline in the Zacks proprietary Price & Consensus chart (2106 estimates not shown yet)…

Until this earnings evaporation stops and reverses, it’s probably best not to put this portfolio of patents in yours.

Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money Trader.

Advertisements

Methode Electronics: Zacks’ Bull of the Day Play

Methode Electronics (MEISnapshot Report) is the small technology company behind a big portfolio of components, products, and custom-engineered solutions that show up in aerospace, appliance, automotive, communications, industrial, and rail transport systems.

This $1.75 billion global manufacturer of electrical, radio remote control, electronic, wireless, and sensing-based technologies has even developed communication and radar subsystems for the Lockheed Martin (LMTAnalyst Report) F-35 Joint-Strike Fighter and numerous missile-guidance systems.

Methode’s engineering and innovation expertise has developed over 60 years, allowing the company to now serve fifteen of the Fortune Global 100, including Boeing (BAAnalyst Report) and General Motors, and fifty-two of Global 500 companies.

From magnetic signature sensing of mechanical and electrical properties to biometric identification and the revolutionary solid-state touch sensitive switches used in today’s appliances and automobiles, Methode’s extensive toolbox of technical solutions help their customers differentiate their products.

Here’s a snapshot from the company website communicating the growth frontier of touch controls in cars…

Another EPS Surprise

In their recent Q3 FY15 earnings report, Methode beat Street expectations by over 40% on the bottom line with $0.68 EPS and posted a 8.5% year-over-year increase on the top line, even with one less week in the quarter vs Q3 of FY14. This marked the 3rd consecutive EPS surprise, pushing the average beat over 20%.

In addition to strength from the Automotive segment, the company saw revenues for Power Products jump 45%, one of its best quarters ever.

Management raised EPS guidance from $2.25 to $2.55 for FY15 ending in April, implying a 10-cent bump to Q4 projections after the 20-cent Q3 beat. And with no corresponding guidance from the company, analysts raised EPS estimates for FY2016 starting in May to $2.75 from $2.51.

The Margins Story

In Q2 FY15, MEI shares fell sharply from multi-year highs above $42 after an earnings beat but soft guidance and because margin growth was perceived to be slowing, even though Q2 margins jumped from 21.7% to 26.2%, a 20.7% improvement quarter over quarter.

In Methode’s Q3 report earlier this month, margins increased from 20.3% to 27.3%, a 34% improvement quarter over quarter. The latest report turned that view on its head with more margin expansion due to strong sales to automotive markets. Shares leaped above the $42 level on March 5 and haven’t looked back.

The Connected Car is Happening

The alliance between Apple (AAPLAnalyst Report) and Harman International Industries (HARAnalyst Report) in creating infotainment in the “connected car” is just one example of various technology stakeholders investing in and partnering for the future of the automobile.

As manufacturers, suppliers, and software vendors work together to achieve embedded connectivity, Methode will be providing more of the advanced controls, switches, and human interface solutions.

One remarkable innovation that Methode is offering to automotive customers is gesture control. Here’s the company description of technology answering an important need…

“Anytime you move your eyes away from the road risk is added to the drive. To minimize this, Methode has designed a gesture based control method for commonly used functions and allows you to never remove your eyes from the road.”

After their latest earnings report, analysts from Baird Equity Research raised their EPS estimates and target price for MEI shares to $52. Given fundamental momentum for both Methode and global manufacturing, I think MEI shares could easily surpass that target this year.

Disclosure: I own MEI and AAPL shares for the Zacks FTM Portfolio.

Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money Trader.

IAC: Zacks’ Bear of the Day Play

IAC (IAC) has really crushed the last two quarters, so I was surprised to see it as a Zack Rank #5 (Strong Sell). Usually when a stock has that low of a Rank, you would see an earnings miss that would drive down earnings estimates. Let’s look at why IAC has Zacks Rank #5 (Strong Sell) and is the Bear of the Day.Company Description

IAC is a media and Internet company that has four segments: The Match Group, Search & Applications, Media, and eCommerce. The company, formerly known as InterActiveCorp, was founded in 1986 and is headquartered in New York, New York.

Good Earnings History

When I think of a Zacks Rank #5 (Strong Sell) I think of a stock that probably has a dismal earnings history. That is not the case with IAC, as they have topped the Zacks Consensus Estimate in 6 of the last 7 quarters.

The last two quarters saw positive earnings surprises of 58% and 20% respectively. That is certainly not something I am used to seeing when I write the Bear of the Day column.

Earnings Estimates

Beating or missing the Zacks Consensus Estimate plays a role in the Zacks Rank, but it is driven much more by earnings estimate revisions. The simple fact is that IAC has seen estimates come down over the last few months, and that is why the stock is a Zacks Rank #5 (Strong Sell).

The 2015 Zacks Consensus Estimate was $3.48 back in July of last year, but that number slipped to $3.21 in September and then $3.07 by the end of the year. February saw the number tumble down to $2.64 and we have seen the number kick lower to $2.61 in March. That is a significant decrease in estimates over a long period of time.

Maybe even more dramatic is the recent decrease in the 2016 Zacks Consensus Estimate. The number stood at $4.36 in January, but fell to $3.69 and then kicked lower in March to $3.64. That significant short term drop is what can give a stock a Zacks Rank of #4 (Sell) or #5 (Strong Sell).

Valuation

Despite the low rank and falling estimates, the valuation has some strong points. The stock trades in line with the industry average in terms of forward earnings at 26x, but shows the stock trading at a significant discount in terms of the book multiple. The price to book multiple for IAC is 2.9x, while the industry average is almost a sky high 9x. The stock trades mostly in line with a 1.8x price to sales multiple compared to an industry average of 2x.

Chart

Normally I like to show a graph of the stock price in this section. This time I am going to look at the the number of downward revisions and how long ago they were. This table shows that the majority of the bad news in IAC might be already ‘baked’ into the stock price. At the same time I would recommend that investors wait for estimates to increase before they think of buying shares.

Follow Brian Bolan on twitter at @BBolan1

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.

Qorvo: Zacks’ Bull of the Day Play

Qorvo (QRVOSnapshot Report) is the combination of RF Micro Devices and TriQuint Semi, and as a significant player in the microchip sector, this stock has seen a substantial gain of late. Part of this is due to the strength of Apple, but electronic devices in general are proliferating and this means the whole pie for this space is growing and QRVO is going after a big slice.Strong Industry and Zacks Rank

Being the Bull of the Day is all about why a stock has reached the highly desired position of a Zacks Rank #1 (Strong Buy). This tends to happen when analysts from firms like Morgan Stanely, Merrill Lynch, William Blair and others move their earnings estimates higher. Those moves have an impact the valuations of stocks, so finding the best estimate revisions is what the Zacks Rank does for you, and the Bull of the Day help highlight one of those stocks.

Qorvo (QRVOSnapshot Report) not only has the strong Zack Rank, but the Industry that QRVO is currently ranked 4/265 making it the top 2%. In writing a Bull of the Day (and “Rank Buys” before that) over the last few years, I have rarely written on a stock that is a Zacks Rank #1 (Strong Buy) and one of the top four industries.

Description

Qorvo provides technologies and radio frequency solutions for mobile, infrastructure, and aerospace/defense. The company’s product line includes amplifiers, control products, discrete transistors and ICs, filters and duplexers, frequency converters, integrated modules, optical components, oscillators, passives, and switches. Qorvo, Inc. was founded in 1991 and is headquartered in Greensboro, North Carolina.

Earnings History

There has only been one earnings report as a combined company, so you are not going to be able to get a good read on this company from this perspective. The Company reported earnings of $1.42 on January 28 of this year when the Zacks Consensus Estimate was calling for $1.06. This was a substantial beat that translated into a 34% positive earnings surprise.

The conference call did not really satiate investors. The company only discussed one half of the entities performance as the two company’s became one at the close of trading on 12/31/14. The next conference call will be one that investors can begin to get a more of a full picture on the company.

Earnings Estimates

Another issues with the merger is that the prior earning revisions for RFMD and TQNT are out the window. We only have a few months of numbers for QRVO, but in that short amount of time we have already seen the Zacks Consensus Estimate $3.30 to $3.32 for 2015.

The 2016 Zacks Consensus Estimate has held steady at $4.60, where is started the year. The implied earnings growth rate is currently 38.5%.

Valuation

The Zacks Research System, where I get the majority of my data from, only has data on two of the most commonly followed metrics. The forward PE for QRVO is showing 24.1x and that is just a little above the 20.3x industry average. The other metric is the price to book multiple of 13x and that is well above the 3.7x industry average. I would advise investors to not rely on that number at this time, and wait for the reported results from the combined company before making a judgement call based on something like the price to book multiple.

Next Earnings

The company is expected to report again at the end of April. Wall Street is looking for revenue of $621M and EPS of $0.86.

Chart

Normally I show the price and consensus chart here, but since there isn’t much information on that chart I am just showing the 3 month chart.

Follow Brian Bolan on twitter at @BBolan1

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.

Helix Energy: Zacks’ Bear of the Day Play

Helix Energy Solutions (HLXSnapshot Report) has seen its estimates decrease after they missed on both the top and bottom lines for Q4 14.  To make matters worse management eluded to negative revisions for their earnings consensus in 2015, stating that 2015 will be “well below 2014 EBITDA.”  The negative revisions are due to an adverse FX impact in 2015, above average dry docking, and sustained low oil prices.  All of which are creating strong headwinds for the company in the first half of 2015.

This Zacks Rank #5 (Strong Sell) stock is the leading marine contractor and operator of offshore oil and gas properties and production facilities.  The company seeks to align the interests of the producer and contractor by investing in mature offshore oil and gas properties, hub production facilities and proven underdeveloped reserve plays where Helix Energy Solutions adds value by deploying vessels from its diverse contracting fleet.

Helix Energy saw their margins and Well Intervention utilization decline; Well Intervention declined 67% in the fourth quarter, and margins dropped to 8.6% far below the trailing 4 quarter average of 35.7%.  Further, the companies Q4000 (Well Intervention vessel) was hit by a supply boat in Q4, which created a reduced day rate, and increased support costs for the company.  Further, Helix’s robotics margins suffered as well, dropping to 10% from 21.6% in Q3.

Estimates decreasing

The table below shows the historic and future EPS estimates for Helix Energy Solutions.

Estimates have decline over the past 30 days for Q1 15 and FY 15; Q1 15 dropped from $0.27 to $0.03, and FY 15 fell from $1.63 to $0.58.

Bottom Line

Helix Energy Solutions is facing a difficult first half of 2015 with low oil prices, and the decline of well intervention.  Given that management is expected to issue negative guidance in the near term, we should expect to see this stock under pressure for the next several weeks.

If you are inclined to invest in the Oil Field Services segment, you might want to look into Blueknight Energy (BKEPSnapshot Report) which holds a Zacks Rank #3 (Hold).  But be aware that the entire segment is under pressure, and it would be wise to just stay away from it for the near term.

Note: Want more articles from this author? Scroll up to the top of this article and click the FOLLOW AUTHOR button to get an email each time a new article is published.

TravelCenters: Zacks’ Bull of the Day Play

TravelCenters of America (TASnapshot Report) has seen its estimates increase after their recent earnings beat due to record fuel margins. During the quarter, the company saw their fuel profits increase 65% year over year.  Further, same store sales improved 6.8% year over year.  Due to these factors, TravelCenters of America is our Zacks Bull of the Day.

This Zacks Rank #1 (Strong Buy) stock is a full-service national travel center chain in the U.S. with nationwide locations serving hundreds of thousands of professional drivers and other highway travelers each month – including virtually all major trucking fleets.  The travel centers operate under the TravelCenters of America, TA and Petro brand names and offer diesel and gasoline fueling services, restaurants, heavy truck repair facilities, stores and other services.

TravelCenters of America currently plans on building four new centers in 2015, and has been on an acquisition spree over the past year.  The company has purchased, or agreed to buy 48 sites with 45 convenient stores and three truck center locations for a cost around $76 million.

Estimates Increasing Due to Strong Fuel Margins

The table below shows the historic and future EPS estimates for TravelCenters of America.

Over the past 7 days estimates for Q1 15, and FY 15 have increased significantly; Q1 15 rose from -$0.06 to $0.17, and FY 15 increased from $0.83 to $1.08.   These numbers reflect the improving margins for the company which are expected to continue while oil prices are below $50 a barrel.

Positive Earnings Surprise

For Q4 14, TravelCenters crushed the Zacks Consensus Estimate of $0.12 by posting an EPS of $0.91, beating the Zacks Consensus Estimate by 658%. As you can see in the table below, the positive beat produced a strong uptick in price appreciation.

Bottom Line

With persistent low fuel prices in both gasoline and diesel, TravelCenters of America will be reaping large profit margins.  Further, the company has been able to increase same store sales while capitalizing on location expansion though out the U.S.  Finally, with low fuel costs more and more people are driving and taking vacations.  This will keep TravelCenters busy through the summer months.

Note: Want more articles from this author? Scroll up to the top of this article and click the FOLLOW AUTHOR button to get an email each time a new article is published.

Vera Bradley: Zacks’ Bear of the Day Play

Vera Bradley, Inc. (VRASnapshot Report) hasn’t been able to figure out how to turn around its sluggish business. This Zacks Rank #5 (Strong Sell) is expected to see falling earnings in fiscal 2016.

Vera Bradley sells women’s handbags and accessories with its distinctive pattern designs. It operates full-line and factory outlet stores in the United States and on verabradley.com and sells in 2,700 specialty retail stores, mostly in the United States.

Outlook Remains Challenged

On Mar 11, Vera Bradley reported fourth quarter results and missed on the Zacks Consensus by 2 cents. Earnings were $0.43 versus the Zacks Consensus of $0.45.

Vera Bradley described business trends as remaining “difficult.” It had expected that some of its initiatives to improve the business would be showing some results but that hasn’t been the case.

It said both traffic and sales remained “extremely challenging.”

Comparable Store Sales Sank in Q4

Vera Bradley has been struggling for some time. It has tried moderating its patterns and has even gone to some leather handbags and accessories as leather has been popular.

But in the fiscal fourth quarter, comparable sales, which included e-commerce, fell 14.4%. It was even worse if you just look at the stores. Comparable store sales fell 20.7% while e-commerce sales fell just 7.3%.

Sales fell as store traffic declined.

This was the holiday quarter. The last thing a retailer wants to see if declining foot traffic.

Fiscal 2016 Estimates Slashed

Not surprisingly, the analysts are bearish on Vera Bradley for this fiscal year.

7 estimates have been cut in the last week pushing the fiscal 2016 Zacks Consensus Estimate down to $0.83 from $1.23.

That’s an earnings decline of 18% from fiscal 2015.

One analyst is even worried about next year as 1 estimate was just cut for fiscal 2017 in the last week as well.

Shares at Multi-Year Low

Shares plunged on the earnings report but even though they are at multi-year lows, they’re not exactly cheap.

Vera Bradley is still trading with a forward P/E of 18.7 which is above the average of the S&P 500 at 17.7x. You’re not getting a bargain bin stock at these levels.

Retail is a very difficult industry right now. There are many haves and have-nots.

If you really want to own a specialty retailer, you might want to consider DSW Inc. (DSWSnapshot Report). It’s a Zacks Rank #2 (Buy) and is expected to grow earnings by 9.8% this year. Want More of Our Best Recommendations?

Zacks’ Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Then each week he hand-selects the most compelling trades and serves them up to you in a new program called Zacks Confidential.

Learn More>>

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.

Harman: Zacks’ Bull of the Day Play

HARMAN (HARAnalyst Report) is riding the automobile technology revolution to new highs. This Zacks Rank #1 (Strong Buy) is expected to grow earnings by the double digits this year and next.

HARMAN designs and makes audio, visual and infotainment systems for the automotive, consumer and professional markets.

More than 80% of the world’s luxury cars are equipped with HARMAN audio and infotainment systems worldwide. Its brands include AKG, Harman Kardon, Infinity, JBL, Lexicon, Mark Levinson and Revel.

Big Beat in the Fiscal Second Quarter

On Jan 29, HARMAN reported its fiscal second quarter results and crushed the Zacks Consensus by 38.8%. Earnings were $1.79 versus the Zacks Consensus of just $1.29.

It was HARMAN’s eighth earnings beat in a row.

Sales rose 19% to $1.6 billion compared to a year ago. It’s facing foreign currency headwinds however. Without the exchange issues, sales would have been up 24%.

The gains were due to platform expansion and strong automotive production.

Its two strongest divisions were Lifestyle and Professional.

Lifestyle sales rose 26% (or 31% ex-currency) due to strong demand for the home and multimedia lines and higher automobile production.

Professional division sales jumped 29% (or 32% ex-currency) due to the expansion of the Company’s product line into enterprise automation and control and video switching.

Raised Full Year Guidance

Despite the currency headwinds, HARMAN raised full year guidance to $5.85 from its previous guidance of $5.25.

That is fiscal 2015 earnings growth of 33.6%.

Fiscal 2016 also looks bullish. Analysts are expecting another 19% earnings growth.

Red Bend Acquisition Closed

HARMAN isn’t afraid of using acquisitions to build-out its existing technology base.

On Mar 2, HARMAN completed the acquisition of Israeli-based Red Bed Software, which provides software management technology for connected devices and over-the-air (OTA) software and firmware upgrading services.

The deal was valued at $170 million, including $99 million in stock and $71 million cash.

Red Bend will keep its management team and operate as a separate unit within HARMAN.

Shares Near All-Time Highs

Investors have gotten wind of all the good news at Harman and have been jumping into the shares.

But even with the recent surge in share price, valuations aren’t over extended.

HARMAN is trading with a forward P/E of 22.6. While that’s above the average of the S&P 500 which is 16.8, for a high growth company it’s not an outrageous valuation.

For investors looking for growth in the hot automobile and infotainment areas, HARMAN is one stock to keep on the short list.

Want More of Our Best Recommendations?

Zacks’ Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Then each week he hand-selects the most compelling trades and serves them up to you in a new program called Zacks Confidential.

Learn More>>

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.

Iron Mountain: Zacks’ Bear of the Day Play

Iron Mountain (IRMAnalyst Report) reported disappointing fourth quarter results and lowered its 2015 revenue and earnings guidance on February 20. This prompted analysts to revise their estimates meaningfully lower for both 2015 and 2016, sending the stock to a Zacks Rank #5 (Strong Sell).

Despite this, shares trade at a lofty 30x forward earnings and sport an enterprise value to cash flow ratio of 18.

Iron Mountain stores records, primarily paper documents and data backup media, and provides information management services to various organizations around the world. The company generates its revenues by renting storage space to its customer base in approximately 1,100 facilities around the globe and providing these customers with an expanding menu of related and ancillary products and services.

Iron Mountain began operating as a REIT in 2014.

Fourth Quarter Results

Iron Mountain reported its fourth quarter results on February 20. Adjusted earnings per share came in at $0.25, missing the Zacks Consensus Estimate of $0.31. Funds from operation, which takes net income (unadjusted) and adds back real estate depreciation expenses, was $0.28 for Q4.

Total revenues rose 1% to $778 million, which was below the consensus of $788 million. A strong dollar was a headwind in the quarter. On a constant dollar basis, revenue rose 5%.

‘Storage Rental’ revenue, which accounted for 60% of total revenue, increased 2% year-over-year, while ‘Service’ declined slightly.

Estimates Falling

Following soft Q4 results, management lowered its 2015 adjusted EPS guidance from a previous range of $1.23-$1.38 to $1.15-$1.30. It also lowered its revenue guidance from a range of $3.135-$3.290 billion to $3.030-$3.150 billion. This was due in part to foreign currency headwinds.

Analysts revised their estimates lower for both 2015 and 2016, enough to send the stock to a Zacks Rank #5 (Strong Sell). This places Iron Mountain in the bottom 5% of all companies that Zacks ranks based on earnings estimate revisions.

The 2015 Zacks Consensus Estimate is now $1.23, down from $1.34 before the report. The 2016 consensus is currently $1.30, down from $1.45 over the same period. You can see the drop in consensus estimates in the following chart:

Lofty Valuation

Despite weak earnings momentum, shares of Iron Mountain trade at a lofty 30x 12-month forward earnings. And its enterprise value to cash flow ratio certainly doesn’t look like much of a value at 18x.

Investors may be drawn to Iron Mountain’s 5% dividend yield. However, the company has paid out significantly more in dividends the last three years than it has generated in free cash flow. It has plugged this gap with the issuance of significant amounts of debt. Its balance sheet is now highly levered with a debt/equity ratio of 5.4.

The Bottom Line

With weak earnings momentum, continued foreign currency headwinds and lofty valuation, investors should consider looking elsewhere for now.

Todd Bunton, CFA is a Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor and Surprise Trader services.

Covenant Transp: Zacks’ Bull of the Day Play

Covenant Transportation (CVTISnapshot Report) has been on an absolute tear lately. The company has delivered three consecutive positive earnings surprises and has seen earnings estimates soar as a result. The company also recently issued very bullish guidance for Q1.

It is a Zacks Rank #1 (Strong Buy) stock.

Since I last wrote about Covenant Transportation on October 8, 2014, the stock has soared more than 90%. With strong earnings momentum and reasonable valuation, there appears to be plenty of upside potential left.

Covenant Transportation Group, Inc. is a freight transportation and logistics services company. It is the holding company for several operating units, including Covenant Transport, Southern Refrigerated Transport, Star Transportation, Covenant Transport Solutions, Transport Financial Solutions and Transport Enterprise Leasing. These operating units provide service-demanding, truckload and intermodal freight transportation (dry-van and refrigerated), logistics, freight brokerage, factoring services, as well as tractor/trailer sales and leasing.

Strong Fourth Quarter Results

Covenant Transportation delivered better-than-expected fourth quarter results on January 21. Earnings per share came in at $0.82, beating the Zacks Consensus Estimate by 8 cents. This was a 273% increase over the same quarter last year.

Total revenue jumped 17% year-over-year to $206.8 million, crushing the consensus of $187.0 million. This was driven in large part by a 23% increase in freight revenue as average freight revenue per tractor per week increased from $3,568 to $4,300.

The company also benefited from lower fuel costs as net fuel expense was approximately 8.7 cents per company mile compared with 11.1 cents per company mile in the same quarter last year. Operating income soared 176% year-over-year as the operating margin improved dramatically, from 6.3% to 14.3% of total revenue.

Strong First Quarter Guidance

It looks like these strong results have carried over into Q1. On March 10, the company issued a press release in which it provided bullish Q1 guidance. The company stated that it “has experienced year-over-year improvements in its operating results for the two months ended February 28, 2015, and these improvements have continued into March.”

Management expects Q1 EPS between $0.24 and $0.30, which was significantly above the Zacks Consensus Estimate at the time. As you might expect, this prompted a flurry of positive estimate revisions from analysts.

Estimates Soaring

Following bullish first quarter management guidance, the Zacks Consensus Estimate for Q1 doubled from $0.14 to $0.28. And the overall 2015 consensus increased from $1.70 to $1.90, while the 2016 consensus jumped from $1.96 to $2.08.

This sent the stock to a Zacks Rank #1 (Strong Buy).

You can see that consensus estimates have been surging over the last several months as Covenant Transportation has delivered three consecutive positive earnings surprises:

Valuation

As consensus estimates have soared, so has the stock price. But the valuation picture still looks reasonable. Shares trade around 18x 12-month forward earnings, which is a discount to the industry median of 20x. Its enterprise value to cash flow ratio of 10 is also below the industry median of 13.

The Bottom Line

With strong top-line growth, expanding margins, exceptionally strong earnings momentum and reasonable valuation, Covenant Transportation still offers investors attractive upside potential.

Todd Bunton, CFA is a Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor and Surprise Trader services.