OSI Systems (OSIS – Snapshot Report) is a name that is flying under the radar for most investors. Let’s take a look at the fundamentals of this stock and explore why it is a Zacks Rank #1 (Strong Buy) and the Bull of the Day.
Why I Like It
This is a small-cap stock which would outperform if the market moves higher.
A good earnings history when compared to the Zacks Consensus Estimate.
From May to August there were consistent monthly increases in the Zacks Consensus Estimate for 2016.
A solid name in a space that will retain national attention given the increase in terrorism over the last several years.
The Recent Numbers
I like to do a review of the most recent quarter for stocks that I highlight as Bulls of the Day. OSIS reported the June 2016 quarter back in mid-August, so we are only weeks away from the company reporting the September quarter.
The most recent quarter was a beat on bottom. The company posted EPS of $0.55 when the Zacks Consensus Estimate was calling for $0.49. Revenue came in $11M below expectations for a 4.8% negative revenue surprise. As a result, the stock was bid up by 9.4% in the session following the report.
OSI Systems makes electronic systems and components. The company’s Security segment provides baggage and parcel inspection, cargo and vehicle inspection, hold baggage and people screening, radiation detection and explosive and narcotics trace detection systems. The company was founded in 1987 and is headquartered in Hawthorne, California.
The company has a good history of beating the Zacks Consensus Estimate. There have been two miss and three beats in the last five reports.
The estimate picture looks really good, with the Zacks Consensus Estimate for 2016 moving from $2.49 IN May to $2.51 in July and is now at $2.64
The 2017 number has not moved since it was first published at $3.45 back in June of this year.
Investors are looking at a slightly mixed picture when it comes to the valuation for OSIS. The forward earnings multiple of 25x is ahead of the 19x industry average. The price to book multiple of 2.3x is below the industry average of 3x, but the price to sale multiple of 1.5x is higher than the 1.1x industry average.
As I look at revenue and earnings growth, I see why the company is trading at higher earnings and sales multiples. The company is simply growing the top line at a faster rate than the industry, with growth of 7% expected for fiscal 2017 compared to an industry average of 0.7% revenue growth. This big revenue growth translates into expected earnings growth of 25% whereas the industry is looking at 20% EPS growth over the same time period (fiscal 2017).
Zacks has developed a chart that helps investors see how earnings estimates have impacted the price of the stock over the last several years. We call this chart the price and consensus chart, and each color-coded line represents analyst estimates over a designated year. As estimates increase, the stock tends to follow. The Zacks Rank is impacted by earnings estimate increases, beats and incorporates the idea of analyst agreement and magnitude. As a Zacks Rank #1 (Strong Buy) we see that estimates are moving higher.
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