Proof Is In The Performance

12/1/2014


The stock market as a whole has responded well to September-quarter earnings and guidance.

Since Oct. 10, the S&P 1500 Index has gained 9%, with more than 1,300 of its components rising. Why use Oct. 10 as a cut-off? Because fewer than 5% of S&P 1500 stocks had declared third-quarter profits at that point.

We have long held that the best way to judge whether a company exceeded quarterly expectations is to observe the stock's price action after it declares. With that in mind, we scanned the charts of our recommended stocks in search of those that truly surprised the market. The table below lists 13 stocks that have topped the S&P 1500's performance by at least five percentage points since announcing earnings.

STOCKS THAT TRULY SURPRISED
Thirteen recommended stocks have outgained the S&P 1500 Index by at least 5% since they declared earnings.
-- Quarterly Per-Share Profits --
---- Price Change ----
Company (Price; Ticker)
Earnings
Date
Actual
($)
Estimate
($)
Surprise
(%)
Since
Latest
Earnings
(%)
Versus
S&P
1500
(%)
Alaska Air ($56; ALK)
10/23/14
1.47
1.42
3.5
19.5
12.1
Ameriprise ($132; AMP)
10/28/14
2.10
1.96
7.1
9.9
5.7
Apple ($118; AAPL)
10/20/14
1.42
1.31
8.4
17.9
9.2
Cognizant ($53; CTSH)
11/5/14
0.66
0.63
4.8
9.9
7.1
Jones Lang ($143; JLL)
10/29/14
2.31
1.80
28.3
9.7
5.5
Lam Research ($81; LRCX)
10/22/14
0.96
0.93
3.2
12.7
5.2
Lear ($96; LEA)
10/24/14
1.93
1.88
2.7
11.9
5.8
Macy's ($64; M)
11/12/14
0.61
0.50
22.0
9.1
7.6
Magna Int'l ($106; MGA)
11/5/14
2.19
1.97
11.2
9.3
6.5
Packaging Corp. ($74; PKG)
10/20/14
1.26
1.26
0.0
17.8
9.1
SanDisk ($103; SNDK)
10/16/14
1.45
1.33
9.0
20.9
9.9
Union Pacific ($123; UNP)
10/23/14
1.53
1.52
0.7
14.6
7.2
United Rentals ($119; URI)
10/15/14
2.20
2.08
5.8
27.4
16.2

Two of our favorites are reviewed in the following paragraphs:

Concerns about Delta Air Lines' ($44; DAL) expansion in Alaska Air Group's ($56; ALK) core Seattle market weighed on Alaska shares in the weeks before its September-quarter earnings announcement. Alaska's plan to aggressively boost capacity also had investors spooked. However, shares of Alaska have rallied 19.5% since the company declared September-quarter profits of $1.47, up 37% and 4% above expectations, supported by 7% growth in passenger revenue.

Alaska bought itself some credibility with improvement in profit margins, driven by falling fuel costs and tight operating-expense controls. The company did not provide profit guidance, but targets have spiked since the announcement. Analysts expect 11% growth in per-share profits next year, and Alaska trades at 12 times the 2015 estimate, 16% below the industry median. Alaska is a Focus List Buy and a Long-Term Buy.


Jones Lang LaSalle's ($143; JLL) 55% growth in per-share profits for the September quarter topped the consensus by 28%. Since the quarterly earnings announcement, the consensus profit target for the December quarter has risen 2%, as has the 2015 estimate. Jones Lang shares rose on the earnings news and have since gained 9.7%, topping the S&P 1500 Index's performance by 5.5%.

A Quadrix Overall score of 97, Momentum score of 98, and Earnings Estimates score of 96 are tops among the providers of real estate services in our research universe. While valuation isn't Jones Lang's main appeal, the shares trade at 19 times trailing earnings, slightly below the industry median and 16% below their own five-year average P/E ratio. Jones Lang LaSalle, yielding 0.3%, is a Focus List Buy and a Long-Term Buy.


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