Value Investor Daily #56

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Earnings season is in full swing. We love it because it’s like a sale every 90 days, as many stocks drop 20%+ overnight.

Apple, Amazon, Mastercard, and more report today.

Let’s look at some companies that reported in the last week and a half. Some have dropped significantly and might be worth a closer look.

Car parts distributor Genuine Parts Company (GPC) reported on October 22nd. Earnings missed expectations by 23%, but revenue aligned with estimates. GPC lowered this year’s earnings guidance by 12%.

The stock dropped 20%, and the average Wall Street analyst estimate fell from $154 to $133 on the news.

CEO Will Stengel said, "Our results were below our expectations, primarily driven by continued weakness in market conditions in Europe and our Industrial business. While the external environment remains challenging for the balance of 2024, we expect the combination of near-term actions and long-term investments to better position us when market conditions improve.”

The stock trades for 14.9X earnings, down from over 24X three years ago. The stock price is down 37% from its peak in November 2022.

Analysts estimate earnings to grow from $8.18 this year to $15.44 by 2033. If a recession happens, that estimate will move lower.

Either way, the company will probably survive. It was founded in 1928 and has raised its dividend for the last 67 years.

Clinical research contractor ICON PLC (ICLR) reported on October 23rd. Earnings missed by just under 13%, and sales missed estimates by 5%.

CEO Steve Cutler said, “ICON’s results for the third quarter did not meet the expectations we had previously provided due to specific customer and division-level impacts. We expect these impacts to continue into quarter four, and as a result, we are taking decisive action to realign our resources to forecasted activity.”

The company cut its earnings forecast for this year to ~8% below the current consensus. ICON also cut its revenue outlook marginally, down ~2.5%.

The stock dropped 21% on the news. It’s since rebounded ~2% after the company announced a new share repurchase authorization of $650 million.

It trades for 25X earnings—not cheap, but down from 45X earlier this year. Revenue has grown at a CAGR of 19% per year in the last ten years and 3.6% in the previous twelve months. Earnings are expected to grow from $12.79 in 2023 to $37.44 by 2033.

Casual footwear maker Crocs, Inc. (CROX) dropped 19% after its earnings report on October 29th. The company beat earnings estimates by 15% and revenue estimates by 1%. Crocs lowered Q4 EPS guidance by 18%.

The HEYDUDE brand is under pressure. CEO Andrew Rees said, "While we are seeing early green shoots from these actions, HEYDUDE's recent performance and the current operating environment are signaling it will take longer than we had initially planned for the brand to turn a corner. While we are resetting our full-year outlook for HEYDUDE, I remain confident in the long-term trajectory of the brand."

It trades at just over 8X earnings and down 40% from its all-time high, last seen in November 2021.

Revenue has grown ~73% (mainly from the HEYDUDE acquisition), and net income has increased 15% since 2021.

Shareholders will likely become less nervous as Crocs continues to pay down the debt overhang from the HEYDUDE acquisition.

We never rush to buy after earnings season.

Yes, sometimes the price drop will correct in just days, but there’s usually plenty of opportunity to get in as the market digests the news over a few weeks or months.

After all, that’s why the price tanks in the first place—there were no positive catalysts during their earnings calls to counteract the negative news.

Do you like finding new bargains every 90 days during earnings season as much as we do? Should we cover these kinds of ideas every time?

Thank you for reading today.

Happy Halloween!
Value Investor Daily