We just entered the fourth week of Q3 earnings season, and it's still going strong with over 1,200 companies reporting their earnings just this week. Given the big impact that quarterly earnings reports have on stock performance, investors should pay close attention to their favorite companies.
But how do you choose which ones to watch? With so many reporting earnings, it can be hard to narrow down your list. One way is to start with companies you think are undervalued -- a surprisingly good earnings report could send the stock to its fair value. As a proxy for fair value, one option is mean analyst target price.
Using target prices
Target prices reflect analyst expectations of where a stock should move in the near future. When a stock is trading at a significant discount to its target price, it may indicate that the stock is undervalued to its fair value.
But target prices are notorious for being inflated, just as analysts are perennially optimistic about next year's stock performance. To correct for this, it's helpful to look at the most pessimistic of target prices for a stock.
Screening the earnings roster
We wanted to demonstrate these ideas by running a screen on next week's reporting companies for those trading at significant discounts to their analyst target prices.
We only focused on companies that have more than five analyst target prices (to make sure we only focus on companies that have decent analyst coverage), and we used the most pessimistic analyst target prices as the benchmark for our analysis to control for target price inflation.
Do you think these stocks will get the momentum they need from this earnings season to meet their target prices? Use this list as a starting point for your own analysis.
List sorted by potential upside implied by target price. (Click here to access free, interactive tools to analyze these ideas.)
1. WuXi PharmaTech (Cayman) (NYSE: WX ) : Engages in the exploration, development, mining, and milling of uranium primarily in the United States and Canada. Levered free cash flow at $86.59M vs. enterprise value at $489.53M (implies a LFCF/EV ratio at 17.69%). The stock's average daily alpha vs. the S&P500 index stands at 2.06% (measured close to close, over the last month). During this period, the longest winning streak lasted six days (i.e., the stock's daily returns outperformed the S&P 500 for six consecutive days). The longest losing streak lasted two days (i.e., a win streak / losing streak ratio of 3).
2. Vantage Drilling Company (NYSE: VTG ) : Provides offshore contract drilling services to large multinational oil and natural gas companies, government owned oil and natural gas companies, and independent oil and natural gas producers in the United States and internationally. Market cap of $363.33M. Earnings to be released on 11/07. Of the five analysts that have set a target price on the stock, the lowest price target stands at $1.75. This implies a potential upside of 28.68% from current levels around $1.36.
3. Body Central (Nasdaq: BODY ) : Operates as a specialty retailer of young women's apparel and accessories in the South, Mid-Atlantic, and Midwest regions of the United States. Market cap of $320.69M. Earnings to be released on 11/10. Of the five analysts that have set a target price on the stock, the lowest price target stands at $27.00. This implies a potential upside of 28.57% from current levels around $21.00.
4. Ameresco (Nasdaq: AMRC ) : Provides energy efficiency solutions for facilities in North America. Market cap of $439.74M. Earnings to be released on 11/09. Of the six analysts that have set a target price on the stock, the lowest price target stands at $14.00. This implies a potential upside of 27.39% from current levels around $10.99.
5. AerCap Holdings (NYSE: AER ) : Operates as an integrated aviation company worldwide. Market cap of $1.72B. Earnings to be released on 11/08. Of the nine analysts that have set a target price on the stock, the lowest price target stands at $15.00. This implies a potential upside of 26.48% from current levels around $11.86.
6. Jiayuan.com International (Nasdaq: DATE ) : Operates an online dating platform in the People's Republic of China. Market cap of $407.30M. Earnings to be released on 11/08. Of the five analysts that have set a target price on the stock, the lowest price target stands at $13.00. This implies a potential upside of 25.36% from current levels around $10.37.
7. MYR Group (Nasdaq: MYRG ) : Provides utility and electrical construction services in the continental United States. Market cap of $382.50M. Earnings to be released on 11/07. Of the 11 analysts that have set a target price on the stock, the lowest price target stands at $24.00. This implies a potential upside of 24.42% from current levels around $19.29.
8. Solazyme (Nasdaq: SZYM ) : Engages in the production of renewable oil. Market cap of $563.88M. Earnings to be released on 11/07. Of the seven analysts that have set a target price on the stock, the lowest price target stands at $12.50. This implies a potential upside of 22.91% from current levels around $10.17.
9. Tesco (Nasdaq: TESO ) : Engages in the design, manufacture, and service delivery of technology based solutions for the upstream energy industry worldwide. Market cap of $570.71M. Earnings to be released on 11/07. Of the six analysts that have set a target price on the stock, the lowest price target stands at $19.00. This implies a potential upside of 22.82% from current levels around $15.47.
10. Orbotech (Nasdaq: ORBK ) : Engages in the design, development, manufacture, marketing, and service of yield-enhancing and production solutions for specialized applications in the supply chain of the electronics industry. Market cap of $367.35M. Earnings to be released on 11/07. Of the six analysts that have set a target price on the stock, the lowest price target stands at $13.00. This implies a potential upside of 22.07% from current levels around $10.65.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Alexander Crawford does not own any of the shares mentioned above. Target price data sourced from Thomson/First Call (via Yahoo! Finance).
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