Offering earnings guidance above analyst expectations is obviously a bullish sign, as over time earnings growth follows sales growth. And when a company predicts greater sales or profits, we expect its stock price to soon follow.
Sometimes things don't work out as planned, though, so we'll pair up the brighter outlook with the sentiments of more than 180,000 members of Motley Fool CAPS. If the best and brightest stock pickers think a company's long-term potential is outstanding, coupled with the company's own improved sentiment, maybe then investors should take notice, too.
Here are two stocks that recently raised guidance.
CAPS Rating (out of 5)
Prior or Consensus Estimate
||***||$0.03||$0.08||Q2 2012 EPS|
||****||$125 million||$122.1 million||Q2 2012 Rev|
Don't blindly buy into their heady outlook -- you still need to do some research. Use the announcement as a jumping-off point for additional research.
Unplugging the cable
There are confusing signals in the market about whether telecoms like Verizon and AT&T are spending money on infrastructure or not. On one hand you have network equipment makers like Finisar
In particular, its set-top-box-system-on-a-chip business that it acquired from Trident Microsystems is doing much better than it previously thought. But as pie77 commented, Entropic is enjoying even "hotter growth" than the guidance suggests because it's taking charges for that acquisition. So in reality, "we are talking around .20 per share without the charges."
Shares of Entropic have rallied 40% over the past month, and Gordogato sees even greater gains coming as a result of the acquisition because it gives "them an entry into Asia/Pacific markets." Regardless of what's happening in the network equipment market, "the problems with decreased orders from Verizon and DirecTV are now behind them, and the stock should be on a steady rise once more."
A passel of profits
Whether PDL BioPharma is raising its guidance or not actually depends on whose numbers you're looking at. According to the consensus estimates of the folks at Standard & Poor's Capital IQ, the biotech's guidance of $125 million in royalty revenue is better than the $122 million its analysts predicted. But FactSet says its consensus revenue forecasts came in at $129.6 million, meaning PDL's guidance fell a little short.
The biotech receives royalties on global sales of drugs from some of the pharmaceutical industry's top players, including Roche, Novartis, Elan
But we can expect royalties to increase even more in the future as PDL inked a new deal with Roche for sales of Perjeta (pertuzumab) for treating breast cancer, a market analysts estimate could be worth as much as $1 billion in sales for the drug. The agreement has PDL receiving royalties in the quarter following the drug's introduction, which was expected to be by the end of last month.
With 95% of nearly 1,000 CAPS members who've rated the biotech believing it will continue outperforming the market, I'm marking it to do so as well based on the strength of the portfolio of drugs it has. But tell me on the PDL BioPharma CAPS page or in the comments section below whether you agree it will continue to deliver.
Raise your sights
These stocks may have raised expectations, but there's a new technological revolution with even wider implications than before, and The Motley Fool has discovered three companies ready to capitalize on the boom. Read the free report "The Future Is Made in America" to find out who these winners are, but hurry, because it's available only for a limited time.
Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.