Weekly Comments – February 5, 2018 – CBM, FWRD, PRLB, TTEK, WAIR

CBM  –  Preview of quarter earnings report scheduled this week.  Cambrex is scheduled to report financial results for the fourth quarter and year end 2017, on Thursday this week before the market open.  A conference call is scheduled for the same morning.  …

FWRD  –  View ahead of financial results due for disclosure this week.  Forward Air is on the calendar to report financial results for the quarter ending December 2017, on February 7th after the market close.  A conference call will be staged the following…

PRLB  –  Outlook in advance of financial report.  Thursday this week before the market open, Proto Labs is expected to release financial results for the fourth quarter and year ending December 2017.  A conference call is on the calendar for the same morning.  …

TTEK  –  Updated view subsequent to earnings report.  In the second fiscal quarter ending December 2017, Tetra Tech trounced the consensus estimate with reported sales of $544 million versus the consensus estimate of $510 million, providing earnings…

WAIR  –  Preview of quarter earnings report on the calendar this week.  Wesco Aircraft is expected to report financial results for the fiscal first quarter ending December 2017, on Thursday this week after the market close.  A conference call to discuss the results with…

 

CBM  –  Preview of quarter earnings report scheduled this week.  Cambrex is scheduled to report financial results for the fourth quarter and year end 2017, on Thursday this week before the market open.  A conference call is scheduled for the same morning.  Expectations are filled with concern for this quarter report.  The consensus among the five analysts who have published estimates for Cambrex is $1.12 in earnings per share on $184.4 million in total revenue.  The top-line estimate represents 3.7% growth year-over-year, but the earnings estimate is a drop of 8.9% compared to the same quarter last year.  The Company has met or beat the earnings consensus estimate in each of the last four quarters.  It is likely the Company will repeat its success.  Following report of third quarter financial results, publishing analysts reduced expectations despite a significant upside surprise.  With lowered expectations, we believe Cambrex is set up for a beat in the quarter.

Shares of Cambrex have retreated from overbought conditions, trading in large part with the U.S. equity market.  In the final day of trading last week investors blanched at the prospect of rising interest rates that now appear more certain in 2018, as the jobs market tightens and the economy heats up.  We anticipate lower prices in the days ahead.  We observe that the Moving Average Convergence Divergence (MACD) line has moved down on its signal line and, as suggested by the MACD Histogram, is likely to continue diverging lower.  The circumstance suggests more supply is coming into the market than can be absorbed by current demand.

We continue to rate CBM at Technical Buy.  The current stock price is within the Add range of our trading guide.

 

FWRD  –  View ahead of financial results due for disclosure this week.  Forward Air is on the calendar to report financial results for the quarter ending December 2017, on February 7th after the market close.  A conference call will be staged the following morning.  The average of the eight contributions to the consensus estimate is $0.62 in earnings per share on $298.8 million in total sales.  The sales target represents 12.8% top-line growth, but only 6.9% earnings growth year-over-year.  The Company has missed the consensus estimate in only one of the last four quarters.

FWRD was no immune to the downdraft in the U.S. equity sell-off last week.  Inflation and interest rate jitters took down major indices and with a beta of 1.50 we would have expected no less than the downward move observed in FWRD last week.  The Moving Average Convergence Divergence (MACD) line had already moved below its signal line even before the sell-off in the final day of trading.  The frenzy of selling in the final hours last week only served to deepen the MACD divergence for FWRD.  The MACD Histogram suggests the divergence could continue to widen in the coming trading sessions as supply appears to outpace demand.  The broader market factors may outweigh company fundamentals this earnings season.  Thus it might be short sighted to expect a beat in the quarter to lift FWRD share price meaningfully.

We continue to rate FWRD at Technical Buy.  The stock is currently in the Hold range of our trading guide.  We suggest traders watch the stock carefully for a move into oversold territory and then dissipation of supply, which would portend a recovery in the share price.

 

PRLB  –  Outlook in advance of financial report.  Thursday this week before the market open, Proto Labs is expected to release financial results for the fourth quarter and year ending December 2017.  A conference call is on the calendar for the same morning.  The consensus expectation is for quarter earnings per share of $0.56 on $91.3 million in total sales.  If achieved it would bring earnings per share for the year 2017, to $2.12 per share on $341.6 million in total sales.  The hurdles represent 26.2% sales growth and 36.6% earnings growth year-over-year.  The Company has a strong track record in beating the consensus expectation.  We believe this is in part due to management’s ability to moderate analyst expectations to achievable levels.

We expect questions during the conference call to focus on the recent acquisition of Rapid Manufacturing Corporation, a custom parts supplier specializing in quick-turn sheet metal fabrication and CNC machining.  Proto Labs already revealed plans to rebrand a “Rapid, a Proto Labs Company.”  Anticipated contributions to sales and earnings in fiscal year 2018, are still a matter to discuss.

We continue to rate PRLB at Technical Buy despite the fact that the stock price has passed the target price of $90.00.  We anticipate adjusting our target price upward given the RAPID acquisition, but have reserved that action for this fourth quarter report.

 

TTEK  –  Updated view subsequent to earnings report.  In the second fiscal quarter ending December 2017, Tetra Tech trounced the consensus estimate with reported sales of $544 million versus the consensus estimate of $510 million, providing earnings per share of $0.65 from continuing operations versus the consensus estimate of $0.53.  Reported earnings of $0.81 included discontinued operations and a one-time tax benefit triggered by the recently enacted U.S. tax law.  Backlog at the end of December 2017 increased to $2.43 billion.

The results made it possible for management to increase guidance for the year.  Our current sales estimate of $2.1 billion is at the lower end of management’s new sales guidance range.  We have increased our earnings estimate to $2.40 per share (from $2.11 per share) to correspond to the lower end of management’s earnings guidance range.

The evidence of strong demand for Tetra Tech’s environmental solutions was evident in the quarter.  Additionally, it was clear the Company has cultivated a strong competitive position.  The positive news in the quarter financial reports was marred by recent press coverage of The Shipyards development project in San Francisco, where Tetra Tech has been implicated in faulty soil contamination tests.  Tetra Tech won a contract valued at $300 million from the U.S. Navy for soil testing and clean-up in anticipation of commercial development of the property.  Over half of the tests completed are suspected as fake.

We continue to rate TTEK at Technical Buy, but acknowledge the stock price is very near our target price of $52.00.  Our target price represents a multiple of 21.7 times our earnings estimate for 2018.  In our view, a multiple of 25 is justifiable given the pace of sales and earnings growth as well as the expansion in market share and competitive strength from acquisitions.  Accordingly, we are increasing our target price to $60.00 per share and adjusting our trading guide accordingly.

The stock is current signaled as overbought according to the Commodity Channel Index (CCI).  We caution traders against aggressive addition to long positions with the upward revision of our target price.  The stock gapped higher and set a new 52-week high on the news of exceptional earnings.  However, macroeconomic considerations dominated the final day of trading in the week causing the stock to give up all gains on the earnings news.  We expect inflation and interest rate worries to dominate valuation sentiment over fundamental accomplishments.

 

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