Aren't Bulls of The Day #1 Ranked Stocks?
DescriptionBeing the Bull of the Day is all about why a stock has reached the highly desired position of a Zacks Rank #1 (Strong Buy). Today I am making an exception for SERV as I think this is a story that needs to be told to a wider audience and the Zacks Rank is likely to move higher for this stock in the coming days. I will touch on that idea after I review the recent earnings report.
The American Home Shield segment provides home warranty plans that cover the repair or replacement of household systems and appliances.
The Franchise Services Group is made up of ServiceMaster Restore, ServiceMaster Clean, Merry Maids, Furniture Medic, and AmeriSpec brands. ServiceMaster Global Holdings, Inc. is headquartered in Memphis, Tennessee.
So while Terminix is the biggest part of the company, there is still plenty of people that have heard of American Home Shield and even Merry Maids and Furniture Medic.
Earnings History
There are only two earnings reports for SERV in the Zacks Research System. There have been a total of three reports, so let's just go over that last two in a little bit of depth.
The December 2014 quarter saw revenue of $664M, $88M above the Zacks Consensus Estimate of $576M. The company was able to produce EPS of $0.45, $0.11 better than the Zacks Consensus Estimate which translates into a 32% positive earnings surprise.
The March 2015 quarter, which was reported on 4/28/15 was another beat. Revenues of $571M were in line with consensus, but there was another beat on the bottom line. The company reported EPS of $0.33 vs $0.27 consensus for a 22% positive earnings surprise.
The most recent quarter came in 6 cents ahead of estimates and that likely means that analysts will be adding at least six cents to their estimates for 2015. That sort of increase to estimates is likely to drive the Zacks Rank back to a #1 (Strong Buy) position soon. At the time this article was written, there were no estimate revisions for this quarter in the Zacks Research System, but it is very likely they will be incorporated into the Rank on 4/30/15.
Earnings Estimates
The 2015 Zacks Consensus Estimate was $1.31 in August of last year, slowly crept higher to $1.39 by the end of January. The number jumped to $1.53 in February and then kicked higher to $1.59 in March and has held that level through April. Given the recent beat, it is likely that this number will move higher either tomorrow or in early May.
The 2016 Zacks Consensus Estimate has also shown some strength. Looking back to August, the number was $1.45 and has moved higher to $1.77.
This sort of consistent move higher is just what investors want to see.
Valuation
The trailing PE of 23x is just a bit under the industry average of 24x, and the forward PE of 22x is right in line with the 21.6x industry average. The 13x price to book multiple is showing a significant premium to the already rich 5x industry average. The price to sales multiple of 2x is showing a rather large discount to the industry average of 4.6x.
At the end of the day, this is just the type of stock that institutions love to own. As a roll up of several different services, SERV has some built in downside protection in that it services multiple industries and is mostly stable. Cost cutting and any increase in recurring revenues can drive earnings higher and any big move in estimates will likely help increase the multiples this stock sports.
Chart
Zacks has developed a chart that helps investors see how earnings estimates have impacted the price of the stock over the last several years. We call this chart the price and consensus chart, and each color coded lines represents analyst estimates over a designated year. As estimates increase, the stock tends to follow. The Zacks Rank is impacted by earnings estimate increases, beats and incorporates the idea of analyst agreement and magnitude. As a Zacks Rank #2 (Buy) we see that estimates are moving higher.
By Brian Bolan
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