Lionbridge (LIOX - Snapshot Report) creates, translates and manages global content and communications for global clients. It is one thing to translate the marketing materials in dozens of languages, its another thing to continuously manage it. That is the niche that LIOX serves and after reporting a solid quarter, analysts have raised estimates. This has drive the stock to a Zacks Rank #1 (Strong Buy) and today it is the Bull of the Day.
A Sticky Business
DescriptionLIOX prides itself on the relationship is has with its customers. 96% every quarter for 4 consecutive quarters or longer. Stretch that out to 12 quarters and that figure becomes 87%. This speaks to the long lasting need for services for this.
Lionbridge provides language, content, and testing solutions worldwide. The company serves businesses in technology, Internet and media, manufacturing, mobile and telecommunications, life sciences, government, automotive, aerospace, and retail sectors. Lionbridge was founded in 1996 and is headquartered in Waltham, Massachusetts.
Earnings History
LIOX has topped the Zacks Consensus Estimate in each of the last eight quarters. Easily the most impressive beat came about one month ago when the company reported EPS of $0.11 when the Zacks Consensus Estimate was calling for a loss of $0.04. That $0.15 beat "translated" into a positive earnings surprise of 375%.
This was the second consecutive quarter that the Zacks Consensus Estimate was calling for the company to lose money and report a profitable quarter. The previous positive earnings surprise was 450%.
Earnings Estimates
The 2016 Zacks Consensus Estimate was $0.34 in May and it also jumped, but not by the same amount. The current estimate is calling for $0.54, which implies some rather tepid forward earnings growth. Over time, the 2016 estimate is likely to move higher if the company continues to beat the number.Estimates for LIOX have soared. The Zacks Consensus Estimate was $0.11 in January and jumped higher by a nickel in February. By April, the number added on another penny, but the biggest move was in may where the estimate catapulted to $0.52. That is an increase of 205%!
Valuation
The valuation for LIOX is rather stunning given the expected earnings growth for 2015. Almost all metrics that are commonly used to value a stock are showing LIOX trading at a discount to the industry. The 17x trailing PE is well below the 29x industry average and forward multiple of 11x is at an even bigger discount to the 32x industry average. The price to book multiple of 4.6x is just below the 4.7x industry average. The price to sales multiple is only 0.7x while the industry average is a healthy 5x.
In searching for a reason why this stock trades at such a low valuation, I can only point to the net margin. LIOX has a relative low 1.8% net margin while the industry average is around 22%. If the company can improve its net margin, this stock could see a dramatic move higher that could be many multiples of its current price.
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 #1 (Strong Buy) we see that estimates are moving higher.
By Brian Bolan
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