There is always a high demand for out-of-consensus ideas as these are easy shots to make money. Whenever earnings season comes around, people open up their models and tweak their assumptions to find whether their estimates are different than consensus views and if they are different, then how probable is it that the related companies report out-of-consensus results.
The following list, though it contains stocks that belong to different sectors of the equities market, has one common theme – it contains only out-of-consensus ideas, according to UBS AG (USA) (NYSE:UBS) analysts.
Auto-parts play
Delphi Automotive PLC (NYSE:DLPH) is expected to report quarterly results on May 1. The UBS estimate is higher than consensus projections of $0.95, and at the high end of Delphi’s guidance of $0.95 to $1.00 per share.
Delphi’s first-quarter guidance was based on a 15% decline in first-quarter European production (vs. UBS’s -11.5% European production forecast).
UBS is forecasting Q1 adjusted EBITDA of $548 million, slightly above guidance calling for a range of $515 million to $540 million. Also, UBS is forecasting a 1% decline in sales (7% excluding acquisitions). The outlook for the company reflects lower European sales and expected mixed headwinds. The EPS is expected to benefit from a lower tax rate and shares outstanding.
When taking a wide look at the stock, it’s trading at an extremely cheap forward multiple of 9x, which is well below Delphi Automotive PLC (NYSE:DLPH)’s peers’ average of 13x and half of the S&P 500’s multiple of 18x.
Are the other two stocks also strong buys?
Apache Corporation (NYSE:APA)
is the next stock under discussion. UBS expects the natural gas exploration company to report 1Q 2013 EPS of $2.14, which is below consensus estimates of $2.22. The company is expected to miss the EPS estimate due a lower-than-expected production level for the quarter.
The forecast for 1Q 2013 production calls for 778.3 million barrels of oil equivalent per day (mboed), down 2.7% sequentially and 2.5% below current consensus of 797.5 mboed. This company hasn’t been able to meet the production expectations due to a combination of factors, such as cyclone-related downtime, maintenance of third-party facilities in the Gulf of Mexico and natural-gas base declines.
Historically speaking, Apache Corporation (NYSE:APA) has missed consensus production forecasts in each of the past four quarters, resulting in a ~3%-5% negative price reaction.
Apache is expected to report on May 9. The stock has recently experienced a massive sell-off, and has seen a decline of 5% in the last 30 days. However, this still doesn’t make the stock a buy given its declining production and historic track record of missing production guidance.
The third in line is J.C. Penney Company, Inc. (NYSE:JCP), the notorious retailer. The stock is heavily shorted and currently 28% of the total float has been shorted by investors. The stock is down 10% since the start of the year. However, UBS believes that the stock might see some more downward action as it believes J.C. Penney’s financial results and key metrics (same-store sales, gross margin, EBITDA) for 1Q will miss consensus forecasts.
The channel checks indicate that J.C. Penney’s customer traffic continues to worsen sequentially as consumers appear reluctant to revisit the retailer’s stores. Additionally, UBS forecasts 1Q gross margin of 30.3% (vs. consensus 35.7%) based on an unplanned merchandise-mix shift to lower-margin clearance goods (from higher margin everyday priced goods).
J.C. Penney Company, Inc. (NYSE:JCP) has not provided any financial guidance for fiscal 2013. With new management appointments now in place, investors expect J.C. Penney to provide some financial target guidance on its 1Q earnings call–specifically, a timeline as to when same-store sales can return to positive growth. From a stock loan perspective, the company is one of the most crowded names. There are 1 million to 2 million shares available to borrow. Borrowing rates are in the low-single digits.
Recently, the cash-strapped company was able to arrange $1.8 billion secured loan from Goldman Sachs Group, Inc. (NYSE:GS), which helped the stock to rise by 10%. Many have hopes that the company’s rehired CEO might bring a change that will help the company to see a long-awaited turnaround. However, the current scenario makes its almost impossible for one to believe that J.C. Penney Company, Inc. (NYSE:JCP) might be able to achieve such a revival.
My Foolish take
Delphi Automotive PLC (NYSE:DLPH) seems to be a cheap and attractive buy based on its bright bottom-line prospects. On the other hand, Apache Corporation (NYSE:APA) seems to be a sell based on declining production levels. Similarly, the crisis-ridden J.C. Penney remains a sell based on its poor forecasts and weak fundamentals.
The article 3 Ideas That Transcend Consensus originally appeared on Fool.com.
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