Much like the holiday season, when earnings season rolls around things can get a little crazy. A steady flow of quarterly reports brings a mix of jubilant cheer and anguished stress.
Third-quarter earnings season hasn’t been any different. Most companies have exceeded expectations while others have disappointed. The industry-speak refers to these reckonings as positive or negative earnings surprises.
Earnings surprises reveal to the market which companies are performing better or worse than anticipated—and magnitude matters. Outsized positive earnings surprises, or beats, can guide investors to stocks that have strong momentum and are likely to do well.
Here are three examples of such third-quarter standouts. Huge earnings beats in percentage terms suggest that these stocks are likely to provide some festive gains in the months ahead.
Is Goodyear Tire & Rubber Stock Undervalued?
When the rubber met the road last week, Goodyear Tire & Rubber (NASDAQ:GT) delivered a convincing bottom-line beat. Earnings per share (EPS) came in at $0.72 marking not just one of the tire maker’s best periods ever, but a 150% positive earnings surprise. Wall Street analysts were expecting EPS of $0.29.
The fact that Goodyear blew away the consensus estimate by a mile points to immense strength in the underlying business. Sales volumes have been up sharply amid rising global demand for new and used automobiles during the economic recovery. The company’s recent acquisition of Cooper Tire has also contributed to volume and an improved price mix.
Goodyear’s tire volumes for new cars have slowed due to an industry production slowdown tied to semiconductor shortages and other supply constraints. However, replacement tire volumes have more than made up for the shortfall. As consumers and businesses swap out their aging tires, this pattern will likely persist. Then as supply constraints ease and global vehicle production normalizes, Goodyear may have both end markets operating on overdrive.
Analysts are forecasting that EPS will surge 62% next year building off a major turnaround in 2021. This means that Goodyear shares are trading at just 8.5x next year’s earnings. And with the electric vehicle growth opportunity still ahead, this stock rally has a lot of mileage left.
Does Inter Parfums Stock Have More Upside?
Inter Parfums (NASDAQ: IPAR) topped third-quarter earnings expectations by 76%. The $1.20 per share result was not only 131% above last quarter’s bottom line but 82% ahead of the 2019 performance. Not bad for a company that was on the brink of going out of business at the onset of the pandemic.
Nowadays Inter Parfums is smelling much better thanks to strong demand for Coach, GUESS, Jimmy Choo, and other fragrances. As people return to work environments and social settings, they’ve decided its time to freshen up their perfume and cologne game. This trend is likely to continue as social distancing measures ease.
Next year Inter Parfums will launching several new products to seize the demand. The first scents to hit the shelves will be male and female versions of Moncler. These will be followed by new men’s fragrances under the Coach, GUESS, and Boucheron brands.
In the meantime, Inter Parfums will look to benefit from the holiday shopping season in Q4. Although supply chain issues are impacting this industry too, the company’s inventory levels have been healthy.
The Street is expecting 17% profit growth in 2022 aided by a strong consumer spending environment. Analysts have been playing catch up with Inter Parfums’s valuation following five straight earnings beats and continue to see further upside in the share price. Smells like a buy and hold.
Is Verso Stock a Buy?
Small-cap packaging play Verso (NYSE: VRS) trounced the third earnings consensus by 177%. The company turned in its best quarter since the start of the pandemic thanks to favorable macroeconomic trends which allowed it raise prices. At the same time, a more streamlined operating model and cost reductions helped Verso capitalize on strong demand for graphic paper products.
A paper packaging company like Verso won’t land on the radar of high-growth investors. But those seeking a reliable defense addition to a portfolio won’t be disappointed. The company has a solid base of commercial printing, advertising, and marketing customers that use its products to make books, catalogs, greeting cards, and even toilet paper.
Peace of mind can also be gained from Verso’s stellar financial position. Its balance sheet is free of debt and with a 20% dividend payout ratio, there is a lot of room for future dividend raises.
Like many materials companies, 2021 will amount to a rebound year for Verso after a steep loss in 2020. Order volumes and profitability are expected to pick up considerably next year as more of Verso’s end markets return to full health. The consensus forecast for 2022 EPS equates to a 10.7x P/E multiple. This makes Verso well worth throwing some paper at.
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