Jan & Duke,
I've owned VRC on and off for the last three years, so I thought I'd put in my 2 cents.
They make tools and equipment for drillers. They are less leveraged than most of the companies in that group with debt to equity of about 12%.
Revenues grew about 43% two quarters ago, and 60% last Q. This Q, I expect that to flatten and be about 65%.
Two quarters ago, earnings grew about 90%, last Q that rose to 100%. There are 8 analysts following VRC and their estimates have quite a range for this Q. The range is from 18-27 cents. The mean is 22 cents. Whatever it turns to be, it will compare with last years same quarter earnings of 12 cents.
After this quarter, comparisons will become more difficult. Management is taking important steps to keep the growth rolling however. VRC is approaching capacity. They are pumping out products at around 75% of their max, but are trying to increase that capacity by around 15-20%. There is no telling how this will impact the bottom line, but my guess is that they will do a good job. I say that because, a similar process, which is seamlessly putting together a merger, without negatively impacting the bottom line too much, is something that VRC has done well over the last 7 or 8 years.
I watch earnings revisions very carefully. Not the Buy, Hold, Sell stuff, but the actual earnings estimate. It is a statistical fact that analysts usually underestimate the amount of a revision. Said another way, when an analyst raises a NEAR TERM estimate, he or she usually doesn't raise it enough. Likewise, when an estimate is lowered, it is typically not enough. So, when you see a company that has had a high % of earnings revisions in one direction, that stock is a good candidate for an earnings surprise. The amount of the revision doesn't matter, it is simply the direction of the revision.
For anyone out there who gets Value Line, they usually cover this about once a year in the Selection and Opinion section and do a much better job explaining it than I do.
What does this have to do with VRC? Glad you asked. As I mentioned earlier, there are 8 analysts covering this stock. Three have revised up, and none have revised down. Three might not seem like a lot, but 3 to 0 is very good. Based on this, I believe it is reasonable to expect VRC will actually earn above the current mean estimate of 22 cents this quarter.
BTW, I am long VRC.
bobster |
