by Hilary Kramer | February 10, 2012 11:22 am
For many companies, earnings reports aren’t just a regular demonstration of their fiscal ability — they’re a turning point for stock prices. Earnings, revenues, forecasts and other information in reports can send stocks through the roof or plow them into the ground.
Here’s three companies that recently made huge gains following earnings reports:
Cerner (NASDAQ:CERN) jumped 13% Wednesday after reporting better-than-expected results Tuesday after the bell — giving good guidance for 2012.
Revenues of $615.6 million were up 23% from a year ago, and profits jumped 30% on bookings of $899 million — an all-time high for the health information technology company. CERN continues to benefit not only from the health care industry’s transition to digital records, but also the increasing need to measure outcomes in the practice of medicine. Adjusted earnings for the quarter were 55 cents — up 25% from a year ago and 2 cents better than expectations.
Guidance for 2012 was solid, with revenues expected to be $2.4 billion to $2.5 billion, and earnings in the range of $2.20 to 2.30 per share. Both estimates were roughly in line with existing expectations, but like others who bought the stock in droves on Wednesday, I look for the stock to continue to moving up for a couple of key reasons.
First, system sales were very strong — up 34% in the fourth quarter — which will eventually translate into higher maintenance and service revenues, which carry very high margins. — a “razor and blades” model. Secondly, the 44% increase in bookings represents a healthy book-to-bill ratio of 1.46, which means the company brought in nearly 50% more orders in the quarter than it collected payments for. With 35% of bookings outside existing customers of its Millennium software, CERN believes it is gaining market share. Order backlog ended the year at $6.11 billion — up a strong 24% from a year ago.
Shares of Cerner had lagged the January rally, but this latest earnings report has put the stock back on a nice trajectory, and I like where both it and the company are headed.
Novo Nordisk (NYSE:NVO) is the world leader in diabetes care, an attribute that drove profits 19% higher in the fourth quarter. The Danish pharma company continued to grow its diabetes franchise on strong sales of key drugs Victoza, NovoRapid and Levemir. Shares jumped 3% last Friday following the earnings report, and momentum this week has added another 7.5%.
Revenues for the quarter were up 11% in local currencies to 66.3 billion kroner ($11.7 billion), with gross profit up 9% to 53.7 billion kroner. Operating margins expanded on the higher sales volume, and net income increased 19% to 17.1 billion kroner. On a per share basis, the company earned approximately $5.29.
Much of Novo Nordisk’s growth is being driven by Victoza, a therapy for type-2 diabetes and one of NVO’s newer products. Sales jumped 166% to nearly 6 billion kroner in 2011. Also strong was the company’s portfolio of “modern insulins,” where sales increased 8% to 28.8 billion kroner. While not growing quite as fast as the diabetes franchise, the company’s biopharmaceutical products did rise 8%.
Looking ahead to 2012, management is forecasting revenue growth of 7% to 11% and operating profit growth of 10%. This would enable earnings of close to $6 per share, an increase of nearly 13%. Longer-term, the company feels it can add another 100 basis points to the operating margin and increase operating profits close to 15% per year as Victoza continues to grow.
Novo Nordisk is operating well right now, and pharmaceutical stocks are in favor right now. I want you to hang on to your NVO shares a little while longer. I am raising my target to $140, which is a reasonable 23 times 2012 earnings in U.S. dollars.
Cummins (NYSE:CMI) reported its fifth straight quarter of double-digit growth last Thursday. Both earnings and revenue surpassed expectations as strength was seen across most segments.
Fourth-quarter earnings of $2.56 a share easily beat estimates of $2.23, and revenues of $4.9 billion just topped estimates of $4.7 billion. The 19% revenue rise was led by the engine segment, with sales up 23% to $3.1 billion. Cummins continues to benefit from strong North American demand for diesel truck engines of all classes, as well as growth in demand for natural gas-powered engines. In addition, sales of engines for mining equipment are up on a global basis. The components business, which sells engine parts to other manufacturers, saw sales increase 19% to $1.1 billion. North American demand was at record levels, aided by the need to meet emission standards. Europe, India and Brazil were also strong markets, offsetting weakness in China.
As expected, power generation was a laggard, with sales up only 2% to $920 million. However, this was still better than expected, and orders picked up as the quarter progressed. Distribution sales were up 19% to $834 million on similar market forces.
The company projected 20% growth for 2012, which is robust, with 9% coming from acquisitions. Growth will be loaded toward the back end of the year as truck markets in Brazil strengthen. CMI is also anticipating China and emerging markets will improve in the second half. Management guided for operating margins of 12.5% to 13.5% — up from 11.8% in 2011. At the same time, the company plans to continue heavy spending in R&D, including the possibility of expanding their offerings of natural gas engines as more fleets make the switch. This initiative comes out of the Cummins-Westport Innovations (WPRT) joint venture.
This was a great quarter for CMI, and the stock has the wind at its back in the markets right now.
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