Earnings Review for Value Authority Names

Cognizant Technology Solutions (CTSH) is trading lower today after reporting first-quarter earnings.

Results were good, with earnings per share (EPS) of $0.97 vs. $0.96, which was $0.03 better than expectations, on a 2.4% rise in constant currency revenues. The company also kept EPS guidance for all of 2021 unchanged at the $3.90 to $4.02 range. However, the market is disappointed that the company will need to spend more on its employees, as consultant retention is declining. CTSH’s management also made some comments about how the COVID-19 crisis in India is making for a difficult environment.

However, while these issues are real, they are transitory, and the company continues to execute well on its growth initiatives, with digital sales in the quarter up 15%, and they now constitute 44% of revenues.

I believe that today represents a buying opportunity. I continue to recommend CTSH below $75. My target is $85.

Keurig Dr. Pepper (KDP) reported a steady quarter last week, with EPS of $0.33 vs. $0.30, which was a penny better than expectations, as sales grew a better-than-expected 11.1%, with volume and product mix accounting for most of the sales growth.

The company raised its expected organic sales growth for the year from 3-4% to 4-6%. KDP is also still looking for EPS growth of 13% to 15% for the year, with the bottom line benefitting from merger savings and lower interest expense.

The shares have been trading around my $36 target price, or 22.5X this year’s EPS estimate of $1.60 and 20.5X next year’s estimate of $1.75. I am slightly raising my price target to $37, as I believe that the company can continue to narrow the 10% to 15% valuation discount the company sells at. My new buy under price for KDP is $32.

Kronos (KRO) is lower today after reporting lower-than-expected EPS of $0.17 vs. $0.22 the prior year. However, the factors that caused the lower earnings, including unfavorable currency translations and higher administrative expenses, appear to be transitory in nature and will have less of an impact on earnings going forward. In addition, while titanium dioxide prices were lower from the prior year, they continue to increase, and comparisons will be much easier for the rest of the year.

Despite today’s setback, we still have a nice gain in the shares, and, given the market’s enthusiasm for commodity related shares, I would like to hold onto them for a while. I am raising my target in KRO to $18.50. My buy under price is now $15.

Ingredion (INGR) reported a good quarter on Tuesday, with EPS of $1.85 vs. $1.59, which was $0.23 above expectations. Sales in the quarter increased 5%, largely driven by the company’s ability to pass on higher corn prices to its customers and to achieve good growth in more healthy products in foreign markets.

However, the company did warn that rising corn prices will make comparisons tougher in the second half of the year, and they will limit gains in operating income for the whole year to mid-single-digit percentages. This has caused consensus EPS estimates for the year to come down to the $6.58 to $6.67 range.

However, the stock has not declined much on the news, as INGR still remains a solid value at 14X this year’s earnings estimates. With specialty ingredient sales strong, costs under control and foreign markets steadying, EPS in 2022 should be over $7. I think that the stock should continue the strong performance it has seen so far this year. I am raising my buy under price for INGR to $90. My target is now $105.

Safety Insurance (SAFT) continued to benefit from fewer drivers on the road due to COVID-19, with EPS increasing to $1.93 from $1.57. Premiums declined 2.6% on lower policy counts. Lower bond prices and the company’s $0.90 quarterly dividend limited the gain in book value per share from $59.40 to $59.42 at the end of the first quarter.

Although this level of profitability will decline as more cars in Massachusetts get back on the road, I still believe that the company can earn $8.00 a share this year versus $8.64 in 2020, and book value should end the year at $62.50. I believe that SAFT can earn $7.00 a share annually under normal operating conditions, which justifies my new $90 price target. SAFT is now a buy below $80. The 4.35% dividend yield will add to total returns.