Two More Value Authority Companies Report Results

Ingredion (INGR) yesterday reported Q1 earnings per share (EPS) of $1.54 vs. $1.94, which was $0.10 below expectations.

Revenues in the quarter fell 3% due to a 2.7% decline in volume on a planned production elimination and a 9.5% negative impact from foreign exchange. These factors were offset by a 7.3% improvement in pricing and product mix, as the company’s specialty products continued to grow. However, this was not enough to offset the impact of currency exchanges and a sharp rise in corn prices on the bottom line.

The company’s revised EPS guidance for the year of $6.80 to $7.20 a share was not far from analysts’ estimates of $7.05 a share. I am surprised the stock had such a negative reaction to results, especially considering the negative issues are beyond INGR’s control, and the company’s operating execution appears solid. It perhaps hurt that management in the conference call did not give any time line for corn price relief, only saying that the issue will take time.

Still, I think the shares offer a significant opportunity here, trading at just 12.5x the midpoint of the EPS guidance range, with a dividend yield of 2.6%. While the timing of the recovery may be hard to pinpoint, INGR shares appear to have little downside, and I am confident the stock will outperform over the next 12 months. Continue to buy INGR. My new buy under price is $90 and my target is $105.

Cognizant Technology Solutions (CTSH) is down sharply today after the company reported first-quarter results after the close yesterday, with EPS of $0.91 vs. $0.94 on a 5.1% increase in revenues of $4.11 billion.

EPS was $0.11 short of expectations and revenues were more than 1% short of expectations of $4.17 billion, as sales in the company’s health care and financial segments disappointed. EPS guidance was revised downward from at $4.40 to $3.87-$3.95 a share.

If there was any bright spot to this quarter, it was that new CEO Brian Humphries is taking immediate action to improve results. The former head of the company’s financial sector was brought back to try to achieve improvement, and a new head of Digital Services was named. Mr. Humphries also indicated he wanted to get costs in line with the lowered revenue expectations, and he may also change the way sales people are compensated.

With the shares only selling at 15x earnings in a market that is starting to get expensive in certain areas, I think Mr. Humphries should be given a chance to show what he can do to make improvements. Therefore, I continue to recommend CTSH. My new buy under is $62 and my target is $75.