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2 Beaten-Down Stocks with Rising Earnings Estimates

There’s not much to like about stocks right now. But rising earnings estimates is a rare trait that can identify the next turnaround story.

It is clearly challenging to find stocks that can withstand the current market sell-down. Rising interest rates are creating an immense and steady headwind that few stocks can power through.

In addition, the earnings outlook overall seems to be weakening over concerns about a weakening economy. According to FactSet, excluding the energy sector, the S&P 500 is on track to see a decline in its aggregate second-quarter earnings (down 3.3%) compared to a year ago. If this trend continues, falling earnings combined with lower earnings multiples threaten further decay in the broad equity market.

As contrarians, we look for situations that run counter to the market’s narrative. If earnings are broadly weakening, we want to find companies with consensus estimates that are rising. Rising earnings estimates may indicate that the company is navigating the economy well, or perhaps it has a turnaround or other self-help program underway, or maybe it is simply in the right sector (such as energy production). To find these, we screened for positive “estimate revisions,” where analysts’ consensus estimates for full-year 2022 earnings have increased at least 5% over the past 60 days.


We added two additional screens to help us identify good value. First, we looked for stocks trading under 7x enterprise value/EBITDA – low enough to provide considerable valuation support compared to the broad market, which trades at around 10x. EBITDA is a measure of cash operating earnings. Second, we looked for companies whose shares have declined by 33% or more from a recent peak – this helps us avoid any remaining high-flying stocks.

Our list below includes two companies with all three traits: positive estimate revisions, low valuation and beaten-down shares.

2 Beaten-Down Stocks with Rising Earnings Estimates

Crocs (CROX)

Crocs makes the iconic foam clog shoes. The company completed its IPO in early 2006 at 21/share, and saw its share price surge to 75 on the heels of a hot fad. However, the fad faded, as did the company’s prospects, leading to a 98% collapse in its shares by 2009. After a difficult and lengthy turnaround process which included a complete overhaul of the company’s strategy, operations and marketing, and fueled by a pandemic tailwind as consumers rediscovered the comforts of Crocs shoes, the stock surged to over 180 by late 2021. Despite the mind-bending volatility in its shares, the company’s fundamental improvements have been steady and resilient. Demand remains sturdy and profits continue to improve even as profit margins are seeing pressure from rising input, transportation and other costs. The $2.3 billion acquisition of casual shoe company Heydude in February 2022 wasn’t well received as it diluted the pure-play aspect of Crocs shares and added considerable debt. But Heydude is a highly popular brand with considerable growth potential, and its cash flows will help Crocs trim down the still-reasonable debt burden. Trading at about 6x EV/EBITDA, with full-year estimates rising after a strong first-quarter report, CROX shares could be a good fit.

TravelCenters of America (TA)

This small-cap ($540 million) company is the nation’s largest publicly traded, full-service truck stop company, with 276 locations across 44 states. For years, TravelCenters was poorly managed, leading to weak results and a depressed share price. In 2019, the company hired Jonathan Pertchik as CEO – he brought considerable expertise, a fresh perspective and a turnaround strategy to TravelCenters. Under the strategy, the company has sharply improved its basic execution, upgraded its facilities, updated its food and convenience product offerings and has allocated capital to important growth initiatives. Key performance metrics including fuel margins and cash operating profits continue to improve. The balance sheet is solid, with cash fully offsetting its corporate debt. The shares have slipped by about 40% from their November 2021 peak due to concerns over a slowing economy and possible margin pressure on the company’s fuels, but profits from non-fuel items generate nearly 75% of TravelCenters’ gross profits. With rising earnings estimates (up 44% in the past 60 days), strong business prospects and a beaten-down 2x EV/EBITDA valuation, the shares may be a good buy for the long haul.

At the Cabot Turnaround Letter and Cabot Undervalued Stocks Advisor, we help investors navigate the equity markets using a common sense, value-oriented approach that emphasizes out-of-favor stocks of companies with real value. Let us help you sort through the market to find them. Click here to learn more.


Bruce Kaser has more than 25 years of value investing experience in managing institutional portfolios, mutual funds and private client accounts. He has led two successful investment platform turnarounds, co-founded an investment management firm, and was principal of a $3 billion (AUM) employee-owned investment management company.