Our first idea, an aerospace and oilfield service supplier handily beat earnings estimates and received a new ‘Buy’ rating. Our other two recommendations are profit-taking on two previous ideas.
Buy: KLX Inc. (KLXI)
From Cabot Undervalued Stocks Advisor
Aerospace and oilfield service supply company KLX Inc. (KLXI) reported a strong fourth-quarter 2018 earnings beat this week (January year-end). Non-GAAP earnings per share (EPS) were $1.00 vs. the expected $0.88.
Full-year EPS were $3.24 vs the $3.16 consensus estimate, 209% above full-year 2017 results. Additionally, KLX gave quite a boost to its 2019 EPS guidance. Wall Street then increased its earnings estimates for the current and next fiscal years, now expecting EPS to grow to $4.26 and $5.01, reflecting aggressive EPS growth rates of 31.5% and 17.6%. The corresponding price/earnings ratios (P/Es) are quite low in comparison at 16.2 and 13.8. (Take the fiscal 2020 numbers with a grain of salt because there are only two analysts contributing to the fiscal 2020 earnings estimate.)
Jefferies subsequently raised its rating to Buy and its price target to 80.
In late December 2017, KLX announced that it hired Goldman Sachs to represent the company after receiving inquiries from interested parties about possibly buying all or part of KLX.
I’ve been recently cautious with my Buy recommendation on KLX, partly because the stock’s already up 44% since I named KLXI as my number-one stock pick for the coming year at the Cabot Wealth Summit in September 2017, and partly because a buyout offer might emerge shortly. I didn’t want to run the risk of giving the stock a Strong Buy recommendation, only to see the buyout offer come in below the current share price. (Yes, I realize that’s not likely to happen, but anything’s possible.)
After watching earnings estimates climb aggressively this week, I’ve decided to raise my recommendation back to a Strong Buy. The stock has been trading sideways for a couple of months since its big December run-up, and barely paused during the recent market correction. Buy KLXI now in preparation for another run-up that could take place this month. Strong Buy.
Crista Huff, Cabot Undervalued Stocks Advisor, www.cabotwealth.com, 978-745-5532, March 8, 2018