Brian Bolan

Bear of the Day: OM Group (OMG)

by Brian Bolan

February 25, 2013 |
OMG

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OM Group (OMG - Snapshot Report) is coming off a large negative earnings surprise and is a Zacks Rank #5 (Strong Sell).

Company Description

OM Group operates as a diversified specialty chemicals and materials company. The company operates in four segments: Magnetic Technologies, Advanced Materials, Specialty Chemicals, and Battery Technologies. Founded in 1991, the company is headquartered in Cleveland, Ohio.

OMG, A Big Miss

The most recent quarter saw the company miss the Zacks Consensus Estimate by a large amount. The company reported a loss of $0.13 per share while the consensus estimate was calling for earnings of $0.03. That translates to a $0.16 miss or 533% below expectations. The stock fell 5% in the session following the release.

Earnings Trending the Wrong Way

Over the last three quarters, OMG has missed the Zacks Consensus Estiamte be an increasing amount. The June 2012 quarter was a miss of one cent, but that was followed by a $0.14 miss in Septemeber (36%) and the huge miss discussed abovce. This might make investors say "OMG" but not in a good way.

OMG Sees Estimates Moving Lower

Estimates for OMG have been sinking of late. The Zacks Consensus Estimate for 2013 stood at $3.22 as of May 2012. The consensus has since moved lower to $1.32. The decline of over 50% in earnings expectations has not really showed up in the stock over that time period.

Valuation

The valuation metrics for OMG are a little mixed. The trailing twelve months PE multiple of 11x is below the 13.6x industry average, but the 19x forward PE multiple is well above the 12.8x industry average. The company trades at only 0.6x book value, well below the 3x industry average. The price to sales multiple of 0.5x is half than of the 1x industry average. Its clear the negative earnings surprises have not helped the valuation, but should management reign in expectations the stock does hold promise to expand its multiples.

The Chart

The price and consensus chart shows how the the earnings estimates have been coming down in a meaningful way. The 2012 and 2013 lines are of significant concern. The stock is a Zacks Rank #5 (Strong Sell)

OM Group - ticker OMG>
 
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Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio

Brian is also the editor of Follow The Money Trader a trading service that tracks institutional money flows and looks for great stock picks from that data.

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