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Aggressive Growth

Towers Watson (TW - Snapshot Report) ) is a Zacks #1 Rank (Strong Buy) and has a streak of five straight positive earnings surprises.

Company Description

Towers Watson operates as a global professional services company that provides consulting and other professional services. It provides its services related to employee benefits, human capital, and risk and financial management. The company was formed after the $4 billion merger between Watson Wyatt Worldwide and Towers Perrin Forster & Crosby in 2010.

Five in a row

TW has beat earnings expectations in each of its last five earnings reports. The last two have been solid beats of $0.14 and $0.15 respectively. The March 2011 quarter saw the biggest earnings beat of late. The company reporting earnings of $1.26 which was $0.32 ahead of the Zacks Consensus Estimate of $0.94. Following the earnings report, the stock moved higher by more than 8%.

After beating the Zacks Consensus Estimate for the December 2011 quarter, the stock moved higher by 7%. A major reason for the beat was the performance in the Talent and Rewards segment. Talent and Rewards had revenues of $169 million, an increase of 15% from $147 million in the year ago period.

Estimates Move Higher

Following the recent earnings announcement, analysts have moved future expectations higher. The June 2012 fiscal year-end earnings have moved from $4.68 in January to the current level of $4.89. For the fiscal year of 2013, estimates are also rising. The Zacks Consensus Estimate was $5.03 but has moved to $5.35 following the recent earnings report.

Valuations

From most perspectives, the valuation for TW looks good. The stock trades at a premium in terms of forward PE when compared to the industry average, but the premium is about half a point. All other metrics show TW trading at a discount to the industry average. Of note, the price to sales metric for TW of 1.3x is well below the industry average of 2.2x. Reliable earnings and sales growth should serve to push these metrics towards parity.

The Chart

A look at the price and consensus chart shows that Wall Street analysts are expecting good things from TW for the foreseeable future. When we see the earnings expectations well above the stock price, it is generally an indication of a stock being undervalued. Towers Watson is a Zacks #1 Rank (Strong Buy).

Towers Watson - ticker TW>
 
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Brian Bolan is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the Zacks Home Run Investor service

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