is a Zacks #1 Rank (Strong Buy) and has a streak of five
straight positive earnings surprises.
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
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.
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.
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
Brian Bolan is the Aggressive Growth Stock
Zacks.com. He is also the Editor in charge of the
Zacks Home Run