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Bear of the Day

AGL Resources (GAS - Analyst Report) has produced a negative earnings surprise in each of the last two quarters and is set to report the March quarter in early May. Last year they missed that quarter too, and as a result, the stock is a Zacks Rank #5 (Strong Sell) and is the Bear of the Day.

Earnings Estimates Moving Lower

Since December 2012, earnings estimates for GAS have been moving lower. The Zacks Consensus Estimate for 2013 stood at $3.00 in December and then ticked slightly lower the $2.99 in January 2013. An early February earnings report was responsible for the largest move, as estimates tumbled to $2.64. March saw the estimates tick lower again and they now sit at $2.61. That is a decline of 13%.

The Zacks Consensus Estimate for 2014 has also seen some reductions, though not quite as stiff. The chart below shows an 8.6% decline from the December 2012 level to the present.

Company Description

AGL Resources distributes natural gas to residential, commercial, industrial, and governmental customers in Illinois, Georgia, Virginia, New Jersey, Florida, Tennessee, and Maryland. The company owns approximately 80,000 miles of underground distribution and transmission mains.

GAS Negative Earnings Surprise

One of the last five quarters was a positive earnings surprise. The string of four misses starts in December of 2011 with a 5% negative surprise. That was followed up with the March 2012 quarter and a -12% miss. September 2012 saw a -59% surprise and the most recent quarter was a 9.9% negative surprise. The trading session following each of the last five quarters has not been good to investors as the stock has dropped in all of them. The largest drop was the most recent, a 5% fall following the February 6, 2013 release.

Valuation

The valuation picture on GAS is not that bad right here. The problem is certainly more about earnings than valuation. The stock trades at 17x trailing earnings, which is below the 24x industry average. A 16x forward PE is also lower than the 18.7x industry average. Price to book and price to sales are also both lower than the industry averages

The Chart

The price and consensus chart really tells the story why this stock is a Zacks Rank #5 (Strong Sell). You can see how the earnings estimates have been trending lower while the stock continue to hold its place in the low 40's. When there is a large gap between the stock price and where the estimates are, as is the case with AGL Resources, then we consider the stock to be overvalued. Should the earnings lines move higher than the price of the stock, we would consider it undervalued.

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.

Follow Brian Bolan on twitter at @BBolan1

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