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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.
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
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 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
Zacks.com. He is the Editor in charge of the Zacks Home Run Investor
service, a Buy and Hold service where he recommends the
in the portfolio
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