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Bear of the Day

Actuant (ATU - Analyst Report) has missed in each of the last three earnings reports and has seen estimate. It is a Zacks Rank #4 (Sell). It is the Bear of the Day.

Guiding Lower, Not comparable

Sometimes the Zacks Rank can move lower on a company that is actually doing just fine. This could be one of those situations, as Actuant (ATU - Analyst Report) reported a miss, but then guided substantially lower.

The reason for the lowered guidance is the expected sale of the electric equipment business, a move that was announced in early June. The removal of this business has caused estimates to drop precipitously.

Company Description

Actuant designs and sells industrial products and systems. The industrial segment provides high-force hydraulic tools, heavy lifting solutions, production automation solutions, and concrete stressing products to the general maintenance and repair, industrial, infrastructure, and production automation markets. The company was founded in 1910 and is headquartered in Menomonee Falls, Wisconsin.

Earnings History

Looking to the earnings history, we see three straight misses. Two times there was a miss of one cent, and the February 2013 quarter was a two cent miss.

Trading Lower After Reporting

Investors might want to take special notice of this idea. In the session following the earnings report, ATU has fallen in each of the last five quarters. Ironically, the biggest decrease in stock price, 7.6%, came after a $0.01 beat following the May 2012 quarter.

Earnings Estimates Tick Lower

Despite a nice run by the stock, the estimates for ATU have been moving the other way for some time now. The Zacks Consensus Estimate for 2013 has moved from $2.28 in September 2012 to $2.18 in December of the same year. A tick lower by one cent happened in April of 2013 and now the Zacks Consensus Estimate is calling for $1.88.

The same could be said of the 2014 Zacks Consensus Estimate as it fell from $2.49 in September, to $2.42 in January 2013 down to $2.41 in May. The recent guidance has pushed that number to $2.02. Earnings estimate revisions are the largest component of the Zacks Rank that can influence a change in rank.

Valuation

The valuation picture for ATU shows the company already trading at a premium to the industry average on each metric that investors tend to look at. The trailing PE of 16.5x is higher than the 13.8x industry average, while the forward PE sports a bigger premium of 17.7x compared to the 13.4x industry average. Price to book carries a multiple of 2.4x compared to 2.3x for the industry average, which is not that much, but still a premium. The price to sales multiple of 1.7x is also higher than the 0.8x industry average.

The Chart

The price and consensus chart shows a disturbing trend in earnings estimates. While a big move lower on earnings estimates can be explained by things like a divestiture, but that could also end up impacting margins as well. The end idea is that investors might want to wait to see how everything shakes out before making an initial or follow on investment in ATU. Other industrial stocks like Lincoln Electric (LECO) carry a higher Zacks Rank and might be worth a closer look.

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 Breakout Growth Trader a trading service that focuses on small cap stocks and also carries a risk limiting strategy. Subscribers get daily emails along with buy, and sell alerts.

Follow Brian Bolan on twitter at @BBolan1

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