Bear of the Day: Park Electrochemical (PKE)


July 10, 2013 |

Park Electrochemical recently reported its 3rd straight earnings miss thanks in large part to a -6% decline in net sales.

Analysts revised their estimates meaningfully lower for both 2014 and 2015 following the company's most recent earnings miss on June 26. This sent the stock to a Zacks Rank #5 (Strong Sell) stock.

Despite this, shares currently trade at a premium on a forward P/E basis. Investors may want to avoid PKE until its earnings momentum turns around.

Park Electrochemical Corp. manufactures high-technology digital and RF/microwave printed circuit materials primarily for the telecommunications and internet infrastructure and high-end computing markets and advanced composite materials, parts and assemblies for the aerospace markets. Sales of printed circuit materials products account for approximately 85% of its total revenue.

First Quarter Results

Park Electrochemical reported somewhat disappointing first quarter fiscal 2014 results on June 26. Earnings per share came in at 25 cents, missing the Zacks Consensus Estimate by 4 cents. It was the company's third straight earnings miss.

The company continued to post lethargic top-line results. Net sales declined 6% to $43.4 million, which was well below the consensus of $47.0 million. Despite this, the operating profit margin expanded a solid 190 basis points which led to a 4% increase in net income.

Estimates Fall

Following the Q1 earnings miss, analysts revised their estimates meaningfully lower for both 2014 and 2015. This sent the stock to a Zacks Rank #5 (Strong Sell).

The Zacks Consensus Estimate for 2014 is now $1.17, down from $1.26 before the Q1 release. The 2015 consensus is currently $1.25, down from $1.38 over the same period.

This continues the trend of negative earnings revisions over the last several months, as you can see in the company's 'Price & Consensus' chart:

Premium Valuation

Despite the negative earnings momentum, shares of Park Electrochemical are still trading at a premium valuation on a forward P/E basis. Its 12-month forward P/E ratio of 21 is well above the industry median of 16x and its 10-year historical median of 18x.

Investors with a short-term time horizon that are still interested in the 'Electronics - Miscellaneous Components' industry may want to consider Nidec Corp (NJ) or Stoneridge (SRI - Free Report) instead, which are both Zacks Rank #1 (Strong Buy) stocks.

The Bottom Line

With a string of negative earnings surprises, falling earnings estimates and premium valuation, investors should consider avoiding this Zacks Rank #5 (Strong Sell) stock until its earnings momentum turns around.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.

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