(OSIS - Free Report
) is a name
that is flying under the radar for most investors, but not those
that follow my Bull of the Day articles! OSIS was the Bull of the Day
back on October 18 (https://www.zacks.com/commentary/93284/bull-
) prior to the most recent earnings
Let's take a look at why I like this stock, the most recent
earnings report and why it is again a Zacks
(Strong Buy) and the Bull of the Day.
Why I CONTINUE To Like It
This is a small-cap stock which would outperform if the market
A good earnings history when compared to the Zacks Consensus
From May to August there were consistent monthly increases in the
Zacks Consensus Estimate for 2016.
Recent beat and raise quarter tells me a "post earnings drift
higher" is very likely.
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The Recent Numbers
I like to do a review of the most recent quarter for stocks
that I highlight as Bulls of the Day. OSIS reported the September
quarter last week and guided higher.
The important idea behind a beat and raise quarter is that it is
like a six-month surprise all in one day. In beating the number,
the company let of know that the previous 90 days were better than
expected. In guiding higher, the company let's us know that the
next 90 days are going to be better than what was previously
expected. This means that we received 6 months of good news all at
The most recent quarter was a beat on top and on bottom. The
company posted EPS of $0.44 when the Zacks Consensus Estimate was
calling for $0.35. Revenue came in $31M ahead of expectations for
16.5% positive revenue surprise. As a result, the stock was bid up
by more than 8.5% in the session following the report.
OSI Systems makes electronic systems and components. The company's
Security segment provides baggage and parcel inspection, cargo and
vehicle inspection, hold baggage and people screening, radiation
detection and explosive and narcotics trace detection systems. The
company was founded in 1987 and is headquartered in Hawthorne,
The company has a good history of beating the Zacks
Consensus Estimate. There have been two miss and four beats in the
last six reports.
The estimate picture looks really good, with the Zacks
Consensus Estimate for 2016 moving from $2.49 in May to $2.51 in
July and reached $2.64 in September. The estimate now stands at
$2.78 following the most recent report.
The 2017 number finally moved following the recent earnings
release. The Zacks Consensus Estimate for 2017 inched higher by
one cent to $3.46.
Investors are looking at a slightly mixed picture when it comes to
the valuation for OSIS. The forward earnings multiple of 26x is
ahead of the 19x industry average. The price to book multiple of
2.5x is below the industry average of 2.8x, but the price to sale
multiple of 1.6x is higher than the 1.2x industry average.
As I look at revenue and earnings growth, I see why the company is
trading at higher earnings and sales multiples. The company is
simply growing the top line at a faster rate than the industry,
with growth of 7% expected for fiscal 2017 compared to an industry
average of 0.6% revenue growth. This big revenue growth translates
into expected earnings growth of 31% whereas the industry is
looking at 22% EPS growth over the same time period (fiscal 2017).
Zacks has developed a chart that helps investors see
how earnings estimates have impacted the price of the stock
over the last several years. We call this chart the price and
consensus chart, and each color-coded line represents analyst
estimates over a designated year. As estimates increase, the
stock tends to follow. The Zacks Rank is impacted by earnings
estimate increases, beats and incorporates the idea of analyst
agreement and magnitude. As a Zacks Rank #1 (Strong Buy) we see
that estimates are moving higher.
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