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Frontier Communications (FTR) distributes an annual dividend of $0.40, has a yield of 9.10% and a payout ratio of 500%. Revenue over the last four years has been increasing at a CAGR of 23.73% while income has been decreasing at a CAGR of 4.87% during the same period, an indication of management’s inability to control costs. More specifically, earnings per share (TTM) came in at $0.15 while its competitors AT&T (T) and CenturyLink (CTL) reported earnings of $0.67 and $1.07, respectively.
For fiscal year 2011, Frontier Communications had a debt to equity ratio of 1.85 while AT&T and CenturyLink had 0.61 and 1.05, respectively. In addition, Frontier’s price to earnings ratio of 30.40 is lower than AT&T (45.88) and CenturyLink (36.72), which confirms how investors may not be willing to pay a premium for a stock with higher debt and lower earnings than its competitors. Nevertheless, the stock looks cheaper when compared to its competitors, primarily because the stock is trading at a price to sales ratio of 0.81x when the industry average is 1.44x price to sales. Thus right now might be a good time to snatch some shares before the stock makes a comeback since it’s trading at new lows. Cash flow increased 29% for fiscal year 2011 and I believe Frontier Communications is ready for a big bounce.
Boston Scientific (BSX) has a market cap of $8.59 billion and is currently trading around $6. The stock has been on a bearish trend since 2004, primarily because revenue has been decreasing. For example, revenue during the last four years decreased at a CAGR of 1.36% while the stock was only profitable in fiscal year 2011, but not the preceding three years. As a result, earnings per share were much lower than its competitors. Earnings per share (ttm) came in at $0.29 while its competitors, Johnson & Johnson (JNJ) and St. Jude Medical (STJ), reported earnings (ttm) of $3.49 and $2.64, respectively. The stock has working capital per share of about $0.90, which means the stock is currently trading at about 10x its working capital per share. Boston Scientific has $0.75 in current assets for every $1 in liabilities, which is not a very strong financial position.
In my opinion, the stock has hit bottom because it was almost flat during 2011, which can indicate a rebound if management improves the financial position of the company. In any case, I believe the stock is cheap when compared to its historical trading price of around $40 back in 2004. In addition, the stock is trading at 1.09x price to sales when the industry average is 2.41x. Cash flow increased 25.35% in 2011 after major declines the previous two years; therefore, I think it’s a good time to buy some shares as the stock’s financial position improves and the stock continues to rise higher.
Interpublic Group (IPG) pays an annual dividend of $0.24, has a yield of 2.20% and a payout ratio of 21%. During the last twelve months sales and income increased 8.40% and 189.70%, respectively. On a longer term, revenue over the last four years increased at a small CAGR of 0.09% while income increased at a CAGR of 11.72%. More specifically, earnings per share (ttm) came in at $0.86 while its competitors, Omnicom Group (OMC) and Publicis Groupe SA (PUBGY.PK), reported earnings (ttm) of $3.33 and $1.75, respectively. The industry average is $0.20.
The stock is not as expensive as its competitors because its price-to-earnings ratio is lower. In addition, its price-to-earnings-to-growth (PEG) ratio of 0.93, indicates the stock may be undervalued. The stock has gained 59% during the last four months. More recently, some announcements drove the stock from about $10.80 to $11.10. From a technical perspective, I believe the stock will continue appreciating in value as its business continues to grow from increasing advertising budgets from businesses due to a better economic outlook.
SAIC (SAI): SAIC Inc has a market cap of $4.35 billion and is currently trading at around $13. During the last twelve months sales and income increased 2.50% and 13.20%, respectively. Revenue during the last four years has been increasing at a CAGR of 5.64% while income has been increasing at a CAGR of 10.40% during the same period.
Earnings per share (ttm) came in at $0.99 while competitors CACI International (CACI) and ManTech International (MANT) reported earnings of $5.50 and $3.73, respectively. The stock is not affordable with a five-year expected PEG ratio of 7.82, meaning investors expect a high rate of growth for the stock, thus they are willing to pay a higher premium for each dollar of earnings.
Cash flow increased 58.77% last reporting fiscal year. The stock appreciated in value 13.32% over the last three months. I believe this growth in revenue and cash flow will continue, thus the price of the stock should appreciate in tandem with the improved financial position of the company.
Corning (GLW): Corning Inc. pays an annual dividend of $0.30, has a yield of 2.20% and a payout ratio of 13%. During the last twelve months sales and income increased 19% and 21.20%, respectively. During the last four years revenue has been increasing at a CAGR of 7.32% while income has been decreasing at a CAGR of 14%. During this period, the stock tumbled from around $27 to a low of $8.50 and finally to its current trading price of around $14.
Earnings per share (ttm) came in at $1.77 while competitors Furukawa Electric Co. (FUWAF.PK) Ltd. and Sumitomo Electric Industries Ltd. (SMTOY.PK) reported earnings of -$0.24 and $0.72, respectively. The stock’s price-to-earnings ratio is 7.66, compared to 169.79 for Sumitomo Electric Industries.
The dividend was recently raised from $0.05 to $0.08 and cash flow over the last three years increased 148%. I believe cash flow and revenue will continue to increase, especially as demand for their products increases due to a brighter economic outlook globally. For these reasons I also this rate this stock as a buy.
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