UNTR released 1Q09 operating data last Friday, that is on the soft side of Macquarie’s expectations. The market is expecting to see a big (+20% yoy) increase in the average selling price for heavy equipment in FY09. If such a trend is not visible in 1Q09 results (to be released within this week), we could see some earnings and rating downgrades from the Street. UNTR has been one of the best performing stock since Oct-08 market low (up 235%), now trading on 9.2x and 9.5x FY09-10 P/E based on Macquarie’s forecast. Since 2002 the stock has traded on an average P/E ratio of 10x, although with large deviation of between 5x and 15x.
Assuming that UNTR gets a 20% yoy higher average selling price in 1Q09, the company should be showing a 3% yoy growth in EBIT, or 19% of Macq’s full year forecast for 2009. But the if the ASP increase is proving to be less than 20%, there is a risk of a negative EBIT growth in 1Q09. The risk/reward profile for the stock is looking less favourable now, and I would advice investors to lock-in some profits. Attached is a simple spreadsheet containing a 1Q09 results review for UNTR, based on the operating data released last Friday. Financial results will be released on 27-28 April.
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