2 Undervalued Stocks to Scoop Up Before Everyone Else Does
The solid macroeconomic recovery and strong corporate earnings have fueled the stock market’s bullishness this year. And the Fed’s indication this wee...
The solid macroeconomic recovery and strong corporate earnings have fueled the stock market’s bullishness this year. And the Fed’s indication this week that it is in no rush to hike interest rates should further buoy investor sentiment. Given this backdrop, we believe quality stocks Hillenbrand (HI) and Genesco (GCO), which currently look undervalued, could deliver good gains in the near term. Read on.
The major stock indices dipped earlier this week, triggered by the concerns of a potential collapse of Evergrande, the largest Chinese real estate company. The indices appear to have reversed the direction for now, however, rallying for the second straight day yesterday.
The S&P 500 rose 1.2%, with more than 85% of companies in the benchmark index notching gains. The Fed’s indication that it will keep supporting the economy until November boosted investors’ optimism. Moreover, the central bank’s signaling that it plans no hike in interest rates until next year should keep the stock market bullish through year’s end.
Given this backdrop, we think fundamentally sound stocks Hillenbrand, Inc. (HI) and Genesco Inc. (GCO), which look undervalued at their current price levels, could deliver handsome d upside in the near term. So, it could be wise to bet on them right now.
Hillenbrand, Inc. (HI)
Batesville, Ind.-based HI is a diversified industrial company in the United States and globally. The company operates through three segments: Advanced Process Solutions; Molding Technology Solutions; and Batesville.
On August 26, HI declared a $0.215 per share regular quarterly dividend on the company's common stock. The dividend is payable September 30, 2021, to shareholders of record at the close of business on September 16, 2021.
HI’s 11.33 non-GAAP forward P/E multiple is 42.3% lower than the 19.65 industry average. In terms of non-GAAP forward PEG, HI is currently trading at 0.93x, which is 42.1% lower than the 1.60x industry average.
HI’s net revenue increased 14.4% year-over-year to $695.10 million in its fiscal third quarter, ended June 30. Its gross profit stood at $225.90 million, up 9% from the same period last year. Its net income attributable to the company grew 68.3% from its year-ago value to $40.40 million. HI’s EPS increased 65.6% year-over-year to $0.53.
A $732.67 million consensus revenue estimate for its fiscal fourth quarter (ending September 2021) indicates a 5.6% increase year-over-year. The Street expects the company’s EPS to rise 18.4% from the prior-year quarter to $0.90 in the current quarter. HI has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. Over the past year, HI gained 57.2% in price to close yesterday’s trading session at $41.85.
HI has an overall rating of A, translating to Strong Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
HI also has an A grade for Value, and B for Sentiment and Quality. In addition, it is ranked #1 out of the 45 stocks in the A-rated Industrial - Manufacturing industry.
Click here to view additional HI ratings for Growth, Momentum, and Stability.
Genesco Inc. (GCO)
GCO is a retailer and wholesaler of footwear, apparel, and accessories. The company operates through four segments: Journeys Group; Schuh Group; Johnston & Murphy Group; and Licensed Brands. GCO is based in Nashville, Tenn.
In September, Iconix Brand Group Inc. (ICON) signed a licensing agreement with GCO to become the exclusive U.S. and Canadian footwear licensee for heritage athletic brand Starter. Regarding the deal, Genesco Licensed Brands President Andy Gilbert said, “Starter’s authentic sports positioning, combined with its affiliation with all major pro and college sports leagues, created a tremendous platform for the extension into footwear.”
In terms of forward Price/Sales, GCO is currently trading at 0.40x, which is 67.5% lower than the 1.22x industry average. GCO’s 0.56 forward EV/Sales multiple is 61.4% lower than the 1.46 industry average.
GCO’s net sales increased 41.9% year-over-year to $555.18 million in its fiscal second quarter, ended July 31. Its operating income grew 158.7% from its year-ago value to $12.90 million, while its net income improved 157.5% year-over-year to $10.94 million. The company’s EPS increased 156% year-over-year to $0.75.
Analysts expect GCO’s revenues to increase 33.6% year-over-year to $2.39 billion in the current year. A $5.87 consensus EPS estimate for the current year indicates a 597.5% rise from the last year. Furthermore, GCO surpassed the Street’s EPS estimates in each of the trailing four quarters. Shares of GCO have gained 158.8% in price over the past year and 108.3% year-to-date.
The company’s strong fundamentals are reflected in its POWR Ratings. GCO has an overall A rating, which equates to Strong Buy in our proprietary POWR Ratings system. The stock also has an A grade for Value, Momentum, and Quality, and a B grade for Growth and Sentiment. Among the 62 stocks in the A-rated Fashion & Luxury industry, GCO is ranked #1.
To see the GCO rating for Stability and additional details, click here.
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HI shares were trading at $41.75 per share on Friday morning, down $0.10 (-0.24%). Year-to-date, HI has gained 6.40%, versus a 19.82% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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