A degree of uncertainty and market volatility are part and parcel of investing in the equity markets. It is up to you to take advantage of the situation.
In other words, you should always have a list of companies available that meet your investment criteria, along with a predetermined bargain price. Stocks you would act on when market, rather than company-specific, events drive a company's share price into bargain territory.
One possible candidate might be Toro (TTC). If you are not familiar with the name, you probably never had maintain a lawn or remove snow from your driveway or leaves from a yard. Toro is a leading provider of innovative turf, landscape, irrigation and outdoor lighting solutions.
Since 1914, Toro has built up a tradition of excellence around a number of strong brands used in the care of golf courses, sports fields, public green spaces, commercial and residential properties, and agricultural fields in more than 90 countries.
When I last talked about Toro a year ago, my 12-month target price on the shares was $46. The shares recently closed at $56.38. My 2012 earnings estimate was $2.10 per share and the company chalked up earnings of $2.14.
Fiscal third quarter ended Aug. 2 earnings fell slightly as the company dealt with higher expenses. Nonetheless, the results exceeded market expectations. Toro reported net income of 67 cents per share, down from 68 cents per share a year ago. Revenue increased to $509.9 million from $504.1 million.
However, there were about 2 percent fewer shares outstanding in the latest quarter, which raised the earnings per share number. Also assisting was a summer growing season with favorable temperatures and precipitation levels.
For the first nine months of its current fiscal year, Toro reported net earnings of $2.53 per share, on a net sales increase of 2.4 percent to $1.66 billion. During the comparable fiscal 2012 period, Toro posted net earnings of $2.13 per share on net sales of $1.62 billion.
In its 2013 forward looking guidance, Toro remains cautiously optimistic, expecting 4 percent revenue growth with net earnings of about $2.55 per share, or an increase of about 19 percent over fiscal 2012.
The intrinsic value of the shares using a discounted earnings model with a growth rate of 15 percent and a discount rate of 12 percent is $74, while the free cash flow to the firm model yields an intrinsic value of $73.
My 2013 earnings estimate is $2.55 per share and $2.92 for 2014 with a 12-month target price of $65, for a gain of about 15 percent. There is also dividend yield of 1 percent.
Lauren Rudd is a financial writer and columnist. You can write to him at LVERudd@aol.com First Published October 19, 2013 8:00 PM