Earnings reports can be a massive growth catalyst for TSX stocks. On average, TSX stocks can experience a price movement of 5 to 10% in the days following an earnings report, particularly if the results substantially beat or miss analyst estimates.
Which is why today we’re going to look at the former – stocks poised to beat out earnings estimates, or at least do quite well. So let’s take a look at two of them coming right up.
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CAE
CAE (TSX: CAE) is a Canadian aerospace and defence company that specializes in training and simulation solutions. The company’s stock has had a challenging year, with shares down 28% in the last year. Despite this, CAE’s forward price-to-earnings (P/E) ratio of 19.4 suggests that analysts expect the company’s earnings to improve in the coming quarters.
Analysts have mixed expectations for CAE’s earnings, especially considering the company’s profitability challenges. The company reported a net income loss of $325.3 million in the trailing 12 months, translating to a diluted earnings per share (EPS) of -$1.02. Despite this, CAE’s earnings before interest, taxes, depreciation and amortization (EBITDA) of $721.2 million show that the company has strong operational cash flow. So, this could support future earnings growth.
With a current debt/equity ratio of 71.5%, CAE’s balance sheet is leveraged but manageable. So, provided the company can continue to generate strong cash flow, analysts are likely looking for signs of a turnaround in the company’s profitability. So, this could significantly influence the stock’s future performance.
As for valuation, CAE stock could be considered a strong investment for those looking for a potential turnaround play. The stock’s Price/Book (P/B) ratio of 1.7 suggests that it is trading at a reasonable valuation relative to its book value. Plus, the company’s Enterprise Value/Revenue ratio of 2.4 indicates that the market might be undervaluing its revenue-generating capabilities. Especially if CAE can improve its profit margins. While the stock is currently not paying dividends, its potential for capital appreciation, combined with expected earnings growth, could make it an attractive investment for those willing to take on some risk in the aerospace and defence sector.
Hydro One
Then there’s Hydro One (TSX: H), one of Canada’s largest electricity transmission and distribution companies. It has a market capitalization of $26.3 billion, making it a significant player in the utility sector. The stock has shown solid performance over the past year, up 19.2% in the last year. Hydro One’s beta of 0.34 also indicates that it is a low-volatility stock, which is typical for utility companies.
For its next earnings report, analysts expect Hydro One to maintain its steady performance. The company’s trailing P/E ratio of 23.9 and forward P/E of 22.8 indicate that earnings growth is anticipated, even at a modest pace. Hydro One’s revenue of $7.9 billion over the trailing 12 months, coupled with a net income of $1.1 billion, also reflects its profitability. The company’s return on equity (ROE) meanwhile of 9.5% and operating margin of 22.8% demonstrate effective management and operational efficiency, which are key factors for long-term investors.
So, Hydro One is valuable for several reasons, particularly for income-focused investors. The stock offers a forward annual dividend yield of 2.9%, with a payout ratio of 64.8%. Therefore, the company returns a significant portion of its earnings to shareholders while still retaining enough to invest in growth and infrastructure. The P/B ratio of 2.2 suggests that the stock is fairly valued relative to its assets. Hydry One stock holds a higher debt/equity ratio of 141%, which is typical for utility companies due to their capital-intensive nature. Plus, its strong cash flow generation supports its ability to manage and service its debt. These factors, combined with the stability of its business, certainly make Hydro One an attractive investment for those seeking steady income and long-term value.
