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Zack’s Bull of the Day: Air Methods


Air Methods (NASDAQ:AIRM) is a Zacks Rank #1 (Strong Buy), and as such, we know that earnings estimates are moving higher. The company is coming off a super strong earnings report in late February, so let’s take a look at that report and what other recent developments as it is the Bull of the Day

Big Chopper Order

The company recently made one of the largest single private orders in the history of Bell Helicopter, a Textron Company. Air Methods signed a deal for 200 Bell 407GXP’s over a 10 year contract. To most observers, this is a big signal of long term strength for AIRM.

Company Description

Air Methods provides air medical emergency transport services and systems in the United States. Air Methods was founded in 1982 and is headquartered in Englewood, Colorado.

Earnings History

AIRM doesn’t have the best earnings history, but I really like the most recent quarter. So yes they have missed the Zacks Consensus Estimate in 4 of the last seven reports, but that last one, that last one was a good one. The company reported $0.61 when the Zacks Consensus Estimate was calling for $0.45. That means a $0.16 beat or a 35% positive earnings surprise and as a result the stock moved higher by 19%.

Earnings Estimates

Following the big beat, analysts have not really pushed estimates up that much, but over the last several months, numbers have improved. The 2015 Zacks Consensus Estimate moved up 4 cents following the recent beat, which is not much, but it is a good start. The 2016 Zacks Consensus Estimate moved from $3.14 in December to $3.25 in January and then to $3.36 in February. That is the kind of thing that can power a long term move higher in a stock.

Valuation

The valuation for AIRM is rather attractive, with the trailing PE of 21x just slightly higher than 19.2x industry average. The forward PE of 18x is right in line with the industry average, which is great for what I see coming down the road. The price to book multiple of 4.3x is well above the 2.4x industry average. Not to be out done, the price to sales multiple shows the largest premium with a 2x multiple compared to a 0.6x industry average.

I like the fact that AIRM is slated for top line growth of 6.5% this year while the industry is expected to show topline growth of less than 1%. The better than expected growth in revenue also translates to the bottom line with EPS expected to grow at 17.7% while the industry is looking at 7.5%. This is due to a net margin of 9.4% for AIRM compared to 3.4% for the industry average.

This Play

This play is about growth and valuation. The valuation is low and there is very likely going to be growth for this company. When we combine the two we have a strong possibility of seeing multiple expansion. With the stock trading in line to the industry right now, even a small premium of 5% more than the industry average could send this stock much, much higher.

P&C Chart

Zacks has developed a chart that helps investors see how earnings estimates have impacted the price of the stock over the last several years. We call this chart the price and consensus chart, and each color coded lines represents analyst estimates over a designated year. As estimates increase, the stock tends to follow. The Zacks Rank is impacted by earnings estimate increases, beats and incorporates the idea of analyst agreement and magnitude. As a Zacks Rank #1 (Strong Buy) we see that estimates are moving higher.

 

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