The group result was negatively affected by commodity and currency hedging losses of EUR 2.4 billion, production disruption from the Ukraine invasion, the chip crisis, and China lockdowns as well as inflationary cost pressures,” he says.ĭespite this, Hilgert still sees the company’s stock as significantly undervalued, with preferred shares, which trade under the VWAPY ticker, at a 57% discount, and common stock shares, VWAGY, at a 43% discount. “Second-quarter group operating profit of EUR 4.7 billion plunged 28% from EUR 6.5 billion a year ago while margin contracted 290 basis points to 6.8%. Morningstar senior equity analyst Richard Hilgert reduced his fair value estimate twice, settling at $36 per share after starting the quarter at $38, despite the earnings beat, as he sees high uncertainty for the company due to several headwinds.
Return Since Earnings: VWAPY up 14.4%, VWAGY up 10.4%.Revenue: $70 billion versus estimate of $66 billion.Earnings Per Share: $0.76 versus estimate of $0.43, from FactSet.Of the 854 stocks that we screened, just six, less than 1%, made the cut. Of that group, we filtered for stocks with a Morningstar Rating of 5 stars to highlight the most undervalued opportunities. To keep the focus on those that had truly strong results and did not beat on earnings through accounting gimmicks or one-time factors, companies were also screened for revenue beats of 5% or more.
We screened for stocks that beat expectations but remained undervalued to help investors capitalize on new investment opportunities that arose during earnings season. Still, looking at quarterly earnings against the valuation backdrop can help investors identify opportunities.
For example, new data on a drug that raises the probability of approval or pricing gains on a key product line could affect an analyst’s long-term thinking. One quarter usually doesn’t lead to a change in the long-term assumptions behind the assessment of a stock’s fair value, unless a company also comes out with new, material information that affects the assumptions that opinion is based on. While Morningstar stock analysts pay close attention to earnings, they focus on long-term results and valuations. Conversely, the number of companies that disappointed when it came to earnings increased, with 17% of those that have reported missing estimates by 10% or more, up from an average of 12% in the previous four earnings periods.
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