Robust Q3

On November 6, Aircastle reported third-quarter 2012 adjusted net earnings per share of 47 cents, which surpassed the Zacks Consensus Estimate by 51.6% and the year-ago earnings by as much as 123.8%. Total revenue increased 22.2% to $172.9 million year over year, beating the Zacks Consensus Estimate by 8.6%.

Segment wise, Lease rental revenues (historically constituting 95% -99% of total revenue) were up 15.9%, reflecting synergies from new aircraft acquisitions. Other revenues were up a whopping 2,726.1%, due to a significant amount of fees paid by a lessee in connection with the early termination of a lease. Third quarter adjusted EBITDA was up 18.3% at $166.3 million on the back of higher total revenue.

Upward Earnings Estimate Revisions

In the last 90 days, the Zacks Consensus Estimate for 2012 moved up 15.1% to $1.68 per share, while the Zacks Consensus Estimate for 2013 advanced 16.6% to $1.83. These estimates suggest year-over-year gains of 27% for 2012 and 9.3% for 2013.

Impressive Valuation

The current valuation of Aircastle looks promising. The company has a forward P/E multiple of 7.2 and a P/B multiple of 0.7 (a P/E ratio below 15.0 and a P/B ratio under 3.0 generally indicate value). These multiples are below peer group averages, indicating that the company is undervalued at present. Furthermore, Aircastle currently provides a dividend yield of 5.1%, compared with the industry average of 1.1%. The third-quarter of 2012 marked the company’s 26th successive dividend paying quarter.

Strong Chart

The widening gap between the share price and earnings estimates for 2013 and 2014 indicate that Aircastle is currently undervalued. This should encourage investors as the company is likely to sustain its positive trend, riding on the back of its growing business opportunities.

Headquartered in Stamford, Connecticut, Aircastle Limited was founded in 2004 and was formerly known as Aircastle Investment Limited. The company acquires, leases and sells high-utility commercial jet aircraft to passenger and cargo airlines globally. It has offices in the U.S., Ireland, and Singapore. On Sept. 30, 2012, Aircastle had 132 passenger aircraft and 25 freighter aircraft, which were leased to 68 lessees located in 36 countries. Aircastle currently has a market cap of approximately $914.3 million.

Other stocks to consider in the transportation leasing and equipment manufacturing sector are Air Lease Corp. (AL) and American Railcar Industries Inc. (ARII), both of which are Zacks Rank #2s (Buys).

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Zacks Investment Research ]]> Thu, 24 Jan 2013 11:00:01 GMT Crocs, Inc. (CROX) has been outperforming quarterly earnings estimates for more than three years now; most recently beating the Zacks Consensus Estimate by 14% in the third quarter of 2012. This Zacks Rank #1 (Strong Buy) footwear, apparel and accessories company has a compelling valuation that makes it a solid value pick, including a price-to-earnings (P/E) multiple of 9.40.

Robust Bottom-Line Growth

On Oct 24, 2012, Crocs delivered third-quarter earnings of 49 cents per share, surpassing the Zacks Consensus Estimate of 43 cents and surging 48.5% from last year.

Revenue for the quarter increased 7.5% to $295.6 million, but fell short of the Zacks Consensus Estimate at $302 million. On the basis of channels, wholesale sales inched up 1.5% to $156.2 million, Internet sales rose 6% to $27.1 million and retail sales soared 17.7% to $112.2 million.

On a constant currency basis, comparable-store sales climbed 1%. Gross profit jumped 9.2% to $160.7 million, whereas gross margin expanded 90 basis points to 54.4%.

Management forecasted break-even earnings and revenue of $220 million for the fourth quarter of 2012, which is scheduled to be reported on Feb 18, 2013.

Earnings Estimates

The Zacks Consensus Estimate for 2012 is currently $1.37, while the Zacks Consensus Estimate for 2013 is $1.55. These estimates reflect year-over-year growth of 10.5% and 12.8%, respectively.

Impressive Valuation

Crocs’ P/E multiple remains below 15.0, suggesting a value stock. Its price-to-book (P/B) ratio of 2.04 and price-to-sales (P/S) ratio of 1.20 are lower than the industry averages of 5.60 and 1.81, respectively. The return on equity (ROE) also looks attractive with a trailing 12-month ROE of 25%, compared with the peer group average of 15.6%. It also has a PEG ratio of 0.92, which is less than one and indicates that the stock is reasonably valued given the long-term earnings growth projection of 10%.

Shares remain below 2012 and 2013 earnings estimate lines, reflecting that the stock is still undervalued. Volume averages roughly 2,285K daily.

Crocs offers footwear, apparel, and accessories for men, women and children in the Americas, Europe and Asia through company-owned locations, kiosks and Web outlets. It designs, manufactures and distributes casual and athletic shoes. The company provides its products under the brand names Crocs Work, Crocs Rx, Ocean Minded and Jibbitz. Other stocks worth considering in the textile and apparel industry include Zacks Rank #1 (Strong Buy) G-III Apparel Group, Ltd. (GIII) and Zacks Rank #2s (Buy) Gildan Activewear Inc. (GIL) and Hanesbrands Inc. (HBI).

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Zacks Investment Research ]]> Wed, 23 Jan 2013 11:00:01 GMT Hallmark Financial Services Inc. (HALL) has posted positive earnings surprises in 5 of the last 6 quarters with an average beat of 76.1%. Most recently, this property and casualty insurer delivered an earnings surprise of more than 150% for its third quarter. Additionally, with a price-to-book (P/B) ratio of just 0.81, this Zacks Rank # 1 (Strong Buy) stock appears to be a true value pick.

Rank Drivers

On Nov 7, Hallmark Financial reported third-quarter earnings of 18 cents per share, which surpassed the Zacks Consensus Estimate by a substantial 157% and also improved significantly from a penny earned last year. The upside was largely driven by an improved top-line along with lower loss and loss adjustment expenses, primarily attributable to better current accident year loss trends in the Personal Lines business.

Operating revenue was $84 million, which outpaced the Zacks Consensus Estimate by 7% and the year-ago number by 6.3%. The improvement stemmed from higher premiums, largely from the E&S Commercial business unit and from the acquisition of the Workers Compensation business.

Hallmark Financial expects to have mid single-digit to low double-digit rate increases across all operations. However, General Aviation might face stiff competition in a contracting market.

Additionally, management stated that the initiative to improve underwriting profitability, increase rates and exit unprofitable zones and product lines in the Personal Segment has been executed fruitfully.

Hallmark Financial has not yet announced its fourth-quarter earnings release date. The Zacks Consensus Estimate for the quarter is 11 cents on revenues of $87 million. The expected earnings represent a year-over-year improvement of 450%.

Earnings Estimates

For 2013, the Zacks Consensus Estimate increased 5.1% to 82 cents over the last 60 days, which would mark a year-over-year improvement as high as 266.7%.

Attractive Valuation

Along with a very attractive P/B multiple, Hallmark Financial has a price-to-earnings (P/E) ratio of 11.1 (a P/B ratio under 3.0 and a P/E ratio below 15.0 generally indicate value).

Headquartered in Fort Worth, Texas and founded in 1987, Hallmark Financial Group, through its subsidiaries, provides property and casualty insurance products to businesses and individuals in the United States. The company has a market cap of $176.8 million. Other Zacks Rank #1 stocks from the same industry include Cincinnati Financial Corp. (CINF), Fidelity National Financial, Inc. (FNF) and First American Financial Corporation (FAF).

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Zacks Investment Research ]]> Tue, 22 Jan 2013 11:00:01 GMT EPL Oil & Gas Inc. (EPL) has been using acquisitions to expand its presence in the Gulf of Mexico (GoM). Higher crude prices and increased production have been a boon for this Zacks Rank #1 (Strong Buy) independent energy exploration company, whose earnings are expected to rise strongly in 2013. EPL – previously known as Energy Partners Ltd. – is not just a growth stock though, as it also exhibits value with a forward P/E of just 7.2 and a price-to-book (P/B) ratio of 1.8.

Liquids Output Drives Strong Q3

EPL reported third quarter 2012 non-GAAP earnings per share of 31 cents on November 1, 2012, beating the Zacks Consensus Estimate by 29.2% and the year-ago profit by 10.7%.

Results were driven by liquids volume (oil and natural gas liquids), which was up 10.8% year over year to 8,901 barrels per day (Bbl/d). EPL’s output growth can be attributed to solid performances from ongoing rig activities.

The company expects the uptrend to continue and projects liquids volumes to hit 13,000–14,000 Bbl/d in the fourth quarter, going further up to 17,500–18,500 Bbl/d in 2013.

Recent GoM Acquisition Adds to Long-Term Reserves/Production

On October 31, 2012, EPL completed its previously announced acquisition of certain shallow water GoM assets from privately-held Hilcorp Energy GOM Holdings LLC for $550 million. The transaction will increase EPL’s proven reserves base by almost 100% to roughly 74 million oil-equivalent barrels (BOE), while boosting daily production by some 80% to more than 20,000 BOE. According to EPL, the Hilcorp assets hold an estimated 36.3 million BOE in proved reserves (54% oil, 40% proved developed) and are currently churning out around 10,000 BOE per day - about half of which is oil.

Earnings Set to Move Up Sharply

Based on the success of the company’s acquire-and-exploit policy, analysts are predicting strong earnings growth for EPL over the year. The Zacks Consensus Estimate of $3.33 for 2013 represents growth of almost 100% over 2012.

Valuation Picture

Shares of EPL soared in 2012, but remain cheap as earnings estimates also went up. In addition to trading around 7.2 times forward estimates (significantly under the peer group average of 18.1), the company has a price-to-book (P/B) ratio of 1.8, which suggests that the stock is still undervalued. (A P/E below 15.0 and a P/B ratio under 3.0 generally indicate value.)

Market Performance & Technicals

On the performance front, EPL’s share price has comfortably outperformed the S&P 500 during the past six months and has delivered a return of around 34% during the period, versus just 9% for the benchmark.

Analysts are increasingly bullish on the company, which is reflected in their earnings estimates. In particular, with incrementally increasing consensus estimates for fiscal 2012 and 2013, shares could continue climbing higher.

EPL is a GoM-focused upstream player that has attractive value characteristics and remains well positioned to maintain a strong earnings growth trajectory in the near- to medium-term. It is engaged in the exploration and development of crude oil and natural gas resources in the U.S. GoM shelf off the coast of Louisiana. The company, based in New Orleans and Houston, is a smaller explorer with a market cap of $940 million.

In addition to EPL Oil & Gas, there are certain other domestic energy explorers and producers that offer value, such as Cabot Oil & Gas Corp. (COG), Breitburn Energy Partners L.P. (BBEP) and Memorial Production Partners L.P. (MEMP). All these firms are Zacks Rank #1 (Strong Buy) stocks.

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Zacks Investment Research ]]> Mon, 21 Jan 2013 11:00:01 GMT Republic Airways Holdings Inc. (RJET) have increased sharply in the past 30 days, helping the company reach Zacks Rank #1 (Strong Buy) status on January 9, 2013. Moreover, shares have soared since December 31, 2012. A forward P/E multiple of just 5.5 and a P/S multiple as low as 0.1 make Republic Airways an attractive pick for value investors.

A Mixed Q3

On October 31, Republic Airways reported third-quarter earnings per share of 51 cents, outpacing the Zacks Consensus Estimate by 18.6% and the year-ago result by 27.5%. RJET has now surpassed the Zacks Consensus Estimate for five straight quarters with an average surprise of nearly 35%.

However, total revenue of $713.1 million decreased 7.1% year over year and also lagged the Zacks Consensus Estimate.The drop in revenue was primarily due to a $29.3 million decrease in fuel reimbursed under the company’s fixed-free agreements, coupled with lower block hour production. On the other side, the bottom line made a huge jump on effective restructuring efforts completed in 2012.

Climbing Estimate Revisions

The Zacks Consensus Estimate for 2012 has advanced 21.3% to $1.14 over the past 30 days, as all 3 estimates were revised higher. The Zacks Consensus Estimate for 2013 jumped 34.5% to $1.52 in the same time, as 4 of 5 estimates were hoisted. These estimates suggest substantial year-over-year gains of 850% for 2012 and 33.2% for 2013.

Impressive Valuation

The current valuation of Republic Airways looks promising. The company has a current forward P/E multiple of 5.5, a P/S multiple as low as 0.1 and a P/B multiple of just 0.8 (a P/E ratio below 15.0, a P/S ratio below 1.0 and a P/B ratio under 3.0 generally indicate value). These multiples are below the peer group averages, indicating that Republic Airways is undervalued at present.

The company has other solid fundamentals as well, including a PEG ratio of 0.11 and an 89% discount to the benchmark of 1.0 for a fairly valued stock. This implies strong growth potential. Another encouraging multiple is its trailing 12-month ROE of 11.8%, compared with the industry average of 10.1%.

The widening gap between the stock price and earnings estimates for 2013 and 2014 reinforce that Republic Airways is undervalued. The company is likely to sustain its positive trend riding on the back of its growing business opportunities.

Headquartered in Indianapolis, Indiana, Republic Airways Holdings Inc. was founded in 1996. The company operates through its four subsidiaries: Chautauqua Airlines, Frontier Airlines, Republic Airlines and Shuttle America. Republic Airways has a portfolio of over 280 aircraft offering passenger service on nearly 1,500 flights daily to over 145 cities in the U.S., Bahamas, Canada, Costa Rica, Dominican Republic, Jamaica, and Mexico. Republic Airways currently has a market capital of approximately $406.8 million.

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Zacks Investment Research ]]> Fri, 18 Jan 2013 11:00:01 GMT PhotoMedex, Inc. (PHMD) reported its third straight quarter with a positive earnings surprise in November, amassing an average beat of 68.9% in that time. This Zacks Rank #1 (Strong Buy) skin care company has been enjoying strong earnings estimate revisions since its third-quarter announcement, which included an improved revenue guidance.

With an impressive valuation, including a P/E ratio of 11.5 and a price-to-book (P/B) multiple of 2.0, the stock offers a promising proposition for value investors. The company is expected to report fourth quarter results on Mar 4.

Third Quarter Results

On Nov 7, 2012, PhotoMedex reported adjusted earnings per share of 35 cents for the third quarter, beating the Zacks Consensus Estimate by 29.6%.

Net sales were $56.7 million, missing the Zacks Consensus Estimate by 3.7%. In the year-ago quarter, the company reported pro forma revenues of $42.9 million. On a headline basis, Consumer revenues were $49.6 million, Physician Recurring amounted to $5.1 million and Professional stood at $1.9 million. Within the larger Consumer unit, the Direct channel contributed $30 million of revenues, Distributors led to sales of $9.4 million and Global retail and home shopping generated $10.2 million.

Gross margin was 80.1% in the third quarter, versus pro forma gross margin of 70.9% a year ago.

Improved Revenue Guidance

On December 13, PhotoMedex forecast fourth quarter 2012 sales between $52 million and $54 million, versus its earlier guidance of between $46 million and $48 million. The new guidance suggests year-over-year growth of about 80%. For 2012, revenues will cross the $200 million mark for the first time at $218 million to $220 million, up more than 65%.

Earnings Estimates Moving Up

Both estimates for 2012 have been revised higher in the last 60 days, boosting the Zacks Consensus Estimate by 3.2% to 97 cents. This represents year-over-year growth of 321.7%.

Likewise, all three estimates for 2013 have advanced over the same time frame, sending the Zacks Consensus Estimate higher by 3.2% to $1.29. This implies a year-over-year increase of 33.3%.

Favorable Valuation

PhotoMedex trades at a discount to its peers by most metrics. Going by the usual indicators of P/E multiple below 15.0 and a P/B ratio under 3.0 for a value stock, PhotoMedex appears to be undervalued.

The trailing twelve-month return on equity of 18.5% is significantly better than the peer group average of 7.6%.

PhotoMedex’s price performance has improved lately. The stock is currently trading above both its 50- and 200-day moving averages. PhotoMedex has rallied 7.7% in the last three months, compared with a 1.2% increase for the S&P 500.

Based in Montgomeryville, Pennsylvania, PhotoMedex is engaged in the dermatology business. The company is committed to proprietary solutions for both disease management and rejuvenation of the skin. Following its merger with Radiancy, Inc., PhotoMedex incorporated a number of devices for residential usage. These solutions are marketed under the ‘no!no!’ brand, for various conditions such as hair removal. PhotoMedex has a market cap of about $320 million. Haemonetics Corporation (HAE) and Unilife Corporation (UNIS) are two other tickers rated Zacks Rank #1 (Strong Buy).

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Zacks Investment Research ]]> Thu, 17 Jan 2013 11:00:01 GMT Hertz Global Holdings Inc. (HTZ) has been outperforming quarterly earnings estimates for more than two years now; most recently beating the Zacks Consensus Estimate by 5% in the third quarter of 2012. Moreover, this Zacks Rank #1 (Strong Buy) car rental company has gained about 64.1% since late July 2012.

With a forward price-to-earnings (P/E) multiple of just 9.7 and a price-to-sales (P/S) ratio of 0.8, HTZ looks like a solid value pick.

Robust Q3 Beat

On Oct 31, Hertz posted third-quarter 2012 earnings of 63 cents per share, beating the Zacks Consensus Estimate by 3 cents and marking a substantial improvement from last year’s 51 cents. A double-digit growth in the top line coupled with effective cost management acted as catalysts.

Total revenue was up 3.4% to $2,516.2 million, reflecting sales increases of 2.1% and 12.8% across car rental and equipment rental segments, respectively.

Buoyed by better-than-expected results, management reiterated its guidance for 2012 and continues to expect revenue between $8.9 billion and $9.0 billion. Earnings are expected at $1.28 to $1.38 per share.

Earnings Estimates Trend Higher

Over the past 60 days, the Zacks Consensus Estimate for 2012 grew 0.8% to $1.34 per share, representing year-over-year growth of 38.3%. The Zacks Consensus Estimate for 2013 advanced 19.2% to $1.80 over that timeframe, suggesting a year-over-year improvement of nearly 34.4%.

Value Fundamentals

The forward prospects of Hertz remain promising, as is evident from a P/E multiple of 9.7, a P/S ratio of 0.8 and a P/B ratio of 2.9. (A P/E below 15.0, a P/S ratio less than 1.0 and a P/B ratio under 3.0 generally suggest a value stock.) In addition to being a value stock, Hertz remains attractive given its earnings growth prospects.

Founded in 1918 and headquartered in Park Ridge, New Jersey, Hertz Global Holdings operates car and equipment rental businesses globally. The company reports through two segments – Car Rental and Equipment Rental. One of the premium airport general use car rental brands, Hertz operates from approximately 8,800 locations in about 150 countries. The company runs its equipment rental business from roughly 340 branches in the United States, Canada, China, France, Spain, Saudi Arabia and international licensees. Hertz has a market cap of $7.36 billion.

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Zacks Investment Research ]]> Wed, 16 Jan 2013 11:00:01 GMT ZAGG Inc. (ZAGG) has either outperformed or matched quarterly earnings estimates for years now. More recently, this mobile device accessories and technology company has surpassed the Zacks Consensus Estimate in 3 of the last 4 quarters. Moreover, with a forward price-to-earnings (P/E) multiple of just 7.9 and a price-to-book (P/B) ratio of 1.9, this Zacks Rank #1 (Strong Buy) stock looks like a solid value pick.

Impressive Q3

On Nov 1, ZAGG reported third quarter earnings per share of 23 cents, topping the Zacks Consensus Estimate by nearly 44%. Sales jumped 30% to $59.8 million, with 84% coming from indirect channels, 10% from ZAGG.com and iFrogz.com, and 6% from the company's mall cart and kiosk program.

Gross margin expanded 210 basis points to 44.5%, while gross profit grew 37% year over year to $26.6 million. Consequently, operating profit rose 54% to $7.1 million, compared with $4.6 million in the year-ago quarter.

The company raised its sales guidance for 2012 to between $259 million – $262 million, up from its previous forecast of $256 million. Adjusted EBITDA is now expected between $59.0 million and $62.0 million, compared with the prior guidance of $56 million to $61 million.

Earnings Estimate Revisions

Over the last 60 days, the Zacks Consensus Estimate for 2012 remained unchanged at 74 cents. However the Zacks Consensus Estimate for 2013 advanced 1.04% to 97 cents over that timeframe, suggesting a year-over-year improvement of nearly 32%.

Value Fundamentals

The forward prospects of ZAGG remain promising, as is evident from a P/E multiple of 7.6, a P/S ratio of 1.0 and a P/B ratio of 1.9. (A P/E below 15.0, a P/S ratio lesser than 1.0 and a P/B ratio under 3.0 generally suggests at a value stock.) Moreover, the company has a 1-year ROE of 23.4%, substantially higher than the peer group average of 8.5%. In addition to being a value stock, ZAGG remains attractive given its earnings growth prospects.

In 2005, ZAGG Inc. established its business and is involved in designing, manufacturing and distributing products like protective coverings, audio accessories and power solutions for consumer electronics and hand-held devices worldwide. Based in Salt Lake City, Utah, the company has operations in the United States and Europe. The company’s brand portfolio includes ZAGG, invisibleSHIELD and iFrogz. ZAGG has a market cap of $235.2 million.

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Zacks Investment Research ]]> Tue, 15 Jan 2013 11:00:01 GMT Changyou.com Ltd. (CYOU) has been beating quarterly earnings estimates for years now. Most recently, this Chinese provider of online video games topped the Zacks Consensus Estimate by 6.82% in its third quarter. Changyou also paid a special cash dividend of $1.9 per share.

With a forward price-to-earnings (P/E) multiple of just 5.4 and a low price-to-book (P/B) multiple of 2.7, CYOU looks like a solid value pick.

Impressive Q3 for Changyou

On November 5, 2012, Changyou announced third quarter earnings of $1.41 per share, comfortably surpassing the Zacks Consensus Estimate by 9 cents and the year-ago quarter by 23 cents. Averaging the past four quarters, this Zacks Rank #1 (Strong Buy) has surprised by around 15%.

Revenue grew 29.0% year over year, as online game revenues and online advertising revenues grew 30.0% and 32.0%, respectively. Registered accounts shot up 41.0% year over year to 223.5 million. The revenue result also surpassed the Zacks Consensus Estimate.

The upcoming launch of Battlefield Online (the beta testing of the online game started in November 2012) is also a big positive. Battlefield is a popular first person shooter (FPS) game owned by Electronic Arts Inc. (EA). Changyou licensed the game to release its Chinese online version.

However, accounting for higher operating expenses to promote four new online games and the release TLBB’s (Tian Long Ba Bu – a popular Chinese novel based game) expansion pack, Changyou guided to a sequentially softer fourth quarter.

Earnings Estimates

Over the past 90 days, the Zacks Consensus Estimate for 2012 advanced 3.6% to $5.21 per share, while the Zacks Consensus Estimate for 2013 increased 3.3% to $5.67.

Impressive Valuation

In addition to low P/E and P/B multiples, the stock looks attractive even on a price-to-sales (P/S) basis. Its P/S multiple is 2.7, much lower than the industry average of 4.4.

Moreover, Changyou’s price/earnings growth (PEG) ratio of just 0.45 indicates that the stock is undervalued given the expected growth rate of 12.0%. A P/E below 15.0, a P/S ratio less than 1.0 and a P/B ratio under 3.0 generally suggests a value stock.

The return on equity (ROE) also looks attractive. It has a trailing 12-month ROE of 46.1% compared with the industry average of 22.7%.

Historically, share prices have shown a positive correlation to earnings growth. Therefore, the current estimate trends indicate that they are headed upward.

In 2003, Changyou started its operation as a business unit under online games provider Sohu Inc. (SOHU) but began to operate separately from 2007. Its flagship games are TLBB, DDTank, Duke of Mount Deer; Licensed Blade Online, Blade Hero 2, Da Hua Shui Hu, Zhong Hua Ying Xiong, Legend of Ancient World, Immortal Faith, and San Jie Qi Yuan. Its employee strength is 3,297 and the company has a market capital of $1.61 billion.

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Zacks Investment Research ]]> Mon, 14 Jan 2013 11:00:01 GMT OfficeMax Inc. (OMX) has amassed five straight quarters of positive earnings surprises with an average beat of nearly 26%. Earnings estimates for this office supplies retailer are trending higher, underscoring its Zacks #1 Rank (Strong Buy).

With relatively low valuation multiples, including a price-to-sales (P/S) ratio as low as 0.12 and a price-to-book (P/B) multiple of just 0.84, OMX is a true value pick with good upside potential.

Profit Surges, Beats Estimate

OfficeMax announced impressive third-quarter results on November 6, with earnings of 27 cents per share eclipsing the Zacks Consensus Estimate by 3.9% and last year’s performance by 8%. The quarter’s earnings were aided by effective cost management and improved operating margins.

However, total sales dropped 1.7% from the year-ago quarter to $1,744.6 million and was shy of the Zacks Consensus Estimate.

Gross profit inched up 0.2% to $460.4 million during the quarter, whereas gross profit margin expanded 50 basis points to 26.4%. Operating income increased 8.7% to $44.9 million, and operating margin expanded 30 basis points to 2.6%.

Management expects operating margin for the fourth quarter to be marginally lower than the prior-year quarter’s 1.7%. For 2012, it is expected to be a tad higher than 1.7% reported in the prior year.

OfficeMax is repositioning itself in this turbulent consumer environment. The company is containing costs, closing underperforming stores and focusing on innovative products and services. The company’s digital as well as technology and document solutions are also gaining traction.

Earnings Estimates Moving Up

The Zacks Consensus Estimate for 2012 rose 1.3% to 76 cents per share, implying year-over-year growth of 25.3%. For 2013, the Zacks Consensus Estimate jumped 5% to 84 cents per share, suggesting a year-over-year increase of 9.7%.

Impressive Valuation

In addition to low P/S and P/B multiples, the stock looks attractive with respect to a forward price-to-earnings (P/E) multiple of just 11.81. A P/E below 15.0, a P/S ratio less than 1.0 and a P/B ratio under 3.0 generally suggests a value stock.

The return on equity (ROE) also looks attractive. It has a trailing 12-month ROE of 10.4%. Moreover, the stock’s last traded price of $9.90 is 6.8% below the 52-week high of $10.62, indicating that there is room for growth.

The stock price remains below 2013 and 2014 earnings estimates, reflecting that the it is still undervalued. The stock has generated a return of 110.2% over the past year, which is significantly higher than the S&P 500’s return of 14.9%. Volume averages roughly 1,552K daily.

OfficeMax Incorporated and its subsidiaries distribute office supplies and paper, print and document services, technology products and solutions, and office furniture to business enterprises, government offices and consumers. The company, through approximately 29,000 associates, serves its customers via direct sales, catalogs, Internet and retail stores located in the United States, Canada, Australia, New Zealand, Mexico, the U.S. Virgin Islands and Puerto Rico. OfficeMax, which competes with Office Depot Inc. (ODP), has a market cap of $858.8 million.

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Zacks' Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Then each week he hand-selects the most compelling trades and serves them up to you in a new program called Zacks Confidential.

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