Clarcor Still Offers Long-Term Value Despite Its 2Q Earnings Miss

NEW YORK (TheStreet) -- Clarcor (CLC), a maker of home and automobile filtration systems, didn't excite Wall Street with its earnings results Wednesday, but it is no time to panic.

Smart investors would be wise to profit off the pullback that just emerged.

For the fiscal second quarter ended last month, the Franklin, Tenn.-based company reported a profit a profit of $38.5 million, or 76 cents s share, which missed the average analyst estimate by a penny. Second-quarter revenue of $399.8 million didn't fare any better, falling shy of Street forecasts by some $10 million.

Although the earnings miss was a disappointment, it still marked a 12% year-over-year climb. This means that Clarcor has increased quarterly earnings, on average, almost 20% year-over-year in the past three quarters. And during that span, revenue has climbed, on average, by 18% year-over-year.

In addition, the company's full-year earnings forecast of $3 to $3.15 a share, with revenue in the range of $1.59 billion to $1.62 billion, implies confidence. Although the company cut its forecast from its prior outlook of $3.15 to $3.35 a share, it is nonetheless encouraging that Clarcor, by sacrificing near-term profits, is playing for long-term gains.

Assuming that Clarcor does reach the high end of its earnings forecasts, not only will this translate to an 11% year-over-year increase in earnings, it would mark an earnings growth acceleration of 1 percentage point higher than Clarcor's five-year projected annual earnings growth rate of 10%.

In that vein, there is still plenty of value in Clarcor's stock for investors who are willing to be patient.

The shares, now trading at about $63, have fallen about 6% since they hit a January high of $67.34 and are about 8% lower from their 52-week, all-time high of $68.72 reached last December. But there is an implied 10% gain based on analysts' average 12-month price target of $69.50.

What's more, whether organically or through through acquisitions, Clarcor has built a well-diversified business that has allowed the company to deliver consistent revenue growth over the past decade. During that span, investors have enjoyed gains as the stock price has more than doubled from about $30 a share in 2005.

Better still, Clarcor, which has more than 90 filtration facilities operating in almost 20 countries, has achieved its execution track record during periods where the strong U.S. dollar has pressured its revenue and profits by devaluing sales in overseas markets.

All told, with Clarcor projected to boost its fiscal-year 2015 revenue to $1.6 billion, there is room for growth as Clarcor estimates that its two largest segments, engine-mobile and air filtration, have a combined addressable market of $26 billion. In that regard, it is possible that the market is underestimating Clarcor's real growth potential.

Likewise, analysts may have to adjust their 12-month price targets to account for Clarcor's ability to secure market share from some of its better-known competitors such as Cummins (CMI) and Pall Corporation (PLL).

And with some 80% of the company's annual revenue of $1.5 billion coming from recurring businesses, there is considerably less risk in the stock. Combined with its 20-cent quarterly dividend, yielding 1.2%, investors would do well to buy the shares on this recent correction.

This article is commentary by an independent contributor. At the time of publication, the author held no shares in any of the stocks mentioned.

More from Opinion

Tuesday Turnaround in Politics: Is a Trade War on the Horizon?

Tuesday Turnaround in Politics: Is a Trade War on the Horizon?

Many Chip Stocks Look Cheap Here, as Long as the Economy Holds Up

Many Chip Stocks Look Cheap Here, as Long as the Economy Holds Up

3 Warren Buffett Stock Picks That Could Be Perfect for Your Retirement Portfolio

3 Warren Buffett Stock Picks That Could Be Perfect for Your Retirement Portfolio

Apple Buys Tesla? Amazon Buys Sears? 3 Dream Mergers That Just Make Sense

Apple Buys Tesla? Amazon Buys Sears? 3 Dream Mergers That Just Make Sense

50 Stocks That Could Be Shredded If a U.S. Trade War With China Ignites

50 Stocks That Could Be Shredded If a U.S. Trade War With China Ignites