Continuously strong earnings are a good fundamental indicator of long-term growth of a company. EPS gives a reliable futuristic overview, as it is driven by many aspects like sales growth, product demand, profit margins, and cost control.
Understanding the importance of EPS, I have chosen three companies that are planning to increase their EPS in the future, but have had inconsistent EPS in the past. Let’s find out what strategies these companies have implemented to improve future earnings.
Mobile the key growth driver
North America is a major revenue driver for Groupon Inc (NASDAQ:GRPN), which reported a rise in its revenue of 42% year over year, amounting to $340 million in the first quarter of 2013. The success in North America was driven by increased usage of mobile phones, which increased mobile transactions from its website. As a result, customers grew 13% year over year to 41.7 million on March 31, 2013, out of which 18.2 million were from North America and 23.5 million from international locations.
In North America, almost 45% of the transactions in the first quarter took place through mobile phones, in comparison to 30% in the first quarter of 2012. As a result, there was an increase of 4% in the customers’ demand of goods and services, amounting to $1.41 billion in the first quarter of 2013. With the rise in mobile users, the company expects a rise in its total revenue in the second quarter to approximately $617 million, from $601.4 million in the first quarter of 2013.
Groupon Inc (NASDAQ:GRPN) reported a decline in revenue from its international segment of 18.4% year over year due to its weak performance in Europe. This loss was offset by a rise in revenue from North America. The reason for the company’s under-performance in Europe was huge discount offers given by the company, which made merchants unhappy. To satisfy the active client base of 23.5 million in the international market, the company is planning to improve its services.
It will be providing cheap deals on its marketplace, a mobile app, and a search feature to its customers. Groupon Inc (NASDAQ:GRPN) expects a push towards mobile phones with its customer-friendly applications. The company has patented this process with the name ”Smart Deal”, which identifies target customers for a deal. Smart Deal has been introduced in the U.K. market recently and will be introduced in other international markets to reduce costs. With the change in strategy, the company expects revenue of $2.49 billion in 2013 and $2.62 billion in 2014.
Expansion drives for future growth
JDS Uniphase Corp (NASDAQ:JDSU) acquired Arieso in March 2013 for $85 million in cash. Arieso was acquired to make mobile subscribers’ experience better, as it provides software solutions, which will boost network performance. Arieso software solutions help in detecting, accumulating, and analyzing data from millions of mobile connections to improve user experience in 2G/3G.
This software aims at radio access network, or RAN, which scrutinizes and improves in order to provide a powerful network layout and performance for 3G services. The mobile network market is currently worth $700 million and it will gradually capture $1 billion by 2015. With this acquisition, the company expects to increase its market share in this segment.
There was a fall in revenue from the communications test and measurement, or CommTest, segment of 10.8% quarter over quarter, amounting to $174.2 million, in the third quarter. This fall in revenue was due to competitive pricing in the industry. Currently, with the acquisition of Arieso, the CommTest segment is expected to improve, as mobile subscribers will receive better services. It is expected that in the fourth quarter of 2013, there will be a growth of 7% to 11% in revenue quarter over quarter.
Service segment driving growth
Xerox Corporation (NYSE:XRX) generated 55% of its total revenue from its service segment, and in the first quarter of 2013, the total revenue was $2.9 billion. The company provides services like business process outsourcing, IT outsourcing, and document outsourcing. There is increase in the BPO and ITO service segment, as the combined purchase order renewal rate reached 89%, in the first quarter of 2013.
“Renewal rate” is the annual recurring revenue on purchase orders that have been renewed. Xerox Corporation (NYSE:XRX) is also signing new contracts, where it anticipates it will gain momentum in the middle of 2013. The company expects to receive free cash flow, or FCF, of $1.6 billion to $1.9 billion in 2013.
Xerox Corporation (NYSE:XRX) declared that it has acquired Impika, which produces aqueous, or water-based, inkjet printers. After the acquisition, Xerox Corporation (NYSE:XRX) launched an innovative printer, ‘‘Xerox CiPress Production Inkjet Systems’,’ which, globally, is the only high-speed, waterless inkjet press. It is expected that inkjet’s demand will increase 21% every year until 2015. It has invented a multi-purpose printer,”Xerox Colour 8250” which has a high-speed capacity to provide impressions of 800,000 – 4 million per month with bright colors.
Xerox Corporation (NYSE:XRX) Colour 8250 is available in the U.S. market and will be launched on July 1, 2013 in the international markets. With its launch in the international market, the company expects an increase in demand, as the demand for these printers are expected to rise annually by 25% through 2016.
Groupon Inc (NASDAQ:GRPN) has increased its focus on mobile users with the acquisition. It has also improved its strategies in the international market, as there is a huge active client base which will drive its earnings higher.
To enhance the mobile subscribers’ experience, JDS Uniphase Corp (NASDAQ:JDSU) has acquired Arieso. The company, with its better services, is trying to increase its market share in the CommTest segment. There is a huge scope for JDS Uniphase Corp (NASDAQ:JDSU) to increase its revenue in the future.
Talking about Xerox Corporation (NYSE:XRX), it is generating good revenue from its service segment and also has plans to increase renewal rate. With the acquisition of Impika and new product development, the company expects an uptrend in demand.
With the growth strategies and expected the rise in the revenue of the companies, it is expected that these companies will show improved EPS too.
Thus, I recommend buying all these three stocks.
The article 3 Promising Opportunities Which You Shouldn’t Miss originally appeared on Fool.com and is written by Madhu Dube.
Madhu Dube has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Madhu is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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