While concerns regarding an abrupt halt to quantitative easing are running high, corporate results continue to paint an upbeat picture of reality. The Home Depot, Inc. (NYSE:HD), STMicroelectronics N.V. (ADR) (NYSE:STM) and Rally Software Development Corp (NYSE:RALY) are some companies whose business prospects have started to look much better. Here is a closer look:
The Home Depot, Inc. (NYSE:HD) shattered analysts’ expectations, posting a higher-than-expected 18.5% growth in profits, which reached $1.2 billion, in the first quarter. Revenue growth was solid at 7.4% as more people turned to the home improvement retailer following continued recovery in the US housing market. The company not only saw margin improvements during the quarter, but also upped its full year sales guidance to project 2.8 percent sales growth.
However, the biggest positive was the bottom-line enhancement which is projected at 17% growth on a per-share basis. In addition to growth in profits, this will be made possible by share repurchases amounting to $4.4 billion over the remaining months of the year. The stock has advanced in a linear fashion over the last 12 months, and there are good reasons this trajectory will likely remain the same over the next several quarters. Following the quarterly results announcement, brokerages have increased their price targets on the stock to beyond $85.
A phoenix rises from the ashes
Semiconductor manufacturer STMicroelectronics N.V. (ADR) (NYSE:STM) took a severe beating during 2011 after it became clear that Nokia – its biggest customer – had missed the smartphone rally and was faced with deep financial issues. STMicroelectronics N.V. (ADR) (NYSE:STM) itself saw a sharp reduction in revenues in 2011 and 2012 which has resulted in the company swinging to losses now. For the full year 2012, it booked a loss of $1.16 billion on sales of $8.5 billion.
However, the situation seems to have stabilized, with visible traction in order books. STMicroelectronics N.V. (ADR) (NYSE:STM) shares surged after chief executive Carlo Bozotti said the company expects order growth of 5%-10% for the current year. This builds on the 5% growth seen in the latest quarter. Full-year revenue is expected to be around $9 billion, not a great jump from last year’s $8.5 billion, but the resulting effect on margins could send the shares higher. At current prices, the stock trades at a forward price-earnings ratio of 13.2, while its price-sales ratio of 1.01 indicates that it has more room for growth.
Agility can take Rally Software higher
Colorado based Rally Software Development Corp (NYSE:RALY) offers cloud computing solutions for managing Agile software development. Introduced in 2001, Agile is hardly a new technology; however, the market for it is exploding now. The Standish Group estimates that Agile techniques were used for 29% of new software development projects in 2011. The company, recording all of its revenues from solutions built around Agile, had a fairly successful listing through an initial public offer (IPO) in April.
As on January 31, Rally Software Development Corp (NYSE:RALY) had 168,562 paid users and more than 1,000 corporate customers, including 34 of the Fortune 100 companies. While this gives a rough idea about the company’s business clientele, the fundamentals are not bad either. During the last four years, its annual revenues have grown from $18.4 million to $56.9 million. The bottom line has not kept up with the swelling revenues, but it is not prudent to expect profits during the growth phase while the company is ramping up its operations.
While booming revenues will eventually pull the company out of the red, Rally Software Development Corp (NYSE:RALY) is also working on an add-on called Rally Software Development Corp (NYSE:RALY) Portfolio Manager, which will increase its addressable market.
The Foolish bottom line
Overall, these companies are good examples of further improvements in business operations. While The Home Depot, Inc. (NYSE:HD) would be a safe bet, STMicroelectronics N.V. (ADR) (NYSE:STM) and Rally Software Development Corp (NYSE:RALY) also have the potential to produce positive earnings surprises.
The article The Business Outlook Just Got Better for These 3 Companies originally appeared on Fool.com.
Jacob Wolinsky has no position in any stocks mentioned. The Motley Fool recommends Home Depot. Jacob 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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