5 Stocks with Strengthening Financials

When AIG's CEO, Edward Liddy, testified before Congress last week, we took a look back at the company's historical quarterly financials to identify when the proverbial "writing on the wall" could have been first seen (read the full story here).

Now, using the same proprietary CNBC tool that looks for statistical patterns in a company's financials, we screened for companies with market caps of ~$1 billion or more and that have accelerating performance in key financial metrics. The model scores companies based on the rate of change in key metrics for growth, liquidity and profitability on a quarterly, trailing twelve month and 3-year basis. An overall score is determined based on the strength of the three underlying scores. The scores are reflected on a green-to-red color scale, darker red indicates a rapidly worsening condition, darker green indicates rapidly improving conditions. The example below depicts a company that would have a very strong overall score because of its high underlying scores.

Keep in mind that the results of this screen are based on trends from reported SEC filings and that trends may change in the future. Nonetheless, here are 5 companies that scored highly and the details for where they outperform.

Myriad Genetics:

Myriad Genetics is a biotech company with a $3.8 billion market cap. On a year-to-date basis, its stock is up ~23%.

Looking back at its past 5 quarters, you can see that the company has improved in its growth and profitability scores.

Peeling the onion back on these scores, you can see that they are driven by margins that were growing at an accelerating rate, particularly in Q4 and Q1 of its fiscal 2008 and 2009. For the most recent quarter, the underlying metrics are still outperforming their historical averages but have slowed a bit (dark green shifting to lighter green).

On a forward looking basis, Thomson Reuters data shows consensus EPS estimates growing at 84% for the next fiscal year.

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Compass Minerals International:

Compass Minerals International is a diversified metals & mining company with a $1.8 billion market cap. On a year-to-date basis, its stock is down ~2.5%.

Looking back at its past 5 quarters, you can see that like Myriad, the company has improved in its growth and profitability scores. Its liquidity scores, while not as strong, have also improved, going from red in the end of 2007 and early 2008 to white by the end of the year.

Digging deeper, the biggest contributors to the overall scores come from the profitability metrics including gross profits and cash flow from operations. On the liquidity side, there has been a significant improvement in debt to equity, depicted below in the shift from dark red to green.

EPS estimates for the forward fiscal year anticipate 3% growth for CMP.

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Sohu.com:

Sohu.com is an internet software & services company with a $1.6 billion market cap. On a year-to-date basis, its stock is down ~13%.

Looking back at its past 5 quarters, you can see that the company has improved in its growth and profitability scores as well.

The biggest contributors to the overall scores come from the profitability metrics especially growth in net income and in the most recent quarter, retained earnings.

EPS estimates for the forward fiscal year anticipate double digit growth of 13%.

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HLTH Corp:

HLTH Corp is a health care technology company with a $1.0 billion market cap. On a year-to-date basis, its stock is down ~1%.

Looking back at its past 5 quarters, you can see that the company has also improved in its growth and profitability scores.

The biggest contributors to the overall scores come from EBITDA growth and margin expansion as seen through net income as a percent of revenue.

EPS estimates for the forward fiscal year anticipate tremendous growth of 133%.

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Esco Technologies:

Esco Technologies is an industrial machinery company with a market cap just under $1.0 billion. On a year-to-date basis, its stock is down ~11%.

Unlike the previous four companies, ESE's high scores have come from improving its liquidity. Its growth and profitability scores have been fairly stable.

Cash flow from operations has been an increasing part of its margins. Additionally, it has improved its capital structure.

EPS estimates for the forward fiscal year anticipate growth of 16%.

The above charts should help you generate ideas. As with any investments, it should be one input into your broader research efforts.

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