TTC - Toro Q1: Don't Forget It's A Seasonal Business
2024-03-08 15:31:31 ET
Summary
- The market has overreacted to the Q1 earnings release from The Toro Company, causing the stock to decline despite in-line guidance for 2024.
- Toro showed typical seasonal negative free cash flow in Q1, but should deliver FCF for the year in line with net income.
- With little change in the outlook but a lower stock price, TTC is now about 18% under my fair value estimate based on historical average P/E.
Mr. Market Overreacts To Earnings
The market frequently seems to overreact to earnings releases from The Toro Company ( TTC ). When I cove red earnings last quarter , the ma rket seemed relieved that a big miss in 3Q was not repeated. The stock rallied hard despite 2024 guidance showing only modest sales and earnings growth. The biggest positive was a forecasted improvement to free cash flow delivery, getting back near 100% of net income thanks to better flowing supply chains and the expectation of working down high finished product inventories. The stock closed at $89.23 ahead of that earnings release but traded up 10% before my article was published. That made my upgrade to Buy look like a bad call, as it's been downhill for the stock since then. Another overreaction to earnings was the biggest part of that drop, with a 7% decline after r eleasing 1Q 2024 results on March 7th. T he stock is now trading below where it was before the 4Q results that produced the big spike....
Toro Q1: Don't Forget It's A Seasonal Business