Sotheby's - Momentum

Sotheby's (BID) recently hit a new multi-year high at $47.23 after reporting a solid 31% Q3 earnings surprise in early November. Estimates have since jumped higher, with the next-year estimate projecting 17% growth, providing plenty of momentum for this Zacks #1 rank stock.

Company Description

Sotheby's, together with its subsidiaries, operates as an auctioneer of fine art, jewelry and collectibles in the US, China, England and France. The company was founded in 1744 and has a market cap of $2.73 billion.

Although BID has been strong for most of the last 18 months on the stronger global economy, shares jumped higher to a new multi-year high on Nov 5 after the company reported strong Q3 results that came in ahead of expectations.

Third-Quarter Results

Revenue for the period was up 63% from last year to $73 million. Earnings also came in ahead of expectations at a loss of 29 cents, well ahead of the Zacks Consensus Estimate calling for a loss of 43 cents, where the company now has an average earnings surprise of 50% over the last four quarters.

The company noted that its strong results were driven by a big increase in auction commissions, up 48% from last year. Dealer revenues were also strong, up $13 million from last year, providing a nice boost to the top line.

Sotheby's also noted that its third quarter is the slowest of the year, usually representing just 7%-10% of the company's auction sales, which accounts for the quarterly loss for an otherwise healthy business.

Balance Sheet Strengthening

The company's balance sheet is also on the upswing, with cash and equivalents up $250 million from last year to $370 million with total debt of $519 million.

Estimates

We saw some pretty solid movement in estimates off the good quarter, with the current year adding 22 cents to $2.07 and the next year up 35 cents to $2.42, a bullish 17% growth projection.

Valuation

We also have an attractive valuation on hand, with BID's forward P/E of 20X a nice discount to its peer's 25X.

2-Year Chart

On the chart, shares recently jumped higher on the good quarter to hit a new 52-week high at $47.23. But in spite of the gains, the stochastic below the chart is signaling that shares are trading just a pinch away from over-sold territory. Look for support from the long-term trend on any weakness, take a look below.

Michael Vodicka is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the new Zacks Momentum Trader Service.
 
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