The current ASX reporting season has been a fairly positive one so far. Not all companies had good news to share with their investors though.

The two companies featured today both announced weaker than expected results and saw their share prices punished heavily as a result. On the bright side, our analysts think the longer-term outlook for both companies looks solid and that the shares could present a bargain today.

Before we get to the first company, remember that individual shares should only be considered as part of a broader investing strategy. Go here for a step-by-step guide to defining yours.

PWR Holdings (PWH)

  • Moat rating: Narrow Moat
  • Fair Value estimate: $9 per share
  • Share price on Feb 28: $7.80
  • Star rating: Four stars

PWR Holdings are the pre-eminent supplier of advanced cooling for cars, evidenced by the presence of PWR cooling systems in every Formula One vehicle on the grid. PWR also has a fast growing aerospace and defense segment.

Our analyst Angus Hewitt has awarded the company a Narrow Moat rating on the back of its brand in high-performance automotive cooling. This has allowed PWR to command top-tier pricing for its radiators in the aftermarket and also win contracts with super and hyper car manufacturers.

The company’s interim results didn’t give investors much to cheer, though, with net profits down by over 50% amid higher headcount and contracts in its OEM segment coming to an end. Disruptions from PWR’s move to a new factory also look set to drag on into the second half.

While the headline numbers didn’t look great, Angus thinks that PWR is clearly in a transitional period rather than any serious trouble. Its investment in more staff, for example, has come ahead of a significant uptick in aerospace and defence work.

Together with further opportunities in motorsport, this underpins what could be a far stronger medium-term earnings outlook for the company. At a recent price of around $7.80, PWR shares trade roughly 15% below Angus’s Fair Value estimate and command a four-star Morningstar rating.

Johns Lyng (JLG)

  • Moat rating: Narrow
  • Fair Value estimate: $4.30
  • Share price on Feb 28th: $2.60
  • Star rating: Five stars

At the core of Johns Lyng is a construction business that carries out repairs and restoration for insurance companies in Australia, New Zealand and seventeen US states. It also has a smaller strata management division that is growing through acquisition.

Johns Lyng recently reported a slight earnings miss featuring a 5% cut to its revenue and underlying profit forecasts for fiscal 2025. Our analyst Esther Holloway adjusted her Fair Value estimate share down by 4%, which suggests the savage 30% sell down since may be overdone.

Johns Lyng’s softer results were partly due to less natural hazard claims, something it can hardly be blamed for. The company’s underlying business looks solid, evidenced by group revenue growth of 9% excluding work related to catastrophic events.

Over the medium term, Esther thinks that Johns Lyng is well placed to take more market share from smaller peers in its core Australia and New Zealand insurance repairs business. Her reasoning? Tighter compliance requirements tend to favour bigger players, while insurers have shown a preference for working with fewer ‘one-stop-shop’ suppliers.

Esther also expects a boost to medium term operating margins as revenue from higher margin strata management and catastrophe work takes up more of the total mix. While the exact timing of an uptick in catastrope related work cannot be predicted, the chances of it occurring at some stage are relatively high.

At a recent share price of around $2.60, the shares traded materially below Esther’s $4.30 per share Fair Value estimate and commanded a five-star Morningstar rating.

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company's future cash flows, resulting from our analysts' independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn more about how to identify companies with an economic moat, read this article by Mark LaMonica.