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Into the Heart of Earnings Season - Earnings Preview
Zacks , Zacks, Benzinga Contributor  
April 16, 2010 3:15pm   Comments
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Earnings Preview 4/16/10

Earnings season will be in full gear next week as 455 firms report, including more than a quarter of the firms in the S&P 500 (130). The list of companies reporting reads like a who’s who list of U.S. industry, including Johnson & Johnson (JNJ), McDonald’s (MCD), Coca-Cola (KO), Pepsico (PEP), Microsoft (MSFT), Goldman Sachs (GS), Morgan Stanley (MS) and AT&T (T).

The economic data calendar will be light early in the week, and potentially market moving by the end of the week. We start out the week with the Index of Leading Economic Indicators on Monday, but then no major numbers are released on Tuesday or Wednesday. Things get busier on Thursday with the release of the Producer Price index and Existing Home Sales data.

Friday will be the most important day of the week for economic numbers, with the release of Durable Goods Orders and New Home Sales data.
 
Monday

  • The Index of Leading Economic Indicators is expected to rise 1.0% for March after rising 0.1% in February. As many of the key indicators are already known, such as how stock prices did in the month and the shape of the yield curve, this number usually comes in very close to expectations.

Tuesday

  • No economic data of particular significance -- focus on the earnings released that day.

Wednesday

  • Inventories of Crude Oil and Products will be released. Last week they showed a surprising decline. This should not move the whole market, but may influence energy prices and shares in the energy sector.

 
Thursday

  • Weekly Initial Claims for Unemployment Insurance come out. They rose 24,000 in the last week, to 484,000. After a huge downtrend from mid-April 2009 through the end of last year, initial claims have become very erratic so far in 2010. Look for them to fall back next week, as some of the surprising rise last week might have been due to seasonal adjustment factors related to Easter. Longer term, we have made good progress, but not good enough. We probably need for weekly claims (and the four-week moving average of them) to get down to closer to 400,000 to signal that the economy is on balance adding jobs. We are a lot closer now than we were last spring when they were running north of 640,000 on a consistent basis, but still have a ways to go. 
  • Continuing Claims have also been in a steep downtrend of late. However, that is in part due to people simply exhausting their regular state benefits which run out after 26 weeks. If one factors in the extended claims paid by the federal government as part of the Stimulus Program, claims soared last week. Looking at just the regular continuing claims numbers is a serious mistake. They only include a little over half of the unemployed now given the unprecedentedly high duration of unemployment figures. Last week regular continuing claims were 4.639 million, up 73,000 from the previous week. Extended claims (paid from Federal ARRA funds) were 5.970 million, an increase of 162,000. Make sure to look at both sets of numbers! Many of the press reports will not, but we will here at Zacks.
  • The Producer Price Index (PPI) is expected to increase by 0.5% reversing a 0.6% decline in February. That really overstates the volatility in prices, though, since it is all about energy prices. Core PPI (ex-food and energy, but really just energy since food prices have been well behaved) is expected to increase just 0.1%, matching its increase in February. Low inflation will allow the Federal Reserve to focus on the real problem in the economy -- unemployment and low levels of capacity utilization. It will do so by keeping short-term rates low for at least the rest of this year.
  • Existing Home Sales are expected to rise to an annual rate of 5.30 million in March, up from 5.02 million in February. Given that we are getting close to the wire on the homebuyer tax credit, it would not surprise me at all to see this number surprise to the upside, only to see a hangover from that party come May or June. That would follow what happened when the tax credit almost expired (but was then extended at the last minute) last fall. Thus, if the number does come in stronger than expected, don’t read that much into it. Actually, regardless of the tax credit, far too much is read into the existing home sales numbers. Even though they are much larger than the new home sales numbers, they are far less important to the economy since they have only an indirect effect on the economy. Mostly they are of interest to used home dealers, aka Realtors, just the way that we pay attention to new car sales, but sales of used cars are mostly of interest to used car dealers.

Friday

  • New Orders for Durable Goods are expected to be unchanged after a 0.9% increase in February. However if Autos are stripped out new orders are expected to increase 0.8% after a 1.4% increase in February. These numbers can be very volatile from month to month, largely due to orders for transportation equipment, most notably aircraft. In general, I think that orders are going to be stronger than consensus, particularly if you strip out the transportation orders.
  • By far the most important economic number of the week will be New Home Sales. They are expected to rise from record low levels (i.e., fewer new homes were sold on a seasonally adjusted annual rate in February than were sold during any month during the Kennedy or Johnson Administrations!) of 302,00 to 320,000. If New Home Sales start to rebound, then the increase in new housing starts will not simply result in more inventory. Normally residential investment is the key to getting the economy moving again coming out of a recession. So far this time, that locomotive has been derailed. If it can get back on track, then we will have a stronger-than-expected economic recovery and one that will be sustainable even after the government training wheels come off. If new home sales do not rebound, then the recovery will be extremely anemic with the potential for a long period of economic stagnation.


Potential Positive Surprises

Historically, the best indicators of firms likely to report positive surprises are a recent history of positive surprises and rising estimates going into the report. The Zacks Rank is also a good indicator of potential surprises. While normally firms that report better-than-expected earnings rise in reaction, that has not been the case so far this quarter. While pickings are getting slim, some of the companies that have these characteristics include:

Apple (AAPL) is expected to report EPS of 2.42, up from $1.33 per share a year ago. Last time out, AAPL posted a positive surprise of 76% and over the last month the mean estimate for its first quarter earnings is up 3.06%. AAPL has a Zacks #1 Rank.

Bucyrus (BUCY) is expected to post EPS of $0.82, up from $0.76 a year ago. Last time BUCY beat expectations by 16.3%, and over the last month analysts have shaved their estimates for the about to be reported quarter by 0.76%. BUCY is a Zacks #1 Ranked stock.

Sandisk (SNDK) is expected to post EPS of $0.49 as opposed to a loss of $0.55 a year ago. Last time out, the company blew away expectations by 90.3%. Over the last month, estimates for the quarter are unchanged. SNDK is a Zacks #1 Ranked stock.

Potential Negative Surprises

W.R. Grace (GRA) is expected to post EPS of $0.40 a share, versus a loss of $0.12 a year ago. Last time they reported 3.1% below expectations. For this Zacks #5 Ranked stock, analysts have cut the estimates for this quarter over the last month by 21.0%.

Morgan Stanley (MS) is expected to earn $0.59 a share this quarter, up from a loss of $0.57 a year ago. They were 61.1% below expectations last time out. Analysts have cut the estimate for this quarter by 17.1% over the last month. The stock holds a Zacks #5 Rank.

Oriental Financial (OFG) is expected to earn $0.51, down from $0.97 a year ago. Last time out, this Zacks #5 Ranked stock disappointed by 395.1% (reported a loss when positive earnings were expected) and over the last month analysts have shaved their expectations for the quarter by 7.0%.

Earnings Calendar

Company Ticker Qtr End EPS Est Year Ago
EPS 		Last EPS
Surprise % 		Next EPS Report Date Time Daily Price
Amylin Pharma AMLN 201003 ($0.29) ($0.34) -18.52% 20100419 BTO 22.37  
Arch Coal Inc ACI 201003 $0.07 $0.24 -31.25% 20100419 BTO 26.67  
Atheros Comm ATHR 201003 $0.36 ($0.09) -20.00% 20100419 AMC 40.68  
Bank Of Hawaii BOH 201003 $0.64 $0.75 12.00% 20100419 BTO 49.04  
Boston Scientif BSX 201003 $0.09 $0.13 53.85% 20100419 AMC 7.14  
Brown & Brown BRO 201003 $0.31 $0.34 -22.73% 20100419 AMC 18.85  
Citigroup Inc C 201003 $0.00 ($0.18) -3.03% 20100419 BTO 4.81  
Crane Co CR 201003 $0.50 $0.48 -1.82% 20100419 AMC 37.33  
Crown Hldgs Inc CCK 201003 $0.27 $0.28 17.39% 20100419 AMC 27.13  
First Defiance FDEF 201003 $0.10 $0.36 -33.33% 20100419 AMC 11.34  
Ford Motor Co F 201003 $0.31 ($0.75) 79.17% 20100419 BTO 13.76  
Halliburton Co HAL 201003 $0.25 $0.44 3.70% 20100419 BTO 32.52  
Hasbro Inc HAS 201003 $0.16 $0.14 34.57% 20100419 BTO 40.14  
Icu Medical Inc ICUI 201003 $0.41 $0.47 6.38% 20100419 AMC 35.55  
Idex Corp IEX 201003 $0.42 $0.33 16.22% 20100419 BTO 34.51  
Intl Bus Mach IBM 201003 $1.94 $1.70 3.46% 20100419 AMC 130.89  
Lilly Eli & Co LLY 201003 $1.11 $1.20 -1.09% 20100419 BTO 36.72  
Lincare Hldgs LNCR 201003 $0.59 $0.36 10.91% 20100419 AMC 47.09  
M&T Bank Corp MTB 201003 $0.96 $0.67 21.35% 20100419 BTO 86.14  
Packaging Corp PKG 201003 $0.12 $0.25 23.08% 20100419 AMC 24.88  
Pinnacle Fin Pt PNFP 201003 $0.01 $0.03 -200.00% 20100419 AMC 18.93  
Renaissnce Lrng RLRN 201003 $0.18 $0.13 21.05% 20100419 AMC 15.88  
S&T Bancorp Inc STBA 201003 $0.27 ($0.11) 16.67% 20100419 BTO 22.75  
Sensient Tech SXT 201003 $0.45 $0.45 4.44% 20100419 BTO 30.85  
Sierra Bancorp BSRR 201003 $0.20 $0.28 200.00% 20100419   14.03  
Standard Pac SPF 201003 ($0.07) ($0.01) -4200.00% 20100419 BTO 5.82  
Steel Dynamics STLD 201003 $0.25 ($0.48) -36.84% 20100419 AMC 18  
Werner Entrprs WERN 201003 $0.16 $0.10 4.17% 20100419 AMC 23.95  
Zions Bancorp ZION 201003 ($0.94) ($1.91) 24.55% 20100419 AMC 26.14  
Ak Steel Hldg AKS 201003 $0.25 ($0.67) 100.00% 20100420 BTO 22.21  
Allegiant Travl ALGT 201003 $1.08 $1.37 8.33% 20100420   57.21  
Altera Corp ALTR 201003 $0.40 $0.17 17.24% 20100420 AMC 26.52  
Amphenol Corp-A APH 201003 $0.51 $0.41 6.12% 20100420 BTO 44.43  
Apple Inc AAPL 201003 $2.42 $1.33 76.44% 20100420 AMC 248.92  
Astec Inds Inc ASTE 201003 $0.21 $0.33 -166.67% 20100420 BTO 32.85  
Bank Of Ny Mell BK 201003 $0.53 $0.53 5.77% 20100420 BTO 32.02  
Biogen Idec Inc BIIB 201003 $1.13 $1.05 11.43% 20100420 BTO 54.41  
Bj Services BJS 201003 $0.08 $0.15 -140.00% 20100420 BTO 22.35  
Brinker Intl EAT 201003 $0.41 $0.45 31.82% 20100420 BTO 20.71  
Chemed Corp CHE 201003 $0.90 $0.94 6.38% 20100420 AMC 56.51  
Coach Inc COH 201003 $0.45 $0.38 4.17% 20100420 BTO 42.99  
Coca Cola Co KO 201003 $0.74 $0.65 0.00% 20100420 BTO 54.26  
Conceptus Inc CPTS 201003 ($0.08) ($0.14) 0.00% 20100420 AMC 18.85  
Cpi Corp CPY 201001 $2.16 $1.47 41.67% 20100420   15.23  
Cree Inc CREE 201003 $0.39 $0.10 28.00% 20100420 DMT 82.85  
Delta Air Lines DAL 201003 ($0.21) ($0.84) -12.50% 20100420 BTO 14.39  
Eaton Corp ETN 201003 $0.82 ($0.22) 9.76% 20100420 BTO 80.32  
Edwards Lifesci EW 201003 $0.79

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

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