Earnings Take Center Stage - Earnings Preview

Earnings Preview 1/15/10

Next week, the 4Q09 earnings season really starts to gain some steam. There will be a total of 165 firms reporting, including 61 members of the S&P 500. These will include such bellwethers as IBM (IBM), GE (GE), Goldman  Sachs (GS), Bank of America (BAC) and American Express (AXP). It will be a relatively light week for economic data, so earnings will really take center stage.

Monday
• Nothing of significance in terms of hard numbers, but we do get the Treasury TIC data on long-term capital flows.

Tuesday
• Building permits are expected to have risen to 585,000 in December from 584,000 in November. The November numbers were a big disappointment, but that was mostly due to a decline in the very volatile apartment and condo numbers.
• Housing starts are expected to have rebounded to 580,000 in December from a disappointing 574,000 in November, as with permits the disappointment mostly came from the volatile Apartment and Condo sector (5 or more unit buildings)
• The headline Producer Price Index (PPI) is expected to come in unchanged for December after soaring 1.8% on the back of much higher energy costs in November.
• Stripping out food and energy costs, the Core PPI is expected to have risen by 0.2%, down from a 0.5% increase in November.

Wednesday
• The only release of any significance will be the weekly crude inventory numbers; last week they rose sharply, but consensus expectations for this week were not available.

Thursday
• Weekly initial claims for unemployment insurance come out. They rose slightly in the last week, but before that were in a very steep downtrend. Last week there were 440,000 initial claims. Look for the decline to resume. Continuing claims have also been in a steep downtrend of late, even if one factors in the extended claims paid by the Federal government as part of the Stimulus program, but that also reversed 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 4.596 million, while extended claims (paid from Federal ARRA funds) were 5.304 million. Make sure to look at both sets of numbers!

Friday
Nothing of great significance is due out.

Potential Positive Surprises

Historically, the best indicators of firms likely to report positive surprises have a recent history of positive surprises and rising estimates going into the report. The Zacks Rank is also a good indicator of potential surprises. Some of the companies that have these characteristics include:

Advanced Micro Devices (AMD) is expected to report a loss of $0.15, down from a $0.69 per share loss a year ago. The big beat from its main competitor Intel (INTC) raises the odds that AMD will also have a positive surprise. Last time out AMD posted a positive surprise of 36.6% and over the last month the mean estimate for its fourth quarter earnings is up 6.3%. AMD has a Zacks Rank of 2.

General Electric (GE) is expected to report EPS before non-recurring items of $0.25, down from $0.37 a year ago  In the 2Q, GE posted a positive surprise of 35.0% and over the last month; the consensus estimate for its 4Q earnings is up 1.6%. GE is a Zacks Rank #2 stock.

Freeport McMoRan (FCX) is expected to earn $15.30 per share this year, after losing $0.85 a year ago. In the third quarter, they blew the estimates out of the water with a massive 75.4% positive surprise. Over the last month the mean estimate for the 4Q is up 5.9%. FCX holds a coveted Zacks Rank #1.

Potential Negative Surprises

A couple of regional banks with big exposure to Ohio look most likely to disappoint. Key Corp (KEY) is expected to post a loss of $0.39 a share, an improvement from a loss of $0.47 a share a year ago. Last time they disappointed by 20.5%. Worse for this Zacks Rank #4 stock, analysts have cut estimates for this quarter by 1.4% over the last month.

Fifth Third Bancorp (FITB) is expected to lose $0.31 a share this quarter. While that is a big improvement from the $2.06 a share they lost last year, it is still a loss. They disappointed by 155.6% last time out, and analysts have cut the estimate for this quarter by 0.7% over the last month. The stock holds a Zacks Rank of 4.

Earnings Calendar