Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes American Electric Power (NYSE: AEP), EnCana (NYSE: ECA), Occidental Petroleum (NYSE: OXY), Pool Corporation (Nasdaq: POOL) and Western Digital (NYSE: WDC). To see more earnings analysis, visit http://at.zacks.com/?id=3207.
Earnings Preview is written by Charles Rotblut, CFA, Senior Market Analyst for Zacks.com.
The week is going to be about earnings and whether the stock market can sustain its current momentum.
We have confirmed that nearly 800 companies are going to report. Most of the attention from the news media will rightfully be on large-caps with 167 members of the S&P 500 on the schedule. Included in this group are nine Dow components.
The economic calendar is very light with just a few key reports. The Federal Open Market Committee will meet next on Apr 29-30.
- Wednesday: March existing home sales
- Thursday: March durable goods orders, March new home sales, weekly unemployment claims
- Friday: Revised University of Michigan April consumer confidence survey
Will the market be able to maintain its current upward momentum? All three of the major indexes are testing the upper end of their trading ranges as I write this on Friday morning. An upward breakout will need to be accompanied by strong volume and follow-through.
The shift away from financial earnings could, ironically, hurt the market because less bad news is priced into companies from most other sectors. (Homebuilders, and to a lesser extent retailers, are the notable exception.) Brokerage analysts expect average earnings growth from the S&P 500 companies reporting next week to be 3.5%. (The median growth rate is higher at 8%).
For the nine Dow components on the calendar, the average expected growth rate is -0.9% and the median is 6.3%. Not bad numbers, but also not the stuff that rallies are made of.
Still, if an upside breakout does occur, there is a possibility of an extended upward move. Just be ware that bear markets can have strong, temporary rallies.
First-Quarter Earnings
As of Thursday evening, about 20% of the companies within the S&P 500 have reported first-quarter earnings. Positive earnings surprises are outnumbering negative earnings surprises by a margin of 2.2:1, which is actually worse than the recent sentiment would have investors believe.
Growth remains a matter of perception. Median per share earnings growth is running at a brisk 8.6%. Median net income growth, however, is a nominal 1.6%. Average earnings per share and average net income are both down by more than 27%.
Out of the 20 companies with the biggest declines in year-over-year net income, 16 are either in the financial or construction sector.
Keep in mind that the sample size remains small and there will be fluctuations over the next couple of weeks.
Companies That Could Issue Positive Earnings Surprises during the Week of Apr 21 - 25
Utilities may seem too conservative for many traders, but shares of American Electric Power (NYSE: AEP) have moved higher after the previous earnings surprises - providing an opportunity for short-term profits. A recent revision by one of the covering brokerage analysts suggests the electric utility could again surprise to the upside. The current first-quarter consensus earnings estimate of 75 cents per share is three cents higher than average forecast of a month ago. The most accurate estimate is more bullish at 88 cents per share. American Electric Power is scheduled to report on Thursday, Apr 24, before the start of trading.
Record oil and natural gas prices are benefiting companies with exposure to the upstream side of the business, particularly exploration and production (E&P). This is why brokerage analysts have raised their first-quarter profit forecasts on EnCana (NYSE: ECA) and Occidental Petroleum (NYE: OXY) within the past 30 days.
During the past 30 days, positive revisions by three brokerage analysts have boosted the first-quarter consensus earnings estimate on EnCana to $1.23 per share, from $1.17 per share. The most accurate estimate is more bullish at $1.25 per share. ECA has exceeded expectations for four consecutive quarters. EnCana is scheduled to report on Tuesday, Apr 22, before the start of trading.
The current consensus earnings estimate for OXY of $1.90 per share is 27 cents higher than the average forecast of a month ago and reflects positive revisions from half of the 14 covering brokerage analysts. The most accurate consensus is more bullish at $1.95 per share. OXY has exceeded expectations for five consecutive quarters. Occidental Petroleum is scheduled to report on Thursday, Apr 24, before the start of trading.
Western Digital's (NYSE: WDC) newly announced stock repurchase plan won't have any impact on first-quarter results, but brokerage analysts remain optimistic about the company's performance. Revisions by two analysts have pushed the first-quarter consensus earnings estimate a penny higher to $1.09 per share. The most accurate estimate is more bullish at $1.12 per share. The storage device maker has exceeded expectations for 13 out of the past 14 quarters. Western Digital is scheduled to report on Thursday, Apr 24, after the close of trading.
Companies That Could Issue Negative Earnings Surprises during the Week of Apr 21 - 25
One area adversely affected by the credit crunch, but overlooked by many traders, is residential pool supplies. Brokerage analysts have noticed, however, and they have reacted by cutting their forecasts on Pool Corporation (Nasdaq: POOL). The current first-quarter consensus estimate calls for a loss of four cents per share; two months ago, analysts had expected breakeven results. The most accurate estimate is more bearish at a loss of five cents per share. POOL has missed expectations during three out of the last four quarters. Pool Corp is scheduled to report on Thursday, Apr 24, before the start of trading.
Charles Rotblut, CFA, is the senior market analyst for Zacks.com.
Want to turn earnings surprises into quick profits? Learn how by visiting http://at.zacks.com/?id=3206.
About the Zacks Rank
Since 1988, the Zacks Rank has proven that "Earnings estimate revisions are the most powerful force impacting stock prices." Since inception in 1988, #1 Rank stocks have generated an average annual return of +32%. During the 2000-2002 bear market, Zacks #1 Rank stocks gained +43.8%, while the S&P 500 tumbled -37.6%. Also note that the Zacks Rank system has just as many Strong Sell recommendations (Rank #5) as Strong Buy recommendations (Rank #1). Since 1988, Zacks Rank #5 stocks have underperformed the S&P 500 by 129% annually (+5% versus +12%). Thus, the Zacks Rank system allows investors to truly manage portfolio trading effectively.
Zacks "Profit from the Pros" e-mail newsletter offers continuous coverage of the industries and the stocks poised to outperform the market. Subscribe to this free newsletter today by visiting http://at.zacks.com/?id=3567.
About Zacks
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros by going to http://at.zacks.com/?id=3568.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.
Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.
Contacts:
Contact: Charles Rotblut, CFA
Phone: 312-265-9352
Email:
pr@zacks.com
Visit: www.Zacks.com
