Earnings Preview 2/10/12

Earnings season will be still going on this next week. 422 firms are scheduled to report, and 50 of those are members of the S&P 500.  By the end of the week we will be over 80% done with earnings season.

Many large and significant companies will be reporting this week.  They include: Applied Materials (NASDAQ:AMAT),  Apache (NYSE:APA), CBS (NYSE:CBS),  Deere (NYSE:DE), Devon Energy  (NYSE:DVN), Duke Energy (NYSE:DUK), Masco (NYSE:MAS) and Met Life (NYSE:MET).

It will also be a busy week for economic data.  Key reports include Retail Sales, Industrial Production, two regional “mini ISM’s,” Housing Starts and inflation — both on the Producer and the Consumer levels.

Monday

• Nothing of particular significance. 

Tuesday

• Retail Sales are expected to jump by 0.8% after they rose a disappointing 0.1% in December.  This is a very broad measure of consumer activity, not just spending at the mall.  Some of the strength is likely to come from the strong Auto sales we saw in January (already announced by the Automakers).  Excluding Autos, sales are expected to rise 0.5% after a decline of 0.2% last month.  The biggest part of the decline though was at gas stations, and reflected lower gasoline prices, which is a good thing.  Look at the more discretionary types of consumer spending, such as Electronics and Furniture, for a gauge of the health and attitudes of the consumers.

Wednesday

• The Empire State manufacturing index, the first of the regional “mini ISM’s,” is expected to rise to 14.0 from 13.5.  Any reading over 0.0 indicates that the manufacturing sector in New York State is expanding.  Thus it is expected to show robust and slightly accelerating growth.
• Industrial Production is expected to rise by 0.6% in January, up from a 0.4% rise in December.  This measures the output not only of the nation’s factories but its Utilities and Mines as well.  Output for utilities is often as much a function of the weather as it is of economic activity.  Thus it is useful to look at the change in manufacturing output as well as the change in total industrial production.  In December, factory output climbed by 0.9% and the overall output was restrained by a 2.7% plunge in utility output, mostly reflecting a very mild winter.  
• The same report is also expected to show that overall capacity utilization has climbed to 77.6% from 78.1% in December and 77.8% in November.  As with industrial production, the total capacity utilization figures can be distorted by the utilities and the weather.  The utilization of the nation’s power plants was at an all-time low (since the late 1960’s) last month.  Factory utilization, which normally runs lower than total utilization, was 75.9% in December, up from 75.3% in November.
• The National Association of Homebuilders index is expected to show less despair among the homebuilders.  The index is expected to rise to 26 for its fourth straight monthly increase.  However, any reading under 50 still indicates that the builders see conditions as poor.  Thus, even though they are no longer about to slit their wrists, the homebuilders are not exactly upbeat.
• The Federal Reserve will release the minutes to its most recent open market committee meeting.  This should provide some light on the thinking that went into its commitment to keep short-term rates at ultra-low levels through the end of 2014, rather than just through mid-2013 as it had previously promised.

Thursday

• Weekly Initial Claims for Unemployment Insurance fell by 15,000 to 358,000 last week.  The consensus is looking for a slight rebound to 365,000.  The drop in weekly claims well below the key 400,000 level was the first clue that the jobs situation was getting significantly better.  If they fall again it would be a powerful sign that the momentum is continuing.  The big seasonal adjustments are all in the rear view mirror, so last week’s level is probably about right, but we have recently seen a lot of volatility in the weekly numbers.  Thus the four-week average is the thing to focus on (at 366,250 last week).  Keep an eye on the prior week’s revision as well as the change from the revised number.
• Continuing Jobless Claims have been in a downtrend of late, but the road down has been bumpy. Last week they rose by 64,000 to 3.515 million. That is down 421,000, or 10.7% from a year ago. The consensus is looking for a dip to 3.505 million. Some (most?) of the longer-term decline is due to people simply exhausting their regular state benefits, which run out after 26 weeks. Those, however, don’t last forever either. Federally paid extended claims rose by 18,000 to 3.501 million last week and are down 1.091 million, or 23.8% over the last year. 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. A better measure is the total number of people getting unemployment benefits — currently at 7.663 million. The total number of people getting benefits is now 1.699 million below year-ago levels. What is not known is how many people have left the extended claims via the road to prosperity — finding a new job — and how many have left on the road to poverty, having simply exhausted even the extended benefits. Unless the program is renewed, all extended benefits will end at the start of March. Make sure to look at both sets of numbers! Many of the press reports will not, but we will here at Zacks.
• Housing Starts are expected to rise to an annual rate of 670,000 from 657,000 in December.  While housing starts have been trending up in recent months, they are doing so from extremely depressed levels.  Most of the increase has come from the extremely volatile apartment and condo sector.  The very low level of housing starts has been one of the key reasons why this recovery has been relatively anemic.  If we do get a sustained rebound in residential investment this year, economic growth is likely to be far better than most people now expect.
• The best leading indicator of starts is Building Permits. They are expected to dip to an annual rate of 675,000 from 679,000 in December.
• The Producer Price Index (PPI) is expected to rise by 0.3% after falling by 0.1% in December.  Much of that increase will be due to a rebound in oil prices, as the drop last month was largely due to dropping oil prices in December. Stripping out the volatile food and energy parts of the index, the core PPI is expected to rise just 0.1%, down from a 0.3% rise last month.  Those are the numbers for finished goods.  The report will also provide data on prices further up the food chain as well, which help forecast the likely direction of inflation in the near future.
• The Philly Fed index, another of the regional “mini ISM’s,” is expected to rise to 10.0 from 7.3 in January.  Like the Empire State index, any reading over zero indicates expansion of factory activity in the Mid Atlantic region.  The solid expansion last month is expected to accelerate.

Friday

• The Consumer Price Index is expected to rise by 0.3% after having been unchanged last month.  Higher gasoline prices are expected to be the main culprit in the acceleration of inflation.  The core CPI (ex-food and energy) is expected to rise 0.2% after being up just 0.1% last month.  Inflation has not been a major problem for the economy, and I do expect it to be one in the near to medium term.
• The index of Leading Economic Indicators is expected to rise by 0.5% on top of a 0.4% rise in December.

Potential Positive or Negative Surprises

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. Similarly, a recent history of earnings disappointments, cuts in the average estimate for the quarter in the month before the report is due and a poor Zacks Rank (#4 or #5) are often red flags pointing to a potential disappointing earnings report.

In the Earnings Calendar below, $999.00 should be read as N.A.

Potential Positive Surprises:

• EOG Resources (NYSE:EOG) is expected to earn $0.86, up from $0.36 a year ago.  Last time out, it had a positive surprise of 2.47%, and over the last four weeks analysts have raised their estimates for the quarter by 5.84%.  EOG is a Zacks #2 Rank stock.
• Deere (NYSE:DE) is expected to earn $1.23, up from $1.20 a year ago.  Last time out, it had a positive surprise of 12.50%, and over the last four weeks analysts have raised their estimates for the quarter by 0.54%.  DE is a Zacks #2 Rank stock.
• Ventas (NYSE:VTR) is expected to earn $0.89, up from $0.77 a year ago.  Last time out, it had a positive surprise of 8.64%, and over the last four weeks analysts have raised their estimates for the quarter by 0.26%.  VTR is a Zacks #2 Rank stock.

Potential Negative Surprises:

• Avon Products (NYSE:AVP) is expected to earn $0.51, down from $0.59 a year ago.  Last time out, it had a negative surprise of 17.39%, and over the last four weeks analysts have cut their estimates for the quarter by 1.82%.  AVP is a Zacks #4 Rank stock.
• Host Hotels (NYSE:HST) is expected to earn $0.30, up from $0.26 a year ago.  Last time out, it had a negative surprise of 5.88%, and over the last four weeks analysts have slashed their estimates for the quarter by 0.39%.  HST is a Zacks #4 Rank stock.
• Progress Energy (NYSE:PGN) is expected to earn $0.52, up from $0.45 a year ago.  Last time out, it had a negative surprise of 6.45%, and over the last four weeks analysts have cut their estimates for the quarter by 0.69%.  PGN is a Zacks #4 Rank stock.

Earnings Calendar

 
APPLD MATLS INC (AMAT): Free Stock Analysis Report
 

 
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