Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes Network Appliance (Nasdaq: NTAP) and PetSmart (Nasdaq: PETM). 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 bond markets and most government offices will be closed on Monday, Nov 12, in observance of Veteran's Day. The U.S. stock exchanges will be open, however. (Thanks to all veterans and current members of military for your service.)
Third-quarter earnings season shifts to the retailers with Dow components Home Depot (NYSE: HD) and Wal-Mart Stores (NYSE: WMT) scheduled to report. Joining them will 22 other retailers including Macy's (NYSE: M). In total, we have confirmed scheduled reports from 175 companies, 14 of which are in the S&P 500.
Coincidentally, October retail sales data will be released by the Department of Commerce on Wednesday morning. In addition, October PPI and September business inventories will also be released around the same time. Thursday will feature the November New York and Philadelphia Fed surveys in addition to October CPI. October industrial production and capacity utilization numbers will be published on Friday.
The week's data may not have an impact on the market direction, however, because both stock and oil prices are being driven by emotion right now. The portfolio problems that banks are incurring are clearly worse than what has previously been stated and there is a lot of uncertainty about the how big problem really is. At the same time, concerns about the geopolitical situation and pure speculation have driven up the price of oil to new highs. Sentiment can push the market both too low and too high, and it is often difficult to predict when rationality will replace emotional trading. This said, I don't foresee the markets going below the lows set in August.
Third-Quarter Earnings Performance
As third-quarter earnings season nears an end, the rate of growth is better than what we had expected in early September. The median S&P 500 company achieved an 11.4% increase in earnings, about 250 basis points above the consensus expectations at the start of earnings season. Positive surprises have outnumbered negative surprises by a ratio of 2.6:1, which is a bit worse than last quarter, but still good overall.
The numbers for the S&P 1500 Composite (S&P 500, S&P MidCap 400 and S&P SmallCap 600) are similar. Median growth is running at 10.3% and positive surprises are outnumbering negative surprises by a ratio of 2.1:1.
Fourth-Quarter Earnings
Looking ahead to the fourth-quarter, we expect the median company within the S&P 500 to achieve 8.9% growth. The inherent problem with this forecast, however, is that earnings estimates for the financial sector are continuously dropping. Simply put, there is not a Q4 2007 or a 2008 EPS forecast for banks that I would trust right now.
Companies That Could Issue Positive Earnings Surprises during the Week of Nov 12 - Nov 16
Network Appliance (Nasdaq: NTAP) has exceeded expectations twice during the past four quarters. Its fiscal first-quarter earnings were inline with expectations. Though the consensus expectations have not changed for NTAP's fiscal second-quarter, the most accurate estimate suggests a positive surprise could be forthcoming. The most accurate estimate calls for per share earnings of 18 cents versus the consensus estimate of 16 cents. Network Appliance is scheduled to report on Wednesday, Nov 14, after the close of trading.
Companies That Could Issue Negative Earnings Surprises during the Week of Nov 12 - Nov 16
PetSmart (Nasdaq: PETM) recently lowered its third-quarter guidance to an adjusted range of 21 to 24 cents per share. Nearly all of the covering brokerage analysts cut their forecasts in response, resulting in a consensus earnings estimate of 23 cents per share and a most accurate consensus of 22 cents per share. Though the pet retailer has a record of either meeting or beating expectations, it seems logical that if consumers are cutting back on personal spending, they are probably also cutting back on what they are spending on their pets. Thus, there is a legitimate risk of additional cuts to earnings estimates following PETM's earnings announcement. PetSmart is scheduled to report on Wednesday, Nov 14, after the close of trading.
Want to turn earnings surprises into quick profits? Learn how by visiting http://at.zacks.com/?id=3206.
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Contacts:
Charles Rotblut, CFA, 312-265-9352
pr@zacks.com
www.Zacks.com
