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Zacks Earnings Preview: Activision, Bunge Limited, EOG Resources, Equifax and Harman International

Zacks.com releases the list of companies likely to issue earnings surprises. This weeks list includes Activision (Nasdaq:ATVI), Bunge Limited (NYSE:BG), EOG Resources (NYSE:EOG), Equifax (NYSE:EFX) and Harman International (NYSE:HAR). 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.

Earnings season shifts toward mid-cap and small-cap companies, though there are 83 S&P 500 member companies on deck. Among the most notable are Cisco Systems (Nasdaq: CSCO) and Dow component Walt Disney (NYSE: DIS).

The higher proportion of smaller companies suggests that earnings headlines will do nothing for the most part to stem the level of volatility characterizing the markets right now.

It is difficult to predict when this volatility will end. Many of the intraday moves have been fueled by event-driven news such as the rouge French trader, mortgage insurer credit quality and surprise mergers. Plus, economic visibility remains limited.

There will be some frivolous discussion about the Super Bowl indicator. This indicator is supposedly predicts how the markets will perform based on whether an old AFL team wins or not. It has proven to be fairly accurate in the past, but this is simply a case of pure coincidence. How a football team performs has as much impact on market direction as who gets an Oscar for best actress. Put bluntly, it doesn't matter and given enough time, the Super Bowl indicator will lose its accuracy.

What does work, however, are earnings estimate revisions. Therefore, it is important for investors to continue monitoring the companies within their portfolios. Also, keep reading the earnings reports with an eye on earnings per share growth relative to net income growth. You want to make sure that EPS growth is being driven by higher overall profits and not share buybacks.

Going back to the week's schedule, forthcoming economic data includes:

  • Monday: December factory orders
  • Tuesday: ISM services index
  • Wednesday: Preliminary fourth-quarter productivity
  • Thursday: December pending home sales, December consumer credit and weekly unemployment claims (could a get a closer look following the drop in January nonfarm payrolls)
  • Friday: December wholesale trade

Fourth-Quarter Earnings Results

Reports are in from slightly more than half of the S&P 500 member companies. Fourth-quarter earnings season is shaping up to be okay. Not great, but not horrible either.

Median per share earnings growth is 8.6%. Net income growth is 6%. The differential largely reflects the impact of stock repurchase programs.

Positive surprises are outnumbering negative surprises by a ratio of 2.3:1. This ratio reflects the fact that we are seeing a higher number of misses than in past quarters, due to the problems in the financial sector. Finance companies account for more than half of earnings misses reported so far. In total, 172 companies have beat expectations and 76 have missed.

Expanding the universe out to the S&P Composite (S&P 500, S&P MidCap 400 and the S&P SmallCap 600) does not significantly change the numbers. Per share earnings growth is 8.7% and net income growth is 6%. The ratio of positive to negative surprises is 1.78.

Companies That Could Issue Positive Earnings Surprises during the Week of Feb 4 - 8

Activision (Nasdaq: ATVI) produced two of most popular video games in December, according to the NPD group. ATVI's Call of Duty 4 was the best selling game and Guitar Hero III was ranked #3. Fourth-quarter consensus estimates are up two cents over the last 30 days to 77 cents per share. The most accurate estimate is more bullish at 79 cents per share. ATVI has exceeded expectations for three consecutive quarters. Activision is scheduled to report on Thursday, Feb 7, after the close of trading.

Last month, two of the covering brokerage analysts raised their fourth-quarter projections on Bunge Limited (NYSE: BG).The consensus estimate now calls for the agribusiness and food company to have earned $1.50 last quarter, six cents more than the average forecast of a month ago. The most accurate estimate is more bullish at $1.59 per share. BG has topped expectations for two consecutive quarters. Bunge is scheduled to report on Thursday, Feb 7, before the start of trading.

EOG Resources (NYSE: EOG) is one of several exploration and production (E&P) companies experiencing rising forecasts from brokerage analysts, as I stated in last Wednesday's Industry Rank Analysis. The reason is that oil prices stayed at higher levels than analysts expected last year. Now, that natural gas prices are rebounding, good guidance could accompany strong fourth-quarter earnings.

The consensus estimate calls for EOG to have earned $1.07 last quarter, two cents more than the average forecast of a month ago. EOG did miss expectations last quarter, but it previously had a four-year streak of topping expectations. EOG Resources is scheduled to report on Friday, Feb 8, before the start of trading.

Equifax (NYSE: EFX) recently reaffirmed its 2007 guidance for profits between $2.29 and $2.31 per share. Though the full-year consensus estimate remained unchanged at $2.30 per share, two brokerage analysts did raise their fourth-quarter projections. The new consensus estimate calls for earnings per share of 57 cents, a penny above the month-old forecast. The credit reporting firm topped expectations during each of the past three consecutive quarters. Equifax is scheduled to report on Tuesday, Feb 5, before the start of trading.

Companies That Could Issue Negative Earnings Surprises during the Week of Feb 4 - 8

Harman International (NYSE: HAR) cut its fiscal 2008 guidance last month because of price competition within the GPS market. Two of the three covering brokerage analysts lowered their fiscal second-quarter projections. The revised consensus estimate calls for profits of 76 cents per share, a 36-cent reduction from a month ago. HAR has missed twice during the past four quarters.

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.

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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.

The performance of the Zacks Rank portfolios for annual and year-to-date periods are the linked monthly total returns (price changes + dividends) of equal weighted hypothetical portfolios, consisting of those stocks with the indicated Zacks Rank, assuming monthly rebalancing and zero transaction costs. These are not the returns of actual portfolios. The hypothetical portfolios were created at the beginning of each month from January 1988 forward based on the values of the Zacks Rank available to Zacks' clients before the beginning of each month. The portfolios created monthly from 1988 through September 2006 exclude ADRs and are comprised of stocks that have the indicated Zacks Rank and were covered by at least two analysts at the time of the stocks inclusion in the portfolio. Starting in October 2006 and going forward, the portfolios are comprised of all stocks with the indicated Zacks Rank and do not exclude ADRs, which is more reflective of the list of stocks that customers will find on the Zacks web sites. These performance numbers have been audited from 1995 through 2003 by Virchow, Krause & Company, LLP.

The S&P 500 Index is a well-known, unmanaged index of the prices of 500 large-company common stocks, mainly blue-chip stocks, selected by Standard & Poor's. The S&P 500 Index assumes reinvestment of dividends but does not reflect advisory fees. An investor cannot invest directly in an index.

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:

Zacks.com
Charles Rotblut, CFA, 312-265-9352
pr@zacks.com
Visit: www.Zacks.com

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