With expiration week behind us, we may get a truer feel for the market’s thoughts on the current earnings season this upcoming week. Instead of focusing on the 10 most popular earnings reports due this week, we thought it would be helpful to focus on 10 companies whose stocks lie just below 52-week highs. Assuming that earnings are good for most, if not all, of these companies, the big thing that we are watching for is the reaction to the earnings. Intel’s (INTC) report last week seems to point to a lot of good news already being priced into current prices. The reaction to the following 10 reports may offer investors important clues as to the short-term direction of where markets go from here. This is our main reason for intently watching them and highlighting them here in this post.
PH reports on January 19th AM
Recently, Deutsche Bank upgraded Parker-Hannifin to Buy from Hold and raised their target to $65 from $62. They believe earnings are highly levered to an economic recovery that could deliver substantial upside potential to both firm and consensus estimates. They think the stock is trading at a very reasonable multiple at 18 times earnings.
IBM reports on January 19th PM
This is the report that most of the Street will be waiting for this week. IBM seems sure to eclipse the consensus of $3.47 for the quarter. The Street is looking for $10.88 EPS for 2010. Based upon the especially strong report and guidance issued by Infosys last week, odds suggest that IBM will be able to raise 2010 numbers. As IBM continues to make software a bigger part of their overall revenue mix, it seems just a question of when the market will raise its multiple on the company. We are already long IBM stock and are planning on buying into the February 130 calls on tomorrow’s opening. Of all of the reports in this post, IBM is our highest conviction idea “earnings bet” heading into this week’s trading.
DOX reports on January 20th PM
We like the odds for an upbeat report from Amdocs. The company has beaten estimates the past two quarters. Recently there have been many analysts upgrades from companies such as GS (upgraded to buy), while RBC has increased their price target to $38 from $32. The stock acts well technically, riding its 50 day SMA consistently since its last earnings report.
WGOV reports on January 20th PM
We aren’t expecting blow out numbers from the airline segment within Woodward Governor. They do have very good prospects on longer term energy control opportunities and also in the industrial and power markets. The analyst at Baird upgraded WGOV last week. Baird feels that the market is underestimated the company’s 2011 growth prospects. In their last earnings call they mentioned:
We are optimistic that most of our businesses are bottoming out now or will in the near future. Signs of stabilization and a possible second-half recovery are appearing in many of our markets.
Looking forward to hearing about the guidance.
FFIV reports on January 20th PM
Last quarter F5 had great numbers and gave great guidance. In their last report, they issued upside guidance for Q1 (Dec), seeing EPS of $0.47-0.49 vs. $0.43 consensus with revenues of $182-187M vs. $169.3 M consensus. As tech spending continues to recover, the application delivery networking market will continue to enjoy industry-leading growth and profitability. Recently, Boenning & Scattergood reported that F5 has multiple catalysts in place which will drive growth and profitability beyond what is embedded in consensus expectations for 2010.
PNC Financial Services has to be one of the strongest financial stocks in the market right now. The stock has been consistently riding its 50 Day SMA since it smashed earnings estimates last quarter. Is another surprise in the making? With the banking group unable to make higher highs of late, one has to wonder whether PNC will be able to do so by itself.
Precision Castparts has been acting very strongly of late with its stock riding its 20 day SMA over the past month. During Friday’s sell-off the stock was even able to hold this short-term moving average -impressive action. Last week Broadpoint AmTech came out with a report stating that within aerospace, the firm believes the aftermarket remains the best vertical and PCP most levered to it. They raised their target to $135 from $119.
ISRG reports on January 21st PM
Intuitive seems priced to perfection in here. Nevertheless, the company has delivered the past two quarters and based on how powerfully the stock is acting, one cannot help but wonder whether some market participants know something ahead of this report. Short interest has recently moved up to 4.48 Million shares, from 3.9 M shares short. Even with this increase, shares short only represent about 11% of its fully diluted share count. Add it all up and ISRG should make for one very interesting report.
NTCT reports on January 21st PM
For those of you who don’t know NetScout the company's primary product suite monitors, collects, and publishes information on the behavior of individual applications and services, such as voice over Internet protocol, streaming media, electronic trading, supply chain management, interactive smart phone applications, and customer relationship management. The company has partnerships with CSCO and HP. Last quarter they issued upside EPS guidance for FY10 of $0.85-0.95, excluding non-recurring items, vs. $0.83 consensus, with revenues of $260-270 M vs. $261.82 M consensus.
On their last conference call CEO, Anil Singhal, mentioned to an analyst that they are not seeing any competition. We have a feeling that this could be another good quarter for NTCT.
JCI reports on January 22nd AM
Johnson Controls is a strong stock in the strong automotive group. Another underappreciated part of JCI’s business relates to the phase out of HCFC 14 and 22. For those who don’t speak HVAC, this is the refrigerant that cools/heats your home. We have recently spoken with a few heating/AC technicians and HD and LOWE'S (LOW) customer service representatives and they have all mentioned this is going to become the new standard. Each system for an average size home is north of $4500 and can get considerably higher depending on the size of the home. Kaufman last month stated that this could be an equipment upgrade worth over $100 billion over time. They also noted that they are gaining share in the automotive component market. Kaufman has a $38 price target.
This article was collaborated on by Michael McCausland and John Henderson.
Disclosure: Long IBM stock and getting long IBM calls on Tuesday morning.