Earnings reports are important catalysts for stocks. Not only do the earnings themselves move the stock price, management often uses these releases to disseminate important information about new developments at the company. Regarding the list below of intriguing companies, their earnings reports on Thursday could move the stock price and provide clarity to recent investor concerns.
Geron Corporation (NASDAQ:GERN)
The biopharmaceutical company develops drugs and treatments for cancer and chronic degenerative diseases. The company does not have any commercial drugs, and as such their expenses largely outweigh revenues. In 2010, the company lost $111.38 million. They have $221.27 million in cash and liquidity to finance operations. This capital should be sufficient to fund clinical operations for two years at the current burn rate. Investors should be weary if the expenses jump well above the 2010 loss rate of $111.38 million.
The company has a strong pipeline of drugs in Phase II trial, including GRNVAC1, which is meant to treat Acute Myelogenous Leukemia. Patient enrollment was completed in December 2009 and after 12 months, estimated disease-free survival was 81% for patients at high risk of relapse. The company could see significant upside and acquisition interest if any of its drug are approved for Phase III trials. In addition, the company could also benefit if it were to announce lower expenses, additional cheap financing or a strategic partnership that brought additional funding and future distribution. In addition to the drugs in Phase II trials, Geron's Phase I trial for spinal cord treatment, GRNOPC1, were accelerated because of positive results.
While the company is not expecting major scheduled drug trial announcements within the next 6 months, the earnings reports could still be a source of surprise updates from management. Because of the company's lack of commercial products, the stock price is significantly leveraged towards drug development updates.
Cliffs Natural Resources (NYSE:CLF)
The iron ore and metallurgical coal miner trades with a forward P/E of 6.97, a PEG ratio of 0.77 and EV/EBITDA of 8.17. The company has some customer concentration with ArcelorMittal (NYSE:MT), Algoma and Severstal representing 19%, 11% and 11% of total sales in 2010. Because of the consolidation in the steel industry over the last decade, this is not surprising. Cliffs also provides iron ore to China and Japan via their Australia operations. In the short run, this segment could be hurt by the disaster in Japan, but longer term, the company could benefit from Japan's reconstruction.
Investors should watch for additional updates on the acquisition of Consolidated Thompson Iron Mines which will give the company an interesting relationship with a Chinese based steel mill. Wuhan Iron & Steel owns a 19% stake in Consolidated and following the acquisition, Wuhan will receive guaranteed iron ore output. This deal should significantly increase Cliffs Natural's international revenues.
While Cliffs Natural has been an acquirer, they could eventually be viewed as an attractive acquisition target, especially if iron ore supply remains constrained and the US dollar continues to weaken. Management stands to reap significant profits in a buyout and this could ensure their eagerness to sell Cliffs Natural. In addition to CEO Joseph Carrabba's 177,240 shares beneficially owned as of December 31, 2010, he also stands to earn $31,999,979 under a change of control. Between Carrabba's large stake and sizable potential change of control package, shareholders should stand to benefit.
The company trades cheap based on trailing earnings, but investors should be mindful that Cliffs Natural is very sensitive to underlying commodity prices. In 2009, when iron ore and steel prices were lower, the company's revenues were 50% less and production tonnage was around 30% lower. Investors who are bullish on iron ore and steel demand should take a closer look at Cliffs Natural.
Exxon Mobil Corp (NYSE:XOM)
Following the massive run up in crude oil and distillate prices, the bellwether energy company could provide insight into reasonable expectations for future spot price. The company may also provide commentary on marginal production costs, revealing if the marginal cost of oil is rising as fast as the spot market.
The company has aggressively grown production through acquisitions and discoveries. For example, they purchased natural gas producer XTO Energy for an announced $41 billion deal price at the end of 2009, worked on an ambitious liquid natural gas facility in Qatar and recently discovered a second oil field in the Cepu Block a decade after their Indonesian segment discovered the first field.
With a forward P/E of 9.53 and price/sales of 1.25, it's a cheap company relative to the broad market, but it has only average valuations among integrated petroleum companies which will continue to make acquisitions to offset production declines from aging oil assets.
Motorola Mobility (NYSE:MMI)
This is the company's first earnings report as an independent company following the spin-off from Motorola Solutions. This is also the first earnings report that will include sales from the market's first Android Honeycomb tablet, the Xoom. While Apple's (NASDAQ:AAPL) iPad sales were strong in the most recent quarter, investors will learn more about how successful iPad competitors like the Xoom were at gaining market share.
The company's future is uncertain as it fully adopts Google (NASDAQ:GOOG) Android as their mobile device platform. The company reported a loss on $11.46 billion of revenues. Based on current price/sales of 0.64, it trades at a similar valuation to Nokia's (NYSE:NOK) price/sales of 0.51, which isn't surprising considering that both companies are undergoing similar platform transitions. Still, the consumer electronics business is fickle and Motorola Mobility's revenue history illustrates the upside potential when a company hits on a popular product.
In 2006, when Motorola had the popular Razor family of cell phones, the company generated revenues of $31.81 billion. While we prefer to stay away from this company until we have a better feel for their competitive niche in this industry, investors should view this company as an aggressive and risky bet on Apple alternatives.
One hidden reason to bet on Motorola Mobility is CEO Sanjay Jha's massive stake in the company. According to the company's recent 2010 Proxy, Jha beneficially owned 4,091,452 million shares. This ensures that Jha's interests will be aligned with those of passive minority interest shareholders.
Sprint Nextel Corp (NYSE:S)
Following AT&T (NYSE:T) and Verizon's (NYSE:VZ) strong earnings, investors should pay close attention to earnings from Sprint. The markets will find out if the success of other major carriers came at Sprint's expense. Between 2007 and 2010, the company has had wireless postpaid annual net subscriber losses of 1.22 million, 4.07 million, 3.56 million and 0.86 million. While net subscriber losses finally moderated last year, the company lost an estimated $2.4 billion in revenues from the 2009 and 2010 losses. Any change in this trend would provide substantial upside and bring Sprint's valuations closer to those of its peers. In addition, there may be more clarity on the Clearwire (CLWR) partnership, after recently agreeing to pay the 4G network provider at least $1 billion for two years of wholesale service.
The company's financial strength is understated by their accrual based income. In 2010, Sprint generated $4.815 billion of cash flow from operating activities vs capital expenditures of $1.935 billion. The company's cheap valuations have not gone unnoticed. David Einhorn's Greenlight Capital owns 55.9 million shares of the stock.
Tyco International (NYSE:TYC)
This is the company's first earnings report since the rumored acquisition interest from French conglomerate Schneider. Management may provide further details to investors during the earnings call question and answer session. Tyco has strong valuations and strong assets. They have a forward P/E of 13.72, a price/sales of 1.35 and a price/book of 1.65.
The company's attractive tax rate in Switzerland makes Tyco a more likely acquirer than a target. In the year ending September 2010, Tyco's effective tax rate was 10.8%. With this rate, the company can extract significant value by just acquiring companies in higher tax bracket regions. If Tyco is targeted as an acquisition, United Technologies (NYSE:UTX) or Honeywell (NYSE:HON) are frequently listed as the most likely suitors. Though investors should remember that Honeywell is subject of its own pressure to enhance shareholder value by possibly breaking itself up.
Disclosure: I own shares of Tyco and may initiate a long position in S over the next 72 hours.