Earnings Preview: Four Companies That Could Surprise This Week

This week will be one with few catalysts. Fourth-quarter earnings season is mostly over. Fiscal first-quarter reports from investment bankers will not be released for another 10 days. The number of earnings estimate revisions will likely drop in aggregate. Outside of February employment numbers, there will not be much economic data to influence market direction.

Given the lack of catalysts, the most likely scenario would be for the markets to fluctuate on a daily basis. Placing downward pressures on the markets are the downward drift in full-year forecasts, the below-trend growth of the economy, the break of the major indexes’ upward trend and the fact that the speculators were given a jolt on Tuesday.

Bullish factors include sustained profit and economic growth, private equity and M&A activity, stock repurchase programs and historical trends. After sharp declines such as Tuesday’s, the markets have generally been higher 30 and 60 days later. In addition, the Stock Trader’s Almanac states that pre-election year Marches are riding a streak of 11 consecutive gains.

Nonetheless, stocks never continuously rise in a straight line. Given the lack of short-term catalysts, I would expect the markets to fluctuate on a daily basis. For investors, this type of environment will provide buying opportunities to those who are selective and patient. For traders, the environment will reward quick decisions, the ability to go both long and short and plain luck.

There are only 150 companies confirmed to report next week. Out of this small group, just two are members of the S&P 500: ADC Telecom (ADCT) and National Semiconductor (NSM).

On the economic front, the ISM will release its February services index on Monday morning. Tuesday brings revised fourth-quarter productivity and January factory orders. January consumer credit data will be published on Wednesday afternoon. Thursday has its weekly initial jobless claims. February employment data, January trade gap and January wholesale inventory numbers will be released on Friday.

Companies That Could Issue Positive Earnings Surprises During the Week of Mar 5 - 9

A few weeks ago, Big Lots (BIG) reported fourth-quarter same-store sales growth of 4.9%. The increase was at the high-end of the discount retailer’s guidance and reflected a strong holiday shopping season. Two of the four covering brokerage analysts promptly adjusted their forecasts, causing the fourth-quarter consensus estimate to rise three cents to 71 cents per share. The Most Recent Consensus is more bullish at 72 cents per share. BIG has topped expectations for three consecutive quarters by an average margin of 10 cents per share. Big Lots is scheduled to report on Friday, Mar 9.

Fourth-quarter forecasts have been rising on Esterline Technologies (ESL). Within the past 30 days, the consensus estimate has jumped from 33 cents to 39 cents per share. The Most Recent Consensus is even more bullish at 41 cents per share. Aerospace profits have been very strong this earnings season, as I stated in the Jan 31 Industry Rank Analysis, and this could be a reason for the optimism. (ESL is a supplier to aerospace and defense companies.) Esterline Technologies is scheduled to report on Monday, Mar 5, after the close of trading.

Companies That Could Issue Negative Earnings Surprises During the Week of Mar 5 - 9

National Semiconductor (NSM) cut its revenue guidance a few weeks ago, citing lower-than-expected shipments. The chip company anticipates reporting a sequential revenue decline of 14% to 15% instead of the 8% to 11% decline it had previously forecast. Nearly all of the covering brokerage analysts cut their forecasts, causing the consensus estimate to fall by two cents over the past 30 days to 20 cents per share. The Most Recent Consensus is more bearish at 19 cents per share. NSM’s streak of 14 consecutive surprises was interrupted last quarter when the company met expectations. The company last reported a negative surprise in Mar 2003. National Semiconductor is scheduled to report on Thursday, Mar 8, after the close of trading.

Progressive Gaming International (PGIC) cut its revenue guidance last week. Citing a postponement of some installations until 2007, the company issued a fourth-quarter revenue forecast of $16 to $17 million; previously, the company had forecast revenues to be in the range of $21 to $23 million. Two of the four covering brokerage analysts promptly lowered their projections in response. The consensus estimate now calls for a loss of 13 cents per share in the fourth quarter, four cents below the estimate of a month ago. The Most Recent Consensus is more bearish at 19 cents per share. PGIC has missed expectations three times in the past four quarters. Progressive Gaming is scheduled to report on Monday, Mar 5, after the close of trading.

Charles Rotblut, CFA, is Senior Market Analyst for Zacks.com