Although the number of earnings reports is high, profit news should not be as influential in determining market direction. The reason is that many of the mega-cap companies have already reported – as of Thursday evening, almost 300 companies within the S&P 500 had reported. This isn’t to say that profit reports won’t continue to grab the headlines, but rather to say that the impact could be more industry specific. Nonetheless, the markets will notice any change in the overall trend.
The good news is that the trend is bullish. Among companies within the S&P 500, approximately four companies are exceeding expectations for every one that is missing. Extending the range to the S&P 1500 (S&P 500, S&P Midcap 400 and S&P Smallcap 600), the ratio of positive to negative surprises is 2.3:1. Median growth rates are 10.5% for the S&P 500 and 8.8% for the S&P 1500.
Economic news might impact investor sentiment. The week starts out with March personal income and personal spending data. Soon after, the April Chicago PMI and March construction spending figures will be released – a lot of data for a Monday morning. Wednesday brings March factory orders. Preliminary Q1 productivity numbers will be issued on Thursday along with the April ISM services index. Friday will be highlighted by the April employment numbers. Pay attention to the productivity and employment reports, because the Fed’s next meeting is on May 9. (No change in rates is likely to occur, but the statement will be closely analyzed for a hint of what the Fed plans to do in the future.)
Companies That Could Issue Positive Earnings Surprises During the Week of Apr 30 – May 4
More driver and iron sales led Callaway Golf (ELY) to preannounce first-quarter profits of between 46 to 48 cents per share. The company is seeing early strong demand for higher margin products such as the FT-i and the FT-5 fusion technology products. Three of the four covering brokerage analysts have raised their forecasts in response, pushing the consensus estimate up seven cents to 45 cents per share. The Most Recent Consensus is more bullish at 47 cents per share. ELY had missed four consecutive times before matching estimates last quarter, so suggesting that the company will beat expectations is a gutsy call. Callaway Golf will report on Thursday, May 3, after the close of trading.
Cephalon (CEPH) told investors on Wednesday that it expects first-quarter adjusted income to be in a range of $1.40 to $1.45 per share. The revision equates to an approximate 50% increase in the company’s guidance. CEPH said lower expenses and improved sales of its pain medications are behind the upward revision. The consensus earnings estimate was promptly raised in response to the new guidance from 87 cents per share to $1.43 per share. CEPH has surprised to the upside during each of the past four quarters. Cephalon is scheduled to report on Tuesday, May 1, after the close of trading.
Novatel Wireless (NVTL) recently raised its first-quarter guidance. The company is experiencing strong demand from for its wireless products and accelerated some orders slated for the second quarter into the first quarter. Three of the 11 covering brokerage analysts revised their forecasts following the new guidance, pushing the consensus earnings estimate up six cents to 27 cents per share. The Most Recent Consensus is more bullish at 29 cents per share. It should be noted that two months ago, the first-quarter consensus estimate called profits of just four cents per share. NVTL has exceeded expectations during three out of the past four quarters, though third-quarter profits were two cents below expectations. Novatel Wireless is scheduled to report on Tuesday, May 1, after the close of trading.
Approximately half of the covering brokerage analysts have raised their first-quarter profit forecasts on Sunoco (SUN) within the past 30 days. These revisions have resulted in the consensus estimate rising eight cents to $1.33 per share. The Most Recent Consensus is more bullish at $1.41 per share. SUN has topped expectations during each of the past three quarters. Sunoco is scheduled to report on Wednesday, May 2, after the close of trading.
Companies That Could Issue Negative Earnings Surprises During the Week of Apr 30 – May 4
Plains Exploration & Production Company (PXP) has missed expectations for six consecutive quarters. During the past 30 days, three of the four covering analysts have cut their forecasts for first-quarter earnings. The revisions have caused their consensus estimate to drop 18 cents to 27 cents. The Most Recent Consensus is more bearish at 26 cents per share. Plains Exploration & Production is scheduled to report on Thursday, May 3, before the start of trading.
Charles Rotblut, CFA, is the senior market analyst for Zacks.com.