Earnings Preview: Three Companies That Could Surprise

Memorial Day. Soldiers are remembered, women can start wearing white and CFA candidates are busy cramming for the June 2 exams. The markets will, of course, be closed.

Memorial Day week have a limited number of earnings reports. Out of the 61 companies reporting, 10 are members of the S&P 500 including Ciena (CIEN), Dell (DELL) and Sears Holdings (SHLD). Some merger deals may be announced, but market direction will mostly be determined by investor sentiment.

Economic data could influence sentiment. The Conference Board will release its May consumer confidence survey results on Tuesday. Minutes from the May 9 Federal Open Market Committee (aka "the Fed") meeting should be published on Wednesday. Thursday features the first revision to first-quarter GDP, April construction spending and the May Chicago PMI index. Friday features May employment data, the May ISM manufacturing survey, April personal spending and income and the University of Michigan's final May consumer confidence index. Yes Virginia, that is a lot of data.

The ability of the markets to build on recent gains will also be watched closely. The S&P 500 has struggled to advance into record territory, an indication of resistance. Continued failure to move higher will be viewed as a short-term bearish event. It's worth noting, however, that the broad-based index is only up about 6.6% year-to-date - hardly a sign of irrational exuberance. More importantly, the S&P 500 is trading at just 16.3x projected 2007 profits and the trend in earnings estimate revisions has been positive in response to first-quarter earnings. Nonetheless, stocks never rise in a straight line, it now costs $50 to fill up my wife's Honda Accord, the Middle East is still unstable and those cicadas are about to bug everyone.

But summer does brings sun, outdoor concerts and vacations, so put a smile on your face and enjoy the warm weather.

Companies That Could Issue Positive Earnings Surprises during the Week of May 28 - June 1

DryShips (DRYS) ended a streak of three consecutive misses when it reported better-than-expected fourth-quarter profits last February. One analyst recently revised his first-quarter projections higher, a precursor to possibly another strong report. The revision pushed the consensus estimate up six cents to its current level of 94 cents per share. DryShips is scheduled to report on Wednesday, May 29, after the close of trading.

Dollar Tree (DLTR) recently said that same-store sales rose 5.8% in the first quarter. The discount retailer credited better inventory management and "strong seasonal sales". Nine analysts raised their first-quarter profit projections following the release of the data, sending the consensus estimate two cents higher to 36 cents per share. DLTR has topped expectations three times in the past four quarters. Dollar Tree is scheduled to report on Wednesday, May 30, before the start of trading.

Companies That Could Issue Negative Earnings Surprises during the Week of May 28 - June 1

Earlier this month, Sears Holdings (SHLD) stated that same-store sales at K-Mart declined 4.7% and domestic same-store sales at Sears declined 2.4% during the first quarter. The company blamed fewer transactions at K-Mart and a drop in appliance sales at Sears for the weakness. Based on the sales data, SHLD anticipates reporting earnings of $1.30 to $1.53 per share - a range that includes 27 cents of special items. All of the covering brokerage analysts cut their forecasts following the company's guidance. The first-quarter consensus estimate of $1.21 is 25 cents below the forecast of a month ago. SHLD has both exceeded and missed expectations during the past two quarters. Sears Holdings is scheduled to report on Thursday, May 31.