Earnings Preview: Three Companies That Could Surprise

On Thursday, every stock that makes up the Dow Jones Industrial Average ended the day in the red. It marked the worst selloff since a 242-point plunge on Mar 13.

The end of last week was fairly rough in the market. Bond prices tumbled and yields rose. The yield on the benchmark 10-year Treasury note rose as high as 5.13% in early afternoon trading on Thursday, territory it hasn’t approached since July 2006. Bill Gross, chief investment officer for Pacific Investment Management Co. and manager of the world's largest bond fund, stated that the 10-year yield will top out at 6.5% over the next three to five years. This was higher than his original prediction.

Adding fuel (no pun intended) to the fire are concerns that rising gas prices may cut into consumers' spending going forward. Oil advanced 97 cents to settle at $66.93 a barrel yesterday. As far as the Fed, hopes for an interest rate cut later in the year are growing smaller by the day. On the contrary, investors are now growing more concerned that the Fed may actually raise interest rates to battle inflation.

Investors will no doubt keep their eyes on a slate of economic news scheduled for release this week. May retail and food sales will be announced on Wednesday, along with April business inventories. On Thursday, the May Producer Price Index figure will be made available. Last month the index gained 0.7%, after a 1% rise in March and a 1.3% increase in February. The Consumer Price Index for May is on the docket for Friday (up 0.4% last month and 0.2% when food and energy are excluded), along with May industrial production and capacity utilization.

Companies That Could Issue Positive Earnings Surprises during the Week of June 11 – June 15

On May 16, EnerSys (ENS), a maker of industrial batteries, announced that it expects fourth-quarter earnings per share of 22 cents on revenues of $414 million. Increased pricing enabled the company to issue the outlook which was above Wall Street’s expectations. The current consensus estimate for this quarter calls for profits of 17 cents per share. This marks a one-cent improvement when compared to the consensus of 30 days earlier. ENS exceeded analysts’ earnings expectations in four straight quarters by an average margin of 9.9%. In two of the four aforementioned quarters the company managed to surprise by a double-digit percentage. ENS is scheduled to report fourth-quarter fiscal 2007 results on Thursday, June 14.

Companies That Could Issue Negative Earnings Surprises during the Week of June 11 – June 15

Profit forecasts for Take-Two Interactive Software, Inc. (TTWO) have gotten progressively worse over the past 60 days. The consensus estimate currently calls for a loss of 55 cents per share. Two months earlier, analysts were forecasting a loss of 42 cents per share. TTWO reported a loss of 47 cents per share in the prior-year period, which amounted to a 370% negative earnings surprise. Even the full-year forecast has suffered over the same period of time, going from a loss of one penny 60 days ago to a loss of five cents currently. TTWO is scheduled to report second-quarter fiscal 2007 results on Monday, June 11.

Terremark Worldwide, Inc. (TMRK), a leading provider of global integrated internet services and applications, has a very poor track record when it comes to beating the Street’s earnings estimate. The company has surprised to the downside in three out of the past four quarters. Moreover, TMRK produced negative earnings surprises in six out of the last eight quarters. Four of the negative surprises were of the triple-digit percentage variety while two were double-digit. Thus, when the company misses the consensus estimate, it usually does so by a large margin. Profit forecasts for this quarter call for a loss of 11 cents per share. Looking at the consensus of a week earlier, analysts were projecting a loss of seven cents. One of the three covering analysts lowered his estimate. TMRK is scheduled to report fourth-quarter fiscal 2007 results on Thursday, June 14.