Smurfit-Stone Looks a Bit Rich For My Taste Heading Into Earnings

Smurfit-Stone Container Corporation (SSCC) will release its second quarter 2007 results on Thursday, July 26, 2007 after market close. The company’s earnings have been disappointing in three of the last four quarters and estimates have come in sharply, yet the earnings are still expected to break even compared with a loss last year. The big question is whether the reduced earnings estimates have gone far enough.

As the PPI chart demonstrates, industry pricing power isn’t what it used to be. Furthermore, pricing has experienced much worse environments, which would suggest that investors shouldn’t count on this being the bottom.

click to enlarge

Yet despite all of this, the stock is doing well.

SSCC 1-yr chart:

It looks a little rich for my taste.