In its June statement, the Fed noted that the economy is expected to expand at “a moderate pace” and that there was an “ongoing adjustment in the housing sector”. Both of these observations continue to hold true, while the pace of inflation probably has not slowed enough to convince the Fed that rising prices are no longer a threat.
The Fed’s August meeting will be held during a week when the amount of economic data will be comparatively scarce and the pace of earnings news is slowing down. The first set of economic data will be published on Tuesday with preliminary second-quarter productivity data being released in the morning and June consumer credit being released in the afternoon. Wednesday features June wholesale trade numbers. July import price data will be released on Friday.
We have confirmed reports from 677 companies for the week of Aug 6-10. More importantly, the average size of the company reporting will be considerably smaller ($2.9 billion versus $6.1 billion for the week of Jul 30 – Aug 3), meaning that the reports will have less of an impact on market direction. Dow component American International Group (AIG) will report on Wednesday, Aug 8, after the close of trading.
The markets, unfortunately, have not reacted to what is a good second-quarter earnings season. The reason is concern about problems within the credit markets, fueled by the ongoing implosion in subprime and Alt-A mortgage loans. The return of volatility could create buying opportunities, particularly when one considers that the median company in the S&P 500 has reported 12.9% EPS growth and the median company within the S&P 600 (S&P 500, S&P MidCap 400 and S&P SmallCap 600) has generated 9.4% growth. In addition, earnings estimates, on average, have been revised upwards. Profits for the S&P 500 are currently forecast to reach $94.06 this year, which is 1.1% better than what brokerage analysts were projecting a month ago.
From a trading standpoint, it is important to realize that August can be a volatile month. The number of earnings reports will decline throughout the month, many Americans will be out on summer vacations and hurricane season tends to start reaching its peak near the end of the month. Given the focus on the credit markets, it is likely that the equity markets will continue to experience choppy waters over the next several weeks.
Companies That Could Issue Positive Earnings Surprises during the Week of Aug 6 - 10
Foster Wheeler (FWLT) has topped expectations by an average margin of 45 cents per share over the past four quarters. During the past month, one of the five covering brokerage analysts raised his forecast for second-quarter earnings, pushing the consensus estimate up by three cents to $1.33 per share. Foster Wheeler is scheduled to report on Wednesday, Aug 8, before the start of trading.
JA Solar Holdings (JASO) completed its IPO last February and then proceeded to top expectations for its first reported quarter as a publicly-traded company. Ahead of the Chinese solar cell manufacturer’s second-quarter report, brokerage analysts have been revising their projections upward. The consensus estimate calls for profits of 20 cents per share, two cents above the average projection of a month ago. JA Solar is scheduled to report on Wednesday, Aug 8, before the start of trading.
A strong summer season for the travel industry has led one brokerage analyst to raise his second-quarter forecast on Priceline.com (PCLN). The revision caused the consensus estimate to rise by two cents to 80 cents per share. The Most Recent Consensus is more bullish at 90 cents per share. PCLN has topped expectations during each of the past four quarters by an average margin of 14 cents per share. Priceline.com is scheduled to report on Tuesday, Aug 7, after the close of trading.
A recent upward revision to TBS International’s (TBSI) second-quarter consensus estimate suggests optimism about the shipping rates that the company was able to charge. During the past 30 days, one of the two covering brokerage analysts raised his forecast, sending the consensus estimate three cents higher to 55 cents per share. TBSI has topped expectations for three consecutive quarters by an average margin of 13.7 cents per share. TBS International is scheduled to report on Wednesday, Aug 8, before the start of trading.
Companies That Could Issue Negative Earnings Surprises during the Week of Aug 6 -10
Last month, Spectrum Brands (SPC) reduced its full-year revenue forecast to about $2.634 billion from its previous forecast of $2.648 billion. The company cited the adverse impact of dry weather conditions on its home and garden business and weaker-than-expected sales of batteries. The majority of the covering brokerage analysts cut their forecasts in responses, sending the consensus estimate down to a fiscal third-quarter loss of 10 cents per share. SPC has missed expectations three times during the past four quarters. Spectrum Brands is scheduled to report on Tuesday, Aug 7, before the start of trading.