Company Earnings – Get Ready for the Earnings Onslaught

by Chris Johnson and Jon Lewis | April 20, 2010 1:36 am

 

Now this is more like it. Sure, last week was the official kickoff to earnings season, only because Alcoa reported on Monday and Alcoa always leads the parade. But only around 20 S&P companies actually reported.

This week is another story, as around five times as many S&P companies step into the confessional to report results. The fireworks are already underway — major players such as Citigroup (C[1]), Eli Lilly (LLY[2]) and Halliburton (HAL[3]) rolled out their numbers on Monday. All three beat the consensus forecasts, although the post-earnings moves have been all over the map.

What’s In Store This Week?

Well, financial names will be prominent, even with Citigroup out of the way. A little firm named Goldman Sachs (GS[4]) has had a few news stories cross the wires of late that you may have noticed. They report Tuesday morning. But there’s more — Bank of New York (BK[5]), Morgan Stanley (MS[6]) and Wells Fargo (WFC[7]) are the biggest names.

And there are plenty of regional banks on the docket, including Northern Trust (NTRS[8]), Fifth Third (FITB[9]), KeyCorp (KEY[10]), M&T Bank (MTB[11]), U.S. Bancorp (USB[12]), Huntington (HBAN[13]), Hudson City (HCBK[14]), State Street (STT[15]) and SunTrust (STI[16]) Don’t forget other financial names, such as American Express (AXP[17]), Capital One (COF[18]), Janus (JNS[19]) and E*TRADE (ETFC[20]).

With all these financial firms reporting, this will obviously be a more active area in the market. The Goldman Sachs imbroglio will only add to the heightened volume. One thing we want to point out, though, is that we’re seeing lower Earnings Radar readings for the financials as a group. This tells us that there’s a higher probability of seeing “sell the news” reactions to many of these companies.

But It Isn’t All About the Financials This Week

We’ll see some interesting matchups in a number of sectors. In the wireless world, it’ll be AT&T (T[21]) on Wednesday versus Verizon (VZ[22]) on Thursday. In the airline sector, which has been hot lately despite rising oil prices, we’ll see Continental (CAL[23]) versus Southwest (LUV[24]), both on Thursday. Don’t forget Pepsi (PEP[25]) on Thursday vs. Coke (KO[26]) on Tuesday. And how about eBay (EBAY[27]) vs. Amazon (AMZN[28]) (OK, maybe that’s a stretch)? 

So let’s look at a few of these notable reports. The table below includes a slice of the action this week, with earnings report dates and what analysts currently expect for profit growth (compared to the same quarter a year ago). We also include a relevant moving average so you can see potential support or resistance — duration in days is in parentheses.

We give an idea of the overall sentiment toward the stock based on our various indicators. Keep in mind that optimistic sentiment represents higher expectations and thus can create some vulnerability if those expectations aren’t met. Conversely, pessimism reflects lower expectations that often lead to upside earnings surprises.

And we’re adding the Earnings Risk Index (ERI) score. This proprietary filtering tool ranks stocks from 1 (most bullish) to 5 (most bearish) based on a number of technical, sentiment and earnings-related factors. ERI is an added benefit for Winning Edge[29] subscribers, as we now send out reports on changes in ERI scores, especially for stocks that became “1s” or “5s.” 

Here’s the table for next week. Note that these names report no earlier than after the close on Tuesday, which gives you time to do some research before making a pre-earnings play.

Stock

Ticker

4/16
Close

Key MA
(day)

Sentiment

ERI

Earnings
Date

Profit Growth
Expectation

McDonald’s

MCD[30]

69.03

67.99 (20)

Optimistic

4

4/21

+16%

AT&T

T[21]

25.93

26.20 (20)

Optimistic

4

4/21

+2%

Amazon.com

AMZN[28]

142.17

136.70 (20)

Optimistic

4

4/22

+51%

Nokia

NOK[31]

14.94

15.29 (20)

Pessimistic

1

4/22

+100%

Verizon

VZ[22]

29.58

29.75 (50)

Mixed

2

4/22

-11%

 

Note that some recent high-flyers (McDonald’s and Amazon.com specifically) are rated lower by our ERI system. It’s not that these are bad stocks. To the contrary, they’ve been very strong. But we’re seeing some danger because the shares are overbought and sentiment is running high. That creates some vulnerability that tells us to stay away from these names. Look at GE, which suffered from a similar fate after reporting last Friday. 

Now let’s focus this week on another vulnerable name, AT&T (T), which reports on Wednesday before the open[32].  

Tell us what you think here.[33]

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Endnotes:
  1. C: http://studio-5.financialcontent.com/investplace/quote?Symbol=C
  2. LLY: http://studio-5.financialcontent.com/investplace/quote?Symbol=LLY
  3. HAL: http://studio-5.financialcontent.com/investplace/quote?Symbol=HAL
  4. GS: http://studio-5.financialcontent.com/investplace/quote?Symbol=GS
  5. BK: http://studio-5.financialcontent.com/investplace/quote?Symbol=BK
  6. MS: http://studio-5.financialcontent.com/investplace/quote?Symbol=MS
  7. WFC: http://studio-5.financialcontent.com/investplace/quote?Symbol=WFC
  8. NTRS: http://studio-5.financialcontent.com/investplace/quote?Symbol=NTRS
  9. FITB: http://studio-5.financialcontent.com/investplace/quote?Symbol=FITB
  10. KEY: http://studio-5.financialcontent.com/investplace/quote?Symbol=KEY
  11. MTB: http://studio-5.financialcontent.com/investplace/quote?Symbol=MTB
  12. USB: http://studio-5.financialcontent.com/investplace/quote?Symbol=USB
  13. HBAN: http://studio-5.financialcontent.com/investplace/quote?Symbol=HBAN
  14. HCBK: http://studio-5.financialcontent.com/investplace/quote?Symbol=HCBK
  15. STT: http://studio-5.financialcontent.com/investplace/quote?Symbol=STT
  16. STI: http://studio-5.financialcontent.com/investplace/quote?Symbol=STI
  17. AXP: http://studio-5.financialcontent.com/investplace/quote?Symbol=AXP
  18. COF: http://studio-5.financialcontent.com/investplace/quote?Symbol=COF
  19. JNS: http://studio-5.financialcontent.com/investplace/quote?Symbol=JNS
  20. ETFC: http://studio-5.financialcontent.com/investplace/quote?Symbol=ETFC
  21. T: http://studio-5.financialcontent.com/investplace/quote?Symbol=T
  22. VZ: http://studio-5.financialcontent.com/investplace/quote?Symbol=VZ
  23. CAL: http://studio-5.financialcontent.com/investplace/quote?Symbol=CAL
  24. LUV: http://studio-5.financialcontent.com/investplace/quote?Symbol=LUV
  25. PEP: http://studio-5.financialcontent.com/investplace/quote?Symbol=PEP
  26. KO: http://studio-5.financialcontent.com/investplace/quote?Symbol=KO
  27. EBAY: http://studio-5.financialcontent.com/investplace/quote?Symbol=EBAY
  28. AMZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMZN
  29. Winning Edge: http://www.optionszone.com/order/?sid=WU3153
  30. MCD: http://studio-5.financialcontent.com/investplace/quote?Symbol=MCD
  31. NOK: http://studio-5.financialcontent.com/investplace/quote?Symbol=NOK
  32. AT&T (T), which reports on Wednesday before the open: http://www.optionszone.com/trading-picks/earnings-trades/2010/04/att-t-earnings-trade.html
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