Earnings season is in full swing, with the earnings report from industrial stalwart Alcoa (NYSE:AA) marking the official start last week. The aluminum giant put in a strong showing with its results and traders bid up share prices more than 5% on the news.
Beyond that glowing report, it was more of the same for a market that is quite overbought and earnings that seem to be reaching a ceiling. Earnings reports from three other major companies — Fastenal (NASDAQ:FAST), Google (NASDAQ:GOOG) and JPMorgan (NYSE:JPM) — were not all that bad in and of themselves, but each was met with skepticism by investors and sold off slightly.
As for the macro environment, stocks are showing signs of weakness thereby decreasing the arbitrage opportunity for shorting stocks set to release earnings results. The major indexes traded lower last week.
It wasn’t a huge loss for investors for sure, but the multiple down days last week may be the start of something more significant. Shares of Alcoa took one step backwards late in the week after being up nicely after its report.
Economy is better but still shaky
The biggest takeaway from last week was that those short stocks reporting results are unlikely to get hurt much if the trade moves in the opposite direction. There simply is not enough lift in stocks at the moment to support any sort of meaningful gains.
Talk of further stimulus from the Federal Reserve, usually a sure boost for stocks, is going by the way side. More importantly, valuations are such that only blowout earnings can push stocks higher. What are the odds of big earnings beats?
Yes, the economy is doing better, but we are shaky ground here at best. Unemployment remains high and workers seem to be doing more for less. In addition, we are now a few years removed from the financial crisis. In terms of the business cycle we are nearer the end of the current cycle than we are at the beginning.
That means investors can’t count on pent-up demand to spur things higher.
There is more, but I think you get my point. Reading the tea leaves today suggests that we are at an inflection point. It’s not the end of the world mind you, but it is simply difficult at the moment to project stocks being higher at this moment.
With that, here are three companies reporting results over the next two days to trade:
eBay (NASDAQ:EBAY), the big online auction site, reports results for the quarter ending March 31, 2012 on Wednesday (April 18) after the market closes. Wall Street expects eBay to earn 52 cents per share in the quarter. That estimate is 2 cents per share lower than 90 days ago. eBay has matched or exceeded estimates in each of the last 4 quarters. Shares of eBay are up 13% over the last 12 months. Analysts expect profits to grow by 13% in 2012. At current prices, shares trade for 15.5 times 2012 estimated earnings.
Stanley Black & Decker
Stanley Black & Decker (NYSE:SEK), which makes power and hand tools and security systems, reports results for the quarter ending March 31, 2012 on Wednesday (April 18) after the market closes. Wall Street is looking for a profit of $1.13 for the quarter. Some 90 days ago, analysts estimated it would earn $1.26 per share. Stanley Black & Decker has exceeded estimates in each of the last four quarters and its shares are up 1% in the last year. Analysts expect profits to grow by 12% in 2012. At current prices, shares trade for 13 times 2012 estimated earnings.
Travelzoo (NASDAQ:TZOO), a travel newsletter and Internet media company, reports results for the quarter ending March 31, 2012 on Thursday (April 19) before the market opens. Wall Street expects Travelzoo to post a profit of 41 cents per share in the period. That estimate is the same as where it stood 90 days ago. The company has beaten expectations in three of the last four quarters. Shares of Travelzoo have dropped by 65% in the last year. Analysts are expecting profits to grow by 8% in 2012. At current prices, shares trade for 17 times 2012 estimated earnings.