We’re now about halfway through third-quarter earnings season, and this round has been one to remember. Of the S&P 500 companies that have reported so far, about three quarters of them have posted earnings surprises.
However, only about half of those have beaten sales expectations. That’s because plenty of companies are cutting costs and buying back stock in an effort to boost earnings per share (EPS)…but the devil is clearly in the details.
This is why it pays to run your stocks through my Portfolio Grader screening tool on a weekly basis. That’s because this tool grades over 5,000 stocks on not one, not two, but eight fundamental dimensions. I also assess current levels of institutional buying pressure to assess each stock’s risk-to-return ratio.
And now is a great time to run your positions through Portfolio Grader because we’ve seen a lot of upgrades and downgrades over the past week. That’s because when a company reports earnings, I import the latest financial results; the new data have a big impact on each stock’s Fundamental Grade and Quantitative Grade.
Just take a look at the big names on Wall Street that have moved in the past few trading days.
Sony Posts “Make.Believe” Profits
By far, one of last week’s biggest disappointments was Sony (SNE). Shares plunged after the Japanese consumer electronics company reported a wider loss for the second quarter and lowered its full year guidance. While SNE shares rebounded, I wouldn’t buy it. Even with the company’s PlayStation 4 video game console about to hit shelves next week, I wouldn’t buy it. With the stock receiving failing grades for sales growth and earnings momentum, I’ve downgraded SNE to a hold rating.
TWC Enjoys Better Quarterly Results
On Halloween, Time Warner Cable (TWC) stole the spotlight when it posted stronger-than-expected third-quarter results, despite the fact that the company lost 306,000 subscribers during the blackout that kept CBS programming off air for a month. The company posted adjusted EPS of $1.69, handily beating the $1.64 average analyst estimate. TWC shares rose following the announcement and over the weekend my screens detected improving buying pressure. So I was compelled to upgrade TWC to a buy.
TRI’s Financial Terminals Finally Pay Off
And then there’s Thomson Reuters (TRI), which I also upgraded after Friday’s third-quarter earnings announcement. While the media company’s profits fell nearly 40% compared with the year ago quarter, Thomson Reuters beat the 44 cents per share consensus EPS estimate by 4 cents, or 9%. This, plus news of a new billion-dollar stock buyback program (and an earlier announcement that it’s cutting 3,000 jobs), sent TRI shares up over 7% over the past five trading days. So, for the first time since May, TRI stock is now a B-rated Buy.