This week marks the start of the quarterly silliness known as earnings season. Are you ready?
Over the next several weeks, billions of dollars worth of market capitalization will be added and shed based on how well traders guess the guesses of some 26-year-old analyst on Wall Street about how well a company performed in the first three months of 2016.
A financial snapshot of three months of a corporation’s life span is a ridiculous way to evaluate a company, but that’s not going to stop everyone from doing it.
Earnings for the S&P 500 are estimated to have declined by more than 9% during the quarter, which could set some blue-chip stocks up for a price decline when they report disappointing earnings to traders and investors. Here are three such blue chips to keep an eye on.
Blue-Chip Stocks to Watch: American Express Company (AXP)
American Express (AXP) is another company that could have a tough time when it reports earnings for the quarter. The financials company is seeing declines in billable as the lower cost of gasoline and the stronger dollar are restricting top-line growth.
Amex is also dealing with a very competitive marketplace, and many other credit card companies are seen as offering better deals for consumers and merchants alike.
AXP has bolstered the bottom line with large buyback programs, but the practice of managing earnings via share repurchases and other financial engineering methods is falling out of favor with large investors.
The average estimate is for American Express to earn $1.35 this year, down from a $1.48 last year. If it falls short, AXP stock could see heavy selling. Amex will report earnings April 20 after the market close.
Blue-Chip Stocks to Watch: BB&T Corporation (BBT)
BB&T (BBT) is one of the best of the largest banks in the country, but even it can’t overcome the hurdles faced by big banks today.
Loan demand remains weak and net interest margins are near historic lows. BB&T has posted four consecutive negative earnings surprises and analysts have lowered projections for the current quarter, as well as for 2016 and 2017.
As we near the peak of the credit cycle, there is a strong chance the bank will reduce earnings further by increasing loan loss provisions above 2015 levels.
BB&T has one of the best CEOs in banking in Kelly King, as well as a great management team, but it’s sailing into the wind right now. If BBT falls short of the consensus estimate of 64 cents, BBT shares could see a fresh wave of selling drive the price lower. BB&T reports the morning of April 21.
Blue-Chip Stocks to Watch: International Business Machines Corp. (IBM)
IBM (IBM) has seen the estimates for this quarter and this year decline sharply in the past few months.
Big Blue is expected to earn just $2.08 for the first three months compared to $2.91 last year. In the face of a stronger dollar and weakened global economy, IBM is struggling to produce revenue growth. Size has been a problem for IBM as many of its competitors are much smaller and able to quickly adapt to meet the demands of the marketplace.
IBM has managed its earnings with massive stock buybacks, but could fall even further out of favor with large institutional investors if it fails to hit the consensus estimate.
IBM delivers its earnings news on April 18 after the markets close.
As of this writing, Tim Melvin did not hold a position in any of the aforementioned securities. He is the author of the Banking on Profits newsletter covering the community bank stock opportunity and the Deep Value Report that seeks out undervalued stocks that are likely to survive until they thrive and capture the value effect that has been proven to beat the market over time.