Retail in the Spotlight - Earnings Preview

Earnings Preview 2/19/10

Earnings Season is winding down, but that does not mean it is over. Next week will bring 570 earnings reports, including 57 members of the S&P 500. The focus will mostly be on the retailers, with such heavyweights as Home Depot (HD), Target (TGT), Lowe’s (LOW) and Macy’s (M) expected to report.

Housing will take center stage on the economic data front, although the most important report will be the second cut at 4th quarter GDP, which is due out on Friday.

Monday
• Nothing particularly noteworthy on the economic data front

Tuesday
• The Case-Schiller home price index for December is released. The year-over-year decline in home prices is expected to moderate to 3.0% from 5.3% in November. Housing prices do show some seasonality, so when doing an analysis of the numbers, use the seasonally adjusted ones, which is something that most press reports regularly fail to do. Housing prices are being propped up by the government (tax credits and the Fed buying mortgages). The big question is what happens to housing prices after those supports come off in the spring
• The consumer confidence index is expected to have declined slightly to a reading of 55.0 in February from 55.9 in January. In theory, consumer confidence and the consumer sentiment index -- which will come later in the week -- should help tell if consumers are in the mood to open up their wallets, and thus strengthen the economy. However, in practice, the forecasting ability of these numbers is limited

Wednesday
• The day will start off with a very important measure of the housing market, New Home Sales. Sales are expected to have picked up slightly to an annual rate of 350,000 (seasonally adjusted) from 342,000. The good news we got on housing starts this week will only remain good news as long as it is matched by an increase in sales -- otherwise it just means that the inventory situation is getting worse. New home sales are FAR more important to the economy than existing home sales. They directly influence Residential Investment, which is one of the most important drivers of the economy coming out of recessions. Existing home sales have only an indirect effect on the economy, and are mostly a concern for used home dealers (a.k.a. realtors). A year ago, new home sales were running at a 329,000 rate, so we should be up nicely on a year-over-year basis, but it will be a very long time (decades?) before the record pace of 1.389 million of July 2005 is seen again

Thursday
• Weekly initial claims for unemployment insurance come out. They rose 31,000 in the last week, to 475,000. That reversed the previous week’s decline. The overall trend for the last several months has been down, but the pace has been erratic of late. We probably need for weekly claims (and the four-week moving average of them) to get down to near 400,000 to signal that the economy is on balance adding jobs. We are a lot closer now than we were last spring, when they were running north of 600,000 on a consistent basis, but still have a ways to go
• Continuing claims have also been in a steep downtrend of late. However, that is in part due to people simply exhausting their regular state benefits which run out after 26 weeks. If one factors in the extended claims paid by the Federal government as part of the Stimulus program, claims soared last week. Looking at just the regular continuing claims numbers is a serious mistake. They only include a little over half of the unemployed now given the unprecedentedly high duration of unemployment figures. Last week, regular continuing claims were 4.568 million, unchanged from the previous week.  Extended claims (paid from Federal ARRA funds) were 6.004 million, an increase of 275,000. Make sure to look at both sets of numbers!
• New orders for Durable Goods are expected to have increased by 1.5% in January, a sharp acceleration from the 0.3% increase in December
• The Federal Home Financing Agency (FHFA) housing price index is expected to show an increase of 0.4% in December on top of a 0.7%. rise in November. Generally, though, the Case-Schiller index released earlier in the week is considered a better indicator of housing prices, and this will be of interest only if it diverges significantly from the Case Schiller index

Friday
• The second look at the 4th quarter GDP is due out. The first cut showed growth of 5.7%. Since then, the Trade deficit came in higher than expected, which will serve to lower the growth rate for the quarter, but housing starts and industrial production for December were revised upwards, which will tend to increase the growth rate. Net-net, look for a small downward revision to 5.6% growth
• The Chicago Purchasing Managers Index (PMI) is expected to dip to 59.0 from 61.5 in January. That level would still indicate very healthy growth, as anything over 50 means the economy in the region is expanding
• The University of Michigan Consumer Sentiment Index is expected to have risen slightly to 73.9 from 73.7 in January
• Existing home sales are expected to rise slightly to a 5.50 million annual rate in January from 5.45 million in December. Of more importance than the pace of sales will be the data on median prices, and on the level of inventories relative to sales

Potential Positive Surprises

Historically, the best indicators of firms which are likely to report positive surprises are a recent history of positive surprises and rising estimates going into the report. The Zacks Rank is also a good indicator of potential surprises. While normally firms that report better-than-expected earnings rise in reaction, that has not been the case so far this quarter. Some of the companies that have these characteristics include:

Tenet Health Care (THC) is expected to report EPS of $0.01, up from a loss of $0.02 per share a year ago. Last time out, THC posted a positive surprise of 250% (OK, it was a very low base, so take that percentage with a grain of salt), and over the last month the mean estimate for its fourth quarter earnings is up 44.4%. THC has a Zacks #1 Rank.

The Limited (LTD) is expected to report EPS before non-recurring items of $0.98, up from $0.68 a year ago. In the 3Q, LTD posted a positive surprise of 300% (again, off a very low base) and over the last month the consensus estimate for its 4Q earnings is up an awesome 620%. LTD is a Zacks #1 Rank stock.

Macy’s (M) is expected to earn $1.32 per share this year, up from $1.06 a year ago. In the third quarter they posted a 66.7% positive surprise. Over the last month, the mean estimate for the 4Q is up 12.0%. M holds a Zacks #1 Rank.

Potential Negative Surprises

Salesforce.com (CRM) is expected to post $0.15 a share, an improvement over the $0.11 a share a year ago. Last time they reported in-line with expectations. For this Zacks #4 Rank stock, analysts have cut the estimates for this quarter slightly over the last month by 0.23%.

Pepco Holdings (POM) is expected to earn $0.19 a share this quarter, down from $0.32 last year. They had a positive surprise of 12.8% last time out, but analysts have cut the estimate for this quarter by 17.4% over the last month. The stock holds a Zacks #4 Rank.

Blockbuster (BBI) is expected to report a loss of $0.17, down from profits of $0.40 last year. Last quarter they reported 66.7% short of expectations. Over the past month, analysts have cut the estimate for this Zacks #5 Rank stock by 312%, going from a profit to a loss.

Earnings Calendar

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

Don't Miss Any Updates!

News Directly in Your Inbox

Subscribe to:

Benzinga Premarket Activity

Benzinga Premarket Activity

Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.

Market in 5 Minutes

Market in 5 Minutes

Everything you need to know about the market - quick & easy.

Fintech Focus

Fintech Focus

A daily collection of all things fintech, interesting developments and market updates.

SPAC

Everything you need to know about the latest SPAC news.

Email

Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com

• Trending
• Recent