The Calm Before the Earnings Season Storm

This morning, the major indices opened flat as investors collectively held their breath for third-quarter earnings season to start tonight. And I must admit that I can’t blame them. For the first time in three years, analysts expect the average S&P 500 company’s profits to contract 2.3% compared with last year. On top of this, we’ve already seen market bellwethers like FedEx Corp. (FDX) and Hewlett Packard (HPQ) reduce their forward guidance in a warning to investors that bumpy times may be ahead.

So now more than ever, it’s crucial to keep track of earnings. But considering that upwards of 50 companies will report operating results each and every trading day over the next several weeks, I don’t expect you to spend hours of your day combing through the data. Instead, I’ll do that for you and hit the highlights in this daily blog. Today, I’m going to start with a preview of the biggest names to keep on your radar over the next four trading days:

Tuesday: After today’s close, Alcoa Inc. (AA) kicks off the official start to earnings season by announcing its third-quarter operating results. But if you currently hold shares of the world’s leading aluminum producer, you may want to brace yourself: Analysts estimate that Alcoa Inc.’s sales dropped 13.7% and its earnings plummeted a shocking 100% compared with Q3 2011. Over the past three months, analysts have cut their earnings estimates from $0.07 to $0.00 per share—we’ll see if Alcoa can top expectations, but I’m not overly optimistic. We’ll also get the final verdict on fast food titan Yum! Brands Inc. (YUM) in the third quarter. If you’re interested to hear how the operator of Taco Bell and KFC fared last quarter, be sure to check out tomorrow’s Stock of the Day.

Wednesday: Tomorrow, I’m keeping Costco Wholesale Corp.‘s (COST) fourth-quarter earnings announcement at the top of my radar. As I mentioned last week, Costco is one of my recommendations for my Blue Chip Growth newsletter, and its earnings prospects are strong following its estimate-trumping September same-store sales. Currently, analysts are calling for 12.5% sales growth and 21.3% earnings growth—several analysts recently raised their earnings estimates, which bodes well for a potential earnings surprise.

Thursday: We have two of Wall Street’s newest additions reporting earnings on Thursday: Annies Inc. (BNNY) and the infamous Groupon Inc. (GRPN). I’m particularly interested to see how GRPN does because at beat down as this stock is, the company has trounced analyst estimates by at least 100% in the past two quarters. We’re just a few months away from when GRPN will have a full year’s worth of earnings data and will qualify for my portfolio grader tool. But, given that the stock has lost nearly 80% of its value since it went public last November, I don’t expect GRPN will be a highly-rated stock.

Friday: Finishing up this week’s earnings announcements, Wells Fargo & Co. (WFC) reports its third-quarter operating results before Friday’s open. Currently the analyst community expects 9.3% sales growth and 20.8% earnings growth—but keep in mind that the Money Center Banks industry’s average profits are expected to soar over ten times that. We’ll probably also see Wells Fargo declare its next quarterly dividend payment in the next few weeks. With a 2.5% dividend yield, Wells Fargo falls in the top 10% of all banks.

Make no mistake—the next several weeks will shake up the market as earnings take center stage. So be sure to check in on this blog and my Stock of the Day feature from time to time to help you locate the best profit opportunities in this shifting market.


Louis Navellier

Louis Navellier

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