|By PR Newswire||
|January 7, 2013 09:30 AM EST||
CHICAGO, Jan. 7, 2013 /PRNewswire/ -- Zacks.com releases the list of companies likely to issue earnings surprises. This week's list includes Alcoa (NYSE:AA), Oracle (Nasdaq:ORCL), FedEx (NYSE:FDX), Nike (NYSE:NKE) and Wells Fargo (NYSE:WFC).
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Q4 Earnings Expectations Keep Coming Down
Aluminum producer Alcoa's (NYSE:AA) earnings report is generally considered the start of each quarterly earnings cycle. And by that measure, the fourth quarter earnings season will get underway with Alcoa's report after the close on Tuesday. In total, we will get earnings reports from 34 companies this week, including 5 S&P 500 members, with the reporting pace accelerating in the following week.
Alcoa's unofficial first-to-report status notwithstanding, the fourth quarter reporting has been officially underway for a couple of weeks now as all companies with financial quarters ending in November and reporting results in December get counted as part of our fourth quarter results tally. As such, we already have fourth quarter results from 22 S&P 500 companies, including operators like Oracle (Nasdaq:ORCL), FedEx (NYSE:FDX) and Nike (NYSE:NKE).
Total earnings for these 22 companies are up +1.4% from the same period last year, with total revenues up +3.5%. This is better performance than what this same cohort of 22 companies did in the third quarter when total earnings were down -2.4% from the year-earlier period.
At this stage, the important story on the earnings front is what's expected for the more than 95% that have still to report results. And those expectations have been steadily coming down over the last three months and are barely in positive territory now. Total earnings in the fourth quarter are expected to be up +0.4% from the same period last year. This is a sharp drop from the roughly +7% earnings growth rate that consensus expected just three months ago.
The downward adjustment to expectations notwithstanding, fourth quarter earnings growth is still better than what was expected in the third quarter just before the start of that reporting cycle. At this stage in the third quarter, total earnings were expected to be down more than -3% from the same period last year.
Actual results, however, came out a little better with total third quarter earnings essentially flat. Excluding Finance, total earnings in the third quarter were down -4.1%, while total ex-Finance revenues are expected to be down -1.3% in the fourth quarter.
Wells Fargo (NYSE:WFC) will kick off the big bank earnings season with its release before the market's open on Friday. Wells Fargo has been a relatively steady performer in the big-bank space lately, with positive earnings surprises in each of the last four quarters. The Finance sector as a whole is expected to have earnings growth of 9.8% in the fourth quarter, which will be a deceleration from the sector's strong growth pace in the last few quarters (Finance sector earnings were up +23.3% in the third quarter).
Construction has the best earnings growth profile of all 16 Zacks sectors, with total earnings for the sector expected to increase +33.3% from the same period last year. Business Services is the only other sector that is expected to have a double-digit earnings growth in the fourth quarter, up +11.5%. Overall, ten of the 16 Zacks sectors will have negative earnings growth, with even the Tech sector experiencing earnings decline of -3.5% (Tech sector earnings were barely in the positive column in the preceding quarter).
We don't have much on the economic calendar this week, which should help focus the market's attention on the underwhelming earnings picture. Even more so than in prior quarters, the key element earnings season will be management guidance for the following quarter(s).
The reason for the significance of guidance this time around is the lofty-looking expectations for 2013. Even as earnings expectations for the fourth quarter came down over the last few months, we haven't seen much downward adjustment to estimates for 2013, which still shows growth rate of close to +10%.
Sheraz Mian is the Director of Research for Zacks.com.
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Since 1988, the Zacks Rank has proven that "Earnings estimate revisions are the most powerful force impacting stock prices." Since inception in 1988, #1 Rank Stocks have generated an average annual return of +28%. During the 2000-2002 bear market, Zacks #1 Rank stocks gained +43.8%, while the S&P 500 tumbled -37.6%. Also note that the Zacks Rank system has just as many Strong Sell recommendations (Rank #5) as Strong Buy recommendations (Rank #1). Since 1988, Zacks Rank #5 stocks have significantly underperformed the S&P 500 (+3% versus +10%). Thus, the Zacks Rank system allows investors to truly manage portfolio trading effectively.
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