With third-quarter corporate earnings season kicking into high gear, we highlight ten companies that seem poised to deliver big disappointments or positive surprises.
With about 16% of companies in the S&P 500 having reported their third-quarter results as of mid-week, the ten companies that the StarMine research team selected as most likely to report big positive or negative surprises will begin announcing their own earnings next week, starting with Cliffs Natural Resources (CLF.N) and Boeing (BA.N) on October 24.
Although none of the ten companies that we selected as worth a second glance on the part of investors have reported their results as yet, overall, the rate at which companies are posting positive surprises appears to have risen. Of the 79 companies that have reported their third-quarter results so far, 65% have beaten estimates while only 20% have announced numbers that fell short of analysts’ expectations. As we do each quarter, on the eve of the third quarter we selected ten companies that we expect to fall into one or the other of these two camps, based on the SmartEstimate and Predicted Surprise data for each. We have summarized that data and the facts behind it for each of the ten companies below, for your reference. Historically, our selections have demonstrated an accuracy rate of about 70%, giving investors an edge when it comes to positioning themselves ahead of these earnings announcements. (In the second quarter of 2012, the StarMine research team had a 60% accuracy rate, as detailed in this report card.) When the third-quarter earnings season wraps up, we’ll report back on how the other companies fared – and give you a look at what these companies said about their outlook for the coming quarters.
Here is the list of North American companies that we believe are poised to deliver surprises of one kind or another – pleasant or not so upbeat — when they report their earnings for Q3 2012, along with some analyst views on the company:
TOP POSITIVE SURPRISE FORECASTS:
1. Louisiana Pacific (LPX.N) is benefiting from the housing boom. Inventory levels have come down as demand for pulp and paper products has increased.
2. Tesoro (TSO.N) is enjoying the impact of large crack spreads (which are at three-year highs) on its bottom line. The last acquisition of BP assets in California including the Carson refinery and ARCO retail outlets will improve operating margins.
3. Apple Inc. (AAPL.O) is seeing strong iPhone5 sales, and higher margins on cheaper component costs for the new iPhone are likely to drive margins higher for the company.
4. Gap Stores (GPS.N) is benefitting from a strong SSS turnaround, thanks to higher foot traffic. With less need to discount, rising margins are driving earnings higher.
5. Boeing (BA.N) has finally produced a Dreamliner that didn’t require any post-manufacture “reworking”, and analysts expect it to increase production speed during the third quarter; the company has a seven-year order backlog overall.
TOP NEGATIVE SURPRISE FORECASTS:
1. JetBlue Airways (JBLU.O) The rise in jet fuel prices may spell trouble for JetBlue’s earnings, and Hurricane Isaac (which made landfall in Florida in August) may hit profits for the quarter. The airline’s costs have risen by 2 cents to 7 cents per available seat kilometer over the last 3 years.
2. Cliffs Natural Resources Inc. (CLF.N) is suffering from limited iron ore demand and the resulting crash in prices amidsta strong supply situation. The company is likely to struggle to generate profits from investments it has made over the last two years.
3. NYSE Euronext (NYX.N) has seen demand for its interest rate hedging products slump amidst low interest rates and low volatility.
4. Avon Products (AVP.N)is finding that its traditional approach to sales is under siege as its representatives succumb to low morale and consumers flock to online vendors and department stores.
5. Best Buy (BBY.N) is watching in dismay as customers treat its stores as showrooms only to buy their electronics products more cheaply online. It’s a tradeoff between cutting prices and margins or losing those sales for the retailer.
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