There's a good deal of holiday cheer in the market these days.
The market is coming off back-to-back strong trading days. Holiday sales are trending higher, particularly on the Internet, where e-commerce scored its first $1 billion day on Cyber Monday.
I'm still not convinced.
Despite the heady market gains in recent weeks, there are still plenty of companies posting lower earnings than they did a year ago. Let's go over a few of the names that are expected to go the wrong way on the bottom line next week.
Latest Quarter's EPS (estimated)
Year-Ago Quarter's EPS
|AeroVironment (Nasdaq: AVAV )||($0.06)||$0.10|
|Layne Christensen (Nasdaq: LAYN )||$0.30||$0.34|
|Talbots (NYSE: TLB )||$0.25||$0.30|
|Diamond Foods (Nasdaq: DMND )||$0.60||$0.88|
|Smith & Wesson (Nasdaq: SWHC )||$0.00||$0.10|
|CIENA (Nasdaq: CIEN )||($0.15)||($0.12)|
|Esterline (NYSE: ESL )||$1.23||$1.26|
Source: Thomson Reuters.
Clearing the table
There will be more companies posting lower earnings next week, but these are just a few of the names that really jump out at me.
AeroVironment makes unmanned aircraft that the military uses for surveillance missions. It's a welcome niche, providing military intelligence without putting troops in harm's way. Unfortunately, it's not as profitable as it used to be. AeroVironment disappointed investors by posting a quarterly loss three months ago. The pros see a repeat performance this time around.
Layne Christensen serves the water infrastructure, mineral exploration, construction, and energy industries, primarily through its drilling and construction operations. Demand for Layne Christensen's services should be strong on a global basis, and analysts do see revenue climbing 12% during the quarter. Unfortunately, it's not working its way down to the company's bottom line.
Talbots is a survivor. I've never walked past a Talbots store that seemed busy, but the pessimism is contagious. The apparel retailer has a large short position, so next week's shortcoming is likely already priced into the stock. I all but gave up on Talbots last year, when its CEO accepted a huge retirement-based benefit at a time when the company was laying off employees and hacking benefits left and right.
Beyond its namesake nuts, Diamond Foods is also the company behind Pop Secret microwaveable popcorn and Kettle Brand potato chips. This would seem to be a steady business. Aren't snacks an all-weather consumption? Well, it's clearly not working for Diamond, as analysts see a sharp drop in profitability when it reports Wednesday.
Smith & Wesson is probably an easier company to spot in next week's lineup. A year ago, folks were scrambling for the company's weaponry. Whether it was trying to protect their homes in fear of a recessionary spike in crime or fears that a Democratic president would curb gun ownership laws, Smith & Wesson had a good run last year. This time around, it will be lucky to merely break even this quarter.
Networking specialist CIENA is longing for its lost profitability. It has posted eight consecutive quarterly losses, and that streak should stretch to nine next week -- with Wall Street targeting a widening deficit.
Finally we have Esterline. The provider of gear for the aerospace and defense industries isn't going to slip far. The $1.23-a-share profit that analysts are expecting is just shy of the $1.26 a share that it earned a year ago -- but it's a decline nonetheless.
Why the long face, short-seller?
These seven companies have seen better days. The market has rewarded many of these stocks with reasonable gains over the past year, but they still haven't earned those upticks.
The good news here is that Wall Street already expects these companies to deliver shrinking bottom lines. In other words, the bad news is already baked into the shares.
The more I think about it, the less worried I become.