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A company's earnings guidance can be an invaluable tool for investors, offering important information about a company straight from the horse's mouth. Most corporate management teams issue quarterly statements predicting the company's future sales or earnings; these projections can help investors more accurately evaluate a company's earnings potential.
Earnings guidance evolved out of the practice of "whisper numbers," whereby intel was selectively handed out to analysts, then passed onto only their top clients -- today, regulations dictate that company expectations be made public, thereby leveling the playing field.
Since company management knows their business better than anyone else, their comments should theoretically be more reliable than analyst reports, or any other info the average investor is privy to.
Here's a list of companies that have recently boosted their earnings forecast, surprising bearish investors.
To create these ideas, we scanned hundreds of sentiment indicators and identified a starting universe for our analysis. We then collected earnings guidance data and identified the companies in our list that have recently surprised Wall Street analysts.
Have investors been too bearish on these names? Have they been underestimating the earnings potential of these companies? And how long will it be before bearish sentiment turns into buying? (Click here to access free, interactive tools to analyze these ideas.)
1. Family Dollar (NYSE: FDO ) is a U.S. discount store chain, with 6,785 stores as of the end of FY10. The company is growing quickly, having added 4,000 stores over the last 10 years. On 3/14/11 the company announced Q2 earnings guidance of $0.97-0.98 vs. estimate of $0.95.
Sentiment Analysis: Options traders seem to be positioning for near-term weakness in FDO, and they've been buying protection against possible losses. The company's put/call ratio, which measures open interest in options contracts, increased from 0.79 to 1.12 between 03/10/11 and 03/23/11 (a change of 41.77%). In addition, analysts have turned bearish on the stock over the last month. The mean rating, sourced from a Reuters survey, changed from 2.44 to 2.58 since 02/21/11 (ratings close to 1 = Strong Buy, while ratings close to 5 = Strong Sell).
Note that short sellers seem to think the FDO stock's upside potential outweighs the downside, and as a result shares shorted have decreased from 5.55M to 3.49M between 12/30/10 and 02/28/11 (a change of -2,060,000 shares, representing about 1.94% of the company's total float).
2. Semtech Corp. (Nasdaq: SMTC ) is a leading supplier of analog and mixed-signal semiconductor products, with 20 locations worldwide. The company was founded in 1960 and has been publicly traded since 1967. On 3/9/11 the company announced Q1 earnings guidance of $0.41-0.44 vs. estimate of $0.40.
Sentiment Analysis: Options traders seem to be positioning for near-term weakness in SMTC, and they've been buying protection against possible losses. The company's put/call ratio, which measures open interest in options contracts, increased from 0.15 to 1.78 between 03/10/11 and 03/23/11 (a change of 1086.67%). In addition, analysts have turned bearish on the stock over the last month. The mean rating, sourced from a Reuters survey, changed from 1.62 to 1.78 since 02/21/11 (ratings close to 1 = Strong Buy, while ratings close to 5 = Strong Sell). Also take note that institutional investors have been net sellers of 2,900,000 shares during the current quarter (represents about 4.82% of the company's float)
3. The Bon-Ton Stores, (Nasdaq: BONT ) is a U.S. department store company, with 275 department stores and 11 furniture galleries across 23 states. On 3/9/11 the company announced FY12 earnings guidance of $1.00-1.50 vs. estimate of $0.93.
Sentiment Analysis: Options traders seem to be positioning for near-term weakness in BONT, and they've been buying protection against possible losses. The company's put/call ratio, which measures open interest in options contracts, increased from 0.34 to 0.63 between 03/10/11 and 03/23/11 (a change of 85.29%). In addition, insiders don't appear to be too enthusiastic about the company's outlook. Over the last six months, they've been net sellers of 695,000 shares, a -13.2% change in the company's insider ownership (Note: These shares sold represent about 6% of the company's float).
Note that institutional investors appear to be extremely bullish on the BONT outlook. During the current quarter, they've been net buyers of 672.0K shares (representing about 5.8% of the company's float).
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research. Note: The numbers on top of items represent the forward P/E ratio, if available.
Kapitall's Eben Esterhuizen and Alicia Sellitti do not own shares of any companies mentioned.