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3 More Companies to Avoid This Earnings Season

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Just two weeks ago, I explored three companies that you would be wise to avoid this earnings season, and so far, the results have not disappointed.

Netflix (Nasdaq: NFLX  ) continues to amaze investors with the swift speed of its collapse, forecasting losses for the coming quarters and a greater-than-anticipated subscriber exodus. Eastman Kodak (NYSE: EK  ) , on the other hand, has yet to report its earnings, but from the looks of it, without a bridge loan, the company may not be able to survive much longer.

More or less, it worked before, so let's try this again. Here are three additional companies that you may want to avoid this earnings season.

Good news, Netflix shareholders: First Solar (Nasdaq: FSLR  ) is doing the best it can to take the heat off your stock. If it wasn't bad enough that global demand for solar products has waned and solar panel prices are falling through the floor, now shareholders get to deal with the repercussions of what looks like a less-than-amicable split between the company and its now former CEO, Rob Gillette.

I can't really blame the company or Mr. Gillette for wanting to part ways. Since taking over the helm in October 2009, First Solar's stock has dipped some 70%. With nearly every solar company's outlook being trimmed drastically, including Trina Solar (NYSE: TSL  ) and LDK Solar (NYSE: LDK  ) to name a few, I feel pretty confident that First Solar's outlook is probably heading lower. The company missed analysts' earnings projections by 24% last quarter, and I wouldn't be surprised if they missed by a wider margin this quarter. The lights are dimming on the solar sector, and I'd suggest avoiding First Solar at all costs this earnings season.

Black gold, red books
I've long been a supporter of ATP Oil & Gas (Nasdaq: ATPG  ) , an underwater driller with permits in the Gulf of Mexico and off the coast of Israel. Prior to this quarter, I was growing weary of the company's widening losses and continual setbacks -- but its debt situation is the final straw.

Moody's recently stated that ATP shows a "high likelihood" of needing to restructure its $1.79 billion in net debt set to mature in 2015, saying that ATP's oil wells aren't producing sufficient cash flow to cover its obligations. Thankfully, however, ATP itself said that it expects to pump enough oil from its new wells to avoid defaulting on its debt. Despite this ever-so-cheery news, data from Bloomberg shows that ATP still boasts more debt than 97% of its peers, and analysts haven't hit the side of a barn with their earnings estimates on ATP within the past year. You may want to consider a hard hat if you're going to be holding ATP into earnings season.

There's no place like home
Close your eyes and click your heels together three times and I guarantee you the valuation on HomeAway (Nasdaq: AWAY  ) still won't make a lick of sense. Having just come public in late June, investors are readying for the vacation rental company's first earnings report as a public company. Needless to say, estimates for the quarter vary widely according to Yahoo! Finance, from a profit of $0.07 to as high as $0.13. So if the company is profitable, everything is just peachy, right? Wrong!

Every aspect of housing indicates that consumers are becoming even tighter with their spending -- perhaps even the upper echelon spenders, which is what HomeAway caters to. Home prices remain deflated, foreclosures are rising again, and mortgage applications dropped by double digits this past week, all signs which point to consumers' unwillingness to spend. And if that wasn't enough, perhaps HomeAway's trailing 12-month P/E of 493 and negative book value will take care of the rest for you. If results aren't stellar, all the king's horses and all the king's men won't be able to put this valuation together ever again.

Foolish roundup
These three companies either have a recent history of earnings misses or bear a pricey valuation that, until recently, the market had shown it was willing to support. Only time will tell if I'm right, but the momentum clearly appears to be on the pessimists' side this quarter for these stocks.

Do you agree or disagree with my analysis. Share your thoughts in the comments section below and consider adding First Solar, ATP Oil & Gas, and HomeAway to your free and personalized watchlist to keep up on the latest news with each company.

Editor's note: A previous version of this article erroneously attributed Moody's comments on ATP to the company. We regret the error.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong and on Twitter where he goes by the handle @TMFUltraLong. The Motley Fool owns shares of First Solar. Motley Fool newsletter services have recommended buying shares of Netflix and First Solar. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that never needs to be sold short.

Read/Post Comments (10) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 26, 2011, at 4:30 PM, Neverow wrote:

    In regards to ATP, Moody's said there was a high likelihood, not ATP. Be careful about your facts. The rating agencies aren't taking into account the huge increase in production ATP is about to experience.

  • Report this Comment On October 26, 2011, at 4:34 PM, zorro6204 wrote:

    "ATP recently stated that there was a "high likelihood" that it would need to restructure . . . "

    No they didn't! Moody's said that, in an insane research report that the company immediately blasted. It is the position of management that they will be flowing free cash at the completion of the next well or two, and by the end of 2012 will have funded capex with cash flow and paid back nearly all their NPI's.

    And yes, the last year has been rocky when it came to earnings. You see there was this little event called the Macundo spill, you might recall it from the news?

    ATPG is speculative, and the debt is high, but they're not defeatist internally! Heck, an outside director recently purchased $1.5 million in common. I don't think he expects them to "restructure".

  • Report this Comment On October 26, 2011, at 4:34 PM, immmccoy wrote:

    Can you provide a reference to when ATP made the statement that there was a "high likelihood" that it would need to restructure its debt.


  • Report this Comment On October 26, 2011, at 4:44 PM, nobeets wrote:

    Is it Motley Fool policy to publish any unsubstantiated garbage, without even the most basic fact-checking? For those of us who pay good money for MF services, this sloppy work is appalling. I'm referring to this false and misleading statement:

    "ATP recently stated that there was a "high likelihood" that it would need to restructure its $1.79 billion in net debt set to mature in 2015 ." As others have pointed out, no no no they did not. Quite the contrary. It was an "analyst" who, by the way, doesn't appear to know what he's talking about. (From an agency that was not long ago was rating cryptic housing junk CDOs as AAA).

  • Report this Comment On October 26, 2011, at 4:54 PM, Headnorth wrote:

    ATPG has never said that restructuring was going to be necessary. In fact, they are paying down their debt EVERY day.

    You are quoting a Moody's comment that had nothing to do with reality. They used prices for oil that don't reflect ATPG earnings, estimates of flow that are two wells and have little credibility considering their opinion of CDE's in the 2008 debacle.

    Reality is coming home to roost at ATPG. By this time next year, their debt will look like the best investment since Apple was under $100 in 2009.

    Get your facts straight - it's unbecoming and unprofessional to put such an error in print.

  • Report this Comment On October 26, 2011, at 9:08 PM, Neverow wrote:

    When the Motley Fool publishes factual errors do they fix them?

  • Report this Comment On October 27, 2011, at 3:18 AM, Sportsman100 wrote:

    I hope this misinformation on ATPG is not a example of what I'm getting with my subscriptions.

  • Report this Comment On October 27, 2011, at 9:05 AM, lovesstocks2 wrote:

    Unfortunately, with ATP you made a huge errror. Management never stated any such thing, and furthermore, announced a well that produced nearly 5000 barrels of liquids and 46 million cubic feet of gas, enough to turn the company profitable when it comes on line next year.

    And they are currently finishing drilling another well that looks every bit as profitable as this one.

    Of course the rating agency could care less about facts, but you should be a whole lot more careful

  • Report this Comment On October 28, 2011, at 12:03 AM, 8martini8 wrote:

    It's become an accepted commonplace that the "free" articles on the Motley Fool site are basically raw chum to stimulate interest in and discussion of interesting investment opportunities and issues, and that they don't reflect the serious analysis and weight of authority available in the paid newsletter services -- but at some point, TMF needs to get a grip and begin vetting even their 'free' content if they want to avoid sliding into the sleazy bottom waters of competing financial websites most of us would regard as lightweight. I'm an ATPG stockholder and when I shot bolt upright in my seat when I read this article before discovering, via the responses, that it was spewing ignorance.

    Come on guys. Stay Foolish - not Idiotic.

  • Report this Comment On November 06, 2011, at 8:23 PM, inparadise wrote:

    Homeaway: "Every aspect of housing indicates that consumers are becoming even tighter with their spending -- perhaps even the upper echelon spenders, which is what HomeAway caters to. "

    Have you even ever looked at the Homeaway website, or it's sister site VRBO.Com? There is a wide range of vacation rentals available, and these vacations can provide a huge value compared to the cramped quarters of the individual hotel room, particularly coupled with having to eat out vs eating at "home away from home."

    We have vacationed using Vacation Rentals for the past 12 years, and it is a huge bargain, particularly for the quality it provides. Whether it be a 4 bedroom house with a pool overlooking the Caribbean Sea, or a similarly sized property on a crystal clean and clear river in WV, complete with our very own hot tub, vacation rentals allow you to stretch out on vacation without having to trip over one another, or have to share the pool or hot tub with strangers. Yeah, you can spend megabucks if that's your style, but if you are looking for a good value this is the way to go. We often have 10-12 people sharing a house for $1200/week. Try doing that even at the deepest discount hotel.

    Vacations are not going to end. Vacation rentals, on the other hand, are the value response to staycations. Heck, probably one of the best vacations we ever had was staying in a VR that was 10 minutes from home.

    I have little to say on the quality of the company as an investment, but vacation rentals are here to stay, and will only get stronger...particularly because of the value they provide in a down economy.


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