Yes, Virginia, there is a Santa Claus rally.
Wednesday's global stock gains may have been a welcome treat, but let's not assume that December will bring more of the same.
Things still aren't pretty out there. Just wait until you hear what corporate America has to say next week.
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.
|
Company
|
Latest Quarter EPS (estimated)
|
Year-Ago Quarter EPS
|
My Watchlist
|
| SAIC (NYSE: SAI ) |
$0.34 |
$0.41 |
Add |
| Toll Brothers (NYSE: TOL ) |
$0.05 |
$0.30 |
Add |
| Toro (NYSE: TTC ) |
$0.09 |
$0.10 |
Add |
| G-III Apparel (Nasdaq: GIII ) |
$2.14 |
$2.16 |
Add |
| Pacific Sunwear (Nasdaq: PSUN ) |
($0.14) |
($0.07) |
Add |
| Vail Resorts (NYSE: MTN ) |
($1.54) |
($1.20) |
Add |
| Smithfield Foods (NYSE: SFD ) |
$0.69 |
$0.80 |
Add |
Source: Thomson Reuters.
Clearing the table
Let's start at the top with SAIC.
It isn't easy being a military contractor these days. Making matters worse, SAIC missed Wall Street's quarterly profit target last time out. It had landed comfortably ahead of the prognosticators in each of the five quarters before that, but it's the more recent miss that presents an ominous note as we head into Tuesday's report.
Toll Brothers builds mostly upscale residential communities. Real estate developers know the score. There's a glut of existing homes on the market, and even dirt cheap mortgage rates haven't kept property values from falling. Toll is one of the more financially sturdy homebuilders, explaining why it's still delivering profitable results. However, next week's report should show a sharp decline in earnings.
Toro makes lawnmowers and irrigation equipment. It's not the only place where it's making greens grow, as Toro increased its quarterly dividend rate Wednesday. That's certainly an encouraging sign, but it would be better to see Toro's bottom line inching higher, too. A company can't keep pumping up its payouts if it continues to earn less and less.
G-III Apparel makes outerwear and dresses. It's the company behind Andrew Marc, Marc New York, and Marc Moto clothing lines, but it also has licensing deals in place with several well-known designers. Wall Street sees revenue climbing 11% for the quarter and 16% for the entire fiscal year, though it also predicts slightly lower profitability on both fronts.
I'm sure that there's money in selling swimwear and board shorts, but PacSun hasn't been able to figure it out lately. You have to go back three years to find the last time that Pacific Sunwear posted a quarterly profit, and the near-term outlook sees so much red that it may be time to break out the sunscreen.
Running a ski resort in the fall is a scary proposition. Summer hikers, golfers, and vacationing families are long gone, and skiers and snowboarders are waiting for fresh powder to begin falling. It's nearly certain that Vail Resorts will always post a deficit during its fiscal first quarter. However, this is shaping up to be the fourth consecutive year in which Vail Resorts posts a wider loss.
Finally, we have Smithfield Farms. From bacon to hams to sausage links, Smithfield certainly knows how to live high on the hog. Analysts see a profit of $0.69 a share when Smithfield reports Thursday, well short of the $0.80 a share it came through with last year. Smithfield has beaten estimates every single quarter over the past year but not by the kind of margin that would be necessary to grow its profitability this time around.
Why the long face, short-seller?
These 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.
How do you think these stocks will fare when they report next week? Share your thoughts in the comment box below.
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