The economy is showing signs of fumbling the recovery.
The market has closed lower in six consecutive trading days, and even Warren Buffett is sounding a bit more concerned than usual. Earnings season is kicking up in earnest, and worrywarts are braced for a healthy share of misses given the iffy state of the global economy.
There's also plenty of uninspiring news at the company level.
There are more than a few companies that aren't pulling their own weight in this supposed economic recovery.
There are still plenty of names posting lower earnings than they did a year ago. Let's go over a few of the companies that are expected to go the wrong way on the bottom line next week.
Latest Quarter EPS (Estimated)
Year-Ago Quarter EPS
|Intel (Nasdaq: INTC )||$0.52||$0.54||Add|
|Mosaic (NYSE: MOS )||$1.14||$1.52||Add|
|E*TRADE (Nasdaq: ETFC )||$0.11||$0.15||Add|
|Microsoft (Nasdaq: MSFT )||$0.62||$0.69||Add|
|SanDisk (Nasdaq: SNDK )||$0.20||$1.14||Add|
Source: Thomson Reuters.
Clearing the table
Let's start at the top with Intel.
The PC chip giant is a good example of the gradual souring of market opinion. Three months ago, analysts figured that Intel would post a profit of $0.54 a share, matching last year's earnings. That target eventually eroded to $0.53 a share, and earlier this week, the average estimate fell to $0.52 a share.
Either way, Intel's bottom-line prognosis is moving in the wrong direction.
It's not as if you can blame the slide on the faltering PC market. Yes, global PC shipments declined during the past three months. Both Gartner and IDC agree that worldwide computer shipments slipped 0.1% during the past three months. However, Intel has done a job of working its more nimble processors into the "good enough" computing devices including tablets and smartphones that are all the rage these days.
The one silver lining here is that Intel has managed to land ahead of Wall Street estimates in each of the past four quarters. Even a modest beat here would find Intel posting bottom-line improvement. Then again, estimates don't often inch lower ahead of a blowout report.
Mosaic makes the phosphate- and potash-based crop nutrients that farmers need to assure bountiful harvests. Emerging markets joining developed nations with the means to pay for more food should be a boost for the agriculture industry in general, and Mosaic in particular. Well, the bottom line here tells a different story.
E*TRADE is the discount online broker with the memorable talking baby ads. The country's third largest discounter has come a long way from the dark, deficit-riddled days during the subprime mortgage meltdown, but now profitability is going the wrong way.
Microsoft may change the world when Windows 8 hits the market in a couple of months, but investors aren't too excited about the here and now. Wall Street's banking on a slight dip in net income at the software giant, and that doesn't include the better than $6 billion charge that the company will be writing down to cover its money-losing online unit.
Finally we have SanDisk. The market leader when it comes to flash memory may have been on a roll when everyone was snapping up flash memory sticks and cards to feed their cameras, but SanDisk's prospects may change as we move to cloud-based storage solutions.
For now, we're looking at estimates calling for SanDisk to earn just $0.20 a share when it reports on Thursday, well short of the $1.14 a share it posted a year earlier.
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. Lower earnings translate into higher earnings multiples, and nobody wants to see that happen.
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.
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