5 Reasons to Worry About Next Week

The economy is showing signs of fumbling the recovery.

Remember the housing recovery that's been building in recent months? Well, this morning it was revealed that existing-home sales fell 1.7% in September.

And it's not just iffy news at the macro level. There are more than a few companies that aren't pulling their 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 retreat on the bottom line next week.

Company

Latest-Quarter EPS (Estimated)

Year-Ago-Quarter EPS

My

Watchlist

Freeport-McMoRan (NYSE: FCX  )

$0.73

$1.10

Add

Netflix (Nasdaq: NFLX  )

$0.04

$1.16

Add

Corning (NYSE: GLW  )

$0.32

$0.48

Add

Sprint Nextel (NYSE: S  )

($0.43)

($0.10)

Add

Arch Coal (NYSE: ACI  )

($0.17)

$0.08

Add

Source: Thomson Reuters.

Clearing the table
Let's start at the top with Freeport-McMoRan.

Copper prices have bounced back since bottoming out 12 months ago, though we're still far away from the highs established early last year.

As an industrial metal, copper is going to be susceptible to a slowdown in the global economy. You don't need copper plumbing if no one's building, nor copper auto parts if no one's buying trucks or cars. Thankfully, there are signs of life in both construction and vehicle sales, though things aren't as rosy in some overseas markets.

The market doesn't see Freeport-McMoRan coming through with year-over-year bottom-line growth. However, there's a silver lining in the copper producer, and it's not just that it also digs up gold. A month ago, Wall Street was only banking on net income of $0.71 a share. Last week the target was $0.72 a share, and now it's $0.73 a share. Yes, it's still far from last year's beefy profit, but it's still an encouraging trend.

Netflix isn't a surprising name to see on its list. It's been shedding lucrative disc-based subscribers, and the video service provider is incurring losses overseas as it expands into new international markets. If you think a profit of $0.04 a share is upsetting now, keep in mind that Netflix has already braced investors for a small deficit in the fourth quarter.

Did Netflix turn its back on its once-thriving DVD business too soon? Maybe not. Even Redbox parent Coinstar (Nasdaq: CSTR  ) is expected to post a year-over-year decline in profitability. However, until Netflix stabilizes expenses on its growing streaming service, it's going to be a rollercoaster on the bottom line.

Corning is also going the wrong way. The specialty glass and ceramics leader is projected to post a slight 3% dip in revenue, but things get uglier as you walk down the income statement. The pros see Corning earning a third less than it did a year earlier.

Sprint Nextel has been a big winner since Softbank confirmed that it will be taking a controlling 70% stake in the country's third-largest wireless carrier.

The move will be great for Sprint, giving it the financial footing that it has lacked as it posts loss after loss. The move will also be good news for consumers. Sprint typically offers a better deal than its two larger rivals, but that hasn't helped the company close the gap. Are smartphone owners simply worried about Sprint's future viability, or is it because Sprint's high-speed network and coverage isn't as critically acclaimed as what the two biggies are doing? Either way, Japan's Softbank will help fortify the Sprint platform.

Yes, the company will post a widening loss next week when it reports on Thursday. The market probably won't care. The Sprint story just got more interesting, and now we can begin talking about the spunky carrier as a longer-term play.

Finally, we have Arch Coal likely reporting a loss on Friday. It was profitable a year ago. There's been a shakeout in the coal industry, and weaker players have either closed mines or bowed out completely. However, the tide has been turning lately. Arch Coal shareholders were treated to a 15% pop last week, and the stock has climbed nearly 10% through the first four trading days of this week. Encouraging news out of China and firming energy prices are making coal miners more attractive. However, Arch Coal's report -- looking back -- still won't be pretty.

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.

The precipitous drop in Netflix shares since the summer of 2011 has caused many shareholders to lose hope. While the company's first-mover status is often viewed as a competitive advantage, the opportunities in streaming media have brought some new, deep-pocketed, rivals looking for their piece of a growing pie. Can Netflix fend off this burgeoning competition, and will it's international growth aspirations really pay off? These kinds of issues are a must-know for investors, which is why we've released a brand new premium report on Netflix. Inside, you'll learn about the key opportunities and risks facing the company, as well as reasons both to buy and to sell the stock. We're also offering a full year of updates as key news hits, so make sure to click here and claim a copy today.

Longtime Fool contributor Rick Aristotle Munarriz owns shares of Netflix and Freeport-McMoRan Copper & Gold. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold, Corning, and Netflix. Motley Fool newsletter services recommend Corning and Netflix. 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.


Read/Post Comments (0) | Recommend This Article (1)

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.

Be the first one to comment on this article.

DocumentId: 2066456, ~/Articles/ArticleHandler.aspx, 4/23/2014 6:02:28 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement