5 Reasons to Worry About Next Week

The economy is showing signs of fumbling the recovery.

Despite the rosy State of the Union address on Tuesday, consumers are still coping with the ramifications of the end of the payroll tax stimulus that has seen take-home pay shrink since January. Sure, the country's weekly jobless claims fell sharply in Thursday's report -- down 27,000 to 341,000 -- but how much of that is the improving corporate scene and how much of it was the chilly storm that swept through the Northeast last week? 

The news isn't just iffy on the macro level. There are also 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.

Company

Latest-Quarter EPS (estimated)

Year-Ago Quarter EPS

Windstream (NASDAQ: WIN  )

$0.13

$0.19

Tronox (NYSE: TROX  )

$0.00

$0.85

Linn Energy (NASDAQ: LINE  )

$0.40

$0.51

Exelixis (NASDAQ: EXEL  )

($0.24)

$0.35

Garmin (NASDAQ: GRMN  )

$0.74

$0.96

Source: Thomson Reuters.

Clearing the table
Let's start at the top with Windstream. Windstream is popular for investors given its 10% yield. It's a beefy payout, but investors know that there's no such thing as a free lunch.

Windstream's business is providing telco services in underserved rural markets. Unfortunately, there isn't a lot of demand for landline connectivity these days, even in sparsely populated communities. This finds Windstream trying to push broadband and corporate services. It's working, but it may not be enough.

Analysts see a sharp drop in profitability. This will likely be the fourth consecutive quarter that Windstream posts a year-over-year decline in net income. You have to go back four years to find the last time that Windstream earned enough to cover its quarterly $0.25-a-share dividend. The payouts may not be sustainable if earnings keep going the wrong way.

Tronox makes titanium ore and titanium dioxide. Its mineral sands and pigments are used in paints, coatings, and plastics.

A lot of the suspense is gone from Tronox. It reported preliminary quarterly results last week, warning that EBITDA was coming in below its earlier guidance. Analysts now see Tronox merely breaking even when it reports on Wednesday.

Linn Energy is a natural gas producer with a penchant for growth through acquisitions. Natural gas has been a volatile realm for investors, though the players sporting high yields reward patient investors. Analysts see Linn cranking out net income of $0.40 a share after earning $0.51 a share a year earlier. It could be worse, but keep in mind that Linn Energy has come up short on the bottom line in two of the past three quarters.

Exelixis is a cancer-tackling biotech that has spent most of its publicly traded life in the red. It had a brief profitable run in late 2011, and now it has the misfortune of stacking its performance against that short-lived profitability.

Finally, we have Garmin stepping up. Several years ago Garmin was a market darling. Drivers couldn't get enough of the company's market-leading GPS products.

Two things have happened to weigh on Garmin's chances. For starters, cars have evolved. Newer models have rich navigational tools that don't require Garmin gadgetry. The second challenge has come from the booming popularity of smartphones. Android and iOS devices make it easy to navigate though cities and even avoid traffic.

Garmin is trying its best to move on. It has expanded its product line, making the most of wellness and outdoorsy trends to widen its offerings. It isn't enough, naturally. Analysts see revenue and earnings slipping 8% and 23%, respectively.

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 translates 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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Read/Post Comments (3) | Recommend This Article (8)

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 February 15, 2013, at 10:45 AM, katinga wrote:

    Line energy acquires properties as a sort of recycler of wells that are past their prime. Different companies acquire for different reasons. NOV does it to create a one-stop shop in the oil service industry. So I think the use of the term "acquisition" is misleading.

    Also, analyzing a semi-MLP like Linn on the basis of earnings is also misleading. One needs to do it on the basis of distributable cash flow, similar to funds from operations in the REIT industry.

  • Report this Comment On February 16, 2013, at 7:56 PM, DNAstock wrote:

    How does a company like Exelixis get lumped in with a Garmen and a Windstream in a"bottomline" analysis?

  • Report this Comment On February 19, 2013, at 10:22 AM, Colinnyc wrote:

    What an absolutely moronic article... the last line of which mitigates the very reason for writing it. The Motley Fool is proving to be about one thing: making money for The Motley Fool, not for investors.

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