5 Reasons to Worry About Next Week

The economy is showing signs of fumbling the recovery.

Sure, the S&P 500 has now closed higher in each of the past four months. The market's closing in on an all-time high. How confident are you that cuts in government spending and this year's end of the payroll tax stimulus won't derail the still-fragile economy?

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

VeriFone (NYSE: PAY  )

$0.49

$0.58

Sarepta Therapeutics (NASDAQ: SRPT  )

($0.29)

($0.06)

Sequenom (NASDAQ: SQNM  )

($0.23)

($0.22)

James River Coal (NASDAQOTH: JRCCQ  )

($1.41)

$0.02

Inteliquent (NASDAQ: IQNT  )

($0.04)

$0.19

Source: Thomson Reuters.

Clearing the table
Let's start at the top with VeriFone. The provider of electronic payment solutions and retail enterprise solutions may not be a household name, but take a closer look the next time you're swiping a credit card at the register. VeriFone makes a lot of those machines.

Wall Street was holding out for another quarter of steady growth at VeriFone, but then the company crashed the party last week. Shares of VeriFone surrendered 42% of their value, becoming one of the week's biggest losers, after it served up bleak preliminary results. VeriFone blamed the weakness on soft overseas markets and order delays, but the bottom line on VeriFone's bottom line here is that a week ago the pros through that it would earn $0.73 a share.

That's history. The pros now see a pronounced decline in profitability.

Sarepta is expected to post a widening deficit on Thursday. Investors will argue that it doesn't matter. Sarepta's a promising biotech. The market's buying in today based on tomorrow's potential for Sarepta's treatment for Duchenne muscular dystrophy. It has performed admirably through the early clinical trials, and the payoff is substantial if it ultimately gains approval.

Yes, it's OK for Sarepta to be losing money. Biotech investors just have to make sure that their investments don't run out of money.

Sequenom is another company pegged to post a widening quarterly deficit on Thursday. The life sciences specialist provides diagnostic testing and genetic analysis solutions for the clinical research and molecular diagnostics markets.

Eyeing the table near the top of this article may be comforting. Sequenom posted a loss of $0.22 a share a year earlier during the same quarter, and now the pros are modeling a deficit of $0.23 a share.

That's not too bad. Right? Even a marginal beat would result in improving year-over-year performance. Well, don't bet on it. Sequenom has ended up posting wider losses than analysts were forecasting in each of the four prior quarters. The trend isn't very kind as it gears up for Thursday's report.

James River Coal is out of favor. Coal just isn't very popular with investors these days.

This is a cyclical industry, and James River Coal has a habit of bouncing in and out of profitability. The rub here is that this is shaping up to be the fourth consecutive money-losing quarter for James River. The last time that the company was on a losing streak this long was in 2008.

Finally, we have Inteliquent. The world's largest global Ethernet interconnection provider offers up networking solutions for enterprises.

Inteliquent surprised the market with a quarterly deficit three months ago, but this time investors are ready. They see a small loss at the networking specialist, reversing a healthy year-ago profit.

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 (6) | Recommend This Article (3)

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 March 01, 2013, at 10:50 AM, BioPharmacist wrote:

    Hahahaha! You want me to worry about sarepta's burn rate? You are truly a fool of fools Rick! How about worry about the upcoming accelerated approval decision and their meeting with the FDA? Sarepta has $187 million in the bank and you want investors to worry about them running out of money? That would be like me driving my car on an frozen lake and worrying about running out of gas. The real worry is the ice breaking and falling in the lake.

    Get a clue my friend.

  • Report this Comment On March 01, 2013, at 11:09 AM, unkownuser wrote:

    Rick is a troll who's only function is to write inflammatory pieces that will catch investors' interest, so that he can pump the [worthless] subscription offerings of the Motley Azzhole Inc. There is no point in correcting any of the Motley Azzholes as they will never rescind their intentional errors of omission or skewing of the facts. The motto at Motley Azzhole appears to be, "The only thing worse than bad publicity, is no publicity." So they continue to publish false and misleading "research articles" (disguised sales pitches), in order to get the attention they crave. Did you know that you can go into the settings/preferences of your Yahoo Finance home page and actually un-check the box for Motley Azzhole news feeds? Seeing that "news" from the Motley Azzhole on any of the companies I follow is usually nothing related to news or fact, this is exactly what I did! Good by to Motley Azzhole news feeds on my Yahoo Finance homepage (can I get an AMEN brother?, Thank You!)

  • Report this Comment On March 02, 2013, at 4:51 PM, TMFBreakerRick wrote:

    BioPharmacist, that comment about watching the burn rate was about biotech investments in general.

  • Report this Comment On March 03, 2013, at 7:26 PM, BioPharmacist wrote:

    "BioPharmacist, that comment about watching the burn rate was about biotech investments in general."

    Oh really Rick, just a general comment? There are over 400 biotech stocks and the one you pick to use as an example of biotech burn rate is Sarepta. Really? You could choose any biotech stock and make this point but you choose Sarepta? My question is who do you work for and what is your motive to use Sarepta.

    Let me guess, there is over 4 million shares short and this stock is about to explode when accelerated approval is announced. That explains it...

  • Report this Comment On March 04, 2013, at 9:36 AM, MayaPinion wrote:

    Thank you for this profound advice:

    "...VeriFone... last week...surrendered 42% of their value... after it served up bleak preliminary results... The pros now see a pronounced decline in profitability."

    It is articles like this that validate how important it is that investing should be left to experts.

  • Report this Comment On March 04, 2013, at 12:59 PM, coolstud wrote:

    I agree that the fool's only goal at this point is increasing subscription revenue. For years Tom and David said that options were a rip off and not something investors should be buying. Now the fool sells an option picking newsletter.

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