5 Reasons to Worry About Next Week

The economy is showing signs of fumbling the recovery.

Less than 42% of the companies reporting so far this earnings season have beaten Wall Street's revenue targets, and that's well below the historical norm, where more than half of the reporting companies deliver better-than-expected top-line growth.

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

Astex Therapeutics (NASDAQ: ASTX  )

($0.06)

$0.01

Arcos Dorados (NYSE: ARCO  )

$0.06

$0.12

Pitney Bowes (NYSE: PBI  )

$0.44

$0.52

Exelon (NYSE: EXC  )

$0.68

$0.85

Seagate Technology (NASDAQ: STX  )

$1.15

$2.64

Source: Thomson Reuters.

Clearing the table
Let's start at the top. Astex is working on oncologic treatments stemming from novel small molecule therapeutics. RBC Capital Markets initiated coverage on Astex with an outperform rating and a $9 price target on the stock earlier this month. For now, analysts are holding out for a small deficit.

Arcos Dorados -- whose corporate moniker is Spanish for Golden Arches -- is the largest McDonald's franchisee with roughly 2,000 restaurants across Latin America and the Caribbean. Mickey D's itself has had a few rough patches lately closer to home as comps have been soft since late last year and customer service complaints are on the rise. Then we have Arcos Dorados missing Wall Street's earnings expectations in three of the past four quarters. This all doesn't bode well as analysts see Arcos Dorados only earning half as much as it did a year earlier.

Pitney Bowes is the top dog in metered mail, but you probably saw this coming. We live in a world of email at a time when postage rates are on the rise and mailboxes sit emptier. No one should be surprised to see that Pitney Bowes is shrinking in relevance. Wall Street's eyeing a 5% dip in revenue, but the scalable nature of this model will result in profitability taking an even bigger hit.

Exelon is one of the country's largest power generators, servicing roughly 6.6 million juice-thirsty customers through its BGE, ComEd, and PECO subsidiaries. Income investors once flocked to Exelon for its beefy dividend, but the utility giant recently decided to shift its business strategy away from the generous payouts. In February, it made it official, slashing its quarterly dividend by 40%. Now we're seeing profitability also on the decline. Analysts see net income at Exelon sliding for all of 2013 and all of 2014.

Seagate is a leader in storage, making hard drives that have suffered alongside the shift to more portable flash memory and the consumer trend toward more portable flash memory. Analysts see a crisp 24% slide in revenue at Seagate when it reports on Wednesday with net income taking an even bigger hit.

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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  • Report this Comment On April 26, 2013, at 3:00 PM, entropyunbounded wrote:

    Thanks for the advice, but Worry is unhealthy, so, no matter how enthusiastically Worry is promoted out here, I don't go there.

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