Stocks have had a good run since early March. But are they starting to take a breather? Has the market's rally run out of gas?
It probably doesn't help that several bellwethers have posted lower quarterly results in recent weeks than they did a year ago. And things aren't going to get any better next week, when several blue chips and seemingly recession-proof companies are expected to follow suit with year-over-year declines.
Let's review a few of the companies that the analysts predict will post declines in year-over-year profitability. Some of the names may surprise you.
|
Company |
EPS Next Week |
EPS Last Year |
|---|---|---|
|
Take-Two Interactive |
($0.13) |
$1.52 |
|
China Finance Online |
$0.03 |
$0.15 |
|
Cracker Barrel |
$0.45 |
$0.46 |
|
Staples |
$0.21 |
$0.30 |
|
TiVo |
($0.05) |
$0.04 |
|
Costco |
$0.53 |
$0.67 |
|
H.J. Heinz |
$0.55 |
$0.61 |
Source: Yahoo! Finance.
Clearing the table
There will probably be several companies posting lower earnings next week, but these are just a few of the names that really jump out at me.
Take-Two has a hard act to follow, going up against last year's release of Grand Theft Auto IV. However, this was also the same company that told shareholders last summer to reject a hostile buyout bid at $26 a share because it believed that its future prospects warranted a healthier premium. Well, Take-Two is now staring at a probable quarterly deficit this time around -- and a share price that stands at a third of the offer it passed on.
China Finance Online is a leading provider of investing research in China. One would expect its prospects to rise and fall with the country's equity prices, but that hasn't been the case. CFO's earnings soared last year, even as Shanghai stocks cratered. Now that Chinese investments are moving in the right direction, shouldn't CFO be doing even better? Well, it did lose a popular third-party subscriber service, so now its investors are braced for a near-term pinch. Still, it's hard to believe that individual investors in China aren't warming up to CFO's research to gain an edge in a market that's moving higher.
Like many of its casual dining peers, Cracker Barrel Old Country Store has bounced back nicely after bottoming out last year. Shares have nearly tripled since November. Most chains are still struggling to fill tables the way they used to, but Cracker Barrel's comfort food, low prices, and throwback vibe should have some recessionary allure.
Staples obviously can't just push the "easy" button to get out of its office-supply doldrums. Companies are closing down or laying off employees, and that obviously means fewer ink toner cartridges and paperclips to order. I'm surprised, though, because Staples is the cream of the crop in its niche. Weaker rivals are buckling, if not folding completely. The superstore chain should be doing better.
TiVo is one stock that I own, so I'm not happy to see the DVR pioneer dip back into the red after posting a profit in three of last year's four quarters. Subscriber growth has been hard to come by given the proliferation of TiVo clones out there. Thankfully, TiVo's wealth of patents has translated into technology licensing deals with many of its competitors.
Costco may be the biggest surprise on the list. Warehouse clubs should be thriving right now as penny-pinching shoppers buy in bulk. Costco's largest standalone rival in this space posted a 41% surge in profitability last week. What's going on, Costco?
Finally, we have Heinz. Supermarket staples have been viewed as defensive stocks, since consumers need to eat regardless off the economic climate. Unfortunately for this name-brand giant, folks are apparently either turning to cheaper store brands or laying off the ketchup.
Why the long face, short-seller?
If the earnings news is supposed to be so grim for these companies, why isn't the market in a state of sheer panic? Well, since we're talking about analyst estimates here, the bad news has been mostly discounted. Everyone is braced for the profitability dips.
Several of these companies may very well check in with good news. It wouldn't take much in cost containment for a Cracker Barrel or Heinz to post year-over-year improvement next week.
The more I think about it, the less worried I become.
Some other reads to get you through the weekend:
