Inflation is starting to rear its ugly head into the picture.
The Labor Department reported on Friday that consumer prices rose 0.4% in April, following a 0.5% spike in March. Pollyannas will argue that the inflation metric is kinder if you back out pesky food and energy prices, but is that fair? Don't you eat? Don't you fuel your car?
Thankfully, that's not the only thing rising. I may have singled out several companies over the weekend projected to post lower earnings this week than they did a year earlier, but that's just one side of the story.
There's more good news than bad news on the earnings front. Between recessionary cost-cutting and general improvement from last year's depressed levels, several companies are in better shape now than they were a year ago.
Let's go over seven companies that analysts see posting healthier bottom lines this week.
Latest Quarter EPS
Source: Thomson Reuters.
Clearing the table
Let's start at the top with Wal-Mart.
Things aren't as rosy as the bottom line may suggest at the world's largest retailer. The discount department store giant has posted seven consecutive quarters of negative same-store sales. Is the eighth time the charm, or is it just that much easier to look good following depressed comps?
Dell and HP are surprising names to find here. Didn't the PC die? Aren't we all running around with Android and iOS gadgetry as smartphones and tablets fit the bill for our mainstream computing needs? There's some truth to that, but Dell and HP have been busy cutting costs and making acquisitions to beef up the enterprise ends of their businesses.
NetEase has emerged as China's leading player in online gaming. Whether it's the company's in-house multiplayer fantasy creations or its role as the licensed distributor for World of Warcraft in China, NetEase has been able to overcome Internet cafe restrictions to post consistent growth over the years. Unlike many of China's dot-com darlings with chunky valuations, NetEase is fetching a reasonable 14 times this year's projected profitability and a mere 12 times next year's mark.
Staples is the country's leading office supply superstore. Let's not assume that earnings growth is an "easy" button tap away. Its two biggest publicly traded rivals posted disastrous quarterly results three weeks ago, missing Wall Street's guesstimates. If Staples finds itself mirroring the top-line softness and margin erosion, investors will file this one away as another office supply nightmare.
GameStop has managed to grow even as the video game industry has languished for more than two years, so it's not really a surprise to see it holding up well. A soft March and a strong April will give bears and bulls plenty of ammo as we head toward Thursday's report. The bulls seem to be winning for now, with the stock hitting a fresh 52-week high on Friday.
Finally, we have Intuit. Accounting software is a seasonal business, and any quarter ending in April is going to be potent given the volume of annual tax returns being filed. There have been concerns that the growing popularity of free online filings will eat into the tax software developers, but the pros see Intuit growing at a reasonable clip this time around.
Cross those fingers, but know the fundamentals
These aren't the only companies expected to post year-over-year gains this week. Several companies have either found ways to grow during the recession or have simply cut enough corners to show improvement on the bottom line.
This doesn't mean that investors can rest easy. The bad news here is that these companies are expected to post improving results. The optimism is already baked into their share prices. It makes it easier for them to slip, but why begin worrying about the companies that we aren't supposed to be worrying about?
If analysts are doing a good job modeling their profit targets, we'll be just fine.
Which of the many earnings report due out this week are you looking forward to? Share your enthusiasm in the comment box below.