Earnings Season Winding Down

By Dirk Van Dijk
On 1:00 am EST, Friday November 6, 2009

Earnings season is rapidly drawing to an end. There will be only 280 firms reporting next week, and only 16 of those will be members of the S&P 500. That is down from 855 firms that reported this week, including 89 S&P 500 members. Most of the major firms that will be reporting are retailers, which will be reporting fiscal periods that ended in October, not September.

Some of the most important of these are Dow component Wal-Mart (NYSE: WMT - News), Macy's (NYSE: M - News) and J.C. Penney's (NYSE: JCP - News). Among the important non-retail firms that will report are semiconductor equipment giant Applied Materials (NasdaqGS: AMAT - News), Rockwell Automation (NYSE: ROK - News) and Tesoro (NYSE: TSO - News), the oil refiner.

The flow of economic data will slow down after the fire hose of the last week. However there are a few things to keep an eye out for. These include:

Thursday:

(1) Weekly initial unemployment claims, which have been trending down. Last week they fell by 20,000 to 512,000. I would expect another drop, but smaller.
(2) Oil inventories, which have recently been trending down, but are at high levels for this time of year.
(3) The Treasury budget. The consensus is that we ran a deficit of $150 billion in October.

Friday:

The Trade numbers are due out. While the trade deficit is dramatically lower than a year ago, it has recently started to trend up again, in large part due to the rebound in oil prices. The consensus is for the deficit to rise to $31.9 billion from $30.7 billion last month. That sounds about right to me. At least the recent increases in the trade balance have come from imports rising faster than exports, rather than seeing both of them decline.

Potential Positive Surprises

Historically the best indicators of firms which are likely to report positive surprises are a recent history of positive surprises and rising estimates going into the report. Some of the companies that have these characteristics include:

J.C. Penney's (NYSE: JCP - News) has seen its quarterly estimate jump by 103% over the last month and last time around they posted earnings that were twice what was expected. On the other hand, because the retailers earn most of their money next quarter, with very small absolute numbers it is easy to have big percentage surprises.

Electronic Arts (NasdaqGS: ERTS - News) has seen its estimates for the about-to-be-reported quarter rise by 19.2% over the last month and last time out it beat the Zacks Consensus Estimate by 45.5%.

Applied Materials (NasdaqGS: AMAT - News) has seen the estimates for its quarterly earnings edge up by 3.39% over the last month and last time it posted a 66.7% surprise. However that was a smaller than expected loss of $0.03, so the percentage surprise is much less than it appears.

WAL-MART STORES (WMT): Free Stock Analysis Report

APPLD MATLS INC (AMAT): Free Stock Analysis Report

MACYS INC (M): Free Stock Analysis Report

PENNEY (JC) INC (JCP): Free Stock Analysis Report

ELECTR ARTS INC (ERTS): Free Stock Analysis Report

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