(CSCO) Slow Data Week Ahead – Earnings Preview

Earnings Preview 2/3/12

Earnings season will be in full swing next week, with 507 firms scheduled to report, and 69 of those will be members of the S&P 500.  By the end of the week we will be almost three quarters done with earnings season.

Many large and significant companies will be reporting.  They include Cisco (CSCO), CVS (CVS), Disney (DIS), Humana (HUM), Coca-Cola  (KO), PepsiCo (PEP), Time Warner (TWX) and Yum Brands (YUM).

Unlike last week, it will be a relatively quiet week for economic data.  We will get the Job Opening and Labor Turnover Survey (JOLTS), which will provide some more detail to the December jobs picture.  We will also find out if Consumer Credit (not including mortgages) expanded in December.  The only other reports of significance, other than the jobless claims numbers that come out every week, are both deficit reports on Friday.

Monday

  • Water cooler conversation will be dominated by discussion of the Super Bowl.

Tuesday

  • It is expected that Consumer Credit expanded by $8.5 billion in December after a surprisingly large $20.8 billion rise in November.  Given the strong auto sales numbers, I suspect the number will be higher than that, with most of the increase coming from the non-revolving side.  Revolving credit (i.e. credit card) balances probably expanded moderately.
  • The JOLTS report, showing the numbers of hirings, job losses and job openings will be released.  This is important detail, as the big employment report only shows the difference between hirings and job separations.  However, the data will be for December, not January.

Wednesday

  • Nothing of particular significance.

Thursday

  • Weekly Initial Claims for Unemployment Insurance fell by 12,000 to 367,000 last week.  The consensus is looking for a slight rebound to 370.000.  The drop in weekly claims to well below the key 400,000 level was the first clue that the jobs situation was getting significantly better.  If weekly claims fall again it would be a powerful sign that the momentum is continuing.  The big seasonal adjustments are all in the rearview mirror, so last week’s level is probably about right, but we have recently seen a lot of volatility in the weekly numbers.  Thus the four-week average is the thing to focus on (which totaled 375,750 last week).  Keep an eye on the prior week’s revision as well as the change from the revised number.
  • Continuing Jobless Claims have been in a downtrend of late, but the road down has been bumpy. Last week they fell by 130,000 to 3.437 million. That is down 536,000, or 13.5% from a year ago. The consensus is looking for a bounce to 3.475 million. Some (most?) of the longer-term decline is due to people simply exhausting their regular state benefits which run out after 26 weeks. Those, however, don’t last forever either. Federally paid extended claims rose by 43,000 to 3.497 million last week and are down 1.058 million, or 25.2% over the last year. Looking at just the regular continuing claims numbers is a serious mistake. They only include a little over half of the unemployed now, given the unprecedentedly high duration of unemployment figures. A better measure is the total number of people getting unemployment benefits — currently at 7.670 million. The total number of people getting benefits is now 1.632 million below year-ago levels. What is not known is how many people have left the extended claims via the road to prosperity — finding a new job — and how many have left on the road to poverty, having simply exhausted even the extended benefits. Unless the program is renewed, all extended benefits will end at the start of March. Make sure to look at both sets of numbers! Many of the press reports will not, but we will here at Zacks.

Friday

  • The Trade Deficit is expected to rise slightly to $48.2 billion from $47.8 billion in November. That was up sharply from $3.27 billion in October.  For the first eleven months of 2011, the trade deficit has totaled $512.78 billion, up from $459.57 billion in the first eleven months of 2010.  A rising trade deficit lowers GDP growth on a dollar-for-dollar basis. We have been doing a good job at increasing exports (although not in November) but our imports are much larger and have been increasing almost as quickly.  It is the trade deficit, not the budget deficit which causes the country to be in debt to places like China.  As more than half of the trade deficit can be attributed to our oil addiction, this addiction must be cured before we can solve this serious economic problem.
  • We also get the Budget Deficit for January.  While it is still very high, it has been coming down.  In the first three months of fiscal 2012, the Government has spilled $321.74 billion worth of red ink, down from a deficit of $368.96 billion in the first three months of fiscal 2011.  That trend is expected to continue, with the January deficit coming in at $40.0 billion versus $49.8 billion in January 2011.  If the good news on the jobs front can continue, the downward trend is likely to accelerate.
  • The University of Michigan Consumer Sentiment index is expected to dip to 74.0 from 75.0.  Since what consumers say in these surveys is often very different from how they actually act, this is a very overrated economic indicator.

Potential Positive or Negative Surprises

The best indicators of firms likely to report positive surprises are a recent history of positive surprises and rising estimates going into the report. The Zacks Rank is also a good indicator of potential surprises. Similarly, a recent history of earnings disappointments, cuts in the average estimate for the quarter in the month before the report is due and a poor Zacks Rank (#4 or #5) are often red flags pointing to a potentially disappointing earnings report.

In the Earnings Calendar below, $999.00 should be read as N.A.

Potential Positive Surprises:

  • Humana (HUM) is expected to earn $1.20, down from $1.65 a year ago.  Last time out, it had a positive surprise of 25.74%, and over the last four weeks analysts have raised their estimates for the quarter by 0.52%.  HUM is a Zacks #1 Rank stock.
  • Cisco Systems (CSCO) is expected to earn $0.38, up from $0.31 a year ago.  Last time out, it had a positive surprise of 11.76%, and over the last four weeks analysts have raised their estimates for the quarter by 0.22%.  CSCO is a Zacks #2 Rank stock.
  • Pioneer Natural Resources (PXD) is expected to earn $1.01, up from $0.51 a year ago.  Last time out, it had a positive surprise of 51.69%, and over the last four weeks analysts have raised their estimates for the quarter by 6.31%.  PXD is a Zacks #2 Rank stock.

Potential Negative Surprises:

  • Constellation Energy (CEG) is expected to earn $0.63, up from $0.42 a year ago.  Last time out, it had a negative surprise of 23.6%, and over the last four weeks analysts have cut their estimates for the quarter by 11.81%.  CEG is a Zacks #5 Rank stock.
  • International Flavors (IFF) is expected to earn $0.71, up from $0.69 a year ago.  Last time out, it had a negative surprise of 3.85%, and over the last four weeks analysts have slashed their estimates for the quarter by 0.2%.  IFF is a Zacks #4 Rank stock.
  • Montpelier Re (MRH) is expected to earn $0.20, down from $0.81 a year ago.  Last time out, it had a negative surprise of 73.91%, and over the last four weeks analysts have cut their estimates for the quarter by 67.0%.  MRH is a Zacks #5 Rank stock.

Earnings Calendar

CISCO SYSTEMS (CSCO): Free Stock Analysis Report

DISNEY WALT (DIS): Free Stock Analysis Report

HUMANA INC NEW (HUM): Free Stock Analysis Report

COCA COLA CO (KO): Free Stock Analysis Report

PEPSICO INC (PEP): Free Stock Analysis Report

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