Housing and Retail In Focus
Housing and Retail In Focus
Earnings Preview 2/18/11
We are not done with the fourth quarter earnings season yet, but the end is in sight. A total of 545 firms are due to report, including 62 S&P 500 firms. A great many of next week's reporters are retailers, many of which have fiscal years than end in January, not December.
So far the earnings season seems to be going well. With almost 84% of the S&P 500 reports in, total net income is up 27.5% over a year ago.
The firms reporting this week include several icons of U.S. business, including Applied Materials (AMAT), American International Group (AIG), Gap Stores (GPS), Kohl's (KSS), Macy's (M), Newmont Mining (NEM), Target (TGT) and Wal-Mart (WMT).
It will be a moderately heavy week for economic data. We will get data on Home Sales, both New and Used, as well as on New Orders for Durable Goods. We wrap up the week with the second look at GDP growth in the fourth quarter.
Monday
* To honor our 1st and 16th presidents, many mattresses will be sold.
Tuesday
* The Case Schiller home price index showed a year-over-year decline of 1.59% in November, and the month-over-month changes in home prices, based on the composite 20 city index have been negative for the last five months. I would expect the downward slide in prices to continue and for the year over year change to fall further into negative territory based on the December data. The consensus is looking for a year-over-year decline of 2.4%, but that might be a bit optimistic. The Case Schiller index is the gold standard for tracking housing prices, but we are talking about November data here (actually a three month moving average of September, October and November data) so it tends to be on the stale side. Still, given that housing equity is the primary store of wealth for millions of people, changes in home prices are very significant. They also have a very significant bearing on how much worse the foreclosure situation is going to get.
* The Consumer Confidence Index is likely to improve from its January reading of 60.6. It would not surprise me to see last month's number revised upward. The consensus is looking for a February reading of 67.0. While improving, it remains at a very low level. I am not a big fan of this indicator as what consumers say in these surveys does not always match what they actually do. Still, better to see it moving up than down.
Wednesday
* Existing Home Sales are expected to dip to a seasonally adjusted annual rate of 5.23 million from 5.28 million. What is more significant will be the level of inventories, and if the December months of supply rate of 8.1 months can continue to decline. While down from last summer, the level is still extremely high and indicates strong downward pressure on home prices. That really is what to watch in the existing home sales numbers, since the amount of economic activity generated by an existing home changing hands is not really that big a deal, but home prices are a very big deal. Unfortunately, it looks like they are falling again.
Thursday
* Weekly initial claims for unemployment insurance come out. They have been extremely erratic of late. Last week they rose by 25,000 in the last week, to 140,000, the lowest level since the Summer of 2008. The consensus is for them to be unchanged. Given how volatile initial claims have been over the last month or so, that seems to very unlikely, but would not be all bad. That consensus probably has a big range around it. After a huge downtrend from mid-April through the end of 2009, initial claims were locked in a tight "trading range." We now appear to have broken out of that trading range to the downside. This could well indicate that the economy is about to start producing a significant number of new jobs.
* Continuing claims have also in a downtrend of late, but the road down has been bumpy. Last week they rose by 1,000 to 3.911 million. That is down 935,000 from a year ago. Some of the longer-term decline due to people simply exhausting their regular state benefits which run out after 26 weeks. Federally paid extended claims fell by 85,000 to 4.503 million, and are down by 1.501 million 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 9.250 million, which is down 108,000 from last week. The total number of people getting benefits is now 2.370 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. Make sure to look at both sets of numbers! Many of the press reports will not, but we will here at Zacks.
* New Home Sales are expected to slip to an annual rate of 310,000 from 329,000. While a 3.4% increase might look OK, it is coming off an extremely depressed base. In fact the lowest eight months of New Home Sales on record have been in the last eight months, and if the consensus estimate is hit, make that eight of eight. It is hard to overestimate the importance of New Home Sales to the overall economy, especially in the early stages of an economic recovery. The low level of New Home Sales (and hence the low level of homebuilding activity) is the principal reason that this recovery has been so anemic. Every home built generates a huge amount of economic activity that feeds through the entire economy. With the possible exception of the GDP report, this is the most important economic data of the week.
* New Orders for Durable Goods are expected to have risen by 3.0% in January. That would more than reverse the 2.5% decline in December. The December decline was due to a massive plunge in orders for Transportation equipment, most notably civilian aircraft. Those orders are expected to rise in January. That is an extremely "lumpy" area for new orders, as just a few Jumbo Jets can swamp order growth or declines for the rest of the economy in any given month. Excluding transportation equipment, orders actually increased by 0.5% in November. These numbers -- both total and excluding transportation -- can be heavily revised, and I suspect that the December numbers will be revised upwards. Changing the base can have a significant effect on the month to month change, and are worth paying attention too.
Friday
* We get the second look at the Big Kahuna, GDP growth in the fourth quarter. While that might be a big of "old news," it is the most comprehensive measure of how well the economy is doing. In the first look, GDP grew at an annual rate of 3.2%. While that was a acceleration from the 2.6% in the third quarter, it was widely seen as being a disappointment. The quality of the growth was, however, far better than that of either the second or third quarters. The growth came from higher consumer spending and an improvement in net exports, not from simply re-stocking of inventories. The composition of growth is just as important and the overall level of growth. For the second look at the data, the consensus is looking for an upward revision to 3.3% growth, but I suspect the number will come in a bit higher -- 3.4% or 3.5%.
Potential Positive or Negative Surprises
Historically 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 potential disappointing earnings report.
Potential Positive Surprises:
Genuine Parts (GPC ) is expected to report $0.70 vs. $0.62 last year. Last time out it reported a 9.21% positive surprise, and over the last month the mean estimate for the about-to-be-reported quarter has increased by 1.77%. GPC is a Zacks #2 Ranked stock.
Expeditors International (EXPD ) is expected to report $0.45 vs. $0.33 last year. Last time out it reported a 7.32% positive surprise, and over the last month the mean estimate for the about-to-be-reported quarter has increased by 0.21%. EXPD is a Zacks #2 Ranked stock.
Lowe's (LOW ) is expected to report $0.18 vs. $0.14 last year. Last time out it reported a 3.33% positive surprise, and over the last month the mean estimate for the about-to-be-reported quarter has increased by 1.25%. LOW is a Zacks #2 Ranked stock.
Potential Negative Surprises:
AES Corp (AES ) is expected to report $0.25 vs. $0.22 last year. Last time out it reported a 20.0% negative surprise, and over the last month the mean estimate for the about-to-be-reported quarter is unchanged. AES is a Zacks #4 Ranked stock.
Radio Shack (RSH ) is expected to report $0.53 vs. $0.60 last year. Last time out it reported a 5.71% positive surprise, but over the last month the mean estimate for the about-to-be-reported quarter has been cut by 20.62%. RSH is a Zacks #5 Ranked stock.
Wal-Mart (WMT ) is expected to report EPS of $1.31 vs. $1.17 last year. Last time out it reported in line with expectations, and over the last month the mean estimate for the about-to-be-reported quarter has fallen by 0.25%. WMT is a Zacks #4 Ranked stock. Everyone Of You Are Eligible For Online Mba In Usa Family Activities In London How Much Should I Pay For Driving Lessons Get Your Ex Girlfriend Or Boyfriend Back With One Of These Special Strategies How Spelthorne Is The Best For Christmas Holidays? Migraine Surgery Emerges As Hopeful Treatment for Migraine Sufferers The Top Bulk Candy Buys For Halloween Shop For Designer Glasses Online Personal Trainers Hollywood - Personal Trainer in Hollywood Interest-only Loans Becoming Extinct Reasonable Loans: Quick Cash Or Investing Properties Paying Tax On Time Will Save 9 Reasons Why You Have To Own Moncler Women Jackets This Winter