Wednesday, November 14, 2012

Earnings to Look Out For This Week

It's another big week for earnings this week so I’ll pick out some of the interesting things happening and discuss what key indicators investors should be looking for in the results. So far this earnings season has been very mixed with some weakness in technology being offset by strength in US housing and retail stocks. The more cyclical side of emerging market spending has disappointed somewhat.

As for Europe most of the US companies I have been looking at have been reporting stable conditions in their sales to the region. Admittedly this translates as ‘still weak’ but the comparatives are getting easier while they are getting tougher for China et al. Moreover allow me to point out that Europe ex Greece (which will hopefully be finessed out of the Euro soon) is genuinely trying to make structural reforms and reduce deficits.

Hopefully elsewhere people will start to look and learn fiscal discipline from the ‘Herring Economies’ (you heard it first) in other words Germany, Austria, Denmark, Sweden, Finland, Norway and the Netherlands. Countries that eat herring extensively seem to know how to pay their debts. Even Iceland is doing better these days.

But enough waffle!


I’m going to pick out house builders Beazer Homes and DR Horton as the stocks to watch today. Most of the others have reported good numbers this season but these two are bellwethers so their commentary will be interesting. In particular commentary on any improvements in Florida and California.


Cisco Systems (NASDAQ: CSCO) usually moves the markets and I suspect it will do so. I’ve previewed its earnings here and am not expecting any great things. Cisco played its ‘we are now a value proposition’ wild card last quarter. As for this quarter I would keep an eye on enterprise spending. It has been a bit up and down for Cisco this year and we will see if last quarter's better results were due to some pull forward or not.

It’s also a big day for retail with Home Depot (NYSE: HD), TJX Companies and Saks all giving numbers.  In a way the house builders on Monday will guide towards what Home Depot may say. I’m interested to see if its management continues to see its earnings decoupling from overall GDP growth as housing enters a ‘sweet spot’ in the economy. Look out for how the more discretionary aspects of its sales are increasing. TJX has been a bit weak recently despite reporting good same store sales growth. I’ve discussed the stock in an article linked here.


More retail on Wednesday as Abercrombie & Fitch gives numbers alongside PetSmart and Williams-Sonoma. I’ve discussed PetSmart  in an article linked here and the key thing to look out for is whether increasing competition from the likes of Amazon and Wal-Mart is pressuring same store sales growth or margins. Similarly Williams-Sonoma is another business that has been reporting good growth, but is threatened with increasing competition. Look out for its geographical expansion plans.


This promises to be one of the most interesting days of the earnings season for me. There are three themes here comprising retail, technology and the ‘horror shows’. Dollar Tree gave a disappointing update recently so any color on what is going on with store sales will be interesting. The company typically generates less per sq. ft. than its rivals. Wal-Mart (NYSE: WMT), Target and Limited Brands will also give results. I like the mix of business at Limited Brands and its commentary on European operations will be useful.  As for Wal-Mart and Target you can either analyze US consumer spending data to death or model what Wal-Mart, Costco and Target are saying. I’m expecting better things from them. After all consumer spending tends to be late cycle and employment is increasing (albeit slowly) in the US.

Now it’s time to turn to the proper horror shows. I like Autodesk (NASDAQ: ADSK) as a company and covered it an article linked here which should give a good background on what to look for in the upcoming earnings. A combination of emerging market weakness and customer resistance to its new sales model maybe causing problems.  Such issues make its prospects over earnings very volatile. I’m monitoring for an opportunity.  The second horror show is Gamestop (NYSE: GME) which I’ve discussed here. The stock has done very well recently, but I don’t think any of the structural issues have gone away and I would keep an eye out for how used game sales are progressing. However everyone knows about these issues and the stock is full of nervy longs and shorts. Expect volatility and over reaction.

The last two horror shows are Dell and Applied Materials. Dell is another structural challenged business discussed in more length here. The key thing to look out for here is how the acquired businesses are growing and whether it is going to be enough to counteract slowing sales elsewhere. As for Applied Materials the whole semi-conductor sector has been weaker recently and solar company revenues and earnings have fallen off a cliff.

In a side note Intuit also gives results. More details on the company linked here. This is one of the quieter quarters for the company but investors can look out for details of operational improvements with improving conversion rates from stores.


My highlight for Friday is earnings from Sirona Dental Systems. The company is a bit of favorite of mine and I think well worth watching closely. The market seems to have woken up to it recently and I’m out for evaluation reasons but will be watching closely to take advantage of any developments. The company’s long term prospects are excellent.