Monday, January 21, 2013

This Week's Key Earnings

A huge week for earnings, and it will make it difficult to keep up with events. I’m going to pick out some highlights and talk about some of the things to look for. It’s a great time to be researching new stocks so investors need to be prepared in advance so as not to miss anything while they research their existing holdings. Last week was primarily about banking but this week has a broad base of companies reporting.


As usual, Monday starts off relatively quietly. Monro Muffler Brake is worth looking at to see where the auto parts retailers might be headed.  Werner Enterprises might also give some color on the global economy from a transportation perspective.


This is a huge day for technology. Advanced Micro Devices reports but the real excitement will come when Google (NASDAQ: GOOG), IBM (NYSE: IBM) and Cree (NASDAQ: CREE) give results. Google will have to answer the questions over declining cost per click even though paid clicks and income continue to grow strongly. In addition Facebook’s recent graph search announcement is an attempt to wean surfers off Google search while Google+ is an attempt to wean surfers off Facebook. My suspicion is that in the long term both are winners, but Google is more important. The divining rule of the Internet thus far has been that attempts to restrict users’ options have failed. I don’t think I’m missing anything important by not having access to Facebook content from Google search but I am sure I am if it’s the other way around.

IBM is always important if we go back to what it said last time; it was a story of hardware weakness with software doing okay. In addition, IBM warned of a noticeable drop off in orders in September, and if that carried through into the next quarter then there could be some downside surprise here. As ever, the commentary will be as important as the numbers and since we have had a few weeks of January I suspect the guidance might just be more positive than the results.

Cree is another stock that I like to follow. I like this company and how its gross margins appear to have troughed. Moreover its lighting division seems set for good long term secular growth. Indeed, lighting looks like it will act as the new spur for another LED cycle where Cree will be well placed to benefit. Investors should note though that lighting company Acuity Brands’ recent results were a bit disappointing, so look out for volatility here.

Other interesting companies include CSX and Norfolk Southern in rail, Woodward in industrial and Verizon in telecoms.

The much beleaguered Apple gives results and investors will hang on every word of what it says about the iPhone 5. IT security company Check Point Software will give results and investors will find out if it was one of the companies that Palo Alto was talking about when it mentioned some pricing competition. It wouldn’t surprise me because CHKP’s product sales growth has slowed to a halt recently, and recall that it can bundle software solutions with its products.

F5 Networks will also give results and investors will be keen to see if it can reverse the declines in its telco derived revenues. It will need to because it can’t rely on Government revenues forever.
China will crop up a lot in discussion of Coach and McDonald’s results. It is crucial to the former and the latter will come under scrutiny following Yum Brands recent disappointments. Hexcel and Textron will give color on the aerospace industry, and results from Novartis, Varian Medical and Quest Diagnostics will complete a mini-healthcare theme.


Thursday is another huge day with industrial bellwethers 3M, Precision Castparts and Dover Corp reporting. The latter was discussed in an article linked here; it’s a good company but I have some concerns with its consumer electronics exposure. Informatica is the most interesting tech stock reporting, even though Microsoft also gives results. I don’t think anyone is expecting much from Windows 8. A few other notables are Mcormick, Ametek and everyone’s favorite pick-up place Starbucks.

My highlight for today will be AT&T (NYSE: T). It is hard to stress enough how important the capital expenditure outlook from this company and Verizon (earlier in the week) is to the telco sector. Verizon’s stated aim is to reduce CapEx as a share of revenues, and it seems to be making a virtue of not spending, while AT&T has recently been making more bullish noises. I’ve discussed the matter in more length here and there are signs that 2013 could be a better year. Nevertheless, look out for what they do rather than what they say and, in particular, on things like wireless and voice over LTE spending.


This Friday is much more interesting than usual with Cepheid and Covidien reporting in the healthcare sector. It’s going to be a busy year ahead for Covidien. Housing play Weyerhauser also gives results, as does Kimberly-Clark alongside its rival Procter & Gamble (NYSE: PG). PG is not my favorite stock, but then again I am not a value investor. If I was I might be attracted to the company thanks to its yield and the potential for its management to release the powerful potential in its key brands. It seems to have stopped the erosion in the US but reported emerging market growth less than its peers in the last results. Investors will need to keep a close eye on these developments because this is not the time to be eroding market share in growth markets.

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