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Tickers in this Article: FDO, K, DELL, GR, JOSB, TYC
I try avoid companies that have recently missed earnings expectations. Earnings misses usually lead to unfavorable coverage from analysts and ultimately pressure on the stock as investors head for the exits. Instead of searching for diamonds in the rough, I find it's more effective to watch the companies that have recently exceeded expectations.

When it comes to the market, success begets success; however, lately there hasn't been much success for anyone. If you are willing to do some digging, there are still a few companies out there capable of surprising the Street. I ran a quick screen for companies that beat analyst expectations in their last reported quarter. Here is what I found:

Company
Previously EPS Expectation
Actual Earnings
Dell Computer
(Nasdaq:DELL)
$0.31
$0.37
Family Dollar
(NYSE:FDO)
$0.34
$0.38
Goodrich
(NYSE:GR)
$1.13
$1.33
Jos A. Bank Clothiers
(Nasdaq:JOSB)
$0.41
$0.50
Kellogg
(NYSE:K)
$0.80
$0.89
Tyco
(NYSE:TYC)
$0.73
$0.81
Data retrieved at market close December 11, 2008

Shopping Trip to the Dollar Store
Despite the shoddy economy, North Carolina-based discount retail chain, Family Dollar has been faring very well. In early October Family Dollar released Q4 numbers. It generated $1.77 billion in sales, an 8.2% improvement over the $1.63 billion it generated in the comparable period last year. On the bottom line it earned 38 cents per share, which was a more than 46% improvement over the 26 cents per share it earned in the comparable period the year before, and it was north of the 34 cents per share analysts expected.

In conjunction with its Q4 numbers, Family Dollar offered forward looking guidance of $1.58-1.78 per share in fiscal 2009, and 38-42 cents per share in its first fiscal quarter. At that time, analysts expected full-year earnings of $1.70 per share and 40 cents per share for the quarter, according to Yahoo Finance. The estimates haven't budged since then. (To learn more, read Can Earnings Guidance Accurately Predict The Future?)

Earlier this month Family Dollar announced that its same store sales for Q1 rose 2.1%. The first quarter numbers for fiscal 2009 will be released on January 7. I plan to watch these numbers closely.

No negative surprises is huge in this environment.

At present, the company trades at about 13.8 times the current year estimate of $1.70 per share. That's not cheap, but its tolerable considering the company is expected to grow at by 12.75% per year over the next five years.

Bottom Line

There are no guarantees that an earnings beat now will lead to success in the future, but I still look favorably upon companies that have positive surprises for the Street right now. With all of the gloomy news clogging the market, these stocks truly stand out.

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