Tickers in this Article: AA, JPM, GOOG, MAT, HAL, LLY
With Q4's earnings pretty much in the books it's once again time to buckle up for earnings season. That's not to say that the fourth quarter's results were forgettable though. The S&P 500's constituents grew earnings by 32% on a year-over-year basis, and even taking the volatile financials out of the equation, income was up an average of 20%.

TUTORIAL: Stock Basics

As for what the first quarter's numbers will look like, so far the expectation is almost as solid. Standard and Poor's is looking for a 12% year-over-year improvement in earnings, to be led by energy and pulled back by telecom.

We'll take a look at Q4's scorecard (beats, misses, change) by sector, and then we'll even look at the earliest Q1 reports that will tell us just how on target these outlooks are.

Sector
Forecasted Q1 YOY Earnings Change
Energy
26.7%
Materials
25.6%
Industrials
22.8%
Technology
16.0%
Financials
14.9%
S&P 500
12.0%
Discretionary
6.8%
Staples
4.2%
Healthcare
-0.5%
Utilities
-1.3%
Telecom
-5.5%
Not Hard to Believe
The incredible success of one group and the incredible shortcoming of another - and with a little of everything in between - almost seems too disparate to be true. But, you can believe it, because it's pretty much the same disparity we saw with fourth quarter's earnings results by sector.

Sector
Q4-2010 YOY Earnings Change
% of Sector that Topped Estimates
% of Sector that Missed Estimates
Energy
42.5%
71.8%
25.6%
Materials
43.6%
65.5%
31.0%
Industrials
22.3%
64.9%
21.1%
Technology
20.6%
81.1%
14.9%
Financials
315.7%
65.4%
29.5%
S&P 500
32.6%
68.5%
24.2%
Discretionary
14.9%
75.3%
20.5%
Staples
7.1%
60.5%
23.7%
Healthcare
7.9%
76.5%
9.8%
Utilities
0.8%
38.7%
51.6%
Telecom
14.2%
33.3%
66.7%
Assuming analysts didn't learn from their mistakes with fourth quarter's numbers, energy and technology may do even better than currently expected this coming earnings season.

Of all the potential winners though, it's the consumer discretionary stocks that look best poised to post upside surprises. More than 75% of those companies beat estimates, and the group as a whole ramped up its year-over-year profits by 14.9%. And now the market's only look for 6.8% growth? Healthcare's stocks look underestimated too, for the same reason: analysts don't expect much now even though the group did much better than anticipated last quarter.

As for the losers, it's not hard to believe that telecom and utilities are in the doghouse. They not only did poorly last quarter, but most of these corporations did even worse than expected.

Early "Tells"
Not that one company speaks for the whole market, but what's affecting sales and profits for one company is apt to be causing the same effect for most of them. So, you may be able to get an early feel for how well things are shaping up on the Q1 earnings front by watching these stocks:

  • Alcoa (NYSE:AA) - Yes, it's cliché to include the obvious kickoff to earnings season, but if all eyes are on Alcoa's April 11 announcement, you can bet most of the market plans on responding to it somehow. The pros are looking for an EPS of 27 cents, which would top the profit of 10 cents from a year earlier.

  • JPMorgan Chase (NYSE:JPM) - Be ready on the morning of April 13; the market's looking for a profit of $1.17 per share, which would nearly double the 74 cent profit from 2010's Q1.

  • Google Inc. (Nasdaq:GOOG) - The juggernaut is expected to keep rolling, by earning $8.13 per share for its first quarter, and handily outdoing the $6.76 figure from a year ago. We'll know for sure by April 14.

  • Mattel (NYSE:MAT) - No, a toymaker doesn't exactly come to mind when you think a market-wide barometer, but Mattel speaks volumes about consumer discretionary spending for the quarter. Before the market opens on April 15, the company is forecasted to post a per-share quarterly profit of 5 cents, which easily topples last year's Q1 estimates of a 3 cent loss.

  • Halliburton (NYSE:HAL) - The oil service and equipment giant gets things rolling in the first heavy week of earnings season by posting on April 18. Look for an EPS of 60 cents versus a mere 28 cents last time around.

  • Eli Lilly (NYSE:LLY) - The pharmaceutical company will round out the early hints about Q1's earnings season by also sharing its results on Monday, April 18. Analysts expect $1.16 per share, although last year's figure was $1.18.
Bottom Line
As important as the expectations are against the backdrop of last quarter's actual results, just as important are the reactions to the news. If stocks rally on poor results or falter on strong numbers, actual earnings success or failure may be irrelevant. (For more stock analysis, see Can Anyone Compete With Google?)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

comments powered by Disqus

Trading Center