So far, S&P 500's third-quarter earnings have beat analyst expectations overall, and just over half the companies on the index have yet to release their reports. Could this be an opportunity to buy in on what appears to be a surprisingly bullish earnings season?
Roughly 42% of the S&P 500 index's Q3 2011 earnings have been reported so far and have exceeded expectations by 1.5%. Of the overall U.S. market, 63.7% of companies have reported earnings surprises this quarter, up from previous 2011 quarters.
According to Morgan Stanley equity strategist Adam Parker, "aggregate earnings have exceeded consensus expectations by 5.4% driven primarily by financials. Excluding financials, the beat has been 1.9%, which is below the 5.3% beat in Q2 and 6.2% in Q1. So, while trends are still positive, there has clearly been less upside this quarter than the prior ones."
Morgan Stanley has been largely bearish toward the Q3, but these positive earnings aren't exactly changing any minds. "Don't believe the hype; we remain quite cautious. Bear markets always have bear-market rallies," warns MS's Greg Peters.
Besides which, there was a rather "doom and gloom" outlook for the Q3, causing several analysts to lower the bar for earnings expectations. In turn, they have made it easier for companies to report earning surprises. So should these stellar reports be taken with a grain of salt?
Interested in tracking the next batch of earnings releases? Below we list companies that are scheduled to report tomorrow.
In addition, all of these companies have seen a significant decrease in the number of shorted shares m/m (i.e., short-sellers have reduced bets that these companies will decline in price).
Short-sellers seem to think there's upside surprises that might be priced into these names -- do you agree?
Use this list as a starting point for your own analysis. (Click here to access free, interactive tools to analyze these ideas.)
List compiled by Eben Esterhuizen, CFA:
1. eHealth (NAS: EHTH) : eHealth, offers Internet-based insurance agency services for individuals, families, and small businesses in the United States. The company is set to report earnings on 10/25. Shares shorted have decreased from 3.37M to 2.74M over the last month, a decrease which represents about 3.59% of the company's float of 17.56M shares.
2. Mueller Industries (NYS: MLI) : Mueller Industries, manufactures copper, brass, plastic, and aluminum products. It operates in two segments, Plumbing & Refrigeration, and Original Equipment Manufacturers (OEM). The company is set to report earnings on 10/25. Shares shorted have decreased from 3.23M to 2.68M over the last month, a decrease which represents about 1.48% of the company's float of 37.19M shares.
3. Rightnow Technologies (NAS: RNOW) : Provides cloud-based customer experience software products and services. The company is set to report earnings on 10/25. Shares shorted have decreased from 4.10M to 3.78M over the last month, a decrease which represents about 1.22% of the company's float of 26.13M shares.
4. Lender Processing Services (NYS: LPS) : Provides integrated technology and outsourced services to the mortgage lending industry in the United States. The company is set to report earnings on 10/25. Shares shorted have decreased from 7.47M to 6.19M over the last month, a decrease which represents about 1.67% of the company's float of 76.46M shares.
5. USANA Health Sciences (NAS: USNA) : Develops, manufactures, distributes, and sells nutritional and personal care products worldwide. The company is set to report earnings on 10/25. Shares shorted have decreased from 2.50M to 2.35M over the last month, a decrease which represents about 2.18% of the company's float of 6.89M shares.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Eben Esterhuizen and Rebecca Lipman do not own any of the shares mentioned above. Shorts data sourced from Yahoo! Finance.
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