5 Reasons to Worry About Next Week

It's been an exciting week in the market.

Initial claims for state jobless benefits are at a four-year low. Another report indicates that U.S. manufacturing activity continues to expand.

However, it's not as if corporate America is playing along completely. There are more than a few companies that aren't pulling their own weight in this supposed economic recovery.

There are still plenty of names posting lower earnings than they did a year ago. Let's go over a few of the companies that are expected to go the wrong way on the bottom line next week.


Latest-Quarter EPS (Estimated)

Year-Ago Quarter EPS

My Watchlist

Apollo Group (NAS: APOL)




Lennar (NYS: LEN)




Walgreen (NYS: WAG)




Mosaic (NYS: MOS)




Saba Software (NAS: SABA)




Source: Thomson Reuters.

Clearing the table
Let's start at the top with Apollo.

The for-profit post-secondary educator behind the University of Phoenix virtual campus has been roughed up over the past two years. What originally started out as accusations of aggressive marketing practices on Apollo's behalf blew up into weakness for all online educators in light of weak repayment rates and concerns about the platform's effectiveness.

Citigroup analyst James Samford wanted to move ahead of the class yesterday, lowering his price target on Apollo -- from $57 to $48 -- ahead of the report. Samford's sticking to his "neutral" rating on the stock, though he is hosing down his bottom-line expectations for fiscal 2012 and fiscal 2013.

Lennar is the Miami-based homebuilder that may be an anomaly among real estate developers. Most of Lennar's peers have been posting improving bottom-line results, as small profits wipe out prior-year deficits. Lennar has actually been profitable for some time. The homebuilder has cranked out seven consecutive quarterly profits. But despite a projected 26% uptick in revenue, analysts see net income falling sharply this time around.

Walgreen, the popular drugstore chain, had a rough February, filling 10% fewer prescriptions after its contract with Express Scripts ran out.

Wait. So lines are shorter now at the Walgreen pharmacy?

Either way, Walgreen's bottom line is taking a slight hit when it reports on Tuesday, according to analysts.

Mosaic's specialties in phosphate and potash are ultimately all about the fertilizer that helps farmers grow their crops. After two years of consistent year-over-year improvement on the bottom line, Wall Street sees Mosaic taking a breather.

There's not much of a consensus when it comes to Mosaic. There are 17 analysts modeling the company's performance, and their projections call for a quarterly profit as little as $0.48 a share to as much as $1.25 a share. Clearly even the most bullish of analysts thinks it will be a challenge for Mosaic to top the $1.21 a share it posted a year earlier.

Finally there is Saba. The human resources software provider is expected to turn a year-ago profit into a deficit. Sadly, this is what Saba has done in each of its three previous quarters.

The silver lining here is that Saba's revenue is actually still growing. That's important. The stock hit a fresh 52-week high yesterday, and a Benchmark Co. analyst upgraded the stock on Wednesday.

Why the long face, short-seller?
These companies have seen better days. The market has rewarded many of these stocks with reasonable gains over the past year, but they still haven't earned those upticks. Lower earnings translates into higher earnings multiples, and nobody wants to see that happen.

The good news here is that Wall Street already expects these companies to deliver shrinking bottom lines. In other words, the bad news is already baked into the shares.

The more I think about it, the less worried I become.

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At the time thisarticle was published The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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