5 Reasons to Worry About Next Week
The economy is showing signs of fumbling the recovery. Despite the wave of Black Friday shoppers -- who only braved the cold and the crowds for the sake of a $20 Blu-ray player -- everything isn't totally peachy out there. What happens if eurozone ministers fail to come to an agreement when they meet again on Monday?
Won't the global markets falter again, if Europe's still a mess? Reuters reports that the eurozone economy is on pace for its softest quarter in more than three years, going by business surveys that reveal growing layoffs and shrinking order books this month.
The news isn't just iffy on the macro level. There are also more than a few companies that aren't pulling their own weight in this supposed economic recovery.
Plenty of names are 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's EPS (Estimated)
Year-Ago Quarter's EPS
Seadrill (NYS: SDRL)
Guess? (NYS: GES)
TiVo (NAS: TIVO)
Cracker Barrel (NAS: CBRL)
OmniVision (NAS: OVTI)
Clearing the table
Let's start at the top with Seadrill. Companies may flock to the provider of offshore drilling services for their oil and gas, but investors warm up to Seadrill for its hefty dividend. A chunky yield of 8.6% is pretty sweet these days. However, Seadrill's ability to not only sustain its dividend but to also prop it higher -- as it has in 10 of the past 11 quarters -- rests on its ability to grow the amount of money it's bringing in. Profitability, next week at least, is expected to go the wrong way.
Guess? knows that fashion can be fickle, but the branded apparel and accessories retailer is apparently not at its best right now. Guess? operates a global chain that includes 513 North American stores and another 312 locations throughout Europe, Asia, and Latin America. Guess? also distributes its clothing, handbags, watches, and footwear through several department-store chains.
Analysts see Guess? suffering a small 3% dip in revenue, but the drop will be far greater on the bottom line as margins take a hit.
TiVo should be back with more red ink. Profitability has been a problem at TiVo in recent years. It has posted a deficit in 14 of the past 15 quarters. Until recently, the DVR pioneer was also shedding net subscribers, but it's been gaining ground on that front lately.
Cracker Barrel Old Country Store has an activist investor that it can't shake loose. Sardar Biglari began taking a significant stake and a critical stance last year and lately has turned his attention to subpar reporting for both Cracker Barrel in particular and the restaurant industry in general. Biglari ultimately wants what shareholders want, and that's a higher share price. His cage-rattling has been working so far. Cracker Barrel's stock has easily beaten the market since Biglari became a vocal agitator, hitting a new all-time high in September.
OmniVision Technologies is a leading maker of image sensors. These are the tiny cameras that have become so popular in smartphones and tablets these days. Why is OmniVision going the wrong way? Well, the market it had once cornered has become brutally competitive over the past couple of years. Margins have been bloodied as OmniVision resorts to smaller markups to win contracts.
The bad news for OmniVision investors who saw earnings falling from $0.38 a share in last year's fiscal second quarter to $0.30 this time around is that analysts have actually overestimated the company's profit potential lately. OmniVision missed Wall Street's income targets in its two most recent reporting periods.
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 translate into higher earnings multiples, and nobody wants to see that happen.
The good news 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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The article 5 Reasons to Worry About Next Week originally appeared on Fool.com.Longtime Fool contributor Rick Aristotle Munarriz owns shares of Cracker Barrel. The Motley Fool owns shares of Guess? and Seadrill. Motley Fool newsletter services recommend Cracker Barrel, Guess?, Seadrill, and TiVo. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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