5 Reasons to Worry About Next Week
The economy is showing signs of fumbling the recovery.
As we head into 2013 with the uncertainties of global economies and some tax increases, will anyone really be surprised if we all take a step back this year?
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.
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
Clearing the table
Let's start at the top with Apollo Group.
For-profit secondary educators were market darlings during the early stages of the economic downturn. The allure of making oneself more employable through college degrees and specialty programs that could be completed online at reasonable price points made Apollo's virtual University of Phoenix campus an easy sell.
Well, it's been more of school of hard knocks these days. What began a couple of years ago as Apollo merely being chastised for its aggressive marketing tactics has snowballed into the country questioning the effectiveness of virtual classrooms. Low student loan repayment rates haven't helped.
With enrollment slipping, it isn't a surprise to see a scalable model faltering on the bottom line. Apollo has posted year-over-year declines on the bottom line for seven consecutive quarters. No one should be surprised to see that streak stretch to eight quarters when Apollo reports on Tuesday.
Ruby Tuesday has been a laggard in casual dining for some time. It seems to be the kind of restaurant chain that folks merely settle for when more popular operators are too busy.
Investors shouldn't be surprised when Ruby Tuesday posts a loss on Wednesday. This is a seasonal business, and the company's fiscal second quarter is always its least lucrative. Ruby Tuesday has posted a deficit in three of the five previous fiscal second quarters. However, the restaurant chain makes the cut this week because analysts see it losing twice as much money as it did a year earlier. You actually have to go back five years to find the last time that Ruby Tuesday posted a larger deficit than the $0.06 a share in red ink that the market's expecting here.
SUPERVALU has a lot to prove in 2013. It closed out 2012 by suspending the quarterly dividend that it had already cut two years earlier, closing down stores, and essentially putting itself up for sale. The battered grocer saw its stock shed more than two-thirds of its value last year, but it's not as if anyone is racing to approach SUPERVAU as a super value.
The good news here is that SUPERVALU remains profitable. Unfortunately, Wall Street sees the supermarket operator only earning a quarter of what it rang up a year earlier when it reports on Thursday.
Xyratex is a provider of enterprise data storage solutions. Corporate America isn't really cracking open its billfold to make big investments in IT, and the outlook is even gloomier in many overseas markets. After posting a chunky profit a year earlier, analysts see Xyratex posting a modest deficit. This is bad. Xyratex has only posted one quarterly loss in the past three years.
Finally, we have Infosys. The Bangalore-based provider of outsourced customer support and other IT services reports on Friday.
Infosys is often viewed as a way for companies to save money, so one would argue that it's somewhat recession-resistant. It's very profitable. Analysts see earnings of $0.72 a share in its latest quarter. However, that's 10% below what it rang up a year earlier. The good news for Infosys is that Wall Street does see revenue inching slightly higher. Infosys isn't losing its customers. Margins are what's being pressured, and that could be problematic if it stays that way.
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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The article 5 Reasons to Worry About Next Week originally appeared on Fool.com.Longtime Fool contributor Rick Aristotle Munarriz has no positions in the stocks mentioned above. The Motley Fool owns shares of Supervalu. Motley Fool newsletter services recommend Supervalu. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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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