5 Reasons to Worry About Next Week
The economy is showing signs of fumbling the recovery.
Sure, the Dow hit an all-time high this week, and this morning's jobs report shows the country's unemployment rate dropping to its lowest level since late 2008, but why are equities rallying in light of the sequester cuts and the end of the payroll tax stimulus?
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 Heckmann.
The provider of environmental services seems to be in a good place these days. Fracking is huge and who can't warm up to a recycler that cleans up dirty frack water for renewed uses?
Heckmann is certainly benefiting from the trend. Revenue is all but assured of more than doubling in 2012 and analysts see Heckmann's business more than doubling this year, too. However, the bottom line isn't as lucky. Wall Street's braced for a small deficit, reversing a modest profit a year earlier.
Another piece of bad news to consider is that analysts also thought that Heckmann would check in with a deficit for its most recent third quarter, and the eco-friendly services provider checked in with a much wider loss.
Renren is China's leading social networking website operator.
It turned heads when the dot-com speedster went public two years ago -- a year before the world's largest social networking juggernaut went public -- but investors quickly lost interest. Renren went public at $14, and since then has gone to shed a brutal 80% of its value. That makes some of the recent stateside debutantes that are now busted IPOs seem like rock stars in retrospect.
China's restrictive nature hasn't been a problem for Renren. It's actually been requiring users to register with their real names before regulatory bodies in the world's most populous nation made it mandatory. Top-line growth has also never held Renren back. Analysts are forecasting a 42% boost in revenue for Monday's quarterly report, and those same pros see revenue growth accelerating to 43% in 2013.
Renren's problem has been a lack of profitability. The company has rattled off four consecutive quarters of red ink, and each of the seven major analysts modeling the dot-com underachiever see another quarterly loss this time around.
Coldwater Creek is another company paddling in the wrong direction.
Retailers would seem to live for the holiday shopping season, but not Coldwater Creek. You have to go all the way back to 2006 to find the last year that the apparel and accessories mall chain turned a profit in its fiscal fourth quarter.
Coldwater Creek disappointed investors last month when it hosed down its latest holiday performance. The store operator warned that same-store sales will be flat during the period, and that it will ring up a loss of $0.75 to $0.85 a share. Its earlier guidance was calling for a deficit of no more than $0.65 a share.
Coldwater Creek posted a loss of $0.76 a share, so it's certainly possible that it may post year-over-year improvement if it lands at the more welcome end of its refreshed range, but Wall Street knows better. Analysts are huddling around the midpoint of that range.
Either way, it's another red Christmas for Coldwater Creek.
Synta Pharmaceuticals is a fledgling biotech developing small molecule drugs to extend and enhance the lives of patients with severe medical conditions.
Synta's lead candidate is Ganetespib, a second-line treatment for advanced non-small-cell lung cancer. The treatment is entering the third phase of clinical trials and Synta expects to enroll its first patient by the end of this month.
The stock has responded, nearly tripling after bottoming out 10 months ago. Naturally the excitement for Synta is more about its future than its past. Like many young biotechs, Synta's still losing money as its potentially promising drugs work their way through the rigorous pipeline of regulatory approval.
Finally, we have STEC.
The provider of provider of solid-state disk data storing solutions for high-end server and storage platforms joins Synta as one of the only two names on this list where revenue is also declining. Synta, at least, has a good excuse as it continues tinkering with its treatments. Analysts see a dramatic widening of STEC's red ink on a 35% plunge in revenue when it reports on Thursday.
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 Munarriz has no position in any stocks mentioned. The Motley Fool owns shares of Heckmann and has the following options: Long Jan 2014 $4 calls on Heckmann and short Jan 2014 $3 puts on Heckmann. 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.