5 Reasons to Worry About Next Week
The economy is showing signs of fumbling the recovery.
European Union finance ministers are meeting over the weekend to discuss a possible funding gap in Cyprus. Japan is kicking in with a surprisingly aggressive monetary stimulus plan. Things may be holding up better closer to home, but the job-related reports from last week were far from encouraging.
Also closer to home, this morning offered up grim news on our spending habits. Retail sales declined 0.4% in March, making this the biggest drop since June of last 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 CSX. FBR Capital stepped in with a surprising upgrade of the railroad giant this morning. Given the company's recent trends and market expectations heading into Tuesday's report, it's bold to see FBR Capital going out on this limb. CSX has posted year-over-year declines in revenue and profitability for the last two quarters, and Wall Street sees more of the same this time around.
However, FBR Capital bumped its rating on CSX to outperform -- boosting its price target from $22 to $30 -- on the theory that CSX will bounce back as a result of an uptick in agricultural volume.
Analysts are bracing for steep declines in revenue and net income at Abbott Labs, but there's a juicy asterisk there. The health care company has been streamlining its operations, and that includes spinning off its branded pharmaceuticals business back in January.
There are a few compelling reasons to consider buying into Abbott Labs these days, but with Wall Street betting on earnings to fall a lot harder than revenue for the slimmed-down company on Wednesday, it should give investors something to fret about.
Huntington Bancshares also reports on Wednesday. Investors received their first taste of how the banking sector fared during the quarter today with a pair of the "too big to fail" financial behemoths reporting.
The climate is improving for bankers, but Huntington Bancshares isn't necessarily going along for the ride. The market sees the Ohio-based regional banker posting slight decreases on the bottom line for the quarter as well as for all of 2013.
AMD is widely expected to post a quarterly deficit on Thursday, reversing a modest profit a year earlier. All 26 major analysts tracking the company see it posting its third quarterly loss in a row. It's easy to see why. PC sales continue to slump, and AMD's efforts to expand its semiconductor business outside of the box have not been able to compensate for the dramatic slump in PC shipments.
Finally, we have Freeport-McMoRan. This would seem to be a good time for copper. Unlike other precious metals that are also slumping, copper's industrial applications -- from cars to plumbing -- would seem to give it an advantage at a time when construction and production are on the rise. However, Freeport-McMoRan has posted lower earnings in five of the past six quarters. Wall Street sees another soft quarter on the bottom line, but the pros are optimistic for double-digit growth on the top and bottom lines for all of 2013.
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 owns shares of Freeport-McMoRan Copper & Gold. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold and Huntington Bancshares. 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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