5 Reasons to Worry About Next Week
The economy is showing signs of fumbling the recovery.
Sure, it may not seem that way to anyone attending the 2013 International Consumer Electronics Show in Vegas earlier this week. Booths were buzzing with all of the latest gadgetry, as tech leaders continue to raise the bar on portable computing and consumer electronics in general.
However, who is going to be buying all of these toys?
As the employed are starting to find out as they crack open their first paychecks of 2013, there's going to be a little less disposable income to go around now that the payroll tax rate has firmed up. There will be less money to go around, and corporate tax changes that kicked in this year aren't going to make it all that compelling to take on new hires or provide raises to offset the smaller after-tax pay.
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 WNS. The Mumbai-based provider of outsourcing services has more than 200 global clients leaning on the company's cost-effective business process solutions including finance, customer support, tech, and other industry-specific offerings.
This would seem to be a booming space, especially now that stateside solutions have gotten a little more expensive with changes that went into effect in 2013.
Analysts see WNS posting a marginal dip in profitability, but it might not be that bad. Larger rival Infosys opened sharply higher this morning after posting encouraging financial results. WNS and Bangalore-based Infosys aren't the same company, but it should improve the sentiment heading into WNS' report on Wednesday.
Intel knows the score. It didn't have to walk the halls of this week's CES to know that consumers are moving away from the clunky desktops and laptops where its microprocessors have been housed for decades. Intel has been trying to make its mark in the "good enough" realm of portable computing. There have been a few successes along the way, but will it be enough to offset the shortfalls on the traditional computing end?
It won't be easy. Sector watcher IDC reported yesterday that global PC sales fell by a surprisingly brutal 6.4% during the fourth quarter. In other words, the Windows 8 introduction that was supposed to breathe new life into the sale of desktops and laptops failed to deliver.
Xilinx is a leading provider of integrated circuits and other programmable solutions. Even though Wall Street's holding out for a 3% uptick in quarterly revenue when it reports on Thursday, analysts see margins taking a hit with profitability taking a 21% hit.
Johnson Controls hit the market with the first programmable room thermostat in 1885, and it's been trying to gauge Mr. Market's temperature ever since. Unfortunately, business appears to be cooling off these days. Analysts are targeting a profit of $0.51 a share when Johnson Controls reports next Friday morning, well short of the $0.60 a share it posted a year earlier.
Finally, we have McMoRan Exploration. Investors may not have to suffer here too much longer. Freeport-McMoRan stepped up to bail it out at a premium last month. After disappointing production at its natural gas properties and other hiccups, the exit strategy can't come soon enough. Wall Street's eyeing a quarterly deficit, reversing a reasonable profit a year earlier.
It could be worse than that. McMoRan Exploration has posted larger losses than analysts were forecasting in its two previous quarterly outings.
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 owns shares of Freeport-McMoRan Copper & Gold. The Motley Fool recommends Intel. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold and Intel. 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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