5 Reasons to Worry About Next Week
The economy is showing signs of fumbling the recovery.
Things seemed to be moving in the right direction, but now's when things get interesting. Workers are cracking open their first paychecks of 2013, and some may be surprised to see that the stimulus plan that lowered Social Security taxes from 6.2% of a salary to 4.2% over the past two years ended last month. Their take-home pay is now 2 percentage points less, and that may start to weigh on how they go about spending money in the future.
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
Advanced Micro Devices
Clearing the table
Let's start at the top with AMD. If you haven't noticed, the PC industry is in a slump. Folks aren't upgrading their desktops and laptops the way they used to. Why should they? Smartphones and tablets are cheaper, allowing them to surf the Web and stream media in a portable form. Sure, there are plenty of times where a real computer is necessary, but die-hard gamers and hardcore computer users don't have to upgrade every time that a new Windows update rolls out.
AMD's in a bind. As the world's second-largest maker of microprocessors, it's the silver medalist in a shrinking category. It's not just about reversing last year's profit. Revenue is expected to fall 32% to $1.15 billion. Analysts see the red ink lingering, too. Wall Street doesn't see AMD posting another profit on an annual basis until 2015. That may be optimistic if AMD can't diversify into other growth markets.
There's also a bit of an unwelcome trend with AMD. The company has missed Wall Street's profit projections in each of its two previous quarters. If AMD ever expects to get its shares back into the double digits -- something that hasn't consistently happened since 2007 -- it's going to have to get its revenue and earnings moving in the right direction again.
CSX is a railroad operator. There are a few rail companies reporting next week, giving investors a great snapshot of the transportation niche. The pros see CSX choo-choo-ing its way to a profit of $0.39 a share, just below the $0.43 a share it rang up a year earlier. The good news here is that CSX has actually surpassed analyst profit targets in each of the past three quarters.
Apple is a name that may surprise some people next week. Investors know that the class act of Cupertino has fallen out of favor, but not too many realize that this appears to be the first time in a long time that Apple will post a year-over-year decline in net income.
It wasn't always this way. Three months ago, the analyst consensus estimate was calling for Apple to earn $15.43 a share during its holiday quarter, and now that forecast has been whittled all the way down to $13.41 a share. Longtime Apple trackers will be quick to point out that the company has a long history of issuing conservative guidance that stumps the market, but that hasn't been the case lately. Apple has come up short in three of the past five quarters, and that includes stumbling during the past two periods.
Netflix is still growing, but its bottom line is likely to be as red as its signature red mailer. Netflix warned late last year that profits in its domestic business would be unlikely to overcome the losses incurred as the video service expands its international streaming business.
Wall Street still sees revenue climbing 7% higher during the quarter, and subscriber growth should be even higher than that. Average revenue per subscriber has been shrinking as members trade down from multi-DVD plans to the cheaper $7.99 a month streaming option. A silver lining for Netflix here is that it has blasted through analyst profit forecasts with ease over the past year.
Finally, we have SanDisk. The flash memory giant was posting monstrous growth as more gadgets were leaning on flash for data storage. It has become a more competitive market lately, and that's weighing on margins. The pros see revenue slipping just 3%, but profitability will take a 43% hit.
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 Netflix. The Motley Fool recommends Apple and Netflix. The Motley Fool owns shares of Apple and Netflix. 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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