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Slow Week Coming Up
Earnings Season is winding down, but that does not mean it is over. Next week will bring 228 earnings reports, but just 5 members of the S&P 500. Some of the higher-profile firms to report will be Kroger’s (KR), H&R Block (HRB) and National Semicondutor (NSM). It will also be a relatively light week on the economic data front. As a result, attention is likely to drift towards political developments like progress on health care reform and the prospects for a financial regulatory overhaul, as well as international developments, particularly concerning the Greek situation. Monday • Nothing of major significance Tuesday • Nothing of major significance Wednesday • Wholesale Inventory data is released and is expected to show a 0.2% increase in January after a 0.8% decline in December. The pace of inventory shrinkage has slowed dramatically in recent months, and now it is expected to turn positive. The slowing in the rate of decline in inventories actually contributed the bulk of the growth of GDP in the fourth quarter. With inventories now expected to actually rise, it looks like there is still some room for inventory lead growth, but that should fade later this year • The flood of red ink from the Treasury is expected to swell to $202.0 billion in February. That is a huge rise from the $42.6 billion level in January. However, the budget deficit numbers are extremely seasonal, to the point where the month-to-month comparisons are not very worthwhile. The more worthwhile benchmark is the year-ago level of $193.9 billion, when revenues were just $87.3 billion and expenditures were $281.2 billion. Watch the year-over-year numbers on both spending and tax revenues, not just the net deficit Thursday • Weekly initial claims for unemployment insurance come out. They fell 29,000 in the last week, to 469,000. After a huge downtrend from mid-April through the end of 2009, initial claims started to rise again, up in 7 of the 8 weeks before last week. Last week was some good progress, but not good enough. We probably need for weekly claims (and the four-week moving average of them) to get down to near 400,000 to signal that the economy is on-balance adding jobs. We are a lot closer now than we were last spring when they were running north of 600,000 on a consistent basis, but still have a ways to go. • Continuing claims have also been in a steep downtrend of late. However, that is in part due to people simply exhausting their regular state benefits which run out after 26 weeks. If one factors in the extended claims paid by the Federal government as part of the Stimulus, claims soared last week. Looking at just the regular continuing claims numbers is a serious mistake. They only include a little over half of the unemployed now given the unprecedentedly high duration of unemployment figures. Last week, regular continuing claims were 4.500 million, down 134,000 from the previous week. Extended claims (paid from Federal ARRA funds) were 5.866 million -- a increase of 197,500. Those numbers might be distorted downwards the shenanigans of Senator Bunning who held up an extension of benefits, although given that the extended claims numbers a week behind the regular continuing claims numbers, look for more of that effect in the following week. Make sure to look at both sets of numbers! • The Trade Deficit is expected to increase to $40.6 billion for January, up from $40.2 billion in December. While this is well below the rate we were consistently running a few years ago, it has been trending up again after plunging during the credit crisis which caused almost all world trade to come to a dead stop. An increase in the trade deficit is a serious negative, since it directly lowers GDP. It, not the budget deficit, is what causes us to be in hock to the Chinese and OPEC. The budget deficit only indirectly does, and has to go through the trade deficit for that to happen. That’s not an opinion, that is an accounting identity, as true as saying assets have to equal the sum of liabilities and equity on a balance sheet Friday • The Retail Sales report is expected to show an increase of just 0.1% overall in February, a sharp slowdown from the 0.5% increase in January. Given the strength of the same-store sales reported by the major retailers, look for the number to surprise to the upside, even given the lousy weather • Excluding Auto sales, retail sales are expected to be up 0.2%, a slowdown from the 0.6% rise in January • The University of Michigan consumer sentiment survey is expected to show a slight rise to 73.7 for March, up from 73.6 in February Potential Positive Surprises Historically, the best indicators of firms likely to report positive surprises are a recent history of positive surprises and rising estimates going into the report. The Zacks Rank is also a good indicator of potential surprises. While normally firms that report better-than-expected earnings rise in reaction, that has not been the case so far this quarter. Some of the companies that have these characteristics include: Jo-Ann Stores (JAS) is expected to report EPS of $1.33, up from $0.74 per share a year ago (it's good to stick to your knitting). Last time out, JAS posted a positive surprise of 1.2% and over the last month the mean estimate for its fourth quarter earnings is up 32.7%. JAS has a Zacks #1 Rank. Kirkland’s (KIRK) is expected to report EPS of $0.81, up from $0.59 a year ago. In the 3Q, KIRK posted a positive surprise of 187.5% and over the last month, the consensus estimate for its 4Q earnings is up 7.3%. KIRK is a Zacks #1 Rank stock. Quicksilver (ZQK) is expected to lose $0.13 per share this year, worse than its $0.07 loss a year ago. Those low expectations could be setting it up for a positive surprise. In the third quarter, they posted a 133.3% positive surprise. Over the last month the mean estimate for the 4Q is up 1.9%. ZQK holds a Zacks #1 Rank. Potential Negative Surprises Gastar Exploration (GST) is expected to post a loss of $0.03 a share, versus break even a year ago. Last time they reported 133.3% below expectations. For this Zacks #5 Rank stock, analysts have cut their estimates for this quarter slightly over the last month by 50.0% (OK, it's just a move from a loss of $0.02 to a loss of $0.03). Jackson Hewitt (JTX) is expected to earn $0.51 a share this quarter, down from the $0.74 they earned a year ago. They had a positive surprise of 12.0% last time out, but analysts have cut the estimate for this quarter by 8.6% over the last month. The stock holds a Zacks #4 Rank. H&R Block (HRB) is expected to report a EPS of $0.15, down from $0.20 last year. Last quarter they reported 5.0% above of expectations. Over the past month, analysts have cut the estimate for this Zacks #5 Rank stock by 2.2%. Article Directory: http://www.articledashboard.com Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market-beating Zacks Strategic Investor service. For more information, visit www.zacks.com. |
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