Earnings Season: What to Look For

The 4^th Quarter 2011 company earnings season has started; we are increasing our fundamental analysis by producing a weekly review of consensus earnings expectations.

Reporting dates are not set in stone, so take the dates as “on or about”, and the consensus expectations are also changing as we get more information and as more companies start to report.

Items that we will be reporting on are:

1- EPS consensus estimates, as well as the expected change verses last year’s same quarter.

2- Revenue consensus estimates, as well as the expected change verses last year’s same quarter.

3- Number of quarters, from last 9, has the company beat or met expectations.

4- Any information that will be useful in interpreting the earnings report.

The idea is to keep it simple, get prepared, and be better informed regarding earnings reports on a quarterly basis. For the most part the consensus numbers come from yahoo finance and 1^st call estimates.

This week we had Alcoa (AA) report on the 9^th, the EPS was in line but revenues beat, and guidance was slightly better than the previously announced guidance – the stock has been under pressure as analyst have been lowering expectations going into the report; the result was a stock that hasn’t really moved on the news.

On Friday the 13^th we have the 1^st of the large financial sector report, JP Morgan (JPM). Next week we have a more financial institutions report, so it will be important to note what the key points of JPM are this week.

I will be using the following table to give me a snapshot of earnings season, as mentioned expectations on earnings are dynamically changing as we get closer to the reporting date, so take these numbers as a current indication of earnings. I use this information to take note of any sectors or companies that are reporting or indicating something of interest so that I can do more in-depth fundamental research on that company.

The take away from the expectations for these selected companies for next week from my point is:

1-      Analysts have been lowering expectation over the last couple of weeks (the bulk of the companies have beat or met expectations 7 out of the last 9 quarters).

2-      Only MS is expected to have a quarterly loss.

3-      Next week’s selected names are showing a modest drop in EPS as well as Revenue when you compare it to the same Q of the previous year.

As a general rule of thumb, we are all aware of how difficult 4Q11 was for the macro economy and as a result companies remained conservative. Analyst lowered expectations so an important component will be the guidance companies give for the start of 2012.

*DISCLOSURES: No relevant positions