Posts Tagged ‘earnings outlook’
We all know that corporate earnings are managed, but in a sense, it works, because an investor is better off having some ballpark earnings outlook over nothing. Earnings estimates for mature, large-cap businesses are typically more accurate over traditional growth companies, and you can use these estimates for your buy and sell decisions on the stock market.
One company that has a long history of providing decent guidance is Automatic Data Processing, Inc. (NASDAQ/ADP) out of Roseland, NJ. Automatic Data Processing (ADP) is a payroll processing and human resources outsourcing firm that is actually considered a technology stock. The company belongs to the NASDAQ 100 index, and I view it as a great barometer on the stock market, investor sentiment, and employment.
On the stock market, ADP has been doing great for years, though it did get ahead of itself in the late 1990s, as did so many other stocks. The “overperformance” produced underperformance in the 10 years following 2001; but normalized stock market long-term returns from this business have been good, especially with the addition of dividends.
Chart courtesy of www.StockCharts.com
In its latest earnings report for the second fiscal quarter of 2013, ended December 31, 2012, ADP reported revenue growth of seven percent to $2.7 billion. Earnings were down slightly during the quarter, but management says the company can produce top-line growth between eight percent and 10% this year, with five to seven percent in diluted earnings-per-share growth from continuing operations.
I’ve been looking at all the earnings to date (they often aren’t a calendar quarter, but a fiscal quarter), and so far, I would say that the majority of companies are beating consensus expectations. Corporate earnings are definitely managed, but this is a good development. If the reduced earnings outlooks in the third quarter are partly responsible for the “outperformance,” then the revenues figures are the real good news. It’s too early to tell whether this early trend will become a reality this fourth-quarter earnings season.
There was some good economic news last week, but the stock market didn’t really react to it. I suppose investors are content to sit on the sidelines until the earnings really roll in. There are a lot of stocks that aren’t performing that well in this market, and this is troublesome; but I have to admit, the S&P 500, Dow Jones Industrial Average, and NASDAQ Composite are holding up well.
It’s a very good sign that the Dow Jones Transportation Index (or Average) has broken out of its long consolidation. Dow theory might be “old-school,” but I believe in it. FedEx Corporation (NYSE/FDX) is looking strong on the stock market, and so are Union Pacific Corporation (NYSE/UNP) and JB Hunt Transport Services, Inc. (NASDAQ/JBHT). The airlines, as a group, are still way down, but they recently saw a significant turnaround on the stock market. The one exception in this group is Alaska Air Group, Inc. (NYSE/ALK), which has been doing outstandingly well over the last few years.
So far this earnings season, I see a lot of potential. Looking at the numbers to … Read More
The stock market is very much in consolidation mode, and it’s still highly vulnerable to all the risks out there. The sovereign debt crisis isn’t over; the eurozone has just backstopped sovereign debt with additional debt. And while the U.S. housing market is showing signs of improvement, this really isn’t a surprise. Enough years have elapsed that home sales and prices should be improving. Risk is very high in this stock market, and prices may soon become expensive relative to earnings.
You can’t really say that the stock market isn’t holding up well. Large-cap technology stocks have taken a hit, but this group has been one of the strongest performers since the 2009 low. Intel Corporation (NASDAQ/INTC) has really been hit hard, now trading below $20.00 a share. This company illustrates the problems faced by many international businesses. You can’t grow your earnings if there’s recession in Europe and China is slowing. Intel’s stock chart is below:
Chart courtesy of www.StockCharts.com
What I did see this third-quarter earnings season was a lot of improvement in small- and mid-cap technology-related companies whose businesses are mostly in the U.S. market. I read countless earnings reports that showed a significant turnaround in revenues among software companies, in particular.
One business that stood out to me is AZZ Incorporated (NYSE/AZZ). This is exactly the kind of business that can do well in a sluggish economy. AZZ manufactures electrical equipment and sells components to the power-generation industry in the U.S. and Canada. According to the company, its third-quarter revenues improved 34% to $153 million. Earnings grew to $15.9 million from $9.6 million in the comparable … Read More
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