Some Stocks Beat Forecasts, Take Beating
Traders, beware: Even companies that can be counted on for good earnings surprises may not see their stocks react in kind--at least not in the short run.
With earnings season in full swing, market data cruncher LIMresearch.com of Austin, Texas, put together a list of companies in the blue-chip Standard & Poor’s 500 index that have beaten analysts’ earnings estimates (as tracked by IBES Inc.) in each of the last six quarters.
That list includes BMC Software (ticker symbol: BMCS), Compuware (CPWR), EG&G; Inc. (EGG), B.F. Goodrich (GR), Infoseek (SEEK), Ingersoll Rand (IR), Lucent Technologies (LU), Lexmark (LXK), Qualcomm (QCOM), Siebel Systems (SEBL), Tyco International (TYC), United Technologies (UTX), VF Corp. (VFC) and USX (X).
The companies’ ability to pleasantly surprise on a consistent basis could portend another good earnings surprise this quarter.
But Cooper Vertz, senior analyst at LIMresearch.com, found that the near-term movements of the stocks showed many different patterns after previous earnings reports:
* BMC Software (expected to report per-share earnings of 40 cents next Friday) shares rose five of the six times the day after its earnings reports. But the gain was usually short-lived. Four times, the stock was lower a week later.
* Goodrich (87 cents, Wednesday) has been a consistent performer, even after the good news is out. The exception occurred in July 1998, when the overall market was reeling. The other five times, Goodrich shares have rallied an average of 8% in the month after the earnings reports.
* Qualcomm (58 cents, Tuesday), whose earnings have beaten projections by an average of 20% each quarter, has seen its shares slide the following week each time. Last January and July, the stock skidded 19% and 14%, respectively, in the month after its earnings reports.
“Since Qualcomm’s latest earnings-per-share estimates are for a 40% increase over last quarter--and the stock has rallied about 70% in the last three months--it’s scary to think what might happen if they don’t meet expectations,” Vertz said.
That’s the risk with many companies that get a reputation for handily beating earnings estimates: The first quarter in which they miss their numbers, look out below.
