For Immediate Release
Chicago, IL – September 17, 2009 – Zacks.com releases the latest Zacks Industry Rank. Stocks featured in this week’s analysis include D.R. Horton (DHI), KB Home (KBH), Pulte Homes (PHM), Allstate (ALL), Hartford Financial Services (HIG), Travelers (TRV), Loews (L), Humana (HUM), Stericycle (SRCL), C.R. Baird (BCR), Celgene (CELG), Gilead Sciences (GILD), Anadarko Petroleum (APC), EOG Resources (EOG), AK Steel (AKS), Nucor (NUE), U.S. Steel (X), Fifth Third (FITB), Regions Financial (RF), Suntrust Banks (STI) and Zions Bancorp (ZION).
Zacks Industry Rank Analysis is written by Charles Rotblut, CFA, Senior Market Analyst for Zacks.com.
This week: Third-Quarter Earnings Forecast
Though the economy has stabilized, third-quarter results for the majority of companies will still be below year prior levels.
Per share profits for the S&P 500 are projected to fall 15.4%. The median company is forecast to report a 14% drop in per share earnings. (The difference being that the S&P 500 forecast is a weighted projection.) More than 340 companies may have experienced a year-over-year drop in profits.
On a revenue basis, things are not much better. Median company sales are forecast to have dropped 7.2%.* More than 360 companies are expected to report a year-over-year drop in earnings.
It’s important to realize that during July and August 2008, the economy was in fairly good shape. Lehman did not collapse until September 2008. Furthermore, the credit crunch’s grip severely tightened over the 2-month span of September and October 2008. As a result, many companies are now facing tough comparisons, meaning year-over-over declines in profits now.
It should be noted, however, that not all comparisons will be difficult. In fact, some industries are forecast to report actual earnings growth.
Industries Likely To Show Growth
Homebuilders
It may sound shocking, but homebuilders are likely to have some of the best year-over-year comparisons in terms of profitability.
There are 2 reasons for this. First, conditions in the housing industry were deteriorating last year, with mortgages becoming increasingly hard to get. Second, the housing market is now stabilizing, as is evidenced by the rising number of new and existing home sales.
This change will allow D.R. Horton (DHI), KB Home (KBH) and Pulte Homes (PHM) to encourage shareholders with bottom line improvements by 50% or more. The improvements are relative, however, since all 3 companies will report sizable losses for Q309.
Insurance
Several insurance companies could impress investors with double-digit growth. Though some, like Allstate (ALL) and Hartford Financial Services (HIG), have the benefit of prior-year losses, others like Travelers (TRV) and Loews (L) are experiencing true growth. (Revenues and earnings will rise for TRV and L).
The surprisingly calm hurricane season (fingers crossed that it stays this way) has helped property and causality insurers. Nearly all insurance companies have also benefited from the rebound in the financial markets. The economy is a drag, though there seem to be certain segments where premiums are rising.
Health Care
Despite all the talk about reform, profits for the entire medical sector continue to rise. The sector is less economically sensitive and less affected by swings in commodity prices. As result, several medical companies are likely growing both revenues and earnings this quarter.
Those with the strongest growth rates will include Humana (HUM), Stericycle (SRCL), C.R. Baird (BCR), Celgene (CELG) and Gilead Sciences (GILD).
Industries Likely to Report Contraction
Commodity-Related
Commodity-related companies face the toughest year-over-year comparisons. Oil peaked in July 2008 and, though the commodity bubble deflated throughout the remainder of the quarter, profits were still very, very strong. As a result, energy and metals companies are projected to report significant drops in Q309 profits.
In the Energy sector, exploration & production (E&P) companies such as Anadarko Petroleum (APC) and EOG Resources (EOG) will report the biggest declines. Among metals companies, AK Steel (AKS), Nucor (NUE) and U.S. Steel (X) could all report losses after large profits in Q308.
Banks
Though government intervention has stabilized much of the financial sector, many banks remain unprofitable. High unemployment, a sustained high level of foreclosures and a weak commercial real estate market are all problem spots for the sector. As a result, analysts are projecting Fifth Third (FITB), Regions Financial (RF), Suntrust Banks (STI) and Zions Bancorp (ZION) to post losses.
It’s All About Expectations
The one positive for the third-quarter earnings season is that there is a general expectation that the numbers will be bad. Therefore, even those companies that report losses will be measured up against the consensus estimates and not the year prior results. What we could well see is a repeat of second-quarter earnings season, where brokerage analyst forecasts proved to be too pessimistic.
As always, pay attention to guidance and the level of visibility companies have about the fourth quarter and the early part of 2010. The markets will want assurance that business conditions are starting to improve, even if sales still remain at depressed levels.
*12 companies were excluded from the revenue forecasts due to a lack of broker estimates. The inclusion of these companies would have not significantly altered the median revenue forecast.
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Contact: Charles Rotblut, CFA
Company: Zacks.com
Phone: 312-265-9352
Email: pr@zacks.com
Visit: www.zacks.com
