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					Earnings Preview 11/05/10
  The third quarter earnings season is now almost over, but the key word is "almost."
Next week, a total of 610 firms will report, but only 21 of those will be S&P 500
firms. We define any fiscal period ending in August, September and October to be the
third quarter.
  We are getting to the point where most of the remaining firms had fiscal period-ends
in October. Many of those are retailers. The firms reporting next week include many
of interest, including: Cisco (CSCO), Sysco (SYY), Disney (DIS), D.R. Horton (DHI),
Sara Lee (SLE), Macy 鈥檚 (M) and J.C. Penney 鈥檚 (JCP).
  On the economic data front, things will also be quieter than they were this week. We
start the week with wholesale inventories numbers for September. On Wednesday, we
get the Trade Deficit numbers, which are probably the week 鈥檚 most important
numbers. Thursday brings the other deficit -- the budget one -- as well as the usual
initial and continuing unemployment claims data. Monday
  * Nothing of significance.
  Tuesday
  * Wholesale inventories are expected to have increased by 0.6% in September on top
of a 0.8% increase in August.
  Wednesday
  * The Trade Deficit is expected to decline ever so slightly in September to $46.2
billion from $46.3 billion in August. Over the last year, exports have been growing
nicely, but unfortunately imports have been growing even faster. The increase in the
trade deficit has been a huge drag on the economy. If the trade deficit had managed to
stay unchanged in the third quarter from the second, the economy would have grown
at 4.0% rather than 2.0%. The weak dollar should help improve the trade deficit over
time, although rising oil prices make the job more difficult. Our oil addiction is
responsible for close to half of the overall budget deficit. Curing that addiction, or
even moderating it a bit, would go a long ways toward improving the overall
economy.
  Thursday
  * Weekly initial claims for unemployment insurance come out. They rose by 20,000
in the last week, to 457,000. On the other hand, they have fallen in seven of the last
ten weeks. After a huge downtrend from mid-April through the end of 2009, initial
claims have been locked in a tight 鈥渢 rading range.鈥? Look for them to fall
modestly next week. We probably need for weekly claims (and the four-week moving
average of them) to get down to closer to 400,000 to signal that the economy is
adding enough jobs to make a dent in the unemployment rate. A rate of over 500,000
signals that the unemployment rate is probably headed back up and a high probability
of a double dip. The current numbers are consistent with the sort of jobless recovery
we have been seeing so far this year, some absolute job growth, but not enough to
really put much of a dent in the vast army of the unemployed. * Continuing claims
have also been in a downtrend of late. Last week they fell by 42,000 to 4.34 million.
That is down 1.456 million from a year ago. Some of the longer-term decline due to
people simply exhausting their regular state benefits which run out after 26 weeks.
Federally paid extended claims rose by 358,000 to 5.013 million, but that is still up
924,000 from a year ago. 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. A better measure is the total
number of people getting unemployment benefits, currently at 9.353 million, which is
up 316,000 from last week. The total number of people getting benefits is now
534,000 below year-ago levels. The big unknown is if those people are actually
finding new jobs, or simply slipping into abject poverty with no income at all. Make
sure to look at both sets of numbers! Many press reports will not, but we will here at
Zacks. * The Federal Budget Deficit is expected to continue its downward trend on a
year-over-year basis. Yes, that is right, its downward trend. This is the start of a new
fiscal year. Fiscal 2010 had a budget deficit that was $110 billion LESS than fiscal
year 2009. To start off fiscal year 2011, the consensus is looking for red ink of $166.0
billion down from $176.4 billion to start off fiscal year 2010. The data is not
seasonally adjusted, but is extremely seasonal, so month-to-month comparisons are
worse than useless, they are outright misleading.
  Friday
  * No numbers of any particular significance.
  Potential Positive or Negative 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.
  Potential Positive Surprises Agilent (A) is expected to report EPS of $0.60 vs. $0.31
a year ago. Last time out, A had a positive surprise of 12.50% and over the last month
analysts have raised their expectations for the about to be reported quarter by 1.52%.
A is a Zacks #2 Ranked stock.
  Cisco (CSCO) is expected to report EPS of $0.34 vs. $0.30 a year ago. Last time out,
CSCO had a positive surprise of 5.56% and over the last month analysts have raised
their expectations for the about to be reported quarter by 0.21%. CSCO is a Zacks #2
Ranked stock.
  Priceline (PCLN) is expected to report EPS of $4.72 vs. $3.45 a year ago. Last time
out, PCLN had a positive surprise of 13.77% and over the last month analysts have
raised their expectations for the about to be reported quarter by 0.25%. PCLN is a
Zacks #2 Ranked stock.
  Potential Negative Surprises Sysco (SYY) is expected to report EPS of $0.51 vs.
$0.46 a year ago. Last time out, SYY had a negative surprise of 8.62% and over the
last month analysts have not changed expectations for the about to be reported quarter.
SYY is a Zacks #4 Ranked stock.
  Int 鈥檒 Game Technologies (IGT) is expected to report EPS of $0.19 vs. EPS of
$0.20 a year ago. Last time out, IGT reported in line with expectations and over the
last month analysts have cut their expectations for the about to be reported quarter by
1.12%. IGT is a Zacks #4 Ranked stock.
  Markel (MKL) is expected to report EPS of $3.77 vs. $8.47 a year ago. Last time out,
MKL had a negative surprise of 41.88% and over the last month analysts have not
changed their expectations for the about to be reported quarter. MKL is a Zacks #5
Ranked stock.
 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
http://www.zacks.com.

				
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posted:2/22/2011
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