DFS Discover Financial Services

Earnings Preview 3/16/12

Earnings season is just about over.  While there will be 79 firms reporting -- 15 of them members of the S&P 500 -- most will be February fiscal period ends, which actually makes them the leading edge of the first quarter reports, not the trailing edge of fourth quarter reports.

Firms reporting this week include: Adobe (ADBE), ConAgra (CAG), Discover Financial Services (DFS), Darden Restaurants (DRI), General Mills (GIS), Nike (NKE) and Oracle (ORCL).  That is an interesting cross-section of the economy and might offer some clues as to how the first quarter earnings season will go.

Not a lot of economic data due out next week, but what we get will mostly be about housing, including the NAHB index, Starts and Permits, and both New and Used Home sales.  In most recoveries, it is housing that leads the way, but not this time.  If housing does start to kick in, the economy could very well turn out to be much stronger than most people are now expecting.

Monday

• The National Association of Home Builders index has increased sharply over the last five months and was at 29 in February.  The upward momentum is expected to continue as the consensus is looking for a reading of 31.  However, this is a “magic 50” index, where any reading below 50 means that more home builders see conditions as poor than good.  Until a few months ago, the index was mired below 15, so this shows that the Home Builders are not as despondent as they used to be, thought they are hardly exuberant.

Tuesday

• We see if the Homebuilders (relative) optimism is well founded when we get the Housing Start numbers.  Starts are expected to inch up to an annual rate of 705,000 from 699,000.  While off the lows,  that is still far below the average level of starts going back to the early 1960’s.  Also, most of the recent strength has come from the very volatile multi-family (apartment and condo) sector, not from single family starts.
• The best leading indicator of housing starts is building permits.  They also are expected to edge up, to an annual rate of 695,000 from 676,000 in January.

Wednesday

• Existing Home Sales in February are expected to have increased to an annual rate of 4.61 million from 676,000 in January.  Of more importance that the absolute level of sales it the level relative to the available inventory.  In January, that had declined to 6.1 months, which is close to normal, from a high of a year at its worst point.  Seasonally, inventory will probably increase a bit, but year over year it will probably be down about 20%.  This is very important since it is a good clue as to the future direction of existing home prices.  Existing home sales do not generate a lot of economic activity, so in isolation are not that important, but since home equity is still a very important repository of wealth for the middle class, prices are critical.

Thursday

• Weekly Initial Claims for Unemployment Insurance were down 14,000 to 352,000 last week, and the prior week was revised up by 3000, so the number was effectively down 11,000.  The consensus is looking for a slight rise to 355,000 this coming week.  The drop in weekly claims well below the key 400,000 level was the first clue that the jobs situation was getting significantly better.  If they fall again it would be a powerful sign that the momentum is continuing.  The big seasonal adjustments are all in the rear view mirror, so last week’s level is probably about right, but we have recently seen a lot of volatility in the weekly numbers.  Thus the four-week average is the thing to focus on (at 354,250 last week).  We are actually now well below the average level of claims for the last 35 years.  Keep an eye on the prior week’s revision as well as the change from the revised number.
• Continuing Jobless Claims have been in a downtrend of late, but the road down has been bumpy. Last week they fell by 81,000 to 3.343 million. That is down 954,000, or 22.2% from a year ago. The consensus is looking for a slight increase to 3.363 million. Some (most?) of the longer-term decline is due to people simply exhausting their regular state benefits which run out after 26 weeks. Those, however, don’t last forever either. Federally paid extended claims fell by 74,000 to 3.329 million last week and are down 1.028 million, or 23.4% over the last year. 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 7.424 million. The total number of people getting benefits is now 1.529 million below year-ago levels. What is not known is how many people have left the extended claims via the road to prosperity -- finding a new job -- and how many have left on the road to poverty, having simply exhausted even the extended benefits. Unless the program is renewed, all extended benefits will end at the start of March. Make sure to look at both sets of numbers!  Many of the press reports will not, but we will here at Zacks.
• The Index of Leading Economic Indicators is expected to have increased by 0.6% in February after rising 0.4% in January.  The strong stock market and a steepening yield curve will probably be big contributors to the index.

Friday

• New Home Sales are expected to be unchanged at a very low annual rate of 321,000.  Each new home sold represents a huge amount of economic activity.  A positive surprise here would be a very good sign for the economy.

 
Potential Positive or Negative Surprises

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. Similarly, a recent history of earnings disappointments, cuts in the average estimate for the quarter in the month before the report is due and a poor Zacks Rank (#4 or #5) are often red flags pointing to a potential disappointing earnings report.  Given how few companies are reporting, we omit this section this week.

In the Earnings Calendar below, $999.00 should be read as N.A.

Earnings Calendar

Company	Ticker	Qtr End	EPS Est	Year Ago EPS	Last EPS Surprise %	Next EPS Report Date	Time	Daily Price
ADOBE SYSTEMS	ADBE	201202	$0.46	$0.44	4	20120319	AMC	$34.17
CHINA KANGH-ADR	KH	201112	$0.25	$0.17	5.88	20120319	BTO	$18.39
DOCUMNT SEC SYS	DSS	201112	($0.03)	($0.05)	20	20120319	AMC	$3.83
FEIHE INTL INC	ADY	201112	$0.22	$0.07	-30	20120319	BTO	$3.22
FOCUS MEDIA HLD	FMCN	201112	$0.51	$0.36	26.32	20120319	AMC	$26.34
GOL LINHAS-ADR	GOL	201112	$0.02	$0.29	-373.91	20120319		$8.46
GORDMANS STORES	GMAN	201201	$0.50	$0.44	31.58	20120319	AMC	$15.55
HASTING ENTMT	HAST	201201	$0.15	$0.43	-16.07	20120319	BTO	$2.51
INTEROIL CORP	IOC	201112	$0.02	($0.31)	-1125	20120319	BTO	$58.04
AAR CORP	AIR	201202	$0.49	$0.45	-2.17	20120320	AMC	$22.20
CHINA XINIYA FS	XNY	201112	$0.23	$0.27	-14.29	20120320	BTO	$2.00
CINTAS CORP	CTAS	201202	$0.52	$0.41	18.75	20120320	AMC	$39.97
DSW INC CL-A	DSW	201201	$0.49	$0.41	10	20120320	BTO	$56.70
ENDEAVOUR SILVR	EXK	201112	$0.01	$0.08	-33.33	20120320	BTO	$9.34
FSI INTL	FSII	201202	$0.05	$0.13	-33.33	20120320	AMC	$4.60
HARRY WINSTON	HWD	201201	$0.24	$0.12	33.33	20120320	AMC	$14.01
JA SOLAR HOLDGS	JASO	201112	($0.11)	$0.54	-1700	20120320	BTO	$1.83
JABIL CIRCUIT	JBL	201202	$0.49	$0.45	-3.45	20120320	AMC	$27.03
JEFFERIES GP-NW	JEF	201202	$0.28	$0.42	21.43	20120320	BTO	$19.22
LAREDO PETROLM	LPI	201112	$0.25	$999.00	N/A	20120320	AMC	$24.82
NUPATHE INC	PATH	201112	($0.50)	($0.42)	0	20120320	BTO	$4.81
OMNOVA SOLUTION	OMN	201202	$0.12	$0.14	100	20120320	AMC	$5.74
ORACLE CORP	ORCL	201202	$0.54	$0.51	-3.64	20120320	AMC	$30.06
SAIC INC	SAI	201201	$0.34	$0.37	2.94	20120320	AMC	$13.16
TAOMEE HOLDINGS	TAOM	201112	$0.05	$999.00	33.33	20120320	AMC	$5.89
TIFFANY & CO	TIF	201201	$1.41	$1.44	16.67	20120320	BTO	$68.95
TITAN PHARMA	TTNP	201112	($0.06)	($0.05)	83.33	20120320		$1.25
ACTUANT CORP	ATU	201202	$0.37	$0.30	16.28	20120321	BTO	$29.37
ASURE SOFTWARE	ASUR	201112	$0.03	$0.02	50	20120321	BTO	$8.45
CLARCOR INC	CLC	201202	$0.47	$0.43	7.35	20120321	AMC	$51.62
CONCORD MED-ADR	CCM	201112	$0.14	$0.13	0	20120321	AMC	$3.86
CTPARTNERS EXEC	CTP	201112	($0.20)	$999.00	-83.33	20120321	AMC	$6.82
DAQO NEW ENERGY	DQ	201112	($0.06)	$0.95	-22.73	20120321	BTO	$2.79
DISCOVER FIN SV	DFS	201202	$0.88	$0.84	4.4	20120321	AMC	$32.02
FREDS INC	FRED	201201	$0.24	$0.22	9.09	20120321	BTO	$14.06
FULLER(HB) CO	FUL	201202	$0.37	$0.29	10.17	20120321	AMC	$31.28
GENL MILLS	GIS	201202	$0.56	$0.56	-3.8	20120321	BTO	$38.69
G-III APPAREL	GIII	201201	$0.29	$0.62	0.93	20120321	AMC	$27.05
HERMAN MILLER	MLHR	201202	$0.25	$0.29	0	20120321	AMC	$21.50
LRR ENERGY LP	LRE	201112	$0.51	$999.00	N/A	20120321	AMC	$21.20
LUBY'S INC	LUB	201202	($0.02)	($0.01)	140	20120321	AMC	$5.43
MATTRESS FIRM	MFRM	201201	$0.19	$999.00	N/A	20120321	AMC	$34.22
MEMORIAL PRODUC	MEMP	201112	$0.26	$999.00	N/A	20120321	BTO	$17.76
RENREN INC-ADR	RENN	201203	($0.04)	($0.04)	500	20120321	AMC	$5.37
SHOE CARNIVAL	SCVL	201201	$0.21	$0.33	0	20120321	AMC	$26.59
SONIC CORP	SONC	201202	$0.02	$0.02	0	20120321	AMC	$7.86
THE9 LTD-ADR	NCTY	201112	($0.47)	($0.33)	13.51	20120321	AMC	$6.95
ACCENTURE PLC	ACN	201202	$0.86	$0.75	2.13	20120322	AMC	$63.63
BACTERIN INTL	BONE	201112	($0.04)	($0.09)	-400	20120322	AMC	$3.24
CACHE INC	CACH	201112	$0.18	($0.16)	-100	20120322	AMC	$7.39
CHINA GERUI ADV	CHOP	201112	$0.40	$0.23	5.71	20120322	BTO	$3.91
CONAGRA FOODS	CAG	201202	$0.50	$0.50	11.9	20120322	BTO	$26.58
COST PLUS INC	CPWM	201201	$1.50	$1.24	0	20120322	AMC	$14.97
DOLLAR GENERAL	DG	201201	$0.81	$0.64	4.17	20120322	BTO	$45.13
ENGLOBAL CORP	ENG	201112	$0.03	($0.02)	-66.67	20120322	BTO	$2.26
FEDEX CORP	FDX	201202	$1.36	$0.81	3.29	20120322	BTO	$94.61
GAMESTOP CORP	GME	201201	$1.72	$1.56	0	20120322	BTO	$23.81
GLOBALSCAPE INC	GSB	201112	$0.01	$0.01	-100	20120322	AMC	$2.28
IHS INC-A	IHS	201202	$0.51	$0.52	16.67	20120322	BTO	$95.90
LONE PINE RSRCS	LPR	201112	$0.14	$999.00	-15.38	20120322	AMC	$7.05
LULULEMON ATHLT	LULU	201201	$0.49	$0.32	8	20120322	BTO	$74.24
MANITEX INT INC	MNTX	201112	$0.09	$0.08	50	20120322	AMC	$7.50
MET-PRO CORP	MPR	201201	$0.15	$0.12	40	20120322	BTO	$9.38
MICRON TECH	MU	201202	($0.18)	$0.06	-137.5	20120322		$8.83
NIKE INC-B	NKE	201202	$1.16	$1.08	3.09	20120322	AMC	$110.73
PERRY ELLIS INT	PERY	201201	$0.37	$0.69	-34.43	20120322	BTO	$18.32
PFSWEB INC	PFSW	201112	$0.09	$0.04	0	20120322	BTO	$3.07
SIGNET GRP PLC	SIG	201201	$1.77	$1.55	50	20120322	BTO	$49.53
SILVER WHEATON	SLW	201112	$0.43	$0.35	-24	20120322	AMC	$33.49
STEELCASE INC	SCS	201202	$0.16	$0.11	0	20120322	AMC	$9.13
SYNNEX CORP	SNX	201202	$0.91	$0.81	21.24	20120322	AMC	$42.52
TALBOTS INC	TLB	201201	($0.56)	($0.14)	-37.5	20120322	BTO	$3.09
TEARLAB CORP	TEAR	201112	($0.10)	($0.06)	N/A	20120322	BTO	$2.76
TRI-TECH HOLDNG	TRIT	201112	$0.29	$0.32	-38.46	20120322	BTO	$7.81
UTI WORLDWIDE	UTIW	201201	$0.16	$0.19	0	20120322	BTO	$15.77
WET SEAL INC -A	WTSLA	201201	$0.03	$0.07	25	20120322	AMC	$3.43
CAMELOT INF-ADS	CIS	201112	($0.04)	$0.22	-760	20120323	BTO	$3.14
DARDEN RESTRNT	DRI	201202	$1.24	$1.08	-2.38	20120323	BTO	$53.03
KB HOME	KBH	201202	($0.23)	($1.49)	500	20120323	BTO	$13.06

 
ADOBE SYSTEMS (ADBE): Free Stock Analysis Report
 
DISCOVER FIN SV (DFS): Free Stock Analysis Report
 
NIKE INC-B (NKE): Free Stock Analysis Report
 
ORACLE CORP (ORCL): Free Stock Analysis Report
 
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