Seize on Last-Minute Target Shifts

 | Oct 15, 2012 | 10:00 AM EDT
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Let's follow up on our recent research -- looking at the biggest downward estimate revisions in order to help us avoid names that might warn, and the biggest upward revisions for names that could surprise to the upside. In these pieces, I looked at the change in estimate over the course of the third quarter. That's a good intermediate-term indicator, but now we need to tighten our time frame. For instance, a name's expectations may have seen an increase in July, then slowly deteriorated -- but it could still show positively, even if the real trend is negative.

So today we'll look at names that have seen large moves in their third-quarter earnings estimates since the end of the quarter. If analysts are ratcheting the third-quarter estimate upward or downward this close to the earnings report, you can surmise that the results may be away from current expectations.

The chart below shows names with recent third-quarter estimate changes of more than 10%. The upward revisions are highlighted, and the downward are plain. All of the downward names are at severe risk of missing, or of guiding down for the fourth quarter. The names with upward revisions would be attractive long positions, with potential to surprise to the upside and/or guide higher.

Biggest Recent Estimate Changes -- Third Quarter

Standout names are in the financial sector. Many have had no news flow since second-quarter earnings, such as Alleghany (Y), which could compound the "surprise" effect when it reports. I especially like Marathon Petroleum (MPC) due to an accretive acquisition of a refinery, and American International Group (AIG) for its continuing recovery from near death in 2008.

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