The Day Ahead: Earnings Season in Full Swing

 | Oct 18, 2011 | 8:30 AM EDT
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In the Headlines

Earnings season gets into full swing Tuesday, with a slew of blue-chips and other widely held and closely watched names on the docket.

NYSE and Nasdaq futures pointed to a lower open, on the heels of Monday's big price declines. DJIA component IBM (IBM) disappointing third-quarter report late Monday dragged the blue chips down.

Some market technicians were wary about yesterday's trading character, as selling intensified into the close, sending indices to a finish near session lows. Following a rally in below-average weekly volume, the nature of yesterday's move raised caused some furrowing of brows.

In Europe, decliners outpaced advancers Tuesday, as the news was bleak. Germany's finance minister reiterated that the world should expect definitive solutions from a weekend meeting of eurozone officials in Brussels. Meanwhile, Moody's said France's AAA debt rating may be at risk if the nation has to bail out other European governments or its own banks.

News from Asia this morning was not helping matters. China's GDP grew at a rate of 9.1%, which Americans would be thrilled by, but it's China's slowest growth rate since 2009's second quarter. Asian indices closed sharply lower following the U.S. losses, glum European news and the disappointing Chinese economic data.

Economic Docket

U.S. economic data are also due out today also. At 8:30 a.m. EDT, the Labor Department is scheduled to issue the producer price index for September. Economists anticipate an increase of 0.2% following no change in August.

Half an hour later the Treasury International Capital will release its report for August, which will show the rate of Treasury buying from overseas -- meaning China.

At 10 a.m., the National Association of Home Builders will report its October housing market index. As you might guess, the forecast is gloomy, with analysts eyeing an optimism level of 14, far below levels from a few years ago, during the housing boom.

Commodities Corner

Looking at commodities, gold dropped $16.10 in electronic trade, to $1,660.50 per ounce.

Earnings News

The pace of earnings reports will be brisk today. Ahead of the open, Bank of America (BAC) said its third-quarter earnings were well ahead of views, coming in at $0.56 per share, vs. expectations of $0.19. However, as is typical with banks, there are a number of metrics buried within that earnings number that analysts will dissect throughout the morning. Revenue was $28.7 billion, topping expectations of $25.94 billion. Analysts will listen on the conference call for news about the company's troubled Countrywide mortgage unit. Bank of America shares were down $0.07 in early trade, a loss of 1.16%, to $5.96.

Goldman Sachs (GS) missed views, reporting a third-quarter loss of $0.84 per share. Analysts had expected a shortfall of $0.15 per share. Revenue was also below expectations, coming in at $3.59 billion, vs. views of $4.59 billion. In the conference call, plenty of attention will go to the company's trading revenue. Heading into Tuesday's session, the stock had declined 42.38% year-to-date. The shares were down $2.52, or 2.6%, to $94.38 ahead of the open.

DJIA component Coca-Cola (KO) also reported this morning. It beat profit views by a penny, earning $1.03 per share. Revenue was $12.2 billion, slightly ahead of expectations for $12.02 billion. Those marked year-over-year increases on the top and bottom lines. Coke shares fell flat by $0.20 on the news, down 0.30%, to $66.80.

Fellow blue chip Johnson & Johnson (JNJ) earned $1.24 per share, beating views of $1.21. Revenue was $16 billion, a tad below expectations of $16.02 billion for the third quarter. Shares are at their 50-day moving average, trading about 6% off their 52-week high of $68.05, reached in July.

After the bell is Apple's (AAPL) third-quarter report. Analysts have pegged earnings per share at $7.28 on revenue of $29.45 billion. Typically, the company beats views and issues guidance that ultimately turns out to be low.

Intel (INTC) is also due out late today. The chipmaker is seen posting income of $0.61 a share and revenue of $13.9 billion. The company has topped earnings views in the past four quarters, despite the gradual decline of the PC market. Factors analysts will be eyeing include emerging market vs. developed market sales.

Yahoo! (YHOO), which has made frequent appearances in the headlines lately, is expected to report earnings of $0.17 a share after the close. Revenue is seen coming in at $1.07 billion. The company has engaged an executive search firm to identify a new CEO.

Network gear maker Juniper Networks (JNPR) is also due out late today. It's expected to report income of $0.28 per share and revenue of $1.10 billion. Shares are down 44.75% year-to-date.

IBM was a big downside mover in the premarket, following yesterday's disappointing third-quarter report. The DJIA component fell $7.60, 4.07%, to $178.99.

Analyst Actions

BMO Capital downgraded the stock to Market Perform from Outperform, citing the third-quarter results and the stock's valuation.

It was like 2007 all over again for shoemaker Crocs (CROX), which got tripped up after it slashed its outlook on Monday. In a move reminiscent of a decline that occurred almost exactly four years ago (although the stock was at an all-time high in 2007), Crocs plunged $9.39, 35.25%, to $17.25 in early trade.

In addition to the BMO downgrade of IBM, analyst actions early Tuesday included William Blair's initiation of coverage on MasterCard (MA). The transaction processor got started with a rating of Outperform. MasterCard shares are up nearly 50% so far this year. The stock is trending just along its 10-week average.

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