Week in Preview: High Expectations for Southwest, Chevron, Broadcom
Jul 25th 2010 1:30PM
Updated Jul 26th 2010 6:42AM
The earnings crunch rolls on this coming week, and the analysts surveyed by Thomson Reuters are looking for strong quarterly results from the likes of Avon Products (AVP), Coinstar (CSTR), Corning (GLW), DuPont (DD), MetLife (MET), Norfolk Southern (NSC), Northrop Grumman (NOC), Royal Dutch Shell (RDS.A) and many others. In fact, Broadcom (BRCM), Chevron (CVX) and Southwest Airlines (LUV) are expected to have doubled their second-quarter earnings per share compared to a year earlier.
The three months that ended in June saw Southwest Airlines celebrate the 39th anniversary of its founding, and it also declared a quarterly dividend. Analysts expect the Dallas-based no-frills carrier to report that second-quarter earnings per share came to 27 cents, a 70.4% rise from a year earlier. Revenue for the period is expected to have grown 20.4% to $3.2 billion. So far, analysts predict similar earnings and revenue numbers for the third quarter. But earnings results were better than expected in the past four quarters, beating consensus estimates by as much as 47%.
Southwest's long-term EPS growth forecast is 18.7%, which is better than the industry average, as well as competitor JetBlue (JBLU). Southwest's earnings multiple of 15x is less than the industry average and the trailing price-earnings ratio of 50.1. The First Call recommendation shifted from holding to buying Southwest in the past 90 days. The mean price target is currently $15.69 a share. The stock price has fallen from the 52-week high of $13.97 reached in May and recently has met resistance from the 100-day moving average. Shares closed last week at $11.82.
Chevron highlighted its safety performance record at its annual meeting during its second quarter, and the California-based oil giant also boosted its quarterly dividend. Earnings for that period are expected to total $2.44 a share, an increase of 64.3% from the same period of last year. Revenue for the three months ended in June is expected to total $52.5 billion, or 30.6% more than a year earlier. Thus far, the consensus forecast is for year-over-year EPS and revenue growth in the third quarter as well. Chevron's per-share earnings beat consensus estimates in two of the past three quarters, by 42 cents in the first quarter.
Chevron's long-term EPS growth forecast of 17.7% beats that of rival Exxon Mobil (XOM), and its earnings multiple is 8x, which is less than the industry average. This dividend payer has accumulated cash on hand in recent quarters, and the consensus recommendation remains to buy Chevron. The mean price target on the shares is $89.67. After reaching a 52-week high in May, shares fell to near the 52-week low, but have climbed back 8.8% in the past couple of weeks to $73.52 at Friday's close.
Analysts anticipate that Broadcom will post second-quarter earnings of 61 cents per share, up from 25 cents in the same period last year. During the three months ended in June, Broadcom announced an acquisition and declared a quarterly dividend, and revenue for that period is expected to have jumped 52.6% to $1.6 billion. Analysts anticipate sequential and year-over-year growth of both EPS and revenue in the current quarter. Broadcom's earnings have topped analysts' expectations in the past five quarters, by as much as a dime per share.
Broadcom's long-term EPS growth forecast of 16.2% exceeds that of rival Texas Instruments (TXN). The earnings multiple of 15x is below the industry average. This dividend payer reports no long-term debt. Analysts on average recommend buying Broadcom, and their mean price target is $38.93. At $37.76, shares are 5.9% higher than three months ago.
Other companies expected to report double-digit EPS growth this week include Ameriprise Financial (AMP), Barrick Gold (ABX), Cal-Maine Foods (CALM), Chicago Mercantile Exchange (CME), ConocoPhilips (COP), Dr Pepper Snapple Group (DPS), International Paper (IP), Newmont Mining (NEM), Occidental Petroleum (OXY), Panera Bread (PNRA), Potash Corp. of Saskatchewan (POT) and Wisconsin Energy (WEC).
Analysts anticipate that a number of companies reporting this week will announce profitable quarters, compared to year-earlier losses. Among these are BorgWarner (BWA), CIT Group (CIT), Goodyear Tire & Rubber (GT), Motorola (MOT), Sunoco (SUN), United States Steel (X) and Weyerhaeuser (WY).
But of course not everything can be rosy. Amgen (AMGN), Comcast (CMCSA), Diebold (DBD), General Dynamics (GD), Merck (MRK) and Western Union (WU) are expected to report about the same EPS as last year, while aerospace and defense contractors Boeing (BA), Curtiss-Wright (CW), Lockheed Martin (LMT) and Raytheon (RTN) are expected to post smaller earnings than this time last year (unlike Northrop Grumman, mentioned above). AstraZeneca (AZN), Chiquita Brands (CQB), First Solar (FSLR) and Newell Rubbermaid (NWL) are seen posting declining earnings as well.
Analysts expect to see net losses from Eastman Kodak (EK), Martha Stewart Living Omnimedia (MSO), Office Depot (ODP), Sony (SNE) and Sprint Nextel (S). However, the losses are anticipated to be smaller than a year earlier for all of these companies, except for Sprint.
Elsewhere on this week's economic calendar, look for the Federal Reserve's next Beige Book report of current economic conditions, due out Thursday. Housing numbers are also due: new home sales for June (Monday), and the Case-Shiller Home Price Index for May and housing starts in June (both on Tuesday).