3 More Companies to Avoid This Earnings Season
Oct 26th 2011 11:16AM
Updated Oct 26th 2011 11:26AM
Just two weeks ago, I explored three companies that you would be wise to avoid this earnings season, and so far, the results have not disappointed.
Netflix (NAS: NFLX) continues to amaze investors with the swift speed of its collapse, forecasting losses for the coming quarters and a greater-than-anticipated subscriber exodus. Eastman Kodak (NYS: EK) , on the other hand, has yet to report its earnings, but from the looks of it, without a bridge loan, the company may not be able to survive much longer.
More or less, it worked before, so let's try this again. Here are three additional companies that you may want to avoid this earnings season.
Good news, Netflix shareholders: First Solar (NAS: FSLR) is doing the best it can to take the heat off your stock. If it wasn't bad enough that global demand for solar products has waned and solar panel prices are falling through the floor, now shareholders get to deal with the repercussions of what looks like a less-than-amicable split between the company and its now former CEO, Rob Gillette.
I can't really blame the company or Mr. Gillette for wanting to part ways. Since taking over the helm in October 2009, First Solar's stock has dipped some 70%. With nearly every solar company's outlook being trimmed drastically, including Trina Solar (NYS: TSL) and LDK Solar (NYS: LDK) to name a few, I feel pretty confident that First Solar's outlook is probably heading lower. The company missed analysts' earnings projections by 24% last quarter, and I wouldn't be surprised if they missed by a wider margin this quarter. The lights are dimming on the solar sector, and I'd suggest avoiding First Solar at all costs this earnings season.
Black gold, red books
I've long been a supporter of ATP Oil & Gas (NAS: ATPG) , an underwater driller with permits in the Gulf of Mexico and off the coast of Israel. Prior to this quarter, I was growing weary of the company's widening losses and continual setbacks -- but its debt situation is the final straw.
ATP recently stated that there was a "high likelihood" that it would need to restructure its $1.79 billion in net debt set to mature in 2015 because its oil wells aren't producing sufficient cash flow to cover its obligations. Thankfully, the company also noted that new wells should help the company avoid defaulting on its debt. Despite this ever-so-cheery news, ATP still boasts more debt than 97% of its peers and hasn't hit the side of a barn with earnings estimates within the past year. You may want to consider a hard hat if you're going to be holding ATP into earnings season.
There's no place like home
Close your eyes and click your heels together three times and I guarantee you the valuation on HomeAway (NAS: AWAY) still won't make a lick of sense. Having just come public in late June, investors are readying for the vacation rental company's first earnings report as a public company. Needless to say, estimates for the quarter vary widely according to Yahoo! Finance, from a profit of $0.07 to as high as $0.13. So if the company is profitable, everything is just peachy, right? Wrong!
Every aspect of housing indicates that consumers are becoming even tighter with their spending -- perhaps even the upper echelon spenders, which is what HomeAway caters to. Home prices remain deflated, foreclosures are rising again, and mortgage applications dropped by double digits this past week, all signs which point to consumers' unwillingness to spend. And if that wasn't enough, perhaps HomeAway's trailing 12-month P/E of 493 and negative book value will take care of the rest for you. If results aren't stellar, all the king's horses and all the king's men won't be able to put this valuation together ever again.
These three companies either have a recent history of earnings misses or bear a pricey valuation that, until recently, the market had shown it was willing to support. Only time will tell if I'm right, but the momentum clearly appears to be on the pessimists' side this quarter for these stocks.
Do you agree or disagree with my analysis. Share your thoughts in the comments section below and consider adding First Solar, ATP Oil & Gas, and HomeAway to your free and personalized watchlist to keep up on the latest news with each company.
At the time this article was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong and on Twitter where he goes by the handle @TMFUltraLong. The Motley Fool owns shares of First Solar. Motley Fool newsletter services have recommended buying shares of Netflix and First Solar. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that never needs to be sold short.
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