Earnings that won't stink
Alcoa is likely to kick off the parade of first-quarter reports with a big loss. And while woeful results will be the rule, some companies are still thriving.
NEW YORK (CNNMoney.com) -- Ahhh. I love the smell of earnings in the morning. Or, in the case of Alcoa, losses.
Aluminum maker and Dow component Alcoa (AA, Fortune 500) will kick off that mad period of quarterly corporate results reports on Tuesday afternoon. Analysts are forecasting a loss of 57 cents a share, compared to a profit of 44 cents per a share a year ago. Sales are expected to plummet 45%.
Alcoa's less-than-shiny results will set the tone for what should be a truly dreadful round of first-quarter results. Earnings for S&P 500 companies are expected to plunge more than 35% and profits are expected to decline for all 10 sectors of the economy.
Still, there should be some bright spots. Not every company is going to report a massive loss or gargantuan decrease in profits. And in a market that's been as volatile as this one has, it pays to try and identify potential earnings winners.
So using some stock screening software from Thomson Baseline, I looked for companies in the S&P 500 that are expected to report an earnings increase of at least 10% for this quarter and the full year.
In order to ensure that I wasn't going to highlight a firm that has recently disappointed Wall Street, I checked to make sure that these companies, at a bare minimum, met earnings expectations in the most recent quarter.
In addition, I asked for companies whose earnings estimates for the quarter had not been cut in the past few weeks, figuring that it would probably be best to steer clear of any company that analysts are starting to feel more skittish about.
Finally, I made sure that the companies were expected to generate some revenue growth. That helps unearth companies actually benefiting from demand for their product or services as opposed to just those cutting costs to eke out profit gains.
These were pretty rigid standards, and only 14 of the 500 companies in the benchmark index made the cut.
Unsurprisingly, no financial firms made the list. Despite the recent rebound in bank stocks, most of the big banks are expected to report huge declines in earnings. And some, such as Citigroup (C, Fortune 500) and KeyCorp (KEY, Fortune 500), are expected to report quarterly losses.
Instead, the list of healthy growers was dominated by healthcare companies. Big Pharma firm Abbott Laboratories (ABT, Fortune 500) made the cut, as did biotechs Gilead Sciences (GILD) and Cephalon (CEPH). So did pharmacy-benefits managers Express Scripts (ESRX, Fortune 500) and Medco Health Solutions (MHS, Fortune 500).
Interestingly, a handful of consumer stocks also made the cut. This is a bit of a surprise since the consumer discretionary sector, which includes retailers, auto companies and homebuilders, is expected to report a loss this quarter.
However, even though consumers may be clamping down on spending during the recession, they have to still open up their wallets for some necessary expenditures.
With that in mind, auto parts retailer AutoZone (AZO, Fortune 500) made the list. And as CNNMoney.com sister publication Fortune magazine pointed out in a recent feature, AutoZone is thriving during the downturn as more car owners seek to do their own repairs. Analysts expect a profit increase of 16% in the current quarter, which ends in May.
That thrift is now chic is also helping Family Dollar Stores (FDO, Fortune 500), a leading discount retail chain. Wall Street is predicting a 34% jump in profits.
And while the recession may have consumers thinking twice about taking a big vacation this summer or buying a new car, people are unlikely to stop cleaning their houses. So Clorox, the maker of bleach and Glad trash bags, seems a safe bet: the company is expected to post an 18% increase in earnings this quarter.
Two other areas of the economy that seem to be recession-resistant are Web security and education.
McAfee (MFE), the maker of antivirus software, is expected to report that profits will be up 13% a year ago. With more and more reports about cybercrime and malicious worms making their way online, apparently people realize it pays to make the necessary investment to keep their computers safe.
And Apollo Group (APOL), which runs the University of Phoenix, seems to be benefiting from a growing back-to-school trend as more people seek training in order to improve their prospects in this brutal job market.
The stock took a hit last week when it reported its latest results and warned that profit margins would be lower than analysts were expecting. But the drop appears to be an overreaction. After all, Apollo is still expected to post a 24% increase in sales and 34% rise in profits in this quarter, which ends in May.
And you don't need a post secondary school degree to know that in this rotten economy, sales and earnings growth is pretty darn good.
So take heart in knowing that even though Alcoa and many other big companies like it will report some terrible quarterly results, not every major company is suffering in this recession.
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