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Zacks Earnings Preview: Alcoa, Host Hotels & Resorts, Monsanto, PepsiCo and Progressive

Zacks.com releases the list of companies likely to issue earnings surprises. This weeks list includes Alcoa (NYSE: AA), Monsanto (NYSE: MON) and Progressive (NYSE: PGR). To see more earnings analysis, visit http://at.zacks.com/?id=3207.

Earnings Preview is written by Charles Rotblut, CFA, Senior Market Analyst for Zacks.com.

The U.S. bond markets will be closed on Monday in observance of Columbus Day. Government offices, including post offices, will be closed as well. The U.S. equity markets, however, will be open.

Third-quarter earnings "officially" starts after the close of trading on Tuesday, with Alcoa's (NYSE: AA) third-quarter report. As I'll explain below, it may not be a very good start, however, given that earnings estimates for the Dow component have been falling.

Joining Alcoa in reporting will be 32 other companies, eight of which are also in the S&P 500, including Host Hotels & Resorts (NYSE: HST), Monsanto (NYSE: MON), PepsiCo (NYSE: PEP) and Progressive (NYSE: PGR). Outside of AA's direct impact in the Dow, none of these stocks are likely to move the markets in any notable direction, though positive (or negative reports) could still influence overall sentiment.

The only economic reports that could have any true impact on market direction will by the September PPI and the advanced retail sales data. The ideal spin on both reports will be contained inflation and just enough weakness to increase the odds of a rate cut at the October meeting. Joining these two reports on Friday will be the preliminary University of Michigan consumer confidence index and August business inventories. Prior to these four reports will be August wholesale trade (Wednesday) and August trade deficit (Thursday).

What could influence market direction are the minutes from the September Federal Open Market Committee meeting, which should be released on Tuesday afternoon. The key question will be whether the market believes the Fed understands the severity of the credit crunch and is willing to do whatever is necessary to prevent a recession from occurring. A 25-basis point rate cut at the October meeting seems likely and anything suggesting that this won't happen will not be taken lightly. I don't anticipate any surprises in the Fed minutes, but it is important for investors to understand that in this case, perception is reality. And, in the case of the Fed minutes, perception could be a two-way sword.

Companies That Could Issue Positive Earnings Surprises during the Week of Oct 8 - 12

A few weeks ago, Monsanto (NYSE: MON) raised its fiscal 2007 profit guidance to approximately $2 per share from $1.75 to $1.80 per share. The company cited an effective tax rate of 30%, sustained strength in corn seeds and the ability to charge more for Roundup herbicides. The revised forecast led five of the covering brokerage analysts to improve their forecasts for the fiscal fourth-quarter. The current consensus estimate now calls for a fiscal fourth-quarter loss of 22 cents per share, 12 cents narrower than the average projection of a month ago. The most accurate consensus is more bullish at a loss of 16 cents per share. MON has topped expectations for three consecutive quarters, most recently by a margin of two cents per share. Monsanto is scheduled to report on Wednesday, Oct 10, before the start of trading.

Companies That Could Issue Negative Earnings Surprises during the Week of Oct 8 - 12

More than half of the covering brokerage analysts have cut their third-quarter profit forecasts on Alcoa (NYSE: AA) during the past 30 days. The cuts follow an August drop in aluminum prices that sent the metal from $1.20 to below $1.10; the metal has yet to recover. The current consensus estimate of 68 cents per share is 10 cents below the forecast of a month ago. The most accurate consensus is even more bearish at 65 cents per share. AA has missed expectations twice during the past four quarters. As stated above, Alcoa is scheduled to report on Tuesday, Oct 9, after the close of trading.

Brokerage analysts were quick to lower their forecasts after Progressive (NYSE: PGR) released its August results. The property and casualty insurer said net premiums written fell by 4%. The announcement caused 10 brokerage analysts to cut their forecasts, resulting in a four-cent decline in the consensus estimate to 39 cents per share. The most accurate consensus is more bearish at 37 cents per share. PGR previously missed second-quarter expectations by six cents per share. Progressive is scheduled to report earnings on Thursday, Oct 10.

Want to turn earnings surprises into quick profits? Learn how by visiting http://at.zacks.com/?id=3206.

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Since 1988, the Zacks Rank has proven that "Earnings estimate revisions are the most powerful force impacting stock prices." Since inception in 1988, #1 Rank stocks have generated an average annual return of +32%. During the 2000-2002 bear market, Zacks #1 Rank stocks gained +43.8%, while the S&P 500 tumbled -37.6%. Also note that the Zacks Rank system has just as many Strong Sell recommendations (Rank #5) as Strong Buy recommendations (Rank #1). Since 1988, Zacks Rank #5 stocks have underperformed the S&P 500 by 129% annually (+5% versus +12%). Thus, the Zacks Rank system allows investors to truly manage portfolio trading effectively.

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Contacts:

Zacks.com
Charles Rotblut, CFA
312-265-9352
Email: pr@zacks.com
Visit: www.Zacks.com

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