The economy is showing signs of fumbling the recovery.
We’re now more than a month into the new year, and it won’t be long before the economy begins feeling the impact of the payroll tax increase that kicked in this year.
Economists feel that the move will swallow up roughly $120 billion in disposable income and shave 50 basis points off our country’s economic growth this quarter.
There are still plenty of names posting lower earnings than they did a year ago. Let’s go over a few of the companies that are expected to go the wrong way on the bottom line next week.
| Company | Latest-Quarter EPS (estimated) | Year-Ago Quarter EPS |
|---|---|---|
| American Capital Ltd. (NASDAQ:ACAS) | $0.25 | $0.67 |
| The Western Union Company (NYSE:WU) | $0.35 | $0.39 |
| Cliffs Natural Resources Inc (NYSE:CLF) | $0.60 | $1.42 |
| Alpha Natural Resources, Inc. (NYSE:ANR) | ($0.55) | ($0.07) |
| Brocade Communications Systems, Inc. (NASDAQ:BRCD) | $0.16 | $0.20 |
Source: Thomson Reuters.
Clearing the table
Let’s start at the top with American Capital. Investors approach business-development companies for their chunky yields, but that no longer applies here. American Capital hasn’t paid out a dividend since 2009. This doesn’t mean that the company hasn’t been returning money to shareholders. It’s been actively repurchasing its shares, and that’s a move that makes sense since American Capital is trading at a discount to its book value.
Analysts see the company posting a sharply lower profit on Monday than it did a year earlier, and that’s not going to make it want to dust off its stance of cash distributions. Then again, American Capital has posted better-than-expected results in each of the past four quarters. In other words, the trend here would indicate that its bottom line is holding up better than Wall Street thinks.
The Western Union Company (NYSE:WU) has been the leader in global payment services for years. The company processed 226 million consumer-to-consumer transactions in 2011 through its network of 510,000 agents across 200 countries and territories.
Unfortunately for Western Union, business is slipping. Analysts see revenue and earnings slipping in the fourth quarter, and they see the same thing happening this year, too. Are folks just not wiring money anymore, or have PayPal, Square, and other platforms taken Western Union’s growth baton?
Cliffs Natural Resources reports on Tuesday. The mining and natural resources company was slated to offer up its latest financials on Wednesday, but yesterday it announced that a scheduling conflict will bump the report a day early to Tuesday after the market close.
Wall Street sees Cliffs Natural Resources checking in with a profit of $0.60 a share, but don’t be surprised if it’s lower than that. It has missed analysts’ profit targets by wide margins in each of its past four quarters. Either way, it’s a safe bet that it will fall well short of the $1.42 a share it earned a year earlier.
Alpha Natural Resources is one of the country’s largest coal producers. This has been a volatile sector lately. You have to go all the way back to the third quarter of 2011 to find the last time that Alpha Natural Resources turned a profit, and the pros are braced for another lump of coal in its holiday stocking. The problem here is that Wall Street sees a much larger deficit out of Alpha Natural Resources this time around.
Finally, we have Brocade Communications Systems, Inc. (NASDAQ:BRCD). Unlike the four other companies mentioned here, Brocade’s actually expected to grow its revenue in next week’s report. The same can’t be said for its bottom line. Analysts see the networking solutions provider ringing up net income of $0.16 a share after posting a healthier profit of $0.20 a share during the prior year’s fiscal first quarter.
Why the long face, short-seller?
These companies have seen better days. The market has rewarded many of these stocks with reasonable gains over the past year, but they still haven’t earned those upticks. Lower earnings translates into higher earnings multiples, and nobody wants to see that happen.
The good news here is that Wall Street already expects these companies to deliver shrinking bottom lines. In other words, the bad news is already baked into the shares.
The more I think about it, the less worried I become.
The article 5 Reasons to Worry About Next Week originally appeared on Fool.com and is written by Rick Aristotle Munarriz.
Longtime Fool contributor Rick Aristotle Munarriz has no position in any stocks mentioned. The Motley Fool recommends Western Union.
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