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This earnings season has not yet proven itself very strong. Of the 85 S&P 500 companies that have reported first quarter numbers through Monday morning, 67% topped on the bottom line and 51% have moved past the revenue estimates. This data from FactSet will reflect a further bearish trend when compared to the four-year average trend. In the last four years, 73% firms have topped earnings while 58% outpaced revenue expectations.

Recent Performances

Last week, we saw difficult earnings reports from bellwethers like IBM Corp. (IBM - Analyst Report), UnitedHealth Group Inc. (UNH - Analyst Report) and Google Inc. (GOOGL). The list here excludes big names in banking, though, and we will discuss them later. Following their reported numbers, shares of IBM, UnitedHealth Group and Google lost 3.3%, 3.1% and 3.7%, respectively.

However, this week, things have started to look somewhat better as headline-grabbers including Netflix, Inc. (NFLX - Analyst Report) and Gilead Sciences Inc. (GILD - Analyst Report) reported better-than-expected results. Amgen Inc. (AMGN - Analyst Report), however, missed on the top line.

By Tuesday morning, we had seen 102 S&P 500 companies reporting results. Total earnings for these S&P 500 members are down 1.8% from the same period last year, with a ‘beat ratio’ of 66% and a median surprise of 2.7%. Total revenues are up 1.6%, with a revenue ‘beat ratio’ of 38.8% and the median company missing top-line expectations by 0.3%.

Outlook Not Promising

The outlook for this earnings season still looks dreary. Usually, two third of the S&P 500 companies beat on the bottom line every quarter. So some positive results now will not trigger a change in the dismal outlook right away.

Revenues too have not showed much strength so far. Expectations are that the first quarter will most likely be the low point for earnings this year, both in terms of totals as well as the growth rate. So it may be a prudent move to identify companies in advance that are most likely to disappoint.

Lowered Guidance

Companies have so far failed to post overwhelming positive surprises despite lowered guidance. Obviously setting conservative guidance makes the job easier for companies to outpace expectations. However, companies this time have lower aggregate percentage of earnings beats. According to FactSet, companies have a 2% average positive surprise so far, lower than 5.8% positive surprise average over the last four years.

FactSet had, in fact, projected a 0.4% drop in profits for S&P 500 companies in the first quarter. That would make it the first earnings season to report a year-on-year earnings decline since third quarter of 2012. FactSet also noted that 93 companies have a negative earnings outlook this time as compared to just 18 companies having a positive forecast.

We forecast a 4% decline in total earnings, down from expectations of 2.1% positive growth in early January.

Finance Sector

The banking sector mostly dominated the earnings front last week. Banking behemoth Bank of America Corp. (BAC) was a serious disappointment and its weak results are a primary reason for the first quarter earnings decline for the Major Banks industry.

Estimates for bank earnings had fallen ahead of the start of the earnings season as the weakness in the capital markets business was expected to add on to the existing mortgage banking concerns.

JPMorgan Chase & Co. (JPM - Analyst Report) also failed to impress with its earnings numbers, and reported a negative earnings surprise of 9.2%.

However, Wells Fargo & Co. (WFC - Analyst Report), The Goldman Sachs Group, Inc. (GS - Analyst Report) and Citigroup Inc. (C - Analyst Report) reported better-than-expected numbers.

5 Stocks That May Not Beat Estimates

The growth weakness is broad-based and not concentrated in any one sector, with 10 of the 16 Zacks sectors expected to show earnings declines in the first quarter. Among the major sectors, earnings are expected at this stage to be down 7.3% in Finance, 6.9% in Technology, 9.0% in Energy, and 14.4% in Autos. Business Services and Utilities are the only sectors expected to show double-digit earnings growth.

The first quarter earnings season is expected to be the low point of this year’s earnings picture, both in terms of total earnings as well as the growth rate.

Here we will pick 5 companies that are not likely to beat earnings and also have other weaknesses. All these stocks carry ‘Sell’ ratings, and their Earnings ESP and average earnings surprise in the last four quarters are negative. This year’s earnings growth estimates for these 5 companies are negative and they are also seeing negative estimate revisions for the current quarter and year.

MCG Capital Corporation (MCGC)

MCG Capital is a provider of debt and equity capital to domestic private companies. It may also invest in minority or own equity positions.

Estimated Earnings Release Date: April 29
Rank: Zacks Rank #4 (Sell)
Current Quarter Earnings ESP: -16.67%
Average EPS Surprise (Last 4 Quarters): -6.63%
Last EPS Surprise: -18.18%
This Yr`s Estimated Growth: -43.79%
Current Quarter Estimate Revisions (Over 60 Days): Down from 13 cents to 6 cents
Current Year Estimate Revisions (Over 60 Days): Down from 49 cents to 29 cents

Grupo Financiero Santander Mexico, S.A.B. de C.V. (BSMX)

It provides various banking services in Mexico. It serves individuals as well as small and medium-sized enterprises, and corporate customers.

Estimated Earnings Release Date: April 29
Rank: Zacks Rank #4 (Sell)
Current Quarter Earnings ESP: -5%
Average EPS Surprise (Last 4 Quarters): -0.91%
Last EPS Surprise: -29.17%
This Yr`s Estimated Growth: -4.21%
Current Quarter Estimate Revisions (Over 60 Days): Down from 21 cents to 20 cents
Current Year Estimate Revisions (Over 60 Days): Down from 90 cents to 87 cents

Imperva Inc. (IMPV)

It is a developer, seller and service provider of data center security solutions. The company also offers cloud-based services.

Estimated Earnings Release Date: May 1
Rank: Zacks Rank #5 (Strong Sell)
Current Quarter Earnings ESP: -19.74%
Average EPS Surprise (Last 4 Quarters): -300.13%
Last EPS Surprise: -1133.33%
This Yr`s Estimated Growth: -156.31%
Current Quarter Estimate Revisions (Over 60 Days): Loss estimates widened from 70 cents to 76 cents
Current Year Estimate Revisions (Over 60 Days): Loss estimates widened from $2.32 to $2.64

Newcastle Investment Corp. (NCT - Snapshot Report)  

Newcastle Investment is a REIT firm that invests in and manages real estate related and other debt investments. The company is REIT qualified for federal income tax purposes.

Estimated Earnings Release Date: May 2
Rank: Zacks Rank #4 (Sell)
Current Quarter Earnings ESP: -28.57%
Average EPS Surprise (Last 4 Quarters): -19.21%
Last EPS Surprise: -11.11%
This Yr`s Estimated Growth: -26%
Current Quarter Estimate Revisions (Over 60 Days): Down from 10 cents to 7 cents
Current Year Estimate Revisions (Over 60 Days): Down from 42 cents to 37 cents

Aeropostale Inc (ARO - Snapshot Report)

Aeropostale is a specialty retailer of casual apparel and accessories. As of Mar 13, the company operated 864 Aeropostale stores in 50 states and Puerto Rico, 78 Aeropostale stores in Canada, and 151 P.S. from Aeropostale stores in 31 states and Puerto Rico.

Estimated Earnings Release Date: May 22
Rank: Zacks Rank #4 (Sell)
Current Quarter Earnings ESP: -1.39%
Average EPS Surprise (Last 4 Quarters): -17.12%
Last EPS Surprise: -16.67%
This Yr`s Estimated Growth: -51.77%
Current Quarter Estimate Revisions (Over 60 Days): Loss estimates widened from 17 cents to 72 cents
Current Year Estimate Revisions (Over 60 Days): Loss estimates widened from 71 cents to $1.72

Read the Full Research Report on JPM
Read the Full Research Report on GOOG
Read the Full Research Report on UNH
Read the Full Research Report on IBM
Read the Full Research Report on NFLX
Read the Full Research Report on ARO
Read the Full Research Report on GILD
Read the Full Research Report on WFC
Read the Full Research Report on AMGN
Read the Full Research Report on C
Read the Full Research Report on NCT
Read the Full Research Report on GS
Read the Full Research Report on BAC
Read the Full Research Report on MCGC
Read the Full Research Report on BSMX
Read the Full Research Report on G


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