Money Matters - Simplified

7 Reasons to Worry About Next Week

It's easy to be upbeat these days. Stocks have primarily rallied since
mid-March. This week found both Warren Buffett and Fed chief Ben
Bernanke calling a bottom on the economy.

I'm not entirely convinced. Despite all of the turnaround chatter,
several earnings reports due next week may justify a market pullback. 

Let's go over a few of the blue chips and seemingly recession-proof
companies expecting dire tidings next week. Some of the names may
surprise you:

Company

Latest Quarter EPS (Estimated)

Year-Ago Quarter EPS

Carnival (NYSE: CCL)

$1.18

$1.65

Cintas (Nasdaq: CTAS)

$0.39

$0.51

Paychex (Nasdaq: PAYX)

$0.34

$0.41

Red Hat (NYSE: RHT)

$0.15

$0.22

Finish Line (Nasdaq: FINL)

$0.20

$0.27

Steelcase (NYSE: SCS)

$0.01

$0.28

Vail Resorts (NYSE: MTN)

($1.09)

($0.29)

Source: Yahoo! Finance.

Clearing the table

We'll start with
Carnival. The leading cruise line isn't a logical winner. The travel
industry has been slammed, and cruising companies have turned to heavy
discounting to fill up their ships. However, energy is a major
component of the industry's cost structure, and fuel prices are much
lower than they were during last summer's feeding frenzy. That's
helping to keep the bottom-line damage to a minimum.

Cintas is another logical loser. When you specialize in corporate
uniforms and other company goodies, business ought to fall as
unemployment spikes. The company's keeping its chin up anyway. "We have
grown 39 consecutive years, through all economic cycles," promises Cintas' investor-relations landing page. That streak is probably toast this year.

Paychex falls into the same camp as Cintas when it comes to
expectations. If companies lay people off, payroll requirements should
also diminish. Then again, Paychex is a cash flow beast, boosting its
dividend with reasonable consistency over the years. It's been around
since 1971, so it has experience in coping with the economic lulls.

Red Hat is cashing in on the open-source Linux platform. Enterprise
software is a dicey sector in this climate, but Red Hat's subscription
plans offers Linux-flavored solutions that are typically cheaper than
conventional offerings. In short, companies cutting costs may turn to
Red Hat. The company has prospered in this environment, as revenue and
earnings inched higher in its most recent quarter. Alas, analysts think
the speed bumps start now.

Retailers aren't doing so well, but footwear should be somewhat
different. We can lay off chasing the latest fashions when pocket
change is tight, but shoes with holes are another story entirely. Shoe
seller Finish Line impresses with its clean balance sheet in a typically leveraged sector.

Steelcase sells office furniture. This is an easy industry to
sidestep until companies begin hiring again -- but have you seen the
projected carnage? Wall Street sees Steelcase posting a profit of just
$0.01 a share, after ringing up $0.28 a share in earnings a year
earlier.

Finally, we have Vail Resorts. Analysts see a much sharper deficit
this year during the ski lodges' seasonal lull. Most companies have
been trimming overhead, which should reflect kindly during the slow
quarters. Apparently, that's not happening at Vail Resorts this time.

Why the long face, short-seller?

These
reports probably won't be pretty -- especially since many of these
stocks are market darlings in seemingly healthy sectors. If there's any
silver lining, it's that investors are already braced for the worst,
and that lower profitability is already baked into next week's reports.
This pessimism could actually open the door for unexpected surprises.

 

© 2009 UCLICK, L.L.C