Zacks Earnings Preview: ACE Limited, Apple, Countrywide Financial, Occidental Petroleum, RF Micro Devices

Business Wire, Oct 22, 2007

CHICAGO -- Zacks.com releases the list of companies likely to issue earnings surprises. This week's list includes ACE Limited (NYSE: ACE), Apple (Nasdaq: AAPL), Countrywide Financial (NYSE: CFC), Occidental Petroleum (NYSE: OXY) and RF Micro Devices (Nasdaq: RFMD). 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.

Heading into the final full week of October, the equity markets are holding up fairly well considering the current backdrop: oil has hit $90 per barrel, the problem with bad debt is worsening, third-quarter earnings have not been impressive (though still decent), it is uncertain whether the Fed will cut rates at its upcoming meeting and economic growth is slowing. Such events would normally be associated with a market correction; instead the Dow and the S&P 500 remain relatively close to record highs.

Oil is clearly weighing stocks down. What Turkey does or does not do over the next several days will be important. To be clear, speculative trading has also played a role, both in terms of traders going long and being forced to cover short positions.

Bad debt will not occupy headlines as much simply because so many banks have already reported. There may be some discussion of what is now being called "the entity". This is a proposed financial structure designed to purchase the bad debt for which financial firms can no longer find buyers. From all appearances, the entity is a black hole because it is gaining mass by pulling in an ever larger amount of bad debt, and yet we only have theories to support its existence.

Even though the number of reports from the financial firms will decrease, the total number of third-quarter earnings will soar. We have confirmed reports from 758 companies, including more than 150 S&P 500 members. Included in this large group are several Dow components.

The economic calendar will be pretty light. The first report of note, September existing home sales, will be published on Wednesday. Thursday will feature September durable goods orders and new home sales. The revised University of Michigan consumer sentiment survey for October will be published on Friday.

The Fed will meet on Oct 30 and 31. Bonds have been rallying and the dollar has fallen further on the expectation of a rate cut. I think the Fed will cut by 25 basis points, but it is possible that the committee will leave rates unchanged.

Third-Quarter Earnings Performance

Overall, third-quarter earnings have not been impressive, though still decent. Median earnings growth for companies within the S&P Composite is running at 7%. Positive surprises are outnumbering negative surprises by a margin of 1.8:1. (The numbers do not materially change when calculated solely for the S&P 500.) Simply put, there have been more negative surprises than expected and earnings estimates have been lowered. Nonetheless, corporate profits overall are still growing.

Companies That Could Issue Positive Earnings Surprises during the Week of Oct 22 - 26

Half of the 16 covering brokerage analysts have raised their forecasts on ACE Limited (NYSE: ACE) over the past few weeks. The consensus estimate now calls for earnings of $1.82 per share versus $1.68 per share, 30 days ago. There have been numerous revisions on insurance companies, reflecting both higher premiums and the lack of severe hurricanes hitting North America this year. ACE has topped expectations during each of the past four quarters by an average margin of 23 cents per share. ACE Limited is scheduled to report on Wednesday, Oct 24, before the start of trading.

The ongoing success of the iPhone and the new iPod touch have helped fueled ongoing optimism about Apple (Nasdaq: AAPL). Over the past week, three brokerage analysts raised their fiscal fourth-quarter projections, bumping the consensus earnings estimate up by a penny to 84 cents per share. Cumulatively, fiscal fourth-quarter expectations for the technology company have risen by three cents over the past 30 days. The most accurate consensus is more bullish at 85 cents per share. AAPL has a history of beating expectations, with an average margin of surprise of 23 cents per share over the past four quarters. Apple is scheduled to report on Monday, Oct 22, after the close of trading.

Third-quarter profit forecasts for Occidental Petroleum (NYSE: OXY) have jumped in recent weeks from $1.21 to $1.29 per share. The notable rise reflects revisions from two-thirds of the covering analysts. The most accurate consensus is even more bullish at $1.33 per share. OXY has topped expectations for three consecutive quarters. Occidental Petroleum is scheduled to report on Wednesday, Oct 24, before the start of trading.

The increasing complexity of mobile phones is a positive for RF Micro Devices (Nasdaq: RFMD), whose products include chipsets for cellular handsets. During the past 30 days, two of the eight covering brokerage analysts raised their forecasts ahead on the company. The revisions pushed the fiscal second-quarter consensus estimate a penny higher to five cents per share. The most accurate consensus is more bullish at six cents per share. RFMD has topped expectations for three consecutive quarters. RF Micro Devices is scheduled to report on Tuesday, Oct 23, after the close of trading.