Zacks Analyst Blog Highlights: Southwest Airlines, Lockheed Martin, LSI Logic and Broadcom

Business Wire, Jan 30, 2008

CHICAGO -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Southwest Airlines (NYSE: LUV), Lockheed Martin (NYSE: LMT), LSI Logic (NYSE: LSI) and Broadcom (Nasdaq: BRCM).

See the latest posts to the Analyst Blog here: http://www.zacks.com/blog/post_info.html?g=6

Here are highlights from Tuesday's Analyst Blog:

Trends in Earnings

Normally, I don't comment on trends in overall earnings estimates in the Blog; rather, I leave that to my weekly "Earnings Trends" report. However, there does seem to be a very important story developing that deserves notice.

First, the overall earnings picture, when viewed solely from the perspective of the numbers for the S&P 500, is the weakest in over five years. However, the problems seem to be "contained" to the Financial sector (and to a lesser extent the Consumer Discretionary sector). For the rest of the market, earnings are coming in very strong. Just exclude the Financials and the ratio of positive surprises to disappointments jumps from 2.4:1 to 5.5:1. Tech, for example, has seen 26 positive surprises and just 2 disappointments (through the close 1/24; we will have fresh numbers tomorrow morning).

The median surprise for the sector is a huge 8.7%, and the median year-over-year growth rate is over 20%. This is with almost half the reports for the sector in. A similar story can be told for the Industrials and the Materials, both with more than a third of companies with reports in.

In perhaps the most famous of the Sherlock Holmes stories, the case is solved because the dog didn't bark. Normally, the analysts' almost Pavlovian response to higher-than-expected earnings is to raise their outlook for future periods. This is very rational behavior since the company in question has a bigger base to build on.

However, we are not seeing that response at all this time around. Despite the stellar results of the Tech firms that have reported, over the last four weeks analysts have been cutting four estimates for every three they have raised for 2008. Even if that were flipped to 4 increases for every 3 cuts, that would be a very sub-par response to such a strong earnings season for the sector.

In the Industrials, it is even more stark, where there have so far been 16 firms report higher-than-expected earnings without a single company disappointing. The response: almost five estimate cuts for every two increases. Perhaps the analysts just haven't gotten around to raising their estimates yet, as some of these firms have just reported and analysts are very busy during earnings season. However, if we do not see a dramatic increase in the revisions ratio for 2008 in the coming weeks (currently standing at 0.45) it will have to be seen as a major vote of no confidence on the earnings prospects of these firms for this year.

Among the Industrial firms where there was a positive earnings surprise of more than 10%, that have not seen more estimate increases than cuts are Southwest Airlines (NYSE: LUV) and Lockheed Martin (NYSE: LMT). Tech firms in the same boat include LSI Logic (NYSE: LSI) and Broadcom (Nasdaq: BRCM).

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