Zacks Industry Rank Analysis Highlights: Stericycle, Tesoro, AK Steel, Fifth Third and Micron
2009-06-25 23:12:03 -
Zacks.com releases the latest Zacks Industry Rank. Stocks featured in this week’s analysis include Stericycle (Nasdaq: SCRL : cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww .. ), Tesoro (NYSE: TSO : cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww .. ), AK Steel (NYSE: AKS : cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww .. ), Fifth Third (Nasdaq: FITB : cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww .. ) and Micron (NYSE: MU : cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww .. ).
Zacks Industry Rank Analysis is written by Charles Rotblut, CFA, Senior Market Analyst for Zacks.com.
This Week: Second-Quarter Earnings Outlook
Second-quarter earnings will be ugly.
Median EPS is projected to drop 21.2%. Nearly 75% of S&P 500 members are forecast to report earnings that are lower than a year ago. 62 companies are projected to have lost money.
These numbers are not unexpected given that we remain in the midst of a recession. They could even prove to be too pessimistic given the propensity of companies to surprise and the relative improvements in economic conditions.
Growth Industries
The one sector projected to show the strongest growth is also the one with the highest political risk - Medical. The majority of medical care providers, health insurers, pharmacy benefit managers and drug companies should report a year-over-year increase in profits.
Zacks #2 Rank ("buy") stocks expected to report growth include Stericycle (Nasdaq: SCRL : cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww .. ) (+14.4%).
The medical sector is less economically sensitivity than other sectors.
Plus, the expansion of Medicare Part D has made prescriptions more affordable.
The obvious risk, however, is the ongoing discussions about healthcare reform. Though these talks have no impact on current earnings, they could significantly impact future earnings.
Another area of growth is refining. Tesoro (NYSE: TSO : cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww .. ) is expected to have increased second-quarter profits by 223.7%. This impressive number is a reflection of last year's spike in oil prices.
The problem is that the recent rise in oil prices is hurting margins.
Full-year earnings estimates are falling for both companies, which means even if TSO and other refiners top expectations, guidance could be weak.
Our oil analyst, Sheraz Mian, downgraded TSO last month to a long-term sell recommendation.
Industries With Profit Declines
Since most industries will show a year-over-year decline in median EPS growth, I'm going to focus on 2 industries with the biggest projected declines.
Steel is among the worst, with 3 companies projected to report year-over-year declines in excess of 130% each.
These companies are facing very tough comparables because of last year's commodity bubble. Though AK Steel (NYSE: AKS : cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww .. ) said on Tuesday that its results would show a sequential quarterly improvement, any narrower loss would be because of cost-cutting and not improving business conditions.
Banks will not fare much better. Regional banks are forecast to report a median decline of 98.7% and the large banks are projected to report a 61.3% decrease. Though the government has deemed some banks too big to fail, the FDIC has shut down 40 since the start of the year.
Home foreclosures have yet to peak and credit card default rates are rising. At the same, the ongoing housing slump and tighter credit standards continue to hurt mortgage originations. And though Q208 was not great for the banks, the credit crunch was not as severe as what was witnessed in the second half of 2009.
The largest year-over-year declines is likely to come from Fifth Third (Nasdaq: FITB : cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww .. ), which will swing from an adjusted profit to a loss.
Where To Look For Surprises
One industry groups that I would keep an eye on for potential positive surprises is Electronic-Semiconductor.
The semiconductor industry appears to be in the early stages of a recovery. Therefore, while profits will be terrible (down -61.5%), they could very well be better than forecast.
We'll get another early indicator of how chip earnings look relative to expectations this afternoon, when Micron (NYSE: MU : cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww .. ) reports. The consensus earnings estimate calls for a loss of 43 cents per share.
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Zacks.comCharles Rotblut, CFAPhone: 312-265-9352Email: pr@zacks.com : mailto:pr@zacks.com Visit:
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