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2Q Earnings: Least Preferred Stocks

 July 13, 2012 10:48 AM
 



(By Mani) The second quarter earnings kicked off this week that would see weaker growth and surprises, and a negative impact from global exposure. The companies would hurt from weaker foreign growth, additional dollar strength and more difficult operating environment for the financial sector.

In this backdrop, let's see some of the least preferred stocks those are expected to surprise to the downside during the second quarter earnings season.

Bank of America Corp. (NYSE:BAC): The company's near term earnings would be pressured by the combination of a weak capital markets environment, an elevated cost base in the mortgage servicing operation, and continued pressure on net interest margin.

Progressive Corp. (NYSE:PGR): The company would see further potential downside to consensus EPS estimates as loss trend outpaces the impact of price increases on results. Moreover, comparisons will continue to be challenging on profitability until the fourth quarter of 2012.

"We also see a slowdown in top line growth as PGR raises prices to improve profitability in its Agency business," UBS analyst Brian Meredith wrote in a note to clients.

MetroPCS Communications, Inc. (NYSE:PCS): MetroPCS to continue to struggle as it backs off new customer acquisition, waiting for sufficient inventory and variety in its lineup of low-cost 4G LTE devices. MetroPCS has no plans to carry the iconic iPhone device leading customers seeking it to Leap's Cricket and Sprint's Virgin Mobile brands. As a result, analysts forecast net customer losses for the carrier in the second and third quarters.

New York Times Co. (NYSE:NYT): The 2012 advertising environment appears to be cautious, especially on the print advertising front due to the continued shift of ad dollars from print to online and other media. While the paywall at The New York Times has been successful, subscription growth is expected to be flat for the rest of this year.

"More broadly, we expect national advertising to continue to slow in 2H12 and with nearly 60% of News Media advertising from national, NYT is the most exposed within the newspaper industry," UBS analyst John Janedis said.

Moody's Corp. (NYSE:MCO): The challenging overall debt issuance volumes will be a headwind to operating margins for Moody's. Global debt issuance declined 17 percent in the second quarter. Furthermore, the company faces margin pressure as compliance costs increase due to upcoming implementation of European regulations.

"We see downside potential to the stock if anemic debt issuance volumes continue although we expect management to maintain full-year guidance (though at lower end of the range)," analyst Jennifer Huang added.

Consolidated Edison, Inc. (NYSE:ED): The company's earnings are likely to decline in the second quarter due to higher taxes and lower non-regulated contributions. Lower allowed return on equities (ROEs) are expected in 2013 which could impact earnings power.

Parker Hannifin Corp. (NYSE:PH): Recent softening of global industrial component demand data raises concerns for the company's fiscal fourth quarter ending June and fiscal 2013 estimates may be too high. The company's competitors have already lowered revenue guidance and investors should view this as cautionary for Parker Hannifin.

Aeropostale Inc. (NYSE:ARO): The retailer's earnings could disappoint as the women's unit lost market share in the first quarter despite the appearance of improved merchandise. Meanwhile, better performance at rival American Eagle Outfitters, Inc. (NYSE:AEO) and high promotional levels at Hollister will likely limit share gains.

"Additionally, our store checks over the past few weeks have pointed to higher promotional levels vs. last year (despite a 1500 bp easier compare), which could translate into muted margin performance relative to investor expectations," UBS analyst Roxanne Meyer added.

The above list is only indicative as there may be several companies whose second quarter financial results could be weak and come below Wall Street's expectations.


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