The Zacks Analyst Blog Highlights: Alcoa, S&P 500 ETF, Verizon Communications, Time Warner Cable and CBS
CHICAGO, Oct. 4, 2013 /PRNewswire/ -- 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 the Alcoa (NYSE:AA-Free Report), S&P 500 ETF (AMEX:SPY-Free Report), Verizon Communications Inc. (NYSE:VZ-Free Report), Time Warner Cable Inc. (NYSE:TWC-Free Report) and CBS Corp. (NYSE:CBS-Free Report).
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Here are highlights from Thursday's Analyst Blog:
The October Rally
Its earnings season again. Traditionally, traders have viewed the earnings report from Alcoa (NYSE:AA-Free Report) as the start of the earnings season. Alcoa recently lost its position in the Dow Jones Industrial Average, but it is still a well followed industrial name, and will provide a view on global economic conditions. This year, Alcoa releases its Q3 profits after the close on Tuesday, October 8th.
The government "shutdown" and debt ceiling saga make the current market environment a bit unusual, and could distract the market from the flow of earnings. However, in the end stocks trade on earnings and the circus in Washington is likely to be short lived.
Many traders embrace seasonal patterns and it is always interesting to see how the market has traded in certain time periods. For this reason, it may be worth examining how the S&P 500 trades based on the S&P 500 ETF (AMEX:SPY-Free Report) during the Q3 earnings season. It could help with a view on market timing – exiting and entering positions.
Earnings expectations:
At this juncture, the S&P website has expected Q3 2013 operating earnings per share for the S&P 500 at $26.84 on a bottom up basis. This compares to a preliminary $26.36 in Q2 and $24.00 a year ago. Profits are expected to rise 1.8% sequentially and 11.8% y/y.
Even though profit growth is expected to be strong, Q3 2013 EPS estimates for the S&P 500 have been falling through the year. At the start of the year, the trade was looking for $28.64. Profit expectations have fallen $1.80 since.
Looking ahead, Q4 2013 operating earnings per share are projected at $28.88, which would equate to a gain of 7.6% sequentially and 24.7% y/y. The expectations seem extremely high. The recent strength in the ISM surveys holds out support for profit strength, but the events in Washington are a headwind.
Like the estimate for Q3 2013, the earnings per share estimate for Q4 2013 has also been falling. At the start of the year, the trade was looking for $29.75. Profit expectations have declined $0.87.
The stock market traded strong during the Q2 earnings release season, and seemed to generally follow the average with the exception of strength between day 1 and day 5 and day 18 and day 20.
This quarter:
The average price pattern for SPY looks very choppy during the Q3 period. This may be a function of stock market volatility in the fall. The stock market is well known for fall swoons – think of the October 1987 stock market crash, LTCM /Russian crisis, and the financial crisis of 2008. Politicians seem willing to risk a swoon this year with their lack of cooperation.
Reading between the lines, it looks like there is a relative low on the third day after the release of Alcoa's earnings. This day will correspond to October 11 in 2013 and price strength continues for about 20 days after the release which equates to November 5. This year's dates are placed on the x-axis.
SPY has been up 12 of the past 15 years or 80% of the time from day 3 (3 days after Alcoa's earnings release) to day 20 (20 days after Alcoa's earnings release). The average gain is 3.97%. Broken out by up and down periods, the average gain in the 12 up periods has been 5.69%, while the average decline in the 3 down periods is 2.89%.
The down years were 2012, 2009, and 2007. The weakness has occurred recently compared to the 15 year time frame. There were big run ups in 1998, 2008 and 2002. These were periods where the market had sold off sharply going into earnings season, and they tend to skew the average.
Conclusion:
The stock market has tended to trade with a firm tone during the Q3 earnings release season. The performance in recent years has been less strong than in the past, but the track record of strength is eye catching. An end of the circus in Washington could be a catalyst for a stock market rally, but the poisonous attitude in Washington makes the current year a bit unusual. Let's look to see if history repeats.
Verizon, Turner in Multi-Year Deal
Verizon Communications Inc. (NYSE:VZ-Free Report) has entered into a long-term contract with Turner Broadcasting, a unit of Time Warner Cable Inc. (NYSE:TWC-Free Report) for providing Turner's content to FiOS TV Subscribers. The deal would provide Verizon's FiOS TV Subscribers access to several entertainment channels including TBS, TNT and Cartoon Network, which can be watched through television, PC, tablet and mobile handsets.
Per the agreement, FiOS TV customers can avail on-demand programming and live streaming of all major Turner networks through instant access with automatic login facility.
Verizon remains committed to improve long-term profitability in its wireline services through product streamlining and process simplification initiatives as well as cost management actions. To support the company's landline products and services, primarily FiOS Internet and FiOS TV, management is appointing 100 full-time sales employees for the national customer-retention center. This unit will manage sales issues as well as extend customer support.
Further, Verizon is consistently collaborating with media and cable companies to foster market share gains in different service categories as well as enter new sectors without seeking merger and acquisition strategies. The company has tied up with Cox Communications to offer bundled service packages consisting of video, phone and Internet in Phoenix and Las Vegas.
The telecom carrier has also extended its multi-year agreement with National Football League (NFL) for content delivery. The renewed agreement is expected to extend the ties between the two entities through the inclusion of live afternoon coverage of games on Sunday as well as off-season games aired by CBS Corp. (NYSE:CBS-Free Report) and Fox Sports.
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