Scoring Earnings Season: A True Tale of the Tape (AA, JPM, WFC, GOOG, NOK, INFY, CSTR, MFRM, CSC)

Earnings season for the first quarter of 2012 is upon us and 24/7 Wall St. wanted to see how the tale of the tape is treating the companies reporting earnings.  Our aim is to offer some insight into a ‘earnings season bias.’  We have featured a preview of 13 of the 30 DJIA stocks which report earnings in the coming week and the common singularity in the lot shows that analysts think most of these stocks are close to full value.

In a separate issue to rank last week’s bias, we just featured the strongest stock charts in the S&P 500 Index after a poor week where the S&P fell by -1.9%.  We already showed a tempering of expectations going into earnings season, so the reactions were not really any huge surprise.

Can you derive a true earnings season bias by evaluating the post-earnings reactions of Alcoa Inc. (NYSE: AA), J.P. Morgan Chase & Co. (NYSE: JPM), Wells Fargo & Co. (NYSE: WFC), Google Inc. (NASDAQ: GOOG), Nokia Corporation (NYSE: NOK), Infosys Ltd. (NASDAQ: INFY), Coinstar, Inc. (NASDAQ: CSTR), Mattress Firm Holding Corp. (NASDAQ: MFRM), and Computer Sciences Corporation (NYSE: CSC)?  24/7 Wall St. thinks you can find a key trend here that may help investors cover their assets this earnings season. Hopefully this review and analysis will help investors focus on the underlying issues of each major earnings report rather than getting hung up on whether just over 8% GDP growth in China is good enough and whether the PIIGS in Europe are going to keep dragging down Europe and the rest of the world.

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Alcoa Inc. (NYSE: AA) managed to surprise just about everyone to the upside.  When it had just announced production cuts a week before, the aluminum giant managed to turn in a positive earnings report at $0.10 EPS rather than a loss of -$0.04 EPS expected.  The conference call talked up growth in many key segments and said that China is not as weak as it looks.  Alcoa went from $9.32 before earnings to close at $9.90 the day after and even closed at $10.17 the following day before closing the week out at $9.85.  All in all, Alcoa added 2.3% for the week.

There was a big earnings reaction disappointment from J.P. Morgan Chase & Co. (NYSE: JPM) and from Wells Fargo & Co. (NYSE: WFC).  These are the two healthiest banks and it really sets up caution for the coming junk-bank earnings from the money center group this coming week.  Both companies beat earnings and talked up their books and finances.  At the end of the day, J.P. Morgan closed down 3.6% and Wells Fargo closed down almost 3.5% after earnings.  We would pay closer attention to the book value analysis for the major financial sector earnings due this week because the sector was a great performer in the first quarter and looks to be treated rather poorly even after good earnings.

The Internet wild card was of course Google Inc. (NASDAQ: GOOG) and the earnings were clouded by a stock split that is actually a share structure shenanigan giving Larry & Sergei ultimate and complete control of the company.  The focus remains on the decline in pay-per-clicks as well, and shares fell 4% or $26.41 to $624.60 after the earnings report.  This was a drop of less than $8.00 for the whole week.

It should be of little surprise that Nokia Corporation (NYSE: NOK) issued an earnings warning.  We do not even count Nokia as a market indicator any longer and this posted a double-digit drop after warnings and then weakened further the rest of the week.  Shares are down at $4.02 now and at the weakest level in a decade.  Ask yourself this question… Do you even know anyone that still has a Nokia phone?

Infosys Ltd. (NASDAQ: INFY) is supposed to be the king of Indian IT-outsourcing, and the earnings report itself did not look bad.  The problem came from cutting its growth rates by one-third for the coming year and that spooked investors big time with a drop of 13.4% to $49.15 at the end of the week.  Infosys is now within striking distance of a 52-week low of $46.12.

One positive did come from Coinstar, Inc. (NASDAQ: CSTR) with much higher guidance.  Shares rose 7.3% to $65.78 and the stock put in a new 52-week high of $69.74 before softening up with the weak stock market tape.  The bright side here was no negative reaction from a price hike.  Go figure.  Unfortunately, it was hard to draw any major inference here into other media and movie companies.

Another bright spot came from Mattress Firm Holding Corp. (NASDAQ: MFRM) with higher earnings guidance and an acquisition which will boost its market share in the mattress sales segment.  Shares hit a new post-IPO and all-time high of $45.96 and this one gained almost 13% for the week.  Unfortunately it is going to be hard to draw much pin-action here for other retail names.

Computer Sciences Corporation (NYSE: CSC) put a hex on its turnaround story as this key contract in the U.K. is still held up and is not finalized for better or worse.  The earnings warning turned a value stock back into a value trap.  CSC closed down almost 8% for the week at $27.02 and it is a weak stock that got weaker.

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So, the vote is in if you just look at the broad market reaction on each and filter out all of the other noise.  The long and short of the matter is that if you look at the core economy companies here and filter out the few bright spots, Wall Street is not really wanting to pay up for what appear to be decent earnings.  After a huge first quarter, it seems as though the bias is leaning toward only rewarding companies which really exceed expectations.  Now we know what to be braced for going into the coming week as the real earnings season floodgates open wide.

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JON C. OGG