Earnings Preview: Goldman, Intel, SanDisk and Southwest Airlines

April 16th, 2012 by

Goldman Sachs Group, Inc. (GS.N), the white-shoe powerhouse investment bank is one of 86 companies in the S&P 500 index scheduled to report its earnings this week – and it is one that analysts expect to report an upside surprise when it announces those results tomorrow.

That is the signal that StarMine’s SmartEstimate is signaling. As the first quarter earnings season moves into high gear, we turned to the SmartEstimate, a weighted average of analyst estimates that emphasizes the most recent estimates and those published by analysts with the most accurate track record, to identify which S&P 500 companies are most likely to post better-than-expected earnings. Our studies have shown that when the SmartEstimate differs from the consensus (I/B/E/S Mean) by more than 2%, the company is likely to report an earnings surprise in the same direction as indicated by that SmartEstimate. Historically, the SmartEstimate correctly predicts the direction of that earnings surprise 70% of the time.

This week, the SmartEstimate data shows investors can expect positive surprises from Goldman Sachs and Intel Corp. (INTC.O). On the flip side, the SmartEstimates warn that negative surprises are in the offing from SanDisk Corporation (SNDK.OQ) and Southwest Airlines Co. (LUV.N).

Since the first quarter ended, analysts have becoming significantly more bullish about Goldman Sachs’s earnings expectations. As they have revised upward their earnings estimates, the consensus earnings forecast has climbed to $3.55 from $3.34 when the quarter began. Moreover, two analysts have published “bold estimates” – forecasts by highly-rated analysts that are out of line with the consensus and in this case that call for Goldman’s earnings to hit $4 a share. All the negative publicity may have dented Goldman’s public image in recent weeks, but the StarMine Intrinsic Value model suggests that it hasn’t harmed the company’s valuation: rather, the model indicates the stock is dramatically underpriced at Friday’s close of about $115 a share. The StarMine Intrinsic Value model suggests that the company’s fundamentals warrant a stock market valuation closer to $211 a share, assuming an underlying forward 10-year compound annual earnings growth rate of 19.4%.

EXHIBIT 1. GOLDMAN’S INTRINSIC VALUE

Source: Thomson Reuters StarMine Professional.

Analysts polled by StarMine also have become more bullish on Intel since it launched its newest Romley chip. In recent days, one five-star rated analyst has published a “bold estimate”, calling for the company to report first-quarter earnings of 55 cents a share, well above the current mean forecast of 50 cents a share. Meanwhile, Intel’s (INTC) newest Ivy Bridge processor will be introduced later this year. The company delayed the launch of the processor to enable more systems to be launched, including Window 8, which the Ivy Bridge platforms will support. Analysts polled by Thomson Reuters, believing that higher earnings are in the offing, are predicting Intel’s earnings will see gains throughout the coming four quarters. (See exhibit 2, below, for details.)

EXHIBIT 2. INTEL’S EPS ACTUALS AND ESTIMATES Q1 2011 – Q4 2012

Source: Thomson Reuters StarMine Professional.

Still, not all companies are expected to report earnings results that will cause jubilation among their shareholders. For starters, analysts polled by StarMine believe SanDisk Corporation (SNDK.O) is very likely to report results that fall short of analysts’ estimates, giving investors a negative surprise. The firm has been suffering the impact from an industry-wide oversupply flash cards, which has led to a drop in prices for Sandisk’s products. Moreover, weak demand for solid-state drives also is hurting the company’s bottom line. As a result, analysts have revised SanDisk first quarter earnings downward from 91 cents a share to 70 cents a share. If the company does post earnings at that level, it will be the weakest increase in earnings it has recorded in more than two years. But at least one five-star rated analyst doesn’t believe the company will even do that well; he forecasts earnings of only 61 cents a share for the first quarter.

As we discussed previously on Alpha Now, analysts polled by Thomson Reuters expect Southwest Airlines Co. (LUV.N) to post a dramatic 276% plunge in earnings in the first quarter, in spite of a 30% increase in revenue. The StarMine SmartEstimate score for the company appears to confirm that bearish outlook. (See Exhibit 3).

EXHIBIT 3. NEGATIVE PREDICTED SURPRISES FOR Q1 2012, WEEK OF APRIL 16, 2012

Source: Thomson Reuters StarMine Professional.

For more on analysts’ changing views of the outlook for Goldman Sachs’s earnings, please watch this interview with analyst Jharonne Martis.

 
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