Warning Season
[BRIEFING.COM - Robert J. Reid] It's that time again. We are heading into earnings warning season. Here are some tips you should consider during this nervous time of the quarter.
Background
With the market being so strong over the last few sessions, we thought it would be wise to remind investors that we will soon be entering earnings warning season. Any disappointment could be magnified due to the recent strength of the market. Earnings season will be hitting full gear by the second and third weeks of March.
Reporting Dates
It seems obvious, but many individual investors do not pay attention to when their companies report. You can easily check this by visiting Briefing.com's Earnings Calendar page. The page allows you to search by ticker, or you can browse by date. Also, a nice feature many do not know about is that you can link to the conference call audio cast by clicking on the phone to the left of the name. You can also sort the list by conf call times by clicking on the Conf Call link on calendar page. This is helpful to see which calls are scheduled throughout the day. OK, enough for the shameless promotion, but it's a great resource.
When you search by ticker, the Fiscal End column tells you when the quarter ends. So, a March quarter end company will soon be in the midst of its warning season. For an April quarter end, companies are generally waiting to see how March finishes up before deciding whether to issue a warning, so you're safe for now.
Look to Competitors and Customers
First, know the names of the competitors and customers of your companies. A great example was yesterday when McData (MCDT) warned. Briefing.com wrote a story stock analyzing the potential impact on McData's competitors and customers. Companies in the same space are subject to the same market conditions which could result in additional earnings warnings in that sector.
The best source for this info is the 10-K filing in the Edgar database at www.sec.gov. The filing requires a section called Competition. A simple word search will quickly find it. Perhaps even more important is that you check to see if your company's customers have warned. This is key because it's more of a leading indicator. Your company may be reporting that everything's great, but if a customer is talking about slowing demand it's only a matter of time until your company feels it. Expect that customer to be cutting orders soon.
Again, get this info from the 10-K and look for the section on Customers. To see how competitors/customers are doing, visit Briefing.com's Guidance page. Also, it helps to do archive searches on our InPlay, Shorts, Up/Downgrade archives for a better sense as to how they are doing. Even if companies do not warn, monitor these pages to see if sell side analysts are reducing estimates or making negative comments etc.
Is It Safe?
For MarQ companies, we are almost in warnings season. You are generally safe the week before earnings are released as companies seldom pre-announce during their quiet periods but it does happen. It's also generally safe for two months after the earnings report. Be wary of mid-qtr updates as companies often use these dates to guide down. Also, look back over the last few quarters to see if your company has a history of missing or beating estimates. Perform an archive search on our Earnings Calendar.
As a side note, it's risky for active traders to be holding a small-cap name during the warning season as your stock could get halved very quickly. It's safer to be holding those names in the week before the earnings release and for the following two months, but during the warnings season, it's risky. If you feel uneasy about a stock, your best bet to stay on the sidelines then when it's safe (right before earnings), poke your head out and re-enter the stock. Ask yourself the question Dustin Hoffman kept getting asked in The Marathon Man: Is it safe?
Quick Thoughts
Briefing.com is not expecting a lot of warnings this time around relative to other quarters. However, be wary of high p/e stocks as the recent trend has been to sell these stocks off on even somewhat cautious comments from management. Genesis Micro (GNSS) is a good example as the company's guidance did not seem that bad, but the stock went from to mid-70's to the mid-20's in less than two months.
10-K's Due To Be Filed Soon
As a final thought, remember that 10-Ks are due soon. The SEC requires that they be filed within 90 days of the close of the fiscal year end. For most, that's December, so expect a flurry of filings later this month. With the heightened scrutiny of Enron, do not be surprised to see some companies make very detailed disclosures which could be interpreted negatively.
Also, there could be bombshells generally when a company files its 10-K so beware. Briefing.com recommends investors read the 10-K's. If you're going to read any filing, read the 10-K as it has the most complete and useful information of any filing. You can bet your bottom dollar that institutional investors will be reading them. The annual report is a glossy pamphlet with pretty pictures, but the meat is in the 10-K.
Please feel free to share your comments or ask questions of rreid@briefing.com. |
