Author: Bob Gay – GEARS
Disclaimer: Bob Gay owns RFMD, LSI and MHO in his Covestor Earnings Surprise Model.
It was a light week for filings last week with only 4% of the GEARS company population presenting their most recent financial statements. The fundamentals improvement continues and cash flow growth is advancing.
Companies that are showing an earnings surprise pattern in their recent fundamentals are those with rising sales growth and rising gross profit margins, high and falling SG&A expenses, lower financing costs and rising cash flow return. Companies with a surprise pattern that are due to make their earnings announcement on Wednesday, July 28, 2010 are Cabot Corp (CBT), Callaway Golf Co (ELY), Cerner Corp (CERN), Citrix Systems Inc (CTXS), Commscope Inc (CTV), Corning Inc (GLW), Jones Apparel Group Inc (JNY), Lsi Logic Corp (LSI), M I Schottenstein Homes Inc (MHO), MeadWestvaco Corp (MWV), Newport Corp (NEWP), Rockwell International Corp (ROK), Ryland Group Inc (RYL), Silicon Labs Inc (SLAB), Timberland Co (TBL), Triquint Semiconductor Inc (TQNT) and Waddell & Reed (WDR).
RF Micro Devices (NASDAQ: RFMD) is in the Earnings Surprise model portfolio and will make their announcement on the close on July 27, 2010. The company has been tracing a surprise pattern since sales growth began to rise from the lowest level in the record during 4Q2009. In 1Q2010, sales growth is positive and rising. The shares have been very highly correlated with sales growth with a one-quarter lead. All of the other components of the surprise pattern are in place. The shares have been stronger in recent days but remain depressed.
Earnings Surprise model portfolio names Lsi Logic Corp (NYSE:LSI) and MI Schottenstein Homes Inc (NYSE: MHO) will report earnings on Wednesday, July 28, 2010. During 1Q2010, LSI’s sales growth was negative but higher than 4Q2010. The shares have been highly correlated with sales growth with a one-quarter lead. Profit margins are improving and cash flow return is rising. The shares have been highly correlated with the cash flow return with a one-quarter lead. MHO is similar, except sales growth is high and positive and the shares are more highly correlated with profit margins, which are rising. Cash flow return is only barely positive and recovering from the lowest level in the company record during 2009.
