Earnings season got off to a great start today with the earnings announcement from Alcoa (NYSE: AA) and CSX Corp (NYSE: CSX) making headlines. Both companies recorded an earnings surprise pattern in their fundamentals last quarter. The Earnings Surprise model owns Alcoa (NYSE: AA).
The positive surprise pattern in the fundamentals is higher sales growth, rising gross profit margins, high and falling SG&A costs to sales, lower financing costs, lower inventory turnover, lower receivables turnover and rising cash flow return on invested capital.
It is interesting how many of the surprise pattern attributes are in place for the market as a whole. We use the GEARS total market index population of 1459 of the most liquidly traded companies and create a capital weighted average of all the company fundamentals. That is the total market as if it were one company and we see sales growth rising on average and more frequently. The average gross margin is up and 65% index companies are showing a rising gross margin in the most last quarter. The GEARS research report for the total market index is DDOW
For the stocks designated as quarterly earnings surprises today all had some of the components of the positive surprise pattern see GEARS research reports for Alcoa (NYSE: AA), Audiovox Corp (Nasdaq: VOXX), CSX Corp (NYSE: CSX), Novellus Systems (Nasdaq: NVLS) and Shaw Group (NYSE: SHAW).
But it’s today’s surprises that have the most interest. The strategy of the Covestor Earnings Surprise model is to find surprise patterns for companies with depressed share prices just before earnings season begins to gain a share price jump when the positive surprise is announced.
Looking at the earnings calendar between now and Friday reveals many names with an earnings surprise pattern including in order of appearance- Fastenal Company(NasdaqGS: FAST), Heartland Express, Inc.(NasdaqGS: HTLD), Intel Corporation (NasdaqGS: INTC), Yum! Brands, Inc.(NYSE: YUM), Adtran Inc.(NasdaqGS: ADTN), Marriot International (NYSE: MAR), Advanced Micro Devices, Inc. Co (NYSE: AMD), Wolverine World Wide, Inc. (NYSE: WWW), Citigroup, Inc. (NYSE: C), DSP Group, Inc. (NasdaqGS: DSPG), Gannett Co., Inc. (NYSE: GCI), General Electric Company (NYSE: GE), Genuine Parts (NYSE: GPC), Mattel, Inc. (NasdaqGS: MAT)
Companies with a negative earnings surprise pattern in their recent fundamentals are AMR Corporation (NYSE: AAR), AMR Corporation (NYSE: AMR), Charles Schwab Corporation (NYSE: SCHW), Bank of America Corporation (NYSE: BAC).
Global Equity Analytics and Research Services LLC (GEARS), a proprietary learning-based electronic documentation interpretation software company, was founded by Robert Gay. Prior to founding GEARS, Robert was Vice President and Director of Quantitative Research at Donaldson, Lufkin and Jenrette in New York.
Robert was selected to Institutional Investor Magazine's All-American Research team each year from 1990 through 1995.