Forecasters expect second-quarter earnings for S&P 500 companies could rise an average of 8 percent or more, fueling future gains in the stock market.
Already, companies such as IBM, which reported a 12 percent jump in earnings Wednesday, and eBay, which reported a 50 percent gain, are smoking analysts’ expectations.
In Colorado, Qwest won’t report its earnings until Aug. 1 but could do the same.
Analysts expect the Denver telecom to report earnings of 13 cents per share, a 116 percent jump from the six cents a share it earned in the second quarter of 2006.
“Depreciation is down versus last year. They have lowered their interest costs,” said Donna Jaegers, an equity analyst with Janco Partners in Denver.
If history is any guide, analysts making earnings forecasts tend to undershoot the mark.
Officially, Thomson Financial is predicting companies in the Standard & Poor’s 500 will report second-quarter earnings 4.7 percent higher than in 2006.
Unofficially, companies tend to guide analysts in a way that leaves plenty of room for “upside” surprises.
“Companies typically beat estimates by 3.3 percent on average,” said John Butters, a research analyst with Thomson Financial in Boston.
That could mean second-quarter earnings growth may reach 8 percent, on par with the gains seen in the first quarter.
At the other extreme from Qwest, Denver homebuilder MDC Holdings is expected to lose 41 cents a share in the quarter ended June 30, versus earnings of $1.70 a share in the year-earlier period, according to Bloomberg. MDC will report earnings Wednesday.
MDC, like other homebuilders, is struggling with a huge drop-off in demand.
Single-family housing permits in June were running at an annualized rate 43 percent below the peak hit in September 2005, according to the U.S. Census Bureau.
The poor performance by homebuilders and automakers is expected to take earnings in the consumer discretionary sector down 12 percent in the quarter, Thomson forecasts.
But other sectors, such as energy, have seen their earnings prospects brighten significantly in recent months.
That could bode well for small Denver-based energy companies such as Bill Barrett Corp. and Forest Oil.
Earnings in the second quarter are expected to be flat or down slightly at Western Union, Newmont Mining and Molson Coors, according to analyst estimates. Those three companies, however, do substantial business overseas, which could create room for some surprises.
Overseas economies are running stronger than the domestic economy. Foreign profits become even larger once they are converted into a weaker U.S. dollar.
“That is playing a role in the stronger results,” Butters said.
A strong earnings season should give stock markets, already enjoying a good year, additional momentum, said John Claxton, a vice president with RBC Dain Rauscher in Denver.
“If earnings grow, stock prices will grow,” he said.
Staff writer Aldo Svaldi can be reached at 303-954-1410 or asvaldi@denverpost.com.
Local stocks
CHIPOTLE
$0.44
Analysts’ estimate of earnings per share in the second quarter, up from $0.33 in the same period of 2006
CROCS
$0.43
Analysts’ estimate of earnings per share in the second quarter, up from $0.20 in the same period of 2006
ECHOSTAR
$0.53
Analysts’ estimate of earnings per share in the second quarter, up from $0.38 in the same period of 2006
QWEST
$0.13
Analysts’ estimate of earnings per share in the second quarter, up from $0.06 in the same period of 2006
WESTERN UNION
$0.26
Analysts’ estimate of earnings per share in the second quarter, down from $0.34 in the same period of 2006
