These three widely-owned stocks have gradually decreased their first quarter earnings expectations over the first three months of the year signaling that business is not doing as well as hoped. This points to a high probability of missing earnings when they report next week which will lead to a dramatic decrease in price.
First-quarter earnings season hits full stride this week. While Alcoa Inc. (NYSE:AA) might fire the starter’s pistol to kick things off, bank stocks are the runners Wall Street will be watching.
Many of the most recognizable Too Big to Fail (TBtF) names are on the docket for the week of April 4th. Although the taxpayer and the Federal Reserve have the bankers’ backs, investors might be less forgiving to these three banks after their quarterly results.
Before getting into company specific details, the trio shared 100% correlation between earnings surprises and price sensitivity for the last three years. In English, when earnings-per-share (EPS) topped Wall Street’s consensus, share prices ALWAYS went up in the three days prior and after quarterly results. Conversely, fall short of the mark, and all three ALWAYS went lower.
Obviously, the trick is to be on the right side of earnings if you want to make money. In this case, my earnings model and analysts’ recent activity suggest the following banks/financial centers will miss the target and should be shorted.
Citigroup Inc. (NYSE:C) – Trading its way Lower
Let’s start with the one that’s more often than not been better than the consensus for the last 12 quarters. Citigroup surpassed expectations seven of the last 12 quarters; consequently, shares rewarded investors a lucky seven times with an average gain of 3.9%.
However, as mentioned up top, every time C earned less than guesstimated, the stock gave ground, typically losing 3% on the five misses.
At the moment, the white starched shirt, blue/red tie crowd in lower Manhattan sees EPS of $1.15 when the company announces results on tax-day.
