Zacks Earnings Preview: AMR Corporation, Apple, Continental Airlines, Merrill Lynch and Southwest Airlines.

CHICAGO -- Zacks.com releases the list of companies likely to issue earnings surprises. This week's list includes AMR Corporation (NYSE: AMR), Apple (Nasdaq: AAPL), Continental Airlines (NYSE: CAL), Merrill Lynch (NYSE: MER) and Southwest Airlines (NYSE: LUV). To see more earnings analysis, visit http://at.zacks.com/?id=3207.

Earnings Preview is written by Charles Rotblut, CFA, Senior Market Analyst for Zacks.com.

This week will be the second short week in three for the financial markets. Exchanges will be closed on Monday in observance of the Martin Luther King, Jr. holiday.

Starting Tuesday, earnings season will start to heat up with 110 companies within Zacks Rank universe(a) scheduled to report fourth-quarter results. To date, approximately 120 companies have reported fourth-quarter results. Positive surprises are outnumbering negative surprises by a ratio of 1.7:1.

January stock options will expire on Friday.

On the economic front, the New York Fed will release its manufacturing index on Tuesday. Wednesday morning brings December producer price, industrial production and capacity utilization data. December CPI, the January Conference Board Consumer Confidence Index and the January Philadelphia Fed survey will be issued on Thursday. Friday will feature the January University of Michigan Index.

Companies That Could Surprise During the Week of Jan 15-19

Three brokerage analysts have positively revised their forecasts on Apple (Nasdaq: AAPL) within the past 30 days. The current consensus estimate calls for the recently renamed company to report profits of 78 cents per share, a penny above the month-old projection. The Most Recent Consensus is more bullish at 80 cents per share. AAPL has topped expectations by a margin of 10 cents or better during three out of the past four quarters. The stock rose notably this week following the unveiling of the iPhone, but federal authorities are investigating a back-dated option grant awarded to CEO Steve Jobs and AAPL is being sued over the "iPhone" name, so there are factors outside of earnings that could affect the stock price. Apple will report on Wednesday, Jan 17, after the close of trading.

Following the release of strong fiscal fourth-quarter results from three investment banking firms last month, earnings estimates for Merrill Lynch (NYSE: MER) have been rising. Investment banking firms have been benefiting from merger and acquisition activity, favorable market conditions (especially for corporate debt) and growth in asset management. The current consensus estimate calls for MER to report profits of $1.87 per share - an increase of five cents from the 30-day old forecast. The Most Recent Consensus is even more bullish at $1.93 per share. Merrill Lynch will report on Thursday, Jan 18, before the start of trading.

Southwest Airlines (NYSE: LUV) missed third-quarter expectations by three cents with profits of 19 cents per share. Heading into the company's fourth-quarter report, analysts are lowering their forecasts. Three brokerage analysts have cut their projections within the last 30 days, causing the consensus estimate to fall by a penny to 13 cents per share. The most recent consensus is more bearish at 12 cents per share. Southwest Airlines will report on Wednesday, Jan 17, before the start of trading.

LUV is not the only airline that could report lower than expected earnings next week. Forecasts were slashed on AMR Corporation (NYSE: AMR) after American Airlines reported a drop in December traffic. Estimates on Continental Airlines (NYSE: CAL) have also been falling. High fuel costs and price competition are putting pressure on the bottom line for the industry as a whole. AMR is expected to report a profit of 16 cents per share on Wednesday, Jan 17. CAL is projected to report a loss of 14 cents per share on Thursday, Jan 18, before the start of trading.

Want to turn earnings surprises into quick profits? Learn how by visiting http://at.zacks.com/?id=3206.

(a)The Zacks Rank is assigned to companies with earnings estimates made available by brokerage analysts. The Zacks' database contains earnings estimates for approximately 4400 companies.

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Since 1988, the Zacks Rank has proven that "Earnings estimate revisions are the most powerful force impacting stock prices." Since inception in 1988, #1 Rank stocks have generated an average annual return of +31.8%. During the 2000-2002 bear market, Zacks #1 Rank stocks gained +43.8%, while the S&P 500 tumbled -37.6%. Also note that the Zacks Rank system has just as many Strong Sell recommendations (Rank #5) as Strong Buy recommendations (Rank #1). Since 1988, Zacks Rank #5 stocks have underperformed the S&P 500 by 143.6% annually (+4.8% vs. +11.8%). Thus, the Zacks Rank system allows investors to truly manage portfolio trading effectively.

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