Zacks Earnings Preview: Analog Devices, Big Lots, Limited Brands, Nuance Communications and Target.

CHICAGO -- Zacks.com releases the list of companies likely to issue earnings surprises. This week's list includes Analog Devices (NYSE: ADI), Big Lots (NYSE: BIG), Limited Brands (NYSE: LTD), Nuance Communications (Nasdaq: NUAN) and Target (NYSE: TGT). 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.

The number of earnings reports will drop off notably this week, with just 162 companies confirmed to report. This compares to more than 600 reports last week. Nonetheless, profit results will continue to have influence on the direction of the markets with several industry leaders reporting.

Of course, earnings reports are never released within a vacuum of information and next week will be no different. The economic calendar is booked with inflation reports (PPI on Tuesday and CPI on Thursday), FOMC minutes (Tuesday), New York Fed manufacturing index (Wednesday), industrial production and utilization (Thursday) and October housing starts (Friday). Given that the psychology of the financial markets continues to be very data-dependant, both the equity and bond markets could be volatile this week.

Data-dependency can help move stocks, as we have seen major equity indexes rise in response to what has been a good third-quarter earnings season. More companies have beaten expectations than missed. However, some of the choppiness in the markets this week can be attributed to reports that haven't been as good as what we've seen over the past several weeks. Specifically, within the Zacks Rank universe(a), there were 287 positive surprises and 244 negative surprises last week. The higher proportion of negative surprises caused the ratio of positive to negative surprises for third-quarter earnings season to decline to 1.7:1. (A week ago, the ratio stood at 1.96:1).

Growth expectations, however, remain pretty much intact with analysts predicting the average company within the Zacks Rank universe to generate 21.4% growth this year. Looking out into next year, expect 12% growth(b).

Companies That Could Surprise During the Week of Nov 13-17

Big Lots (NYSE: BIG) will be one of several retailers to report earnings next week. While I will resist the urge to talk about the possibility of a "big" surprise, I will point out a very bullish change in earnings estimates. Following announcement of a 5.8% increase in October same-store sales, two of the four covering analysts raised their forecasts for third-quarter results. The current consensus estimate calls for a loss of four cents per share. The most recent consensus is more bullish at a loss of three cents per share. In comparison, the month-old forecast calls for a loss of seven cents per share. (Forecasts for both 2006 and 2007 profits have also been recently raised.) BIG has topped expectations for two consecutive quarters by an average margin of 9.5 cents. Big Lots will report on Thursday, Nov 16.

Limited Brands (NYSE: LTD) generated same-store sales growth of 9% in October. Based on this data, the company recently raised its forecast for third-quarter earnings to a range of five to seven cents per share. (Previously, LTD had projected breakeven results). Analysts had been ahead of the curve, having adjusted their forecasts for third-quarter earnings upward over the last 60 days. The consensus estimate now calls for profits of seven cents per share. (Forecasts for 2006 and 2007 earnings have also been rising.) LTD has topped expectations for three consecutive quarters by an average margin of five cents. Limited Brands will report on Wednesday, Nov 15, after the close of trading.

Those investors looking for a trading opportunity within the tech sector may want to keep their eyes on Nuance Communications (Nasdaq: NUAN). The provider of speech and imaging solutions recently raised its guidance for both fiscal fourth-quarter revenues and losses. NUAN expects GAAP revenues to come in a range of $126 million and $128 million, instead of its previous guidance for sales between $116 million and $120 million. GAAP losses should total between a penny and two cents per share instead of three cents per share. Two of the three covering analysts adjusted their forecasts accordingly to a loss of a penny per share. NUAN has topped expectations during six out of the past seven quarters. Nuance Communications will report on Tuesday, Nov 14, after the close of trading.

Target (NYSE: TGT) generated same-store sales growth of 3.9% last month. Although the majority of analysts did not change their projections following the announcement of the October data, two analysts did raise their forecasts. The adjustment resulted in a most recent consensus for the third quarter of 55 cents Co a penny above the consensus estimate. TGT topped second-quarter results by a penny, but missed first-quarter results by a penny and matched fourth-quarter 2005 results, so this call is admittedly a bit gutsy. Target will report on Tuesday, Nov 14, before the market open.

Analog Devices (NYSE: ADI) could miss expectations when it reports next week. In late October, the company warned that revenues would be slightly below its previous guidance because of a decline in sales of chipsets for cellular handsets. Analysts cut their forecasts for fiscal fourth-quarter earnings in response, causing the consensus estimate to fall by three cents to 36 cents per share. The most recent consensus, however, is more bearish at 35 cents per share. ADI's fiscal third-quarter earnings were a penny below expectations at 39 cents per share. Analog Devices will report on Tuesday, Nov 14, after the close 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.

(b) Changes made to full-year forecasts within the last four weeks. The average is calculated based on 90% of the companies that have reported to prevent the skewing effect of outliers. The worse 5% of revisions and the best 5% of revisions have been excluded.

About the Zacks Rank

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 +32.4%. 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 145.9% annually (+4.7% vs. +11.6%). Thus, the Zacks Rank system allows investors to truly manage portfolio trading effectively.

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