3 Stocks With Rising Profit Estimates

Earnings season is fast approaching. Last week, I listed some stocks for which analysts are in close agreement in their earnings forecasts. Listed below are companies with another promising sign: forecasts that have recently risen.

One upward revision in a company’s earnings estimate is more likely than not to be followed by another, and by excellent stock performance, studies suggest. That’s because analysts and investors are slow to fully adjust their expectations for good news when they see it.

Next Earnings Report: Later this month
Quarterly EPS Estimate: 46 cents
EPS Estimate 30 Days Ago: 28 cents

Hard-drive maker Seagate (STX) said on Sept. 22 that sales for its September quarter would be at or slightly above the top end of its previous guidance range of $2.4 billion to $2.6 billion. Wall Street had forecasted $2.55 billion. Two analysts have since sweetened on the stock, recommending a purchase. Personal computer demand is improving, the hard-drive industry has shrunk and Seagate is recapturing a “technology leadership we believe it lost to Western Digital (WDC)” in 2007, Doug Reid of Thomas Weisel Partners said in a Sept. 22 upgrade note. The stock price has tripled this year but still seems low at eight times forward earnings.

Next Earnings Report: Nov. 5
Quarterly EPS Estimate: 18 cents
EPS Estimate 30 Days Ago: 15 cents

“Always Seems Like SLE Is Turning a Corner,” read the title of a mid-September report by BMO Capital Markets analyst Kenneth Zaslow. The skepticism is warranted. Ten-year holders of Sara Lee (SLE) shares have lost more than half their money, vs. a 22% decline for the S&P 500 index, not counting dividends for either. Management hosted a mid-September meeting with analysts in which it called its earnings guidance “very, very achievable” and backed its dividend for at least four more quarters, wrote Zaslow, adding, “we would not be surprised if this was simply postponing the inevitable dividend cut.” Shares yield 4.1%. The dividend stands at 44 cents per share each year, versus a fiscal 2010 earnings estimate of 90 cents a share. In late September, Sara Lee said it will sell some personal-care brands to Unilever (UN) for about $1.9 billion. These include Sanex deodorant, sold mostly in Europe, and Radox “mood-changing shower gels and creams,” which may or may not mean soap. Sara Lee management also authorized the repurchase of $1 billion of its shares, and said it has received “significant interest” in other brands, like Kiwi shoe polish and Ambi Pur air purifiers. The company plans to narrow its focus to its food brands, like Sara Lee cakes and Hillshire Farms meats.

Next Earnings Report: Oct. 20
Quarterly EPS Estimate: 25 cents
EPS Estimate 30 Days Ago: 17 cents

Sweden’s Autoliv (ALV), the world’s largest maker of car-safety systems including airbags and seatbelts, is having a rough year. Sales are expected to plunge 26% on dismal new-car demand. In the U.S., August car sales suggested a yearly pace of 14.1 million vehicles, but after a generous government perk for buyers ran out, September’s sales pointed to a yearly pace of just 9.2 million vehicles. For most of the past decade, Americans could be counted on to buy more than 16 million cars a year. Autoliv has aggressively cut costs, and posted a far better financial performance than Wall Street expected in its past two quarters. Shares at $33 dollars seem pricey relative to a 2009 earnings forecast of just 22 cents a share, but cheap relative to the $4 to $5 a share the company was earning before the downturn. Expect Autoliv’s profits to rebound quickly, albeit not quite to their peak levels, on even a modest economic recovery.