It’s earnings season again and with that comes the opportunity to buy or sell alongside announcements, either for a profit or to avoid a loss. Yesterday, a number of major companies released their statements, some with phenomenal results. Impressive earnings results are often taken to mean the stock is worth hanging onto or as a window to increase a holding, but guidance is equally important when considering what move to make. Below are three stocks that released remarkable earnings reports for the second quarter, but with guidance considerations and the health of the sector, it’s still up in the air whether they are a buy, hold or sell.
DreamWorks Animation (DWA)
DreamWorks saw its profits climb 42 percent in the last quarter, helping to bolster its shares considerably in the afterhours trading. Revenue surpassed Wall Street expectations and many pointed to the overseas box office success King Fu Panda 2, as a driver of profits. DreamWorks said it earned $34.1 million or 40 cents a share for the quarter against the year-ago period of $24 million, or 27 cents a share. Revenue reached $218.3 million from $158.1 million. Analysts had been anticipating 41 cents a share on sales of $191.3 million. DreamWorks pointed toward continued Kung Fu Panda success and Megamind television viewing for the substance of third quarter earnings. It seems unlikely that the company could sustain the success of the previous quarter on this basis. This, alongside the company’s seven year contract with Paramount is coming to an end. While DreamWorks CEO says the desire for Paramount to begin their own animation department only speaks to the demand in the market, it would seem to have the potential to be detrimental to the company.
Nabors Industries LTD (NBR)
Nabors Industries Ltd. (NBR) reported its second quarter profit late on Tuesday and it did not disappoint. Revenue jumped 40 percent to $1.36 billion from $907 million a year ago. The stock is up 45 percent for the year and profit reached $192 million, or 65 cents a share, from a year-ago profit of $43.6 million, or 15 cents. Profit from continuing operations, largely the land-drilling oil contractor's operations in the continental U.S., was 23 cents. The sale of Colombian assets also added strength for the quarter. Analysts had expected Nabors to bring in 25 cents a share on $1.33 billion in revenue. Shares of the Nabors were higher in after hours trade, but many are seeing some obstacles in the company’s future. The company is relying on oil and gas drilling in Saudi and Iraq to support growth in 2012, but tough obstacles remain there. Equipment and skilled labor shortages are still facing the company as are the continued geo-political conflicts that have long plagued the area. There have been instance in which the company has had to wait for land mines to be cleared prior to being able to still. Nabors expects five of its Iraq rigs to be in working order by the end of this year with 10 by 2012.
This threatens to lead Nabors to fall short of annual expectations which would likely result in losses for the share once earnings come around again. There is a risk here, but with revenue increasing 33 percent in the continental U.S. Nabors has considerable reason to keep growing. There are challenges for the stock but it looks like an investor would be wise to hold onto this stock.
Electronic Arts' (ERTS)
Video game developers Electronic Arts Inc. (ERTS) reported rising earnings on Tuesday with a fiscal first-quarter profit of $221 million, or 66 cents a share, on total revenue of $999 million. Compared to the year ago period when EA brought in $96 million or 29 cents a share, on revenue of $815 million, this seems to be optimistic. The company; however is still struggling. Excluding one-time items and deferred revenue from select titles in its catalog EA would have lost $123 million, or 37 cents a share on sales of $524 million. For that reason, analysts had predicted losses of 40 cents a share on revenue of $508.6 million. Instead, EA assess potential losses for the second quarter between 3 cents and 13 cents a share, excluding one-time items, on revenue in a range of $925 million to $975 million. Analysts had predicted EA to lose 4 cents a share on $902 million in sales. In spite of a less-than-impressive first quarter, the company’s strong guidance for the next quarter, incremental revenue from acquiring PopCap games and soon-to-be-released Star Wars game bode well for the company’s future. A solid pipeline for fiscal 2012 is expected to drive growth alongside existing strong products and title, online exposure and social games. These qualities could make EA a could play for a long term buy, especially if they are able to minimize operating costs.
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