10 S&P 500 Companies With The Biggest Earnings Upside

NEW YORK ( TheStreet) -- Earnings season is in full swing, and despite several strong earnings beats, stocks have been cooling off as investors look past fourth quarter results to 2011.

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

The S&P 500 is expected to finish 2010 with an EPS of about $80, a 30% growth over the previous year. But with topline growth yet to deliver, productivity gains waning and rising input costs, it might be tougher for corporate America to repeat the feat in 2011.

The earnings of the top 500 are forecast to rise less than 15% in 2011 and by 12% in 2012, according to estimates from Bloomberg. Excluding financials, the S&P 500 companies are expected to post a 11% growth in 2011. That suggests that not all companies have a rosy outlook for earnings in the year ahead.

Based on the earnings estimates for 2011, TheStreet came up with a list of 10 companies that have the most earnings upside potential in 2011. The shortlist tends to be skewed towards late-cycle plays -- companies that have been worst hit by the recession and that now have a shot at turning around as the economic picture brightens.

The stocks of these companies themselves are not necessarily analyst favorites. Stock prices in many cases have run up ahead of earnings. Also, estimates are likely to be revised as fourth-quarter results and guidance for 2011 come in.

The following should be on investors radar in the ongoing earnings season as management guidance and analyst upgrades and downgrades are sure to sway these stocks.

10. KeyCorp

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

KeyCorp ( KEY) is a Cleveland-based financial services institution with $94 billion in assets. The regional bank offers banking services to consumers and businesses across 14 states in the Midwest.

Key is among the weaker regional banks that is yet to repay TARP money to the government. The company managed to turnaround in 2010, reporting a profit in the second and third quarter as credit quality began to improve and net interest margins expanded.

The bank is expected to earn 54 cents in 2011, up from an estimated 25 cents in 2010. It is also often touted by analysts as a takeover target and the stock is expected to be in the market's radar in 2011 as acquisitions in the regional banking sector gather momentum.

The stock trades at a 15 times its expected earnings. Analysts remain divided in their outlook for the stock with five rating it a buy or outperform, 19 a hold and five others rating it an underperform or sell.

9. Genzyme

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

Genzyme ( GENZ) remains in the news as it continues to have discussions with Sanofi Aventis ( SNY) on a possible acquisition.

But the biotech major also has a strong earnings outlook in 2011, with earnings per share expected to more than double to $4.06 per share.

Analysts say possible catalysts for 2011 include strong phase III data for its multiple sclerosis drug Campath, increased supply of Fabrazyme in the first half and most importantly, the successful completion of the takeover by Sanofi. Failure of takeover talks could be among the biggest risks to the stock.

The company said this week that it will spend $336 million to build a new facility in Belgium that will make its enzyme disorder drug Myzozyme and Lumizyme. It expects the facility to go on stream in 2014.

The company trades at 17 times its expected earnings. Six analysts rate the stock a buy while 10 have a hold rating.

8. MEMC Electronics

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

MEMC Electronic Material ( WFR) is engaged in the manufacture and sale of wafers and in the design and development of wafer technologies.

In the third quarter, MEMC ( WFR)reported a 62% growth in revenues to $503.1 million. Earnings per share came in at 8 cents, or 10 cents on an adjusted basis, but disappointed expectations.

Moreover, it failed to issue a fourth quarter guidance for 2010. "Given our financial performance year to date and the complexity and uncertainty surrounding the timing of GAAP profit recognition related to the Rovigo sale and other SunEdison direct sale project transactions, the company is suspending its 2010 EPS guidance," MEMC said in its earnings statement.

Analysts however, remain optimistic in their outlook for the stock in 2011.

MEMC is expected to finish 2011 with an EPS of $1.01, up from 42 cents in 2010. The stock trades at 11 times its expected 2011 earnings.

7. Masco

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

Masco ( MAS) manufactures, sells and installs home improvement and building products.

Masco swung to a third-quarter loss of $5 million, or two cents a share, from a profit of $28 million, or 14 cents, a year earlier. Revenue declined 6.1%.

The consensus is calling for Masco's profits to grow to 47 cents per share by the end of 2011 from an estimated 17 cents in 2010 as demand for remodeling improves.

Trading at a price-earnings multiple of 28 times forward earnings, the stock is not an analyst favorite. Only one analyst rates it a buy, 14 have a hold rating while three others have a sell or underperform call on the stock.

6. EOG Resources

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

Natural gas and crude oil player EOG Resources ( EOG) could see earnings rise from an estimated earnings of $1.11 per share in 2010 to $3.18 per share in 2011, according to consensus estimates.

EOG has been shifting more of its production towards oil over the past year as low prices have made natural gas production less profitable. With rising oil prices, the company is expected to benefit from the increasing share of more-profitable oil production.

At the same time, contrarians are betting that natural gas might make a comeback in 2011 and that EOG would be among the better proxies to play natural gas prices.

EOG is building an liquefied natural gas export plant in British Columbia expected to come online by 2015 that could offer another avenue for growth.

Global spending on oil and gas exploration and production is set to surge 11% in 2011, according to a survey of analysts by Barclays Capital. EOG is expected to be among the larger companies that will significantly increase its E&P budgets.

14 analysts rate the stock a buy, while 15 analysts have a hold rating on the stock. There are no sell ratings. The stock trades at 31 times its 2011 estimated earnings.

5. Goodyear Tire & Rubber

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

Goodyear Tire & Rubber ( GT) is a manufacturer of tires and rubber products.

Goodyear is expected to report a profit of $1.24 per share in 2011, nearly three times its estimated EPS of 40 cents in 2010.

Rubber prices are at record highs, potentially hurting the margin outlook for tire companies, even as they continue to raise prices. Goodyear swung to a loss in the third-quarter on higher raw material prices and debt refinancing.

Yet, analysts remain optimistic in their estimates for Goodyear, as demand for cars continue to soar in China and India.

Shares of Goodyear underperformed its peers in 2010, dropping 21% over the past year. The underperformance has prompted a buy call from analysts at Citi. "We believe the risk/reward may be poised to tilt favorably in 2011, as the stock appears washed out and out of favor," the research note said.

8 out of 11 analysts rate the stock a buy, while only 1 has a sell call on the stock. The stock trades at 9 times 2011 estimated earnings.

4.Allegheny Technologies

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

Allegheny Technologies ( ATI) is a specialty metals producer, marketing a wide range of metals including titanium and titanium alloys, nickel-based and superalloys. Its major markets include aerospace and defense, oil and gas, electrical energy and medical among others.

Allegheny is expected to post a profit of $2.80 per share in 2011, up from an estimated 93 cents in 2010.

Revenues jumped 52% in the third quarter to $1.05 billion. The company reported an EPS of 1 cent, which included a 21 cent "catch-up charge" owing to a "significant and unexpected rise in the cost of nickel".

The company is expected to report a profit of 30 cents per share on revenues of $1.05 billion in the fourth quarter.

In November, the company acquired aerospace parts maker Ladish in a cash and stock transaction valued at $778 million, giving it a ready market for its specialty alloys. The acquisition is, however, being challenged in court claiming that there were material misstatements and omissions in the public filings with the U.S. SEC by Ladish.

8 out of 12 analysts rate the stock a buy. The stock trades at 21 times its 2011 estimated earnings.

3. D.R. Horton

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

Homebuilder major D.R. Horton ( DHI) is expected to post earnings of 28 cents in the year ending September 2011 and 96 cents in the following year.

The company closed the year ended September 2010 with a loss of 3 cents. The management also issued a weak outlook for fiscal 2011, expecting to sell fewer homes.

In the September quarter, Horton sold 3,979 homes, 20.5% fewer homes than it sold in the year-earlier quarter. The company's backlog of homes under contract at the end of the quarter was 4,128, valued at $850.8 million, compared with a backlog of 5,628 homes, valued at $1.1 billion, in the end of the fourth quarter last year.

Despite the management's own tepid outlook, Wells Fargo recently upgraded D.R. Horton to outperform, citing expectations of increased earnings for 2011 and 2012. Meanwhile, Barclays cut its rating on D.R. Horton to equal weight from overweight, citing higher valuations.

Seven out of 18 analysts rate it a buy. There are no sell ratings on the stock. The stock trades at 46 times its 2011 expected EPS and at 13 times its estimated 2012 EPS (year ending September).

The homebuilder is set to report its first quarter results on January 27.

2. Nucor

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

Steel major Nucor ( NUE) is projected to earn as much as $2.30 a share in 2011, from an estimated 37 cents in 2010.

Steel companies have been facing a steep rise in raw-material costs but have had a harder time hiking end product prices with customers proving to be price-sensitive. Korean steel major Posco ( PKX) recently said that rising cost of raw materials -- especially coking coal -- would be hard to pass on.

Nucor uses scrap metal to produce steel and is not dependent on coking coal or iron ore. Even so, scrap metal prices have been moving higher. The company has been raising the price for hot-rolled, cold-rolled, and galvanized products on rising raw material and input costs, but expects to see the benefits of the price increase only in the first half of 2011.

Stephanie Link, director of research at TheStreet, says Nucor is among her top picks for 2011 in the metals and mining sector. Companies like Nucor, she says, are a play on the later-cycle -- those parts of the economy that have not seen a real recovery yet, but could tick upward in the year ahead.

Deutsche Bank recently put out a buy report on the stock with a target price of $45. Five analysts rate the stock a buy, 6 a hold and 2 rate it a sell, according to Thomson Reuters.

The stock trades at 19 times its 2011 estimated earnings.

1. E*Trade Financial

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

E*Trade Financial ( ETFC) provides online brokerage and related products and services mainly to individual retail investors, under the brand 'E TRADE Financial'.

The brokerage firm turned around in the second half of 2010, after suffering 11 straight quarters of losses owing to its banking arm's mortgage market exposure. E*Trade earned $8.4 million, or 3 cents per share, in the June-September quarter, up from a loss of $854.7 million, or $6.74 per share, a year ago. It is estimated to have earned a total profit of 2 cents a share in 2010.

Online discount brokerages including E*Trade have gained market share from big brokers since the onset of the financial crisis.

In December, the company reported a 9% increase in daily average revenue trades for November over the previous month on the back of healthy growth in brokerage accounts. But, it reported an unexpected increase in early-stage delinquencies, clouding expectations for a speedier recovery in profits.

Analysts at Collins Stewart and Sander O'Neill lowered their estimates for E*Trade following the report, citing the increase in delinquencies in its banking operations. Sander O'Neill lowered its fourth quarter estimate to 2 cents a share from 5 cents earlier. Collins Stewart lowered the 2011 earnings estimate to 45 cents per share from 55 cents earlier.

Goldman Sachs, too, recently downgraded the stock to neutral citing a less attractive risk-reward profile owing to a deceleration in credit performance and recent share outperformance.

Still, with U.S. equities expected to perform strongly in 2011, most analysts have been reluctant to sharply revise down their estimates for the year. Consensus is calling for earnings per share of 50 cents in 2011 on revenues of $1.67 billion.

The stock trades at 31 times its estimated 2011 earnings.

-- Written by Shanthi Bharatwaj in New York

>To see these stocks in action, visit the 10 S&P 500 Companies With The Biggest Earnings Upside portfolio on Stockpickr.

>To contact the writer of this article, click here: Shanthi Bharatwaj.

>To follow the writer on Twitter, go to http://twitter.com/shavenk.

>To submit a news tip, send an email to: tips@thestreet.com.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

More from Stocks

Inside Carnival's Mind Blowing New Horizon Cruise Ship (Video)

Inside Carnival's Mind Blowing New Horizon Cruise Ship (Video)

Neel Kashkari: The Heart of Our Financial System Is More Radioactive Than Ever

Neel Kashkari: The Heart of Our Financial System Is More Radioactive Than Ever

Finding Stocks Right for You: Cramer's 'Mad Money' Recap (Friday 8/25/18)

Finding Stocks Right for You: Cramer's 'Mad Money' Recap (Friday 8/25/18)

Flashback Friday: Amazon, Chip Stocks, Memorial Day

Flashback Friday: Amazon, Chip Stocks, Memorial Day

Week Ahead: Wall Street Looks to Jobs Report as North Korea Meeting Less Certain

Week Ahead: Wall Street Looks to Jobs Report as North Korea Meeting Less Certain