JPMorgan, Alcoa May Miss Mark

NEW YORK ( TheStreet) --Third-quarter earnings season kicks off this week with Alcoa ( AA) delivering its results after Tuesday's closing bell.

And while there's no way to definitively predict which companies will come out ahead of and which will fall short of Wall Street's expectations, Thomson Reuters' Starmine research uses the past accuracy of specific analysts as well as the trend of more recent changes to estimates to come up with what it terms a SmartEstimate.

Thomson Reuters said its studies have shown that when the SmartEstimate differs from the consensus view by more than 2%, the company "is likely to post subsequent earnings surprises directionally correct 70% of the time."

Since more than 70% of companies in the S&P 500 typically beat the consensus view, it's probably more useful to investors to know which companies look vulnerable to a miss, and according to Starmine, it's two of this week's biggest names -- the aforementioned Alcoa, and JPMorgan Chase ( JPM). The companies that Starmine is highlighting as likely for positive surprises are First Horizon ( FHN) and Mattel ( MAT).

Here's a quick look at where Starmine sees these companies coming in this quarter, and what the stocks have done lately.

Alcoa

The average estimate of analysts polled by Thomson Reuters is for Alcoa to post a profit of 22 cents a share in the September-ended period on revenue of $6.24 billion. Starmine, citing the trend of downward earnings revisions because of declining aluminum prices, says the SmartEstimate for Alcoa is for earnings of 21 cents a share, a penny miss that translates to a predicted percentage surprise of 4.25%.

Alcoa shares have had a tough time of it in 2011, falling nearly 36%. On Oct. 4, the stock plumbed a 52-week low of $8.45, a swift drop of 54% from its peak of the past year of $18.47 on April 8. On Monday, the shares were gaining more than 3% to $10.06 amid a strong rally in the broad market on heightened optimism that Europe will be able to sidestep a sovereign debt crisis.

Alcoa, a Dow component, has fallen short of the average analysts' view in three of the past seven quarters, so a slight miss wouldn't exactly be a big shocker. The sell side is fairly optimistic about the stock with 10 of the 17 analysts covering the stock at either strong buy (3) or buy (7) and the 12-month median price target at $15.50.

JPMorgan Chase

Also a Dow component, Jamie Dimon's banking juggernaut is expected to earn 96 cents a share in the third quarter on revenue of $23.73 billion, but Starmine, citing the unevenness in investment banking business as well as weak equity, debt and capital markets, sees a profit of 89 cents a share, which would be a 6.83% miss.

"We expect bank earnings to be weighed down by poor principal trading results, lower NIM forecasts from lower interest rates, and very limited loan growth," said FBR Capital Markets in a research note Monday announcing that it's bringing third-quarter earnings estimates down 3% and fiscal 2012 earnings estimates down 12%. "Some banks will attempt to counteract these headwinds by talking up major cost-cutting measures, but core earnings results will likely be materially lower this quarter for those banks without large mortgage banking operations."

FBR Capital is a bull on JPMorgan though, and is well above consensus with its earnings estimate. The firm has an outperform rating but it lowered its earnings estimate to $1.07 a share in the third quarter from $1.39 a share and cut its 12-month price target to $46 from $56.

JPMorgan shares are rallying more than 4% to $32.06 on Monday but the stock is down more than 20% so far in 2011. The stock's 52-week low of $27.85 came on Oct. 4, and its 52-week high of $48.36 dates back to mid-February. Even at current levels, JPMorgan shares are still trading below both the 50-day and 200-day moving averages of $33.04 and $39.95 respectively.

The vast majority of Wall Street is still positive on JPMorgan with 32 of the 34 analysts covering the shares at strong buy (13) or buy (19), and the company has a streak of at least eight straight upside surprises on the line when it reports before Thursday's opening bell.

First Horizon

Memphis-Tenn.-based First Horizon reports its quarterly results on Tuesday, and the average estimate of analysts polled by Thomson Reuters is for earnings of 16 cents a share in the September period on revenue of $359.4 million. Starmine says First Horizon is "benefiting from lower-yield loans, primarily in home equity," and its SmartEstimate is for a profit of 17 cents a share, a potential upside surprise of 5.17%,

First Horizon has a history of fairly dramatic deviations from Wall Street's expectations, beating the analysts' view in six of the past eight quarters, and always coming in at least 20% above or below the consensus.

Evercore Partners, which has an overweight rating and a 12-month price target of $11 on the stock, recently lifted its third-quarter estimate to 16 cents a share from 14 cents, citing "likelyupside in fixed income trading revenues near term, given recent market volatility."

The stock was recently changing hands at $6.33, down more than 40% so far in 2011, catching a decent bounce since scraping a 52-week low of $5.38 on Oct. 4. A slim majority of analysts covering First Horizon are in wait-and-see mode with 16 of the 30 analysts covering the stock at hold.

Mattel

Mattel is slated to report its third-quarter results on Thursday, and the average estimate of analysts polled by Thomson Reuters is for earnings of 86 cents a share on revenue of $1.97 billion in the September period. Starmine sees the potential for a penny beat from the toy maker, which has topped Wall Street's consensus estimate in four straight quarter, including an upside surprise of more than 40% last time around.

Of the 17 analysts covering Mattel, 13 have either strong buy (9) or buy (4) ratings, and the median 12-month price target on the shares is $32, implying upside of roughly 15% from where the stock was trading Monday afternoon at $27.77, up nearly 4% on the day.

Sterne Agee has a buy rating on the stock with a $34 price target, and the firm lifted its earnings estimate for 2013 by 10% in early September, saying it now sees a profit of $2.62 a share, up from a previous projection of $2.37, citing optimism about the holiday selling season.

"Mattel is likely to have several of the season's most sought-after toys. Apart from the Cars 2 line and continued interest in Toy Story 3 merchandise, an interactive toy for tween girls dubbed Figit has been out at retail for several weeks, and our checks have been very positive on the $49.99 item," the firm said at the time. "Monster High has new characters and accessories and itspopularity has been picking up according to our checks."

Sterne Agee sees earnings of 87 cents a share from Mattel in the third quarter. Mattel shares are up around 5% so far in 2011, and are still within shouting distance of a 52-week high of $28.49, set back in mid-July.

-- Written by Michael Baron in New York.

>To contact the writer of this article, click here: Michael Baron.

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

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