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3 Earnings Reports That Caught My Attention Last Week

Monday - 2/11/2013, 4:28pm  ET

As first-quarter earnings kick into high gear, I can't help but point out that the majority of earnings reports we've covered over the past year have been better than expected. With so many companies reporting during the weeks that comprise earnings season, it's easy for some earnings reports to fall through the cracks.

Each week for the past year, I've taken a look at three companies that could be worth further research after either beating or missing their profit expectations. Today, we'll take a gander at three more companies that reported earnings last week. They may have slid under your radar, but they deserve a look.

Company

Consensus EPS

Reported EPS

Surprise

Allstate

($0.05)

$0.54

1,280%

Calix

$0.02

$0.06

200%

Yelp

($0.05)

($0.06)

(20%)

Source: Yahoo! Finance.

Allstate
Not even an act of God can keep Allstate from turning a profit! Hurricane Sandy had a profound impact on numerous insurers, including Allstate, which saw its catastrophe losses balloon from $66 million to $1.06 billion. But as I've pointed out before, Allstate is in the business of underwriting very profitable policies, and even after its huge run, it could head even higher.

For the quarter, Allstate's property-liability combined ratio (essentially a measure of how profitable it is for Allstate to underwrite policies) fell 400 basis points to 86.7%, demonstrating it was considerably more profitable, even with a natural disaster the size of Sandy, to underwrite policies. Allstate's auto policies remained strong, Esurance continues to grow at an impressive rate (30.9%), and total premiums increased, resulting in higher operating profits and a 17% increase in book value for the full year.

Last, but certainly not least, Allstate boosted its quarterly payout from $0.22 to $0.25, signaling to investors a confidence that cash flow will remain strong and its underwriting will remain conservative. At nine times forward earnings, it's an insurance name you shouldn't ignore.

Calix
As goes telecom spending, so goes Calix, a middleman between you and your cable service provider that provides software and hardware that regulate the amount of bandwidth you receive.

Last week, in our roundtable discussion highlighting our top stock to buy for February, I chose Cisco Systems, because it's a predominantly hardware-based developer that should see benefits from an increase in wireless and wireline infrastructure spending from AT&T and Sprint Nextel. As evidence to this trend -- and the reasoning behind my Cisco selection -- I pointed to better-than-expected earnings from much of the fiber optics sector, including JDS Uniphase. The same merits that I discussed with Cisco will carry over to Calix, which should see a trickle-down effect from cable service providers looking to broaden the scope of their networks.

For the recently ended quarter, Calix reported relatively flat year-over-year sales as net income improved 61% to $2.9 million from the previous year. Wall Street may be hung up on Calix's revenue miss, but I'd point to the blatant sectorwide signals that an infrastructure boom is coming, as well as Calix's $47 million in cash with no debt as all the more reason to trust this company over the long term.

Yelp
Sometimes an earnings miss can be deceiving -- for Yelp, an online review website, it was a true testament to a business model that lacks longevity.

Like Groupon, the social deals site, Yelp relies on local advertising and small businesses to drive growth. But what both Groupon and Yelp lack are any significant barriers to entry and the ability to remove any of the cyclicality associated with the ebb and flow of the economy out of their figures. This means that while revenue is growing now, the introduction of a competitor with considerably more cash -- say, Google -- can undermine their business models with minimal start-up costs.

In Yelp's latest quarter, which highlighted a big move overseas, the company reported a 65% increase in revenue and an 87% increase in local advertising revenue. However, the dangerous aspect of Yelp's revenue stream is that 82% of total sales are reliant on local ad spending. We saw in the dot-com bubble that ad-heavy businesses rarely survive, and I doubt Yelp's an exception to the rule. Even if it does survive, I don't see how it gets past being only marginally profitable. Like Groupon, the health of the economy will dictate profitability, but there are far too few variables both companies can actually control. I'd suggest keeping the yellow caution tape around these two companies.

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