IT’S that time again. Fourth quarter earnings reports for major US corporations have begun to dominate the news as investors and analysts judge companies’ abilities to exceed market expectations. All eyes watch to see whether they will “hit their numbers” in earnings releases, as beating estimates tends to significantly impact a stock’s movement, thereby determining market direction over the next few months.

Earnings season kicked off with Dow Jones Industrial Average (DJIA) component and aluminium giant, Alcoa Inc (NYSE: AA), which reported results last Monday, January 10, 2011 after the closing bell. The bellwether for industrial stocks swung to a profit of US$277 million or US$0.24 per share from a loss of US$277 million or US$0.28 per share a year earlier. Analysts’ consensus earnings per Share (EPS) estimate was for US$0.19. The increased profit came on a per cent rise in revenue to US$5.65 billion, marking AA’s highest quarterly results since 2008.

By the end of the week, Lennar Corp (NYSE: LEN), Intel Corp (NASDAQ: INTC) and JPMorgan Chase & Co (NYSE: JPM), heavyweights in the homebuilding, technology and financial industries respectively, also posted influential reports.

Though LEN’s profit declined 10.11 per cent year-over-year (yoy), marking its third consecutive profitable quarter, the performance helped the company rebound from a full-year loss. Subsequently, Deutsche Bank (NYSE: DB) raised its price target on LEN to US$22.00 from US$15.00 while maintaining a “hold” rating on the stock.

Turning focus to the technology industry, INTC’s earnings surged 48 per cent in the quarter with record revenue of US$11.5 billion capping off record full-year sales and profit. As a result, the company now forecasts even better results for the current quarter with revenue between US$11.1 billion and US$11.9 billion.

Banking powerhouse, JPM’s release followed, setting an optimistic tone for other companies in the industry. Net Income climbed 47 per cent to US$4.83 billion from US$3.28 billion a year earlier, surpassing analysts’ forecast by 12 per cent on total revenue of US$26.1 billion. The stock gained as much as 2.74 per cent to US$45.67 after the release. The strong results bolstered expectations for top US banks, many of which are due to report earnings this week.

Benchmark indices, the DJIA, the Standard & Poor’s (S&P) 500 Index and the NASDAQ Composite Index are extending December 2010 gains. Following last week’s round of earnings, stocks closed higher in what many view as an overextended state, with the S&P 500 Index tallying a seventh consecutive weekly gain, its longest stretch since May 2007. The S&P 500 Index has not closed beneath its 50-day average in more than four months, a feat seen only once in the past decade. A total of 49 companies in the S&P 500 Index are scheduled to report results by the end of the week, including iPhone maker, Apple Inc (NASDAQ: AAPL), and Citigroup Inc (NYSE: C).

In keeping with the better-than-expected performance of fellow banking stock, JPM, analysts had forecast Citigroup’s results to rebound from a year ago loss per share of US$0.33 to EPS of US$0.80. While the company swung to a profit of US$1.3 billion or US$0.04 per share, the performance missed analysts’ projection due to tightening of the Bank’s credit spreads. Subsequently, the stock declined 6 per cent in intra-day trading on the New York Stock Exchange yesterday.

With financial and technology stocks performing up to par and earnings season already off to a good start, the baton is now passed to Goldman Sachs Group Inc (NYSE: GS), another major player in the financial industry which is scheduled to release results today. The company is forecast to produce an EPS of US$3.79 on revenue of US$8.9 billion, compared with EPS of US$2.98 in the prior quarter which topped analysts’ estimate of US$2.29.

Following INTC’s robust earnings report which bodes well for the rest of the technology industry coupled with AAPL’s consistent earnings growth, it was not surprising that analysts had great expectations for the world’s largest technology company by market value. The stock soared to a 52-week high of US$348.48 on Monday as forecasted EPS reflected a 16.81 per cent increase from the prior quarter on strong revenue growth.

On Friday, conglomerate and economic bellwether, General Electric Co (NYSE: GE), is anticipated to end the week on a high. Wall Street forecasts a 10.35 per cent increase in the company’s EPS from the prior quarter to US$0.32 on sales of US$39.7 billion. GE is benefitting from a rebound in global demand on industrial growth powered by longstanding initiatives in technology and services.

Analysts maintain a similar outlook for the companies slated to release results next week, ending January with a bang. McDonald’s Corp (NYSE: MCD) is expected to serve up an EPS of US$1.16 on revenues of US$6.22 billion, up from an EPS of US$1.03 a year earlier on revenues of US$5.97 billion. Caterpillar Inc (NYSE: CAT) will follow with revenue projected to surge 47.72 per cent and EPS more than tripling from US$0.28 a year earlier.

Other top stocks to look out for among the releases heading into February are: Exxon Mobil Corp (NYSE: XOM), Pfizer Inc (NYSE: PFE), The Coca-Cola Co (NYSE: KO), Wal-Mart Stores, Inc (NYSE: WMT) and Target Corp (NYSE: TGT) which are all expected to report profitable quarters.

Overall, the key for the fourth quarter will be companies’ ability to report higher sales, in particular, organic growth. The third quarter saw improved results, however, there remained a lack of strong revenue growth. Nonetheless, with the upbeat start to 2011 and analysts’ bullish outlook, there is high hope for sales growth and earnings acceleration. This in turn will help drive the economic recovery by fuelling production, employment and increased consumer spending.

Sutanya Chedda is the Research Administrator at Stocks & Securities Ltd. You may contact her at schedda@sslinvest.com.