By Neal Rau
Earnings season is upon us again, and as the first companies start releasing their earnings, we are going to offer investors a brief pre-earnings analysis of current and past quarters. Our focus will be on price, and how stocks might react after earnings reports based on the recent stock price changes.
We all know it is difficult to predict what a stock might do solely based on information released during earnings. Sometimes stocks go lower after beating estimates, and the reverse is true as well, so it is also important to factor in what smart money has been doing relative to the stock price.
This combination of simple earnings data and price-based analysis can help investors not only understand earnings results, but also anticipate the stock's move after earnings are released.
The following Companies report earnings on October 10, 2013
Lindsay Corporation (LNN) a leading provider of irrigation systems and infrastructure products, will be reporting earnings on Thursday, October 10, before the market opens. The company is expected to post EPS of $0.91 for its fiscal fourth quarter, which is a 33% increase from the same quarter a year ago. Shares of Lindsay are flat YTD after posting record results for the first three quarters of fiscal 2013, but Lindsay has not missed quarterly estimates since its fiscal fourth quarter last year, as this quarter is typically the company's weakest in terms of EPS. Earnings this year have been driven by potential drought conditions, which is not something investors can count on to continue.
The stock is trading below long-term resistance, after recently breaking above resistance and quickly reversing lower back into the channel. It appears that smart money is selling LNN when the stock tests resistance. As a rule, if the stock remains below resistance, we expect lower levels and a test of support. Sell/short signals therefore already existed, and now resistance acts as risk control for those positions. Monitor resistance closely, if it breaks higher the bearish bias that exists now will abate, but if resistance holds as it has thus far our real time trading report for LNN suggests lower levels.
Micron Technology, Inc. (MU) is expected to report earnings on Thursday, October 10, after the market close. Prices for DRAM memory have surged this year, including a recent spike reflecting worries about inadequate supply levels. The demand is primarily from tablet, mobile and server-storage end applications. The stock is up 191% YTD and returned to profitability last quarter, after missing estimates, and posting a loss in the seven previous quarters, so is that reason to buy?
Based on the Stock Traders Daily real-time trading report for MU, the stock has just broken above long-term resistance, which is now converted support. So far, converted support is holding, and as long as that remains true, the rules that govern our strategies tell us to expect higher levels, but converted support also acts as our risk control. We are buyers at that converted support level, but caution buyers not to chase the stock. We see higher levels only if converted support (former resistance) stays in place.
The food and drug retailer Safeway Inc. (SWY) is scheduled to report earnings on Thursday, October 10, after the market close. The company is expected to post EPS of $0.16 for its third quarter, which will match the $0.16 EPS reported in the same quarter last year. Shares of Safeway are up 75% YTD, and the company recently adopted a one-year "poison pill" designed to ward off an unwanted takeover after becoming aware of an investor buying a significant amount of its stock, so should other investors play the takeover game by buying SWY?
Stock price matters, and right now the stock is trading near a six-year high, and close to a test of long-term resistance. If the stock tests resistance, and remains below resistance, as defined in our real time trading report for SWY, Stock Traders Daily expects lower levels and a test of support. That would make SWY a sell/short at resistance, with risk controls defined as a break above resistance.
Navigating earnings can be tricky, sometimes investors' earnings expectations are correct, but the stocks actually do the opposite of what they think it should have done after earnings, so our opinion based on price can help make investors make more well-rounded and sound investment decisions.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: By Neal Rau for Stock Traders Daily and neither receives compensation from the publicly traded companies listed herein for writing this article.