Seeking Alpha
Long/short equity, contrarian, newsletter provider, research analyst
Profile| Send Message|
( followers)  

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 14 2013.

Brown & Brown, Insurance (BRO) is expected to report EPS of $0.40 for Q3 on Monday October 14, after the market close. When the company reported its Q2 numbers in mid-July, Brown & Brown said revenue from its biggest business, retail, rose 7 % to $168.6 million, however most of that growth came from acquisitions. The stock is up about 27% YTD, but has been trading in a tight range since late-March. Should investors be buying shares of BRO now?

Investors need to be aware of price, and based on the Stock Traders Daily real-time trading report, the stock is moving closer to long-term support, but isn't there yet. If the stock continues to move lower, and tests long-term support, we would be buyers near support. If support holds, we would expect a move higher and an eventual test of resistance. We would only be buyers near support as a result, and we see no reason to buy now.

Packaging Corp of America (PKG) is slated to report is Q3 results on Monday October 14, after the market close. The Q3 EPS is expected to be $0.89, which is a 62% increase from the same quarter a year ago. The company recently announced that it will acquire paper company Boise Inc. (BZ) for a total deal value of $1.995 billion, which will increase the company's containerboard presence by 42% to 3.7 million tons, while also giving PCA a presence in the Pacific Northwest. The stock is up 46% YTD, however, shares have pulled back over 7% since mid-September. Should investors buy, sell or hold shares of PKG?

The stock has pulled back from the 52-week highs it made a few weeks ago, but it still has not reached a test of support yet. According to the real-time trading report offered by Stock Traders Daily, PKG is getting close to a test of support, and as a rule, we are buyers if support is tested. From there, as long as the stock remains above support we would expect a full oscillation to resistance again, so if a test of support occurs we would be buyers, and would expect higher levels and a test of resistance. However, support also acts as our risk control, and if support breaks lower, we would be selling that position.

Wintrust Financial Corp (NASDAQ:WTFC) is scheduled to report earnings on Monday October 14, after the bell. The company is expected to report $0.65 EPS for Q3, which is a penny better than the same quarter last year. In Q2, adjusted EPS increased 32.69% to $0.69 in the quarter versus EPS of $0.52 in the year-earlier quarter. Wintrust Financial Corporation recently acquired certain assets and assumed certain liabilities of the mortgage banking business of Surety Financial Services of Sherman Oaks, California. This will give the company an opportunity to expand into the desirable southern California market. Shares of WTFC are up about 11% YTD, and not far off the yearly highs. Is this a good time to buy?

Investors need to be aware of price because that is what makes us money, and based on the Stock Traders Daily real-time trading report, the stock is moving closer to support, but isn't there yet. If the stock continues to move lower, and tests support, we would be buyers near that support level. If support holds, we would expect a move higher and an eventual test of resistance. By definition we prefer to buy near support levels when they are tested because that allows us to maximize our return, our target is resistance and we want to get the complete oscillation from support to resistance, but it also helps us control risk, and that is the most important part. When stocks are in the middle of a channel like this one they become less attractive, from a risk control perspective, especially ahead of an earnings report.

Navigating earnings can be tricky, sometimes investor's earnings expectations are correct, but the stock actually does 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.

Source: Ahead Of Earnings, Price Action Absolutely Matters