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 22, 2013.
Coach, Inc. (COH) is scheduled to report $0.77 per share when the company reports on Tuesday, October 22 before the market open. Shares of COH are flat YTD, and down about 12% from the year highs set back in January. COH gapped down 8% last time it reported earnings in July, as the company missed on the top line. The stock has not been able to break out of a tight range since the last earnings report. Coach showed growth in its fiscal fourth quarter in its international business, which grew by 17%, and Chinese business rose by 40% for 2013. The company gets about 70% of its sales from the U.S., so investors will be looking for strong traffic and a solid number out of the U.S. Is COH a buy, sell or hold?
Investors need to be aware of price, and based on the Stock Traders Daily real-time trading report, the stock has been drifting 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 and caution investors not to chase the stock.
E. I. du Pont de Nemours and Co. (DD) is expected to report $0.41 per share for Q3 when the company reports on Tuesday, October 22 before the market open. If the company can meet analyst's estimates of $0.41, it would be a 28% increase YOY. The stock has positive year-to-date performance of 31.34% while its quarterly performance remained at 12.28%. The stock recently tested support when it pulled back in early September and rebounded nicely, only to dip again the first week of October. Is the stock a buy, sell or hold at current levels?
Shares of DD have been trading in a tight range over the past three months, and currently the stock is sitting in the middle of a channel according to our real time trading report for DD, so it does not look attractive as a buy ahead of earnings. 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.
EMC Corporation (EMC) is scheduled to reports its Q3 earnings on Tuesday, October 22 before the market open. Analysts are expecting EMC to report earnings of $0.45 per share, which would be a 12% increase from the same quarter a year ago. EMC recently launched its new VNX2 unified storage system, which it priced around $20,000, in order to compete with competitors that have been undercutting EFC with lower prices. If EMC can show it can maintain margins after lowering prices, the company should be able to sustain its top seed in this market. The stock has underperformed the market this year, as it's flat YTD. Shares of EMC have pulled back 8% in the last month and are near a test of long-term support. Is this a good time to buy shares of EMC?
The stock is near a test of support, as defined in the real time trading report published by Stock Traders Daily. As a rule, we are buyers near support, and as long as the stock remains above support, we expect higher levels and a test of resistance. However, support also acts as our risk control, and if support breaks lower, the otherwise positive bias that exists now would dissolve, and sell signals would surface.
Harley-Davidson, Inc. (HOG) is expected to report a profit of $0.72 per share when it reports Q3 numbers on Tuesday before the bell, which would be a 22% increase from the same quarter a year ago. Shares of HOG have returned 34% YTD, and are close to the 52-week high. The stock is trading at the highest levels since 2007, and shares have increased almost 700% from the recession lows in 2009. Rising consumer confidence, a major recovery in the real estate market, and improved credit conditions have helped Harley-Davidson, much like the auto industry as a whole. Is HOG still a buy at current levels?
Harley-Davidson issued a recall notice Wednesday for some 29,000 of its motorcycles, saying a hydraulic clutch system on the vehicles may pose a safety issue for riders and/or passengers, but that is not the reason to sell the stock. Price is the most important thing to consider right now. Even if the company beats estimates handily, it does not mean the stock will continue to rise, as price matters. The stock is trading just below long-term resistance. According to rule, we are sellers at resistance, and as long as the stock remains below resistance, we expect lower levels and a test of support. Based on the real-time trading report published by Stock Traders Daily, HOG is a sell/short at resistance, with risk controls in place if resistance breaks higher.
Navigating earnings can be tricky, sometimes investor's 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.