By Neal Rau
Earnings season is upon us again, and as companies are 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 23 2013.
Norfolk Southern Corp. (NSC) is expected to report Q3 earnings on Wednesday October 23 before the market open. Analysts' estimates are for the company to earn $1.39 per share for the quarter, which would be a 12% increase from the same quarter a year ago. The company has executed well this year, however several headwinds such as regulatory issues, competitive pressures, and the downturn in coal markets could put a cap on the near-term upside potential. Shares of Norfolk Southern are up 27% YTD and trading near the 52-week high made back in April. The stock tested long-term resistance in April and ended up pulling back about 10%. Now, the stock is testing those resistance levels again. Should investors be buying shares of NSC at current levels?
Stock price matters, and right now NSC is trading near the year highs, 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 NSC, Stock Traders Daily expects lower levels and a test of support. That would make NSC a sell/short at resistance, with risk controls defined as a break above resistance.
ATMI Inc. (ATMI) is scheduled to reports Q3 earnings on Wednesday October 23 before the bell. The company is expected to earn $0.32 per share versus $0.44 per share it earned a year ago in the same quarter. The company has missed analyst estimates in three of the previous four quarters. ATMI last issued its quarterly earnings data in July, when the company reported $0.29 earnings per share for the quarter, missing the analysts' consensus estimate of $0.34 by $0.05. The company had revenue of $102.00 million for the quarter, compared to the consensus estimate of $107.93 million. Despite the recent earnings misses, the stock has returned 34% YTD and is trading at the highest levels since 2008. Should investors be buying or selling at current levels?
Shares of ATMI are trading near five-year highs. Even if ATMI is able to beat estimates on Wednesday, it does not mean the stock will continue to rise, as stock price matters. The stock is currently trading just under the 52-week high, and is close to testing long-term resistance. If the stock tests resistance, and remains below resistance, as defined in our real time trading report, Stock Traders Daily expects lower levels and a test of support. That would make ATMI a sell/short at resistance, with risk controls in place if resistance breaks higher.
The Boeing Company (BA) is scheduled to report Q3 earnings of $1.55 per share when the company reports on Wednesday before the bell. If the company can match analyst estimates, it would be a 15% increase from the $1.35 reported in the same quarter a year ago. The stock is up 64% YTD and represents the best performing stock in the Dow. Increased demand for its aircraft and strong backlog helped generate strong cash flow, which has strengthened the balance sheet. The stock is trading 22 times earnings and shares are at an all-time high. Should investors be buying or selling shares of BA?
According to the real-time trading report offered by Stock Traders Daily, shares of BA are getting close to a test of long-term resistance, and as a rule we are sellers if resistance is tested (it is not there yet). If the stock does test long-term resistance, and remains below resistance, we would expect a full oscillation to support, that would make it a sell/short. However, resistance also acts as our risk control, and if resistance breaks higher, bullish signs would surface.
Caterpillar Inc. (CAT) are set to report Q3 on Wednesday, and the company is expected to earn $1.70 per share, which would be a 33% decrease from the same quarter a year ago. It has not been a good year for CAT investors, as the stock is down 2% YTD versus a 17% increase in the DOW. In the quarter through August, total machine sales by dealers slowed by 10 % from the previous year, versus a 9 % decline in the three months through July. The company said the decline was due to decreased spending by miners amid lower demand for resources and slower growth in markets like China. Retail machine sales declined in all regions except North America. The Asia-Pacific region posted the biggest drop with a 30% decline. The stock is trading down 13% from the highs earlier in the year, and shares having been trading in a range since May. Is CAT a buy, sell or hold?
Over the past six months, smart money has been selling shares of CAT when the stock trades near resistance. Now, after a 5% pop in last week, the stock is sitting very close to resistance again, but this time right before earnings. Even if the company beats estimates handily, it does not mean the stock will continue to rise, as the chart shows that price matters. 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, CAT 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 mentioned herein for writing this article.