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 24 2013.
3M Co. (MMM) is expected to report $1.75 per share when the company reports Q3 earnings on Thursday Oct 24 before the market open. The company reported $1.65 per share in the same quarter a year ago. In Q@ the company reported earnings of $1.71 per share, in-line with consensus of $1.71, and revenues rose 2.9% YOY to $7.75 billion versus the $7.77 billion consensus. Organic local-currency sales grew 2.3% and acquisitions added 1.9% to sales. 3M's consumable type products could make the company less susceptible to customer capex spending concerns versus many of its industrial peers in a macro uncertain environment. Director, James Farrell, disclosed the purchase of 6,625 shares on 8/22 at $114.41, which he bought when the stock was testing support. Should investors be buying or selling shares of MMM at current levels?
Shares of 3M are up 33% YTD and up over 56% in the last two years. Even if 3M is able to beat estimates on Monday, it does not mean the stock will continue to rise, as stock price matters. The stock is trading at all-time highs, and 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 MMM a sell/short at resistance, with risk controls in place if resistance breaks higher.
Colgate-Palmolive Company (CL) is expected to report $0.73 per share for its third quarter versus $0.69 per share that the company report the same quarter a year earlier. The company reported earnings of $0.70 per share in Q2, which was in-line with the analyst estimates of $0.70, and revenues rose 1.9% YOY to $4.35 billion versus the $4.38 billion consensus estimates. Although Colgate's focus on emerging markets and should enable it to compete well versus its peers, the company may have difficulties with year over-year comparisons in the coming quarters. The stock is trading near all-time highs and close to long-term resistance. Is there still upside in shares of Colgate-Palmolive?
Price matters and right now, the stock is near a test of long-term resistance, as defined by the real time trading report published by Stock Traders Daily. As a rule, if the stock remains below resistance, we expect lower levels and a test of support. Sell/short signals will surface if the stock tests resistance, and resistance would act as risk control for those positions. Monitor resistance closely, if it breaks higher the bearish bias that exists now would dissolve, but if resistance holds, based on our real time trading report for CL, we expect lower levels.
The Dow Chemical Company (DOW) is scheduled to report Q3 earnings on Thursday October 24 before the market open. Analyst estimates are for $0.54 per share, which is a 28% increase over the same quarter a year ago. Q2 results reported EPS of $1.87, which was boosted by the K-Dow settlement and other one-time items. Performance plastics sales rose 1%, agricultural sciences sales gained 10%, feedstock and energy decreased by 4%. Gross margin widened to 17% from 15.9%. Investors need to carefully monitor if Dow chemical can only generate value by executing on its cost cutting and restructuring efforts or if its Plastics & Materials segments can take the lead to margin growth. The stock is up about 28% YTD, and trading near the 52-week high. Should investors buy shares ahead of the earnings report?
Stock price matters, and right now the stock is trading near six-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 DOW, Stock Traders Daily expects lower levels and a test of support. That would make DOW a sell/short at resistance, with risk controls defined as a break above resistance.
Southwest Airlines Co. (LUV) is scheduled to report Q3 earnings on Thursday October 24 before the bell. Analysts are expecting Southwest to earn $0.33 per share versus the $0.13 per share it reported the same quarter a year ago. The company reported September traffic revenue passenger miles rose 1.3% YOY, available seat miles rose 1.2% YOY, load factor was 77.1%, from 77% the prior year. Traffic has been strong and despite the Air Tran integration, 2Q margins were a very healthy 16.9%. However, the stock is up 57% YTD and trading at the highest levels since 2008. Is LUV a buy, sell or hold ahead of earnings?
The stock is very close to a test of long-term resistance, and right before earnings. Even if the company beats estimates handily, it does not mean the stock will continue to rise, as 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, LUV 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.