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.
Amazon.com, Inc. (AMZN) is expected to report of a loss of $0.09 when the company reports its Q3 results on Thursday, October 24 after the market close. The company ended its second quarter with $7.5 billion in cash, and about $3.0 billion in debt, so net cash position is about $4.5 billion. Investors want to know if Amazon was able to maintain its gross margin expansion, and their expectations will be high for the company going into the holiday season. The stock is up 27% YTD and trading near all-time highs. Should investors be buying or selling shares of AMZN 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, AMZN is a sell/short at resistance, with risk controls in place if resistance breaks higher.
Callaway Golf Co (ELY) is scheduled to report its Q3 earnings on Thursday, October 24 after the market close. The company is expected to lose $0.28 per share for the quarter versus a loss of $0.50 the same quarter a year ago. Over the last year, Callaway Golf has seen its cost of revenue go up substantially while revenue itself has declined, and the company has not earned an annual operating profit since 2008. The stock is up 15% YTD and trading near the 52-week highs made a few months ago, when the stock last tested long-term resistance. Is ELY a buy, sell or hold at current levels?
Over the last few months, smart money has been selling shares of Callaway Golf when the stock trades near resistance. In early August, the stock tested resistance and fell almost 10% a few weeks later. The stock is sitting very close to resistance again, but this time right before earnings. Even if the company beats estimates, 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, ELY is a sell/short at resistance, with risk controls in place if resistance breaks higher.
KLA-Tencor Corporation (KLAC) is expected to earn $0.66 per share when the company reports quarterly earnings on Thursday, October 24 after the market close which would be a 21% decrease from the same quarter last year, when KLA-Tencor earned $0.84 per share. Last quarter the company reported fiscal Q4 earnings of $0.82 per share, $0.03 better than the consensus estimate of $0.79, however, revenues fell 19.3% YTD to $720 million versus the $705.21 million consensus. The stock traded lower the following day, and ended up falling about 7% over the following month. Now the stock is trading near the 52-week high. Should investors buy, sell or hold into earnings?
Price matters and right now, the stock is testing long-term resistance, as defined in the real time trading report published by Stock Traders Daily. As a rule, if the stock remains below long-term resistance, we expect lower levels and a test of support. That would make KLAC a sell/short at resistance based on the real-time trading report published by Stock Traders Daily, with risk controls in place if resistance breaks higher.
Verisign, Inc. (VRSN) is scheduled to report earnings on Thursday, October 24 after the market close. Analysts are expecting the company to earn $0.56 per share for its third quarter, which would be $0.06 better than the same quarter a year ago. Verisign last issued its quarterly earnings data on July 25. The company reported $0.58 earnings per share for the quarter, beating the consensus estimate of $0.55 by $0.03. The company had revenue of $239.00 million for the quarter, compared to the consensus estimate of $237.14 million. The stock likely benefited from the announcement of Warren Buffett adding shares earlier this year, and the shares are now trading up about 36% YTD. Is the stock a buy ahead of earnings?
Shares of Verisign are trading near all-time highs and getting close to a test of long-term resistance as that is defined in our real time trading report. 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 short at long-term resistance However, resistance also acts as our risk control, and if resistance breaks higher we would also consider that a sign to exit any short positions.
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 for writing this article from the publicly traded companies mentioned herein.