Hickey and Walters (Bespoke) submit: With Alcoa (AA) reporting earnings after the close today, we looked at all of the company's prior reports to see how they typically do versus estimates and how the stock price typically reacts. Based on 22 reports since 10/01, the company has beaten analyst EPS estimates just 36% of the time and revenue estimates 41% of the time. Since investors are used to this low EPS "beat" rate, a quarterly number that is well above estimates will probably move the stock more than it would for a stock that beats all the time.
We also found that the stock's average one-day change on the first trading day following their report is -0.66% (AA usually reports after the close so we track the next day's change). When the company beats EPS estimates, however, the average one-day change is 3.06%. So if the company beats, should investors buy the stock at the open the next morning?
Based on trading following past reports, the stock has never performed well from the open to the close when gapping either up or down. When the stock has gapped up following an earnings report, the average change from the open to close is -1.22%. When gapping down, the average open to close change is -0.38%. So the only way to play the long side of this report is to own the stock before the company reports a stronger than expected quarter, but with only a 36% "beat" rate, there are probably better bets out there.