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Panglossian: adj. excessively optimistic, characterized by the mindset that “all is for the best in this best of possible worlds.” Staying positive is always easier said than done. Especially with looming recessions, credit downgrades, global insecurity, and incompetent politicians constantly... More
  • Earnings Playbook 1 1 comment
    Sep 15, 2011 12:42 PM | about stocks: RBN

    As the market continues to languish in considerable trepidation, a silver lining can be found in the upcoming earnings season.  Following the August sell-off, both utility and industrial sectors have performed admirably given their allure of safety.  They also remain the only sectors with net positive earnings revisions; however, they may yet provide some exceptional beats.  Analyzing historic data offers some insight to the probable price movements on reporting days. 

    With that in mind, I draw your attention to Robbins & Meyer’s Inc. (NYSE:RBN) reporting on October 3rd.  After reviewing performance data for each quarterly report dating back to March 30th 2006, we can see the company beats its EPS estimates 85.7% of the time with an average change on reporting dates of a positive 4.34%. 

    Most recently, on June 22nd, RBN met their EPS estimates, beat revenue by $26M and raised forward guidance.  It proceeded to gap up 4.56% in premarket trading then rallied to a total single day gain of 8.77%.

    Prior to this, on January 7th, RBN improved on EPS estimates by .11, beat revenues by $14M and raised its forward guidance.  They proceeded to gap up 7.26% in premarket trading and continued on to a 15.9% single day gain. 

    Analysts are expecting an EPS of .75 with revenues of $255M on October 3rd, revised up from last quarter’s .53 EPS and $235M revenue. 

    Given this company's track record of positive performance on reporting days, especially the two most recent quarters, Robbins & Meyer’s Inc. justifies an earnings play.  There are several ways to take advantage of this potential win.  One should always consider their risk tolerance in developing an investment strategy. 

    Those investors who can handle excessive left-tail risk may consider at-the-money call options.  Objectively, you would look to minimize time value erosion by purchasing this contract near the close on Friday, September 30th, and close the contract on Monday, October 3rd following RBN’s quarterly report.  Considering the short-term horizon of this position, we can justify buying options expiring October 21st.  Bear in mind that any negative price movement may potentially lead to a complete loss on this position; however, an increase of 4% or more may lead to gains in excess of 40% on this position. 

    Another strategy may be to purchase RBN and ride it through the next earnings announcement.  Setting a stop loss will help to manage potential losses of principle while realizing modest gains should the price return to the $50-$55 range in the days following their report. 

     

     

    Disclosure:   I do not currently hold any position in RBN, nor do I plan to initiate a position in the next 72 hours

    Stocks: RBN
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  • panglossian
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    Author’s reply » Update:

     

    RBN is now indicating October 6th for its earnings announcement.
    29 Sep 2011, 03:00 PM Reply Like
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