Which Stocks Look Ready to Pop and Drop with Earnings?

Indie Research

Stocks tend to be most volatile around earnings season, when a good or bad report can make or break it. However, a good or even great earnings report doesn't necessarily translate into a huge pop for a stock.

During earnings season, BullMarket.com publishes a comprehensive 25- to 40-page Earnings Preview report for the week ahead each Friday.

Over the past year, BullMarket.com used the data it has collected to correctly predict investor reactions for approximately two-third of the stocks it's previewed.

In a special earnings preview March supplement, BullMarket.com looks at several popular stocks, including DSW (DSW), Adobe (ADBE), FedEx (FDX), Nike (NKE), lululemon (LULU), Tiffany (TIF), Darden Restaurants (DRI), Dollar General (DG), and Oracle (ORCL).

Here is just a tiny sample of what BullMarket.com wrote about Adobe:

Adobe has beaten analyst EPS estimates six of the past eight quarters, missing estimates once and meeting once. Over that period, the stock has risen the next session four of eight quarters. Seasonally, the stock has risen two of the last four years.. ...

Last quarter, the company said its net income for its fiscal fourth quarter ended November 30th rose to $222.3 million, or 44 cents per share, from $173.7 million, or 35 cents per share, in the year- earlier period. Revenue was flat at $1.15 billion.

Adobe's profit on an adjusted basis to exclude one-time items was 61 cents per share. Wall Street had predicted the company would report adjusted EPS of 56 cents on revenue of $1.1 billion.

By revenue type, product revenue of $852.8 million was down from $931.9 million a year ago, while subscription revenue grew to $194.5 million from $128.4 million, reflecting a strategic shift towards cloud-based services. The services and support category grew to $106.0 million from $91.8 million.

Adobe made $832.8 million, or $1.68 per share, for the year, flat with 2011 results. Revenue rose to $4.40 billion from $4.22 billion.

In the Digital Media segment, users moved to the Creative Cloud more rapidly than in the prior quarter. The company said it added about 10,000 subscribers each week, up from 8,000 a week in the third quarter. It added approximately 132,000 net new individual and team subscriptions during the quarter. Those figures do not include enterprise users who are covered under license agreements (ETLAs in Adobe's jargon).

The Digital Marketing segment is made up of two components. The first is revenue from Adobe Marketing Cloud, which was previously referred to as Digital Marketing Suite. It produced revenue of $220.4 million. The second component is comprised of revenue from the LiveCycle and Connect businesses. LiveCycle and Connect contributed $70 million in Q4 revenue, down as expected from the $102.7 million a year ago.

The Document Services business, which includes the Adobe Acrobat product family, reported record revenue of $210.2 million during the quarter. Adobe launched Acrobat XI with newly integrated cloud services during the quarter.

Adobe said its businesses generated $473.7 million in cash flow from operations, while its deferred revenue grew by $59.3 million to $619.6 million. Creative Cloud subscriptions are billed monthly and are not reflected in deferred revenue on the balance sheet. ...

Outside of earnings, Adobe's transition to the cloud is advancing rapidly, but in the near term, it is leading to weaker earnings and revenue. However, we do think this is the right strategic shift for the long run, as it creates a more predictable and sustainable business model. The shift does offer the potential for upside surprises if the adoption rate accelerates but that's not guaranteed. The Digital Marketing segment could become a real backbone for Adobe as well over time given the importance of measuring user behavior in the online world.

Backing out its approximately $4.18 per share in net cash and the stock trades at about 17.5x the $2.14 EPS estimate for fiscal 2015. ...

The full BullMarket.com earnings analysis includes a look at historical earnings data and EPS trends for the companies above and more; examines past investor reactions to earnings in various contexts; gives options activity analysis; reviews previous-quarter earnings; and gives an opinion on both what earnings will look like and how investors will react based on the aforementioned data points.

Just a few of the correct calls BullMarket.com made for Q4 so far were:

  • to be bullish on Netflix (NFLX) ahead of earnings.
  • to be bullish on Michael Kors (KORS) ahead of earnings.
  • to be bearish on Akamai (AKAM) ahead of earnings.
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