Which Stocks Look Ready to Pop and Drop with Earnings Next Week?

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 its latest earnings preview, BullMarket.com looks at several popular stocks, including Apple (AAPL), Netflix (NFLX), Deckers Outdoor (DECK), Yum Brands (YUM), Caterpillar (CAT), Cree (CREE), Coach (COH), Qualcomm (QCOM), F5 Networks (FFIV), Akamai (AKAM), Starbucks (SBUX), Baidu (BIDU), and Amazon.com (AMZN).

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

Yum Brands has beaten analyst EPS estimates six of eight quarters over the past two years, missing the consensus twice. During that span, the stock has risen the next session five of eight quarters. Seasonally, the stock has risen three times in the past four years.

Last quarter, Yum reported that its consolidated fourth-quarter profit declined by -5.3% to $337 million, or 72 cents per share, from $356 million, or 75 cents per share, in Q4 2011. Excluding one-time items, Yum's EPS was 83 cents, or a penny better than the Wall Street consensus.

Worldwide system sales of $4.15 billion were slightly ahead of the $4.12 billion the Street was forecasting.

The year-ago period contained an extra sales week that added $26 million to operating profit at Yum Restaurants International (YRI) and in the U.S. Excluding that impact, EPS increased by 16% year over year despite the challenges in China.

Same-store sales grew 3% at YRI and 3% in the U.S. Same-store sales declined by -6% in China.

Management said the scare over tainted chicken sold in China would likely slice same-store sales in that country by -25% in the March quarter, but it added that it remains committed to its growth strategy and would start a campaign after the Chinese New Year ends to rebuild its KFC brand.

The company couldn't give concrete guidance for China because it didn't know how long it would take for sales to recover, but it estimated its same-store sales in January plunged by -41% at KFC and -15% at its Pizza Hut outlets. It estimated a -25% drop for the full quarter. ...

Outside of earnings, Yum has long been mostly a play on China, and for the first time in a long time it is largely a headwind and not a tailwind. First the company was hit by news that some poultry farmers were using excessive levels of antibiotics in chicken in violation of Chinese regulations, and more recently Avian flu in China has hurt the sale of chicken.

Beyond China the company has made solid progress in the U.S., paced by Taco Bell and the increasing popularity of its Doritos Locos tacos and its new upscale Cantina Bell menu. Yum will never get the kind of rapid growth out of a mature and competitive market like the U.S. that it enjoyed out of China, but positive growth is still a positive.

Emerging markets outside of China also continued to do well. India could be a big growth opportunity, with the KFC and Pizza Hut brands potentially a good fit for a country that doesn't consume a lot of beef. ...

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 Q1 so far were:

  • to be bearish on Bank of America (BAC) ahead of earnings.
  • to be bearish on IBM (IBM) ahead of earnings.
  • to expect a muted response to Intel's (INTC) results.
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