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

the BullMarket.com Staff

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), IBM (IBM), Intuitive Surgical (ISRG), Google (GOOG), Cree (CREE), Netflix (NFLX), F5 Networks (FFIV), Check Point Software (CHKP), McDonald's (MCD), Starbuck's (SBUX), and Microsoft (MSFT).

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

Cree has beaten EPS estimates four of the last eight quarters, meeting them once and missing three times. Over that period, the stock has risen the next session four of eight quarters. Seasonally, the stock has risen three of the last four years.

Last quarter, the company reported a fiscal Q1 profit of $16.1 million, or 14 cents per share, up 26% from $12.8 million, or 11 cents per share, a year ago. Adjusted EPS rose to 27 cents from 25 cents, coming in above analyst expectations of 26 cents.

Revenue jumped 17% to $315.8 million, coming in just below the $317.9 million consensus. Sales for LED products, which includes LED components, LED chips, and materials, rose 1% sequentially to $187.5 million but was down -5% year over year.

Sales of lighting products, which consists of revenue from indoor and outdoor LED lighting products plus traditional lighting systems, climbed 7% sequentially to $101.1 million, and was up 109% year over year. Power and RF products revenue fell -4% over fiscal Q4 to $20.1 million and was down -2% year on year.

Looking at other metrics, adjusted gross margins rose to 37.5% from 37.4%, and was up from 36.3% last quarter. Adjusted operating margins declined to 11.9% from 12.2%, but were up from 9.8 % last quarter. The company said the improvement was due to factory cost reductions, slightly higher factory utilization, improved production yields, product mix, and lower cost new products.

Looking forward, Cree forecast fiscal Q2 adjusted EPS of 27-31 cents on sales of $320-$340 million. Analysts were looking for EPS of 30 cents on sales of $333.6 million. Adjusted gross margins are projected to rise to about 38.5%. ...

Outside of earnings, Cree has been taking baby steps the last few quarters in recovering from an industry glut.

Margins remain the biggest issue surrounding the company and gross margins have now improved sequentially three-straight quarters, and LED products margins moved back over 40% last quarter. Cree's move to 150nm wafers, higher utilization, and its new SC3 chip technology should all continue to help margins edge up in the future. It's also worth noting that Ruud's margins are below that of rivals like Acuity Brand (AYI), so there is also room for margin improvement on the lighting product line as well.

We still think the LED lighting industry is in the very early innings of what is likely be a 10-15 year secular growth story, as the lights help phase out the use of inefficient incandescent lights across the globe. There are still likely to be some bumps along the way, but we think the industry is getting closer to hitting an inflection point where prices reach a level where the return on investment is compelling enough that demand skyrockets. ...

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 eBay (EBAY) ahead of earnings.
  • to be bullish on Goldman Sachs (GS) ahead of earnings.
  • to be bearish on Intel (INTC) ahead of earnings.
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