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 Yum Brands (YUM), Chipotle Mexican Grill (CMG), Hain Celestial (HAIN), Panera Bread (PNRA), Shutterfly (SFLY), Yelp (YELP), Visa (NYSE:V), LeapFrog (LF), Akamai (AKAM), Baidu (BIDU), Nuance Communications (NUAN), and LinkedIn (LNKD).

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 six of eight quarters. Seasonally, the stock has risen twice in the past four years. ...

Last quarter, Yum reported that its net income for the quarter ended September 8th rose to $471 million, or $1.00 per share, from $383 million, or 80 cents per share, a year earlier. Excluding a gain from refranchising restaurants, Yum earned 99 cents per share, which was two cents better than the consensus analyst estimate.

Revenue grew by 9% to $3.57 billion, but that was short of the $3.65 billion that Wall Street was looking for.

Yum said it now expects to earn at least $3.24 per share for the full year, up from the $3.22 it previously forecast. The Street was at $3.27.

Breaking down the results, the China division reported same-store sales growth of 6% on top of a 19% gain in the year-earlier period. The restaurant margin improved by 10 basis points to 21.4%. Its operating profit was $374 million, up from $301 million last year on total sales of just under $2 billion. At quarter-end, Yum had 4,043 KFC units in operation and 738 Pizza Huts.

The International division increased system sales by 4% excluding currency impacts; as reported they declined -2%. Same-store sales increased 2% led by a 5% increase in emerging markets. Same-store sales were negatively impacted by about one point due to the calendar shift of Ramadan into the third quarter of 2012.

Yum's U.S. segment reported a consolidated 6% increase in sales on a same-store basis and a 13% increase in operating income to $162 million. Pizza Hut's same-store sales grew by 6% and KFC increased 4% on top of a 7% gain at Taco Bell. Revenue totaled $787 million.

Restaurant margins in the U.S. improved by 4.6% percentage points to 16.7%, which Yum said was driven primarily by thef strong same-store sales growth, as well as refranchising, supply chain efficiencies, and less discounting. Management warned that it faces a headwind in the U.S. in Q4 of about $18 million in additional sales last year from a 53rd sales week in 2011. ...

Outside of earnings, Yum has been making some nice progress in the U.S. with Taco Bell, as its Doritos Locos tacos and new upscale Cantina Bell menu have been becoming increasingly popular, breathing life back into the chain. Emerging markets outside of China have also been doing well. India also looks like it could be a big growth opportunity, and the KFC and Pizza Hut brands look to be a perfect fit for a country where not a lot of beef is eaten.

That said, Yum is still largely a China story. The company has had some issues there recently, hurt by bad publicity over its chicken supply. Over the long run, though, we expect China to remain a strong growth driver as Yum continues to expand and more people move into the country's middle class. ...

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 Qualcomm (QCOM) ahead of earnings.
  • to be bearish on Bank of America (BAC) ahead of earnings.
  • A daily investment service that is committed to creating long-term wealth for its members, BullMarket.com's Recommended List of stocks is up 104.9% from 2009-2012 versus a 57.9% return for the S&P, a 47.0% outperformance, topping the benchmark each year since the start of the Great Recession. Subscribers receive actionable market commentary, access to 40+ stock ideas on the Recommended List, and real-time trade alerts. Plus, sign up for a free trial today to view Bull Market's in-depth Special Reports - including its annual High Yield and MLP reports - and its timely Earnings Previews, which are published every Friday during the heart of earnings season. Get a Risk-Free Trial to Bull Market Today! (Please note returns are unaudited.)

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