Which Stocks Look Ready to Surge or Sink After 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 20- to 30-page Earnings Preview report for the week ahead each Friday.

In its latest earnings preview, BullMarket.com looks at several popular stocks, including NetFlix (NFLX), Panera Bread (PNRA), Cree (CREE), F5 Networks (FFIV), Linn Energy (LINE), Microsoft (MSFT), Deckers Outdoor (DECK), and Amazon.com (AMZN).

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

Linn has beaten analyst EPS estimates three of the past eight quarters, missing the consensus four times and meeting once. Over that period, the stock has risen the next session five times. Seasonally, the stock has risen three of the last four years. ...

Last quarter, The company reported a second quarter profit of $345.2 million, or $1.46 per unit, compared to $237.1 million, or $1.19 per unit, a year ago.

More importantly, distributable cash flow (DCF) was $152.1 million, or 65 cents per unit, compared to $139.5 million, or 70 cents per unit, a year ago. The coverage ratio was 0.89x for the quarter.

Oil, natural gas and NGL revenues were $488.2 million, while total revenue was $838.8 million due to hedging gains. A year ago, oil, natural gas and NGL revenues were $347.2 million, while total revenue was $800.6 million, also helped by hedging gains.

Linn Energy generated adjusted EBITDA of $362.3 million, up from $319.0 million a year ago.

Production increased by 24% to 780 million cubic feet equivalent per day (MMcfe/d) in Q2, compared to 630 MMcfe/d a year ago. Oil production jumped by 12% to 31.5 MBbls/d; NGL production climbed 12% to 27.0 MBbls/d; and natural gas production rose by 35% to 429 MMcf/d. Natural gas represented about 55% of production in the quarter. ...

Outside of earnings, the short attack on Linn has been unfortunate and that has led to an informal SEC inquiry. Right now, it appears the SEC wants Linn to make some adjustments to the way it presents some non- GAAP data, but the changes look more like semantics than anything else. None of the numbers have been changed, and it's easy to back out the new metrics to get the old DCF number. Importantly, it also looks like the distribution of future increases will not be impacted in any way by these changes.

The goal of most MLPs is to grow their distributions to both their limited partners and general partner (if they have one). When they earn in excess of their cost of capital, they can grow their distributions.

For Linn and other energy producer MLPs, it's all about the ROI being higher than the cost of capital to make acquisitions. The higher the spread between the cost of capital and return on investment from acquisitions, the greater the company can increase its distribution. ...

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 Q were:

  • to expect a positive reaction to Google's (GOOG) results.
  • to expect a positive reaction to Kinder Morgan's (KMP) results.
  • to expect a negative reaction to IBM's (IBM) results.
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