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Which Stocks Look Ready to Pop or Drop After 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 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 Cree:

Cree has beaten EPS estimates four of the last eight quarters, meeting them twice and missing two times. 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, Cree reported a fiscal Q4 profit of $28.2 million, or 23 cents per share, up 182% from $10.0 million, or 9 cents per share, a year ago. Adjusted EPS rose to 38 cents from 25 cents, in line with analyst expectations.

Revenue jumped 22% to $375.0 million, coming in just short of the $377.2 million consensus. Sales for LED products, which include LED components, LED chips, and materials, rose 17% to $217.4 million. Sales of lighting products, which consist of revenue from indoor and outdoor LED lighting products plus traditional lighting systems, climbed 33% to $133.6 million. Power and RF products revenue jumped 14% to $24.0 million.

Looking at other metrics, adjusted gross margin rose to 38.2% from 36.3%, but was down from 38.8% last quarter. LED products gross margin was 45.7% while lighting products gross margin was 25.1%. ...

Outside of earnings, the one thing that continues to excite us about Cree is that we believe LED lighting is still in the early stages of what we see as a 10-15 year secular growth cycle. LED lighting is only about 10% of the lighting market at present and it is used mostly on a commercial level where lights are running 24/7 and the payback is relatively quick (think streetlights, hotels, stores, etc.).

However, the overall lighting opportunity is just enormous, and with incandescent bulbs being phased out and CFLs (Compact Fluorescent Lights) not as efficient or natural looking (they also use toxic mercury and take forever to turn on), LEDs will eventually be the lighting option of choice, especially as prices continue to come down. So far, Cree's new 60-watt equivalent "A" bulb has been well received and is selling well.

Cree, for its part, is looking to drive down prices to accelerate adoption. As both the price and technological leader in the space, it is very well positioned to benefit from this secular growth story.

Cree's technological lead has helped it maintain solid margins, while cheap Asian competitors haven't been able to make inroads like they did in the solar space, because unlike in the solar industry where inefficiency can be overcome, the same dynamics don't apply to the LED industry because LEDs save energy, while solar cells create energy (thus, adding more LEDs doesn't solve the inefficiency problem like it does for solar). ...

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 Q3 so far 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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