Earnings Will Set the Tone for Chewy, Toll Brothers This Week

The last week and a half in the markets has certainly been interesting.

Since Thanksgiving, we’ve had a new COVID-19 variant to worry about, a Federal Reserve plowing ahead with tightening economic policy and inflation sparking concerns.

It’s hard to sift through the noise in a headline-focused market. Listening to the companies via earnings reports helps us stay grounded.

These come along four times a year and give us a peek behind the curtain to see how headlines affect businesses across the world.

In today’s Earnings Edge, we look at housing bellwether Toll Brothers Inc. (NYSE: TOL) and a company that is almost certainly benefiting from all the pandemic pets, Chewy Inc. (NYSE: CHWY).

Earnings Edge Stock No. 1: Toll Brothers Inc. (NYSE: TOL)

Earnings Announcement Date: Tuesday, after the close.

Expectations: Earnings at $2.50 per share. Revenue at $2.9 billion.

Average Analyst Rating: Outperform.

One of the top home builders in the U.S., Toll Brothers, is set to report key earnings this week.

Not only are analysts going to be interested in how interest rates are impacting demand, but the stock hasn’t seen as much weakness as the overall market during recent omicron variant volatility.

They want to make sure it’s not bringing up more concerns over supply constraints at all.

The uncertainty sets up the potential for a big swing on earnings, and TOL’s price chart gives us a clue on what to expect.

TOL Flirts With New Highs

On the chart, we have TOL trending higher, which is great to see. But with a horizontal resistance level, it could be making a longer-term ascending triangle pattern with a rising green support below.

That gives us a support level 15% below that resistance level where the stock is currently trading. If it misses on earnings, it’s a sharp move lower from here.

And it won’t take much to get a breakout and signal even higher highs for the stock in the weeks ahead.

With TOL running higher into earnings, investors are already pricing in some of the good news. So we’ll see how the stock delivers this week. Just know the single-day risk is to the downside at the moment. If it pushes solidly above that resistance level, look for the stock to run even higher.

Earnings Edge Stock No. 2: Chewy Inc. (NYSE: CHWY)

Earnings Announcement Date: Thursday, after the close.

Expectations: Earnings at a loss of $0.04 per share. Revenue at $2.2 billion.

Average Analyst Rating: Outperform.

Chewy, the online pet food and prescription company, is expected to report a loss per share this week. The company has been around for over a decade now, but it still needs to lure in customers each year to grow.

I’ll admit, I’m one of their latest customers. And even though we got our first dog in 2019, just before the pandemic, we added another one during the pandemic. So we still have a pandemic pet that we were looking for a more convenient way to get their food and medicine without having to stop by the vet all the time.

That’s where Chewy comes in.

We just started getting our food automatically sent to our house along with some of the usual bones and treats. It’s super convenient and actually cheaper than many of the shops around here.

It was a no-brainer.

I’m sure many other newfound pet lovers are also discovering Chewy. I’m just not sure it’s enough to break CHWY out of its downward trend.

CHWY’s Pullback

Shares of Chewy are stuck in a descending triangle pattern, where the resistance level (in red) is sloping downward. Then we have an almost horizontal support level in green.

That’s where the stock is hovering today.

So, Chewy is at the opposite side of Toll Brothers.

While it won’t take much to signal a downside breakout, shares could pop nearly 20% and still be stuck in this triangle pattern.

And earnings this week will go one way or the other.

That gives us a good chance at a sizeable move. And we should know where the stock is heading in the weeks ahead if we get a breakout.

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