Welcome to this week’s Earnings Edge.
Each week, we’ll break down some of the biggest earnings set to take place as we spot stocks that are on the verge of breaking out or plunging lower.
This week is a shift from the large-cap, tech-focused stocks we covered last week to some that are flying under-the-radar like Leggett & Platt (NYSE: LEG), a furniture stock, and Pool Corporation (Nasdaq: POOL), a pool servicing company. It doesn’t get much more boring than those two, but the stocks could provide a spark.
We’ll also look at social media giant Twitter Inc. (NYSE: TWTR), retailer Under Armour Inc. (NYSE: UAA) and the consumer staple stock, Kraft Heinz (NYSE: KHC).
Earnings are a volatile period for stocks. My goal is to provide you with insights heading into it, but I always recommend trading after the event. A lot of people think we are missing out on the biggest gains, but the truth is, we are stacking the odds in our favor and racking up profits just as large in a matter of weeks.
I’m working on a special presentation to explain all the details of my number one approach. You can sign up here so you don’t miss out.
Let’s dive in…
Earnings Edge: 5 Quarterly Reports to Watch
Stock No. 1: Leggett & Platt Inc. (NYSE: LEG)
Earnings Announcement Date: Monday, February 8, after market close.
Expectations: Earnings at $0.70 per share. Revenue at $1.15 billion.
Average Analyst Rating: Outperform.
Leggett & Platt, a furniture and bedding company, is first up on our list this week.
It’s usually a pretty steady stock. It pays a decent 3.77% dividend yield with consistent profits and revenues. Due to the pandemic, 2020 is set to be the first year since 2016 where the company’s revenues declined.
It will also mark the sharpest drop in revenues for LEG in more than two decades.
Today, they will wrap up the year of 2020 and we’ll see how impacted the stock was. Based on its price chart, we won’t be the only ones waiting.
After shares doubled from their March 2020 lows, the stock has traded sideways for months. Take a look:
LEG Has Gone Sideways
There’s a clear resistance line in red and a support line in green showing the sideways trend.
This earnings announcement has the potential to break this consolidation period, or at least pivot the stock in one direction.
The options market is overlooking a breakout. It’s only pricing in a 1.5% move based on the February 19, 2021, expiration. That’s two weeks away.
Now, getting the direction right is tough. But I would almost guarantee this stock moves 5% or more over the next two weeks. It could be a good time to look at a long straddle on LEG.
Stock No. 2: Twitter Inc. (NYSE: TWTR)
Earnings Announcement Date: Tuesday, February 9, after the close.
Expectations: Earnings at $0.29 per share. Revenue at $1.19 billion.
Average Analyst Rating: Hold.
Twitter is winning. With the stock up more than 150% from its March lows, it’s coming into earnings with some heightened expectations.
While the Donald Trump presidency was a boost to engagement and viewers on the platform, due to his excessive use, it doesn’t look like it will continue under Biden’s presidency.
That could be something that investors pay more attention to. Then there’s always a risk of regulation for social media giants like Twitter and Facebook. After silencing the president of the United States, there will be bipartisan support to get something done.
I see a lot of headwinds ahead of the stock, but you never want to fight the trend.
And right now, Twitter continues to climb.
TWTR Has a Following
It’s surging near the high end of its rising price channel. For me, earnings are a risk to the rally we have seen. But if ad spending is improving and getting into a rhythm like Facebook Inc. (Nasdaq: FB) and Alphabet (Nasdaq: GOOG), then look out, Twitter could surge from here.
That’s what investors want to know. How has ad spending been trending on the platform?
The options market is looking for a 6% move from the stock this week. Nothing crazy after the recent rally, but it would put the stock above the red resistance line on the chart. That would be a huge upside move for the stock. If it pops, I’d look to take profits as those headwinds catch up to the stock in the coming months.
Stock No. 3: Under Armour Inc. (NYSE: UAA)
Earnings Announcement Date: Wednesday, February 10, before the market open.
Expectations: Earnings at ($0.07) per share. Revenue at $1.27 billion.
Average Analyst Rating: Hold.
Talk about a surging stock! Under Armour is really on the move. Retail has been a segment hit harder than most during the pandemic. Fewer people going out in general, to work, to eat, to shop, means fewer clothes are needed.
Under Armour managed to keep customers engaged with its online platform and is coming out strong here to start 2021.
Still, sales are expected to drop about 17% for the full year in 2020. Investors already knew about that struggle. What we are watching for now is how the consumer rebounded during the holiday shopping season.
Last week, I mentioned that Amazon Inc. (Nasdaq: AMZN) would be the bellwether for the economy, and it came through big time with its first $100 billion quarter thanks to a surge in holiday and pandemic shopping.
That’s great news for Under Armour. They don’t have pandemic items, but it shows us the consumer is healthy.
It’s also why we saw shares run up 15% over the last week and a half heading into earnings. Investors are betting on the rebound.
Big Bets on Under Armour
With expectations pushed up by strong retail earnings from companies like Amazon, it sets up the potential for a disappointment.
I’m a fan of Under Armour, so I wouldn’t bet against them.
But the key support line is 10% below where the stock is currently trading. That’s a long fall for anyone looking for short-term profits. Options are only pricing in about a 6% move in the stock. khc
Stock No. 4: The Kraft Heinz Company (Nasdaq: KHC)
Earnings Announcement Date: Thursday, February 11, before the open.
Expectations: Earnings at $0.74 per share. Revenue at $6.86 billion.
Average Analyst Rating: Hold.
This week has some boring companies setting up for potentially big moves. This time it is Kraft Heinz, the food and beverage conglomerate. Their items line shelves in grocery stores, pharmacies and convenience stores, but they also supply restaurants and hotels with food and beverage products in bulk.
Shares are stuck in a classic wedge pattern heading into earnings this week, which means we have another breakout candidate on our hands…
Kraft Heinz Is Poised to Breakout
The key red resistance line is 6% above current prices, while the green support line is just below them. That means it won’t take much to cause a breakout to the downside and it has more potential to the upside.
Even if earnings are just OK, shares could stay in this wedge pattern for weeks before it breaks out to the upside.
With the stock so close to the resistance level, it’s interesting the options market is only pricing in a 2% move for the stock. That could put it on the brink of falling below support, which would signal a downtrend in the stock.
And this may be the quarter the company stumbles.
Demand for household items could be slowing down. We know consumers turned around to spend big on discretionary items. And after being forced to eat at home for most of 2020, the fact more businesses were open and serving customers could lower grocery bills around the country.
Something to keep an eye on with earnings this week.
Stock No. 5: Pool Corporation (Nasdaq: POOL)
Earnings Announcement Date: Thursday, February 11, before the open.
Expectations: Earnings at $0.77 per share. Revenue at $709.2 million.
Average Analyst Rating: Outperform.
A swimming pool company is the last one on our list today, Pool Corporation. Not that exciting, but man, this stock has seen some volatility.
Shares fell 30% during the pandemic, only to rebound and more than double those lows. It has seen three 10% drops since last September and now is riding a major support line higher. Take a look:
Pool Corp.’s Wild Ride
Clearly, a pandemic that drove people to be stuck in their homes was a boost to a company helping to service those pools. But now it is wintertime. Sales are slowing, and the company needs to lay out some guidance that will keep investors engaged until we get back around to sales in the summer.
Any slip-up and shares could easily breakdown here. That support line is getting tested heavily. It has room to move to the upside if you believe in the growth the stock has seen. But if it is more of a one-off jump due to the pandemic, then this stock could crash back down below $300 a share.
The expectations are not for a big move on this stock, with the options market pricing in just a 3.5% move over the next two weeks.
Earnings this week will set the trend for the stock for months to come. Let’s see how it plays out.
Chad Shoop is a Chartered Market Technician and options expert for Banyan Hill Publishing. He is the editor of three leading newsletters: Quick Hit Profits, Automatic Profits Alert and Pure Income. His content is frequently published on Investopedia and Seeking Alpha. Check out his YouTube Channel to see his latest market insights.
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