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Which Stocks Look Ready to Pop and Drop with Earnings Next Week?

the 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, publishes a comprehensive 25- to 40-page Earnings Preview report for the week ahead each Friday.

Over the past year, 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, looks at several popular stocks, including Pandora (NYSE:P), Nuance (NUAN), Lowe's (LOW), DSW (DSW), (CRM), Hewlett-Packard (HPQ), Best Buy (BBY), and Deere (DE).

Here is just a tiny sample of what wrote about Lowe's:

Lowe's has beaten EPS estimates six of the last eight quarters, missing them twice. Over that period, the stock has risen the next session three of eight quarters. Seasonally, the stock has risen two of the last four years.

Last quarter, the company reported a net profit of $747 million, or 64 cents per share, for the period ended August 3rd. It reported $830 million, also 64 cents per share, a year ago. Share repurchases in the past year helped to keep the EPS result level even though total net income declined.

The fiscal 2012 quarter also had one-less week of sales and the calendar shift lowered earnings by about 3 cents per share. Excluding that item and the impact of restructuring and severance charges, adjusted earnings totaled 68 cents per share.

Revenue slipped by -2% to $14.25 billion, with the timing shift accounting for -1.8 points of the decline.

Wall Street analysts were looking for 70 cents per share of net income on revenue of $14.44 billion.

Same-store sales slipped by -0.4% on a consolidated basis. Same-store sales in the U.S. declined by -0.2%. ...

Outside of earnings, Lowe's continues to struggle with execution issues and its effort to transform its business remains a work in progress. A slow rebound in spending on big-ticket items also continues to hamper growth. The company's performance has consistently lagged that of Home Depot (HD) for the last two years, with quarterly same-stores trailing its rival for eight-straight quarters.

We have said previously that we like the investments the company is making in technology and new tools that empower its sales force in the store, along with upgrades to its website that enables customers to visualize a home improvement project. However, having recently bought some appliances at the stock, we can attest it has a long way to go to improve in this area.

As the U.S. economy continues to strengthen and homeowners feel more confident about the future, they can be expected to spend more on projects to the benefit of most operators in the sector. Home improvement is still a highly fragmented industry with a number of independent hardware and home-center operators, so the two national retailers still have room to grow. The rebuilding from Hurricane Sandy should also benefit the company, although likely not as much as Home Depot. ...

The full 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 made for Q3 so far were:

  • to be bullish on Qualcomm (QCOM) ahead of earnings.
  • to be bullish on Dollar Tree (DLTR) ahead of earnings.
  • to be bearish on J.C. Penney (JCP) ahead of earnings.
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