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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 Apple (AAPL), IBM (IBM), Intuitive Surgical (ISRG), Google (GOOG), Cree (CREE), Netflix (NFLX), F5 Networks (FFIV), Check Point Software (CHKP), McDonald's (MCD), Starbuck's (SBUX), and Microsoft (MSFT).

Here is just a tiny sample of what wrote about Intuitive Surgical:

Intuitive Surgical has beaten analyst EPS estimates each quarter over the past two years. During that span, the stock has risen the next session four of eight quarters. Seasonally, the stock has risen twice in the last four years. ...

Last quarter, Intuitive Surgical reported net income of $183.3 million, or $4.46 per share. That's up from $122.4 million, or $3.05 per share, one year ago. Revenue rose by 20% to $537.8 million from $446.7 million.

Analysts were expecting net income of $3.50 per share and $535.5 million in revenue.

Intuitive said its revenue increased 0.4% sequentially and 8.3% between the first and second quarters of 2012. It sold 155 da Vinci robotic surgery systems. Surgical procedures using the da Vinci system rose by 22%.

Instrument and accessory revenue realized per procedure, including initial stocking orders, was approximately $1,980 per procedure, which was higher than the $1,950 realized a year earlier, and lower than the $2,020 realized Q2 2012.

The sequential decrease was driven by the timing of instruments and accessory stocking orders associated with new system sales and the timing of distributor orders, the company said. ...

Outside of earnings, we've always liked Intuitive Surgical's business model. It is really just another version of the old razor and blade model, only pricier. While system sales are important, over time procedure-related recurring revenue should continue to outpace the hardware sales and drive growth, especially as both patients and physicians are favoring less-invasive surgical procedures.

Intuitive Surgical's strategy is focused on growing its core gynecology and urology procedures business; executing smooth introductions of new products like its Single-Site and Vessel Sealing applications to customers; and building a pipeline for its emerging procedures business in general surgery, thoracic

surgery, and trans-oral surgery. Another focus is on international markets, particularly Europe, Japan, and Korea.

Products like the FireFly system -- which allows surgeons to monitor blood flow beneath tissue surfaces in real time and can help them do such things as find cancerous tumors during surgery and identify lymph nodes that could become cancerous -- could also be a big growth driver. Right now, it is about a $100,000 accessory and is gaining traction in kidney-related surgeries, but with patients increasingly demanding less invasive procedures and hospitals competing for their business, that may not be a big price for them to pay. ...

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 Q4 so far were:

  • to be bullish on eBay (EBAY) ahead of earnings.
  • to be bullish on Goldman Sachs (GS) ahead of earnings.
  • to be bearish on Bank of America (BAC) ahead of earnings.
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