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Which Stocks Look Ready to Pop and Drop with Earnings This 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 Deere:

Deere has surpassed analyst EPS estimates seven of the past eight quarters, missing the consensus once. During that time, the stock has risen the next day two of eight quarters. Seasonally, the stock has risen three times in the past four years. ...

Last quarter, Deere said it earned $788 million, or $1.98 per share, for the quarter ended July 31st, compared with $712.3 million, or $1.69 per share, for the same period last year. The analyst consensus estimate was for EPS of $2.31.

Revenue grew by 15% to $9.59 billion, which was also short of the $9.61 billion that Wall Street was looking for.

Deere guided for net income of $3.1 billion for the year ending in October, which was a reduction from its $3.35 billion forecast three months ago. The Wall Street consensus was $3.4 billion.

The farm-sector bellwether came up short of analysts estimates due to the drought that ravaged the Midwest and a rare production foul-up that dried up some of the revenue and profit for the maker of combines, tractors, and other agricultural equipment. Deere also cut its revenue outlook for the year.

The drought and execution issues weren't the only factors buffeting the Moline, Illinois company. The slowdown in the economies of some major overseas customers like China and India hurt results, as did a stronger dollar. ...

Outside of earnings, Deere is a solid long-term play on agricultural growth and the increased food needs of a rising middle class around the globe. High crop prices, along with high farmland prices, meanwhile, have kept its customer base on solid financial footing despite the middling global economy. The company has a strong management team and a long history of solid execution.

However, the company stumbled for the first time in a long time last quarter, in part due to a rare production screw up. The global drought and sluggish economies overseas are another matter. Though beyond the company's control, they are issues for investors to be concerned about.

One of the biggest questions surrounding Deere is whether the Ag. cycle has become less of a cycle and more of a trend, as the current strong cycle is now almost double the typical upcycle (typically five years, with the current upcycle now going on nine years.) Last quarter gave the first inkling that the upcycle could possibly be coming to an end, although recent farm equipment data has been positive. ...

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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