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Which Stocks Look Ready to Sink and Surge 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 Michael Kors (KORS), Buffalo Wild Wings (BWLD), Blue Nile (NILE), Cisco (CSCO), Zillow (Nasdaq:Z), Whole Foods (WFM), NVIDIA (NVDA), NetApp (NTAP), Deere (DE), and Abercrombie & Fitch (ANF).

Here is just a tiny sample of what wrote about Buffalo Wild Wings:

Buffalo Wild Wings has beaten analyst EPS estimates five of eight quarters over the past two years, missing the consensus three times. During that span, the stock has risen the next session three of eight quarters. Seasonally, the stock has risen three times in the past four years. ...

Last quarter, the restaurant operator said that it earned $10.7 million, or 57 cents per share, for the period that ended September 23rd, which was down from $11.3 million, or 61 cents per share, in the same quarter last year. Higher costs for key ingredients like chicken wings cut into profits.

Wing costs rose in part because the poultry industry has gravitated towards growing bigger birds, driving up portion sizes and subsequently costs for BWW and other purveyors of chicken wings.

"High cost of sales and incremental preopening expenses moderated our bottom- line expansion," CEO Sally Smith said. "We're focused on adapting to current wing market conditions. Our restaurants have transitioned to larger size wings in response to the continuing shift in the poultry industry to larger bird production."

The company put through menu price increases in July and another in mid- August to compensate for the bigger wings and record high wing costs.

Revenue increased nearly 25% to $246.9 million from $197.8 million. Sales on a same-store basis grew by 6.2% at company-owned restaurants and 5.8% at franchised locations.

Wall Street analysts were looking for EPS of 61 cents on revenue of $254.2 million.

Management said that for the first four weeks of the fourth quarter, its same-store sales were up about 3.8% at company-owned restaurants and 5.6% at franchisees, compared to gains of 6.6% and 5.3%, respectively, during the first four weeks of Q4 2011. In the year-ago quarter, BWW posted same-store sales gains of 8.9% at company-owned locations and 5.9% at franchise locations. ...

Outside of earnings, Buffalo Wild Wings has been one of the fastest-growing full- service restaurant chains around. The company operates in a crowded space with a bevy of competitors, but we like the effort to expand beyond its Rust Belt core and its simple strategy of selling "wings, beer and sports." The concept still has plenty of room for growth in North America, as well as other locations around the world.

Meanwhile, the combination of menu price increases and the possibility of eventually switching to a per-pound pricing model over the original per-wing pricing should ease the pressure on margins. The company's solid balance sheet and cash flow characteristics should also enable it to keep funding its growth without adding leverage.

That said, elevated wing costs, aggressive price hikes, and McDonald's new "Mighty Wings" offering that is being tested, are all potential headwinds, at least in the near term. ...

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 Netflix (NFLX) ahead of earnings.
  • to be bullish on Shutterfly (QCOM) ahead of earnings.
  • to be bearish on Akamai (AKAM) ahead of earnings.
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