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Which Stocks Look Ready to Surge and Sink 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 DSW:

DSW has beaten analyst EPS estimates seven of the past eight quarters, missing the consensus once. Over that period, the stock has risen the next session five of eight quarters. Seasonally, the stock has risen three times in the last four years. ...

Last quarter, DSW reported net income of $29.3 million, or 65 cents per share, in its second quarter that ended July 28th. That was down from $139.9 million, or $3.96 per share, in the second quarter of 2011.

The year-earlier results included a one-time gain of $106.2 million related to its May 2011 acquisition of Retail Ventures, which was its majority owner but had to actual operations other than its 62% stake in DSW. DSW also recorded a $700,000 net charge tied to Retail Ventures in the most recent quarter.

Excluding charges or gains related to Retail Ventures, DSW's second-quarter net income was $30.1 million, or 66 cents per share, down from $33.7 million, or 74 cents per share, in the 2011 second quarter. The adjusted results topped the analyst consensus of 62 cents per share.

Revenue increased 8% to $512.2 million as sales on a same-store basis rose 4.2%. Wall Street was looking for sales of $511.2 million. ...

Outside of earnings, we've long thought highly of the DSW model, which sells brand-name footwear at a discounted price in an attractive store setting. The company has ridden a strong footwear cycle to nice growth, and built solid brand awareness and loyalty.

Meanwhile, the year-ago merger with its former parent, Retail Ventures, eliminated some redundant costs and added $140 in net operating loss (NOL) carry-forwards and tax credits that DSW has been using to reduce its effective tax rate. It has sufficient NOLs on the books to use into 2013.

In addition, DSW looks like it has solid opportunities to increase its store base and expand into more markets. ...

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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