Earnings Predictions
for the
Week Beginning January 07, 2019

by Ian Harvey

January 06, 2019

A Quick Review of Last Week’s Market…..

The Federal Reserve's pledge to be more "patient" with its interest rate hikes erased one of the biggest obstacles to a stock market rally that went on for much of President Donald Trump's time in office.

During his appearance Friday, Powell indicated that inflation was not a concern for the Fed and the economy is still in good shape despite concerns. He also said the Fed was paying attention to the market, which is reflecting a weaker outlook than the data suggests.

Also, the Labor Department said the U.S. economy added 312,000 jobs in December. That blew past an expectation of 176,000 jobs.

The strong gains helped all three indexes bring their weekly win streaks to two, and close at their highest points since December 18.

For the week, the Dow Jones Industrial Average (DJI) finished up 1.6% at 23,433.16.

The S&P 500 Index (SPX) was up 1.8% at 2,531.94 for the week.

And the Nasdaq Composite (IXIC) also up 2.3% for the week at 6,738.86.

End Results for 2018

U.S. Indices
For the year, the Dow fell 5.6%, the S&P 500 dropped 6.2% and the Nasdaq Composite shed 3.9%, marking the worst annual performance for all three indices since 2008.

S&P 500 Sectors
Consumer Staples -11.2%. Utilities +0.5%. Financials -14.7%. Communication Services -16.4%. Healthcare +4.7%. Industrials -15%. Information Technology -1.6%. Materials -16.4%. Energy -20.5%. Consumer Discretionary -0.5%. Real Estate -5.6%.

Top Stock Gainers

  • Dow: MRK +35.8%, PFE +2.5%, MSFT +18.7%, NKE +18.5%, V +15.7%.
  • S&P 500: AMD +79.6%, ABMD +73.4%, FTNT +61.2%, AAP +57.9%, TRIP +56.5%.
  • Nasdaq 100: AMD +79.6%, WDAY +56.9%, LULU +54.7%, ORLY +43.1%, NFLX +39.4%.

Top Stock Losers

  • Dow: GS -34.4%, IBM -25.9%, DWDP -24.9%, CAT -19.4%, MMM -19%.
  • S&P 500: COTY -67%, MHK -57.6%, LB -57.4%, GE -56.6%, PRGO -55.5%.
  • Nasdaq 100: WDC -53.5%, JD -49.5%, KHC -44.7%, WYNN -41.3%, LBTYA -40.5%.

Moving Ahead…..

The fourth-quarter sell-off of 2018 created some ample opportunity in the stock market, which has now fallen behind its historical average performance in the first two years of President Trump's administration.

On-top-of the Fed's less aggressive rate hike agenda; Monday could bring the market even more forward momentum as U.S.-China trade talks resume. China's commerce ministry said the U.S. and Chinese would hold vice-ministerial level negotiations over trade in Beijing on January 7-8.

Therefore, expect to see solid gains for stocks by the end of 2019. Based on valuation levels, even if there is no earnings growth this year, this is a cheap market.

CONTROL OF EMOTIONS AND LESS PANIC WILL HELP YOUR PROFIT MARGIN!

What to Watch

Monday

Earnings - Commercial Metals, Steve Madden

Trade discussions between the U.S. and China restart on Monday

Banking giant J.P. Morgan kicks off its 37th annual Healthcare Conference in San Francisco.

  • 10:00 a.m. ISM nonmanufacturing
  • 10:00 a.m. Factory orders
  • 12:40 p.m. Atlanta Fed President Raphael Bostic

Tuesday

Earnings – Helen of Troy, Lindsay, Smart Global, AZZ

  • 6:00 a.m. NFIB survey
  • 8:30 a.m. International trade
  • 10:00 a.m. JOLTs
  • 3:00 p.m. Consumer credit

Wednesday

Earnings – Bed Bath and Beyond, KB Home, PriceSmart, Progress Software, Constellation Brands, Lennar, Schnitzer Steel, Acuity Brands, WD-40

  • 8:20 a.m. Atlanta Fed President Raphael Bostic
  • 9:00 a.m. Chicago Fed President Charles Evans
  • 11:30 a.m. Boston Fed President Eric Rosengren
  • 1:00 p.m. 10-year auction
  • 2:00 p.m. FOMC minutes

Thursday

Earnings – Synnex, Delta, FuelCell Energy

  • 8:30 a.m. Initial claims
  • 8:35 a.m. Richmond Fed President Thomas Barkin
  • 10:00 a.m. Wholesale trade
  • 12:00 p.m. Fed Chairman Jerome Powell speaks at the Economics Club of Washington D.C.
  • 12:40 p.m. St. Louis Fed President James Bullard
  • 1:00 p.m. 30-year auction
  • 1:00 p.m. Chicago Fed's Evans
  • 5:30 p.m. Fed Vice Chair Richard Clarida

Friday

Earnings - Infosys

  • 8:30 a.m. CPI
  • 2:00 p.m. Federal budget

GETTING OUT WHILST THE GOING IS GOOD!

GREED CAN BE THE UNDOING OF A GOOD PROFIT!

YOU NEED TO BE IN IT TO PROFIT!

Options Trades to Consider Based on Expected Earnings Reports:


Tuesday, January 08, 2019

Helen of Troy Limited (NASDAQ: HELE), that designs, develops, imports, markets, and distributes a portfolio of consumer products worldwide, will report earnings before the market opens. The consensus earnings estimate is $2.16 per share on revenue of $420.20 million. Consensus estimates are for earnings to decline year-over-year by 11.11% with revenue decreasing by 7.25%.

Helen of Troy is exposed to certain headwinds, such as the Beauty segment which has been delivering a weak performance for quite some time. This unit is suffering from softness in personal care category, primarily due to tough competition. Further, Beauty sales are projected to dip in low to mid-single digits in fiscal 2019, which is a concern and likely to weigh on the upcoming quarterly results.

As well, sales in the Health & Home segment are exposed to volatility owing to the cold/cough/flu season, which usually extends from November to March.

Also, management expects commodity inflation and impacts of tariff changes to weigh on Helen of Troy's cost of goods sold in fiscal 2019. This also raises concerns regarding the company's bottom-line performance in the quarter to be reported.

Helen of Troy has experienced a decrease in activity from the world's largest hedge funds in recent months. Calculations also showed that HELE isn't among the 30 most popular stocks among hedge funds. Deutsche Bank AG cut its stake in shares of Helen of Troy Limited by 25.2% in the 3rd quarter.

Option trade to consider: Buy the HELE JAN 18 2019 130.000 PUT at approximately $3.30.

 

Smart Global Holdings Inc (NASDAQ: SGH), a specialty designer of memory solutions, will report earnings after the market closes. The consensus earnings estimate is $1.77 per share on revenue of $382.24 million; but the Whisper number is a bit higher at $1.79 per share. The company's guidance was for earnings of $1.74 to $1.79 per share on revenue of $375.00 million to $390.00 million. Consensus estimates are for year-over-year earnings growth of 70.19% with revenue increasing by 44.02%.

Smart Global has an impressive book of over 250 clients from around the world-most of them major OEMs. Smart Global's most recent quarterly report was another beat-and-raise performance from the firm, and although much of its recent success is owed to wins on the server side, it certainly has exposure to IoT applications.

Smart Global serves IoT-adjacent industries like automotive and cloud computing. Smart Global uses memory tech which is less susceptible to price fluctuations. As well, the company is looking at a projected long-term earnings growth rate of 15%, suggesting that its expansion should continue strongly in the future.

Smart Global bought a company called Penguin Computing, which specialized in compute memory storage solutions for artificial intelligence and machine-learning solutions. Smart Global then used Penguin to start a new business segment called Specialty Compute & Storage (SCS), and according to Stifel analyst Kevin Cassidy, SCS is poised for lots of growth in fiscal 2019.

In an investor note, Cassidy believes the company's SCS business could generate $198 million in 2019, which could eventually reach $400 million to $500 million annually.

Cassidy said, "Smart Global's operational expertise can grow SCS's customer base, revenue, margins and free cash flow while maintaining SCS's leading edge technology."

One equities research analyst has rated the stock with a sell rating, two have issued a hold rating and five have given a buy rating to the stock. Smart Global currently has an average rating of “Buy” and an average target price of $53.17.

Option trade to consider: Buy the SGH JAN 18 2019 30.000 CALL at approximately $2.60.


Wednesday, January 09, 2019

 The beer and spirits specialist, Constellation Brands, Inc. Class A (NYSE: STZ), will report earnings before the market opens. The consensus earnings estimate is $2.04 per share on revenue of $1.91 billion; but the Whisper number is a little higher at $2.08 per share. Consensus estimates are for year-over-year earnings growth of 2.00% with revenue decreasing by 3.48%.

Constellation Brands has fallen sharply in recent months after hitting an all-time high earlier in the year. The stock is currently trading just above its 52-week low after making a small recovery over the last two weeks. Constellation has struggled to generate momentum over the past year, with shares now down more than 28% after strong December selling. Last quarter the company posted better than expected numbers on both the top and bottom line, but the results were not enough to prevent a selloff as the overall market turned lower.

Profit gains are slowing for a few reasons…..

  • ….accelerated marketing spending in support of key brands and the launch of Corona Premier appears set to push profit growth below 20% for the first time in five years.
  • …..Constellation is also allocating lots of cash toward expanding and upgrading its Mexican brewery network.
  • …..Management need to provide assurance that these spending programs will be temporary and will generate high returns, but Wall Street will be looking for the company to back up those words by forecasting a slowdown in expense growth perhaps as soon as 2019.
  • ….. Back in early October Constellation Brands equity investment in Canopy Growth, which closed a few weeks later, produced earnings volatility due to potential charges tied to shifts in the value of the marijuana specialist's stock. Canopy Growth's shares are down about 40% over the last three months.

Overall earnings estimates have been revised lower since the company's last earnings release.

Option trade to consider: Buy the STZ JAN 18 2019 160.000 PUT at approximately $3.30.


KB Home (NYSE:KBH), a homebuilding company in the United States, will report earnings after the market closes. The consensus earnings estimate is $0.93 per share on revenue of $1.35 billion; but the Whisper number is higher at $0.97 per share. Consensus estimates are for year-over-year earnings growth of 10.71% with revenue decreasing by 3.79%.

KB Home's fiscal third-quarter earnings increased a considerable 71% year over year on the back of top-line growth. As well, its top-line growth was backed by healthy and growing economy, as well as higher level of new construction demand; net order of 2,685 homes was up 3% from a year ago during the quarter.

KBH has traded lower with the overall sector over the last year, but with the stock’s recent weakness its valuation looks very attractive at this point. KBH trades at less than 7 times future earnings and analysts expect the company to grow earnings by 78% next year and by an annual average rate of 18% over the next five years. Last quarter the company had mixed results with earnings better than expected and revenue weaker than expected.

KB Home’s robust earnings trend is a result of its Returns-Focused Growth Plan and customer-centric approaches. Also, healthy housing industry and strong demand bode well for the company's earnings.

KBH’s consumer-centric Built-to-Order approach helps homebuyers to personalize their home with features and amenities of their choice. The company follows a strategy of initiating construction only after a purchase agreement has been executed. This allows KB Home to gain a competitive advantage over peers and enjoy low-cost production.

As well, the robust housing industry will continue to drive its performance in the near future. Steady job and wage growth, a recovering economy, rising rentals, rapidly increasing household formation and a limited supply of inventory point toward strong near-term demand.

KBH expects 2019 homebuilding revenues to grow 12% year over year. Additionally, it anticipates achieving gross margin of 17.5-18.2%, operating margin of 8-9%, selling, general and administrative expense ratio in the range of 9-9.5%. Also, it projects return on invested capital of more than 10%, and net debt-to-capital ratio of 40-50%.

Short interest has decreased by 10.2% since the company's last earnings release.

Given the stock’s low valuation and the market somewhat optimistic over the Fed reducing its forecast of rate hikes for 2019 to two from three, a strong quarterly report could result in a spike in the stock.

 Option trade to consider: Buy the KBH JAN 18 2019 20.000 CALL at approximately $1.30.


Bed Bath & Beyond Inc. (NASDAQ:BBBY), a specialty retailer of domestic merchandise and home furnishings, will report earnings after the market closes. The consensus earnings estimate is $0.17 per share on revenue of $3.04 billion; and the Whisper number is the same at $0.17 per share. Consensus estimates are for earnings to decline year-over-year by 61.36% with revenue increasing by 2.89%.

Judging by Bed Bath & Beyond's nearly 50% decline in 2018, good news from the specialty retailer on Wednesday afternoon is not expected. Its last report was marked by weak sales and plunging earnings, which helped send the stock to an 18-year low. Comparable-store sales fell by less than 1%, but the retailer had to take a promotional stance while spending aggressively in its digital segment. Those trends combined to push operating profit down to just $79 million, or 2.7% of sales, from $169 million, or 5.8% of sales, a year ago.

Executives in late September reduced their outlook for the full year and said sales should end up flat while earnings sink to about $2 per share. A more challenging holiday season might cause the company to underperform even that modest forecast.\

Bed Bath & Beyond has been witnessing strained gross and operating margins for the last nine quarters now. Higher net direct-to-customer shipping expenses along with increased coupon expenses and lower merchandise margin have been denting margins. Also, higher SG&A expenses have been hurting operating margin.

Also, the company is grappling with soft comparable sales (comps) due to decline in number of store transactions. Strained margins and soft comps remain a threat to the company's top and bottom line in the fiscal third quarter.

The retailer had been hoping to return to earnings growth by 2020 but will likely update that prediction to account for actual results from the latest holiday shopping spike.

Short interest has increased by 9.7% and overall earnings estimates have been revised lower since the company's last earnings release.

Of the 14 analysts who cover the stock 8 rate it Hold, 1 rate it Sell, and 5 rate it Strong Sell.

Bed Bath & Beyond has struggled to adapt to the current retail landscape, and the stock has steadily lost value since early 2015. BBBY trades at less than 5 times earnings, but earnings are falling and expected to continue to fall moving forward. Profits are down 16% per annum over the last five years and are forecast to drop an additional 31% annually over the next five years.

Option trade to consider: Buy the BBBY JAN 18 2019 12.000 PUT at approximately $1.10.


Thursday, January 10, 2019

Atlanta, GA-based carrier Delta Air Lines, Inc. (NYSE:DAL), will report earnings next week. This information has been removed and will now appear in next week's earnings predictions.

An Important Note: That these suggestions for options trade considerations require investors/traders to use their own discretion as to when to enter or exit! As well, it is advisable to do further research and due diligence before executing your trade.

It is sometimes best to exit a trade, if there is already sufficient profit accrued, before an earnings report is presented.

GETTING OUT WHILST THE GOING IS GOOD!

GREED CAN BE THE UNDOING OF A GOOD PROFIT!

If you wish to receive more options trading recommendations similar to this, which will help boost your portfolio strategy, check out the other  memberships available at Stock Options Made Easy.

When To Exit A Trade Based On Earnings?.....

It is also worth considering, when options trading earnings reports – “Do we exit on already existing profits or leave the companies to report their earnings and hope for bigger profit?” 

As most traders realize, there is a 50/50 chance that the company stock price could go either way after reporting earnings – even if the report is good, the stock price could reverse – and if you hold a call option, means depletion of an already good profit if it exists. A similar situation can be found if you hold a put option, and a report is not that sound (and you expect a profit from this) but the stock price can, at times move upwards due to traders bias or other external conditions......READ MORE.....

The Decision Is Yours!

Before You Trade Consider This Strategy……

"Trading Capital Management" is a key component of your trading strategy. The strategy, on which we base our trades to achieve maximum profit, and to minimize loss, is contingent on using an equal amount of money for each trade.

……continue reading this article……


Best of Trading,
Ian Harvey
Director of Stock Options Made Easy


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