Ahead of Earnings: MTX, TRMB, SCG

October 30, 2013, 10:17 am ET, BY Neal- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Earnings season is upon us again, and as companies are releasing their earnings, we are going to offer investors a brief pre-earnings analysis of current and past quarters.  Our focus will be on price, and how stocks might react after earnings reports based on the recent stock price changes. 

We all know it is difficult to predict what a stock might do solely based on information released during earnings.  Sometimes stocks go lower after beating estimates, and the reverse is true as well, so it is also important to factor in what smart money has been doing relative to the stock price.

This combination of simple earnings data and price-based analysis can help investors not only understand earnings results, but also anticipate the stock’s move after earnings are released.

The following Companies report earnings on October 31.

Minerals Technologies Inc (NYSE:MTX) is scheduled to report its quarterly earnings on Thursday October 31 after the market close.  Analysts are expecting the company to post $0.61 per share versus $0.53 it earned a year ago in the same quarter.  The company announced that its Board of Directors has authorized a $150 million share repurchase program that it will execute over a two-year period. This authorization will become effective when the current two-year $75 million program is completed in October of this year.  Shares are up 40% YTD, and up 13% in the last month.  Should investors buy, sell or hold shares before earnings? 

Based on the Stock Traders Daily real-time trading report, the stock has broken above long-term resistance, which is now converted support. That is a very bullish sign, and so far, converted support is holding, and as long as that remains true, the rules that govern our strategies tell us to expect higher levels.  However, converted support also acts as our risk control, and if converted support breaks lower, we would sell that long position.  We are buyers of MTX at that converted support level, as long as converted support holds. 

Trimble Navigation Limited (NASDAQ:TRMB) is expected to earn $0.36 per share when the company reports Q3 earnings on Thursday October 31 after the market close, which would be $0.02 better than the same quarter a year ago.  The company recently introduced the Trimble RTX mobile app, built to serve end users across the survey, mapping and agriculture markets. Trimble Navigation also announced that its Trimble CenterPoint RTX correction service will be available to survey and land administration professionals around the world.  The stock is down fractionally this year and down about 7% from the 52-week highs earlier this year.  Should investors buy shares at current levels ahead of earnings?

During 2013, smart money has been selling shares of TRMB when the stock trades near resistance.  Now, after a 16% gain in the last two months, the stock is sitting close to resistance again, but this time right before earnings.  Even if the company beats estimates, it does not mean the stock will continue to rise, as the chart shows that price matters.  According to rule, we are sellers at resistance, and as long as the stock remains below resistance, we expect lower levels and a test of support. Based on the real-time trading report published by Stock Traders Daily, TRMB is a sell/short at resistance, with risk controls in place if resistance breaks higher.

SCANA Corporation (NYSE:SCG) is scheduled to report quarterly earnings on Thursday October 31 before the bell.  Analysts are estimating the company will earn $0.92 per share versus $0.93, which it earned in the same quarter a year ago.  The company reported Q2 earnings in June of $0.60 per share, $0.06 better than the consensus estimate of $0.54; revenues rose 11.9% YOY to $1.02 billion versus the $931 million consensus. Scana issued in-line guidance for FY13, estimating EPS of $3.25-3.45 vs. $3.35 consensus estimate.  The stock is off more than 12% from the 52-week highs.  Should investors buy, sell or hold shares ahead of earnings?

Shares of SCG are down over 8% in the past three months, however the stock has already moved up 6% off the recent test of support.  Currently the stock is sitting in the middle of a channel according to our real time trading report for SCG, so it does not look attractive as a buy ahead of earnings.  By definition we prefer to buy near support levels when they are tested because that allows us to maximize our return, our target is resistance and we want to get the complete oscillation from support to resistance, but it also helps us control risk, and that is the most important part.  When stocks have already moved higher from support like this one, they become less attractive, from a risk control perspective, especially ahead of an earnings report. 

Although earnings season can bring with it a host of surprises, the simple approach may sometimes be the best choice, and our attempt here has been to provide a straightforward data-driven look-ahead analysis to prepare investors for the earnings report that lies ahead.  Good trading!

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