Ahead of Earnings: DDS, CSCO, TTEK, WGL

November 12, 2013, 09:19 am ET, BY Neal- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Earnings season is winding down, and as these remaining 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 November 13.

Dillard's, Inc. (NYSE:DDS) is expected to earn $1.06 per share when the company reports its Q3 results on Wednesday November 13 before the bell, which would be $0.10 better than the same quarter a year ago.  Shares of DDS spike 7% when the company reported Q2 earnings of $0.79 per share, which was better than expected.  Meanwhile revenues fell 0.6% YOY to $1.52 billion, which missed expectations. The stock is flat YTD, and down 11% from the 52-week highs in May.  Is the stock a buy ahead of Q3 earnings?

The stock has increased 8% in the last month.  Right now price matters, as it did to Dillard's President sold 50,000 shares at $81.38 worth $4.1 million.  Shares of DDS are getting close to a test of long-term resistance.  Even if DDS is able to beat estimates on Wednesday, it does not mean the stock will continue to rise.  If the stock tests resistance, and remains below resistance, as defined in our real time trading report, Stock Traders Daily expects lower levels and a test of support.  That would make DDS a sell/short at resistance, with risk controls in place if resistance breaks higher.

Cisco Systems, Inc. (NASDAQ:CSCO) is expected to report $0.51 per share when the company reports on Wednesday November 13 after the bell,  which would be $0.03 better than the $0.48 per share in the same quarter a year ago.   Cisco announced it will buy the rest of Insieme Networks it does not already own for up to $863 million, as it looks to expand its software-defined-networking position.  The stock is up 17% YTD, but shares are off by more than 12% from the 52-week highs made in early August.  Is the stock a buy, sell or hold ahead of earnings?

Investors need to be aware of price, and based on the Stock Traders Daily real-time trading report for CSCO, the stock has been drifting closer to long-term support, but isn’t there yet. If the stock continues to move lower, and tests long-term support, we would be buyers near support. If support holds, we would expect a move higher and an eventual test of resistance. We would only be buyers near support and caution investors not to chase the stock ahead of earnings, especially after a 5% gain over the last week. 

Tetra Tech, Inc. (NASDAQ:TTEK) is scheduled to report quarterly earnings on Wednesday November 13 after the market close.  Analysts are expecting the company to earn $0.36 per share, which would be 22% less than the same quarter a year ago.   The company won a new contract to support the U.S. Environmental Protection Agency’s regional Superfund Program.  Tetra Tech will provide advisory and assistance services to EPA on-scene coordinators and other federal officials implementing EPA’s responsibilities under the National Response System. This $48 million, single-award contract has a five-year period of performance.  Shares of TTEK are currently flat YTD, and down 17% from the 52-week highs made in March.  Is the big pullback from the highs a buying opportunity ahead of earnings?

Although shares are down sharply from the 52-week highs, the stock has rallied 13% over the past three months.  Another thing to consider is that the Executive Vice President, Ronald Chu sold 6,000 shares of Tetra Tech stock in a transaction dated Tuesday, October 29, at an average price of $27.00, for a total transaction of $162,000.00.  Based on our TTEK real-time trading report, shares are near a test of resistance.  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, TTEK is a sell/short at resistance, with risk controls in place if resistance breaks higher.

WGL Holdings Inc (NYSE:WGL) is scheduled to report earnings on Wednesday November 13 after the market close.  Analysts are expecting the company to lose $0.34 per share, which would be $0.24 worse than the loss of $0.10 in the same quarter a year ago.  In August, WGL Holdings affirmed that for fiscal 2013 non-GAAP earnings guidance would be in the range of $2.42 to $2.54 per share. Analysts on an average are expecting the Company to report EPS of $2.50 for fiscal 2013.  The stock is up 14% YTD, and trading close to the 52-week highs.  Is the stock a buy, sell or hold ahead of earnings? 

Over the past six months, smart money has been selling shares of WGL when the stock trades near resistance.  Now, after an 11% gain in two months, the stock is sitting very close to resistance again, but this time right before earnings.  Even if the company beats estimates on Wednesday, 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, WGL is a sell/short at resistance, with risk controls in place if resistance breaks higher.

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!

Stock Traders Daily has been providing comprehensive market analysis, and correlated trading strategies since January 2000, which was the virtual peak of the Internet Bubble.  Our objective is to provide strategies capable of making money in any market environment, and we have been doing that since inception. 

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