Be Cautious going into Earnings: NPO, OMG, PNM, TDS

October 31, 2013, 10:43 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 November 1.

EnPro Industries, Inc. (NYSE:NPO) is expected to report Q3 earnings on Friday November 1 before the market open.  Analysts are expecting the company to earn $0.56 versus the $0.53 earned in the same quarter a year ago.  EnPro last issued its quarterly earnings data on August 1, when the company reported $0.87 earnings per share for the quarter, beating the consensus estimate of $0.58 by $0.29. The company had revenue of $305.80 million for the quarter, compared to the consensus estimate of $306.28 million. The stock is up 47% YTD and trading near all-time highs.  Is there still upside in shares of NPO ahead of earnings?

Shares of NPO have been trading in a range over the past six months, and currently the stock is sitting in the middle of a channel according to our real time trading report for NPO, 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 are in the middle of a channel like this one they become less attractive, from a risk control perspective, especially ahead of an earnings report.

OM Group, Inc. (NYSE:OMG) is expected to report Q3 earnings on Friday November 1.  Analysts are expecting the company to earn $0.31 per share, which would be 24% increase compared to the same quarter a year ago.  Last quarter OM Group beats by $0.12, but missed on revenues.  The company expected 2013 adjusted EBITDA levels to trend toward the lower end of its original forecast of $120-140 million.  The stock sold off about 10% over the following month, after the announcement on August 1.  However, shares are up 56% YTD and currently trading near the 52-week highs.  Is the stock a buy ahead of earnings?

The stock is trading at six-year highs, close to a test of long-term resistance, and right before earnings.  Even if the company beats estimates handily, it does not mean the stock will continue to rise, as 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, OMG is a sell/short at resistance, with risk controls in place if resistance breaks higher.

PNM Resources Inc (NYSE:PNM) is expected to report $0.65 for Q3 when the company reports on Friday November 1 before the market open, which would be a 6% decline from the same quarter a year ago.  PNM Resources Inc reaffirmed fiscal 2013 guidance and expects earnings per share in the range of $1.32 to $1.42. According to estimates, analysts are expecting the Company to report EPS of $1.38 for fiscal 2013.  The stock is up 17% YTD and trading near 52-week highs.  Should Investors buy, sell or hold into earnings? 

Price matters, as it did to Director Reitz Bonnie who sold 1,000 shares at a price of $23.91 on October 21.  Shares of PNM are getting close to a test of long-term resistance.  Even if PNM Resources is able to beat estimates on Friday, it does not mean the stock will continue to rise, as stock price matters.  The stock is trading near the yearly highs, and close to testing long-term resistance. 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 PMN a sell/short at resistance, with risk controls in place if resistance breaks higher. 

Telephone & Data Systems, Inc. (NYSE:TDS) is scheduled to report Q3 earnings on Friday November 1 before the bell.  Analysts are expecting the company to lose $0.11 per share versus $0.27 the company earned in the same quarter a year ago.  Telephone & Data Systems announced the acquisition of MSN Communications, headquartered in Englewood, Colo., for a purchase price of $40 million. MSN Communications generated annual revenues of $99 million in 2012.  The stock is up 41% YTD and trading at two-year highs.  Is the stock still a buy ahead of earnings?

Price is the most importing thing to consider right now.  Even if the company beats estimates on Friday, it does not mean the stock will continue to rise, as price matters.  The stock is trading just below long-term 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, TDS 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!

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