Is the KEX Executive Sale a Leading Indicator?

October 24, 2013, 10:21 am ET, BY Neal- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

A few very important earnings releases are coming over the next few days.  We have conducted an analysis of these companies in order to provide investors with a summarized earnings analysis (both past and present), but also, and more importantly, a price-based observation that might be better suited for investors who are anticipating price action after earnings are released.

Of course, we already know that stocks sometimes do the exact opposite of what we might expect after earnings.  A stock might fall after it beats estimates, or increase after a miss, so although an evaluation of earnings data is clearly important, a close look at the recent decisions of smart money is as well.

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 28 2013.

Edwards Lifesciences Corp (NYSE:EW) is expected to report $0.66 per share for its third quarter when the company reports on Monday October 28, versus $0.58 it earned last year during same quarter.  The company has met or exceeded analyst estimates in six of the last eight quarters.  The FDA approved revised labeling for the Edwards Lifesciences’ Sapien Transcatheter Heart Valve making the device available to an expanded group of patients recently.  The stock is down 14% YTD, however it is up 25% from the 52-week low in late April.  Should investors buy, sell or hold EW ahead of earnings?

The stock is up 22% in the last 6 months, and is very close to a test of resistance right before earnings.  Even if the company beats estimates, 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, EW is a sell/short at resistance, with risk controls in place if resistance breaks higher.

Kirby Corporation (NYSE:KEX) is scheduled to report earnings on Monday October 28.  Analysts’ expectations are for the company to earn $1.12 for the quarter versus $0.95 the company earned last year during the same quarter.  The company reported Q2 earnings of $1.08 per share, $0.03 better than the consensus estimate of $1.05; revenues rose 10.2% YOY to $563.91 million versus the $566.6 million consensus.  The stock is up 46% YTD and trading close to all-time highs.  Is KEX still a good buy at current levels?

Stock price matters, and it mattered to Kirby Corp’s CEO, who sold 160,007 shares at $79.43-81.66 on 9.3 & 9.4, worth $12.9 million.  Right now, the stock is trading near an all-time high, and close to a test of long-term resistance.  If the stock tests resistance, and remains below resistance, as defined in our real time trading report for KEX, Stock Traders Daily expects lower levels and a test of support.  That would make KEX a sell/short at resistance, with risk controls defined as a break above resistance.

Merck & Co., Inc. (NYSE:MRK) is expected to report $0.88 for its third quarter on Monday October 28, which would be $0.07 less than a year ago in the same quarter.  MRK announced a new restructuring and cost reduction program that is expected to reduce annual operating expenses by approximately $2.5 billion by the end of 2015, versus 2012 levels. It expects to realize $1 billion of the savings by the end of 2014, mostly from SG&A and R&D.  The stock is up 13% YTD and up 38% over a two-year period.  Should investors buy, sell or hold MRK ahead of earnings?

According to the real-time trading report offered by Stock Traders Daily, shares of MRK are near a test of support, and as a rule, we are buyers when support is tested. From there, as long as the stock remains above support we would expect a full oscillation to resistance again, so we would be buyers, expecting higher levels and a test of resistance.  However, support also acts as our risk control, and if support breaks lower, we would be selling that position.

Roper Industries, Inc. (NYSE:ROP) is expected to report earnings of $1.45 per share for Q3, which would be an increase of 17% from the same quarter a year ago.   Q2 earnings were $1.31 per share, $0.01 better than the consensus estimate of $1.30; revenues rose 11.0% YOY to $804.9 million versus the $806.67 million consensus.  Roper also said during the last conference call that it expects second-half organic growth between 6% - 8%, compared to its prior expectation of 7% - 9%.  The stock is up about 20% YTD, and up 7% in the last few months.  Is this stock a good buy ahead of earnings?

According to the real-time trading report offered by Stock Traders Daily, shares of ROP are getting close to a test of long-term resistance, and as a rule we are sellers if resistance is tested (it is not there yet).  If the stock does test long-term resistance, and remains below resistance, we would expect a full oscillation to support, that would make it a sell/short at long-term resistance. However, resistance also acts as our risk control, and if resistance breaks higher, bullish signs would surface.  We would not buy shares ahead of earnings, and would be looking to sell/short if the stock moves higher and tests long-term resistance. 

Navigating earnings can be tricky, sometimes investor’s earnings expectations are correct, but the stocks actually do the opposite of what they think it should have done after earnings, so our opinion based on price can help make investors make more well-rounded and sound investment decisions.

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