Two More Plays for Earnings Season

Last week's article on gaming earnings surprises, using Smith Barney's proprietary research, generated a lot of interest. Readers wanted more names and more suggestions on how to play companies with upcoming earnings.

While I still can't share the full list of 78 earnings surprise candidates that the standardized unexpected earnings, or SUE, model generated for this quarter, I can highlight a couple of additional companies with upcoming earnings announcements that I think can offer an attractive risk-reward scenario based on expected earnings using my proprietary option-pricing model. Just kidding about my model: I'm really just looking to buy cheap and sell expensive to create a position with an attractive risk/reward equation. Little is proprietary about this approach.

SUE Takes a Shine to These Names

Textron(TXT Quote) operates in the private aviation business, mainly through its Cessna airplane and Bell helicopter divisions. The company reports earnings on Thursday and is expected to show a profit of 78 cents per share. This would represent a 39% increase over the year-ago period. And the projections for the following quarters and full years through 2007 remain equally upbeat, with an earnings growth rate in the 25% range.

After setting a new high at $80 in early March, the stock has pulled back about 10% as the broad market fell apart somewhat. This slide can be considered a correction rather than the start of a bearish trend. The stock now appears ready to close above important support at $72 per share.