These 4 Stocks Could See Negative Catalysts From Earnings -- but What Do the Charts Say?
Morgan Stanley highlighted 14 stocks for which the firm believes that "one or more imminent events will drive the share price materially over the next 15-60 days," according to a July 18 note to clients.
For each of the 14 stocks, the covering Morgan Stanley equity analyst has "high conviction in a view that diverges from the Street's" and identifies a near-term event, primarily quarterly earnings results, that could drive the stock higher or lower. The report listed nine stocks for which the covering analyst has identified positive potential stock catalysts and five with negative potential stock drivers.
But how does the technical analysis of each stock stack up? TheStreet paired the Morgan Stanley's fundamental analysis with technical analysis from Bruce Kamich, our in-house chartist.
Here are Morgan Stanley's negative catalyst picks paired with Kamich's technical analysis. TheStreet excluded Relypsa (RLYP) from Morgan Stanley's negative catalyst list due to the news on Thursday that the biotech will be acquired by Galencia for $1.53 billion.
Gilead Sciences
reports quarterly financial results on July 25.
Morgan Stanley analyst Matthew Harrison estimates quarterly earnings of $2.80 a share, 3.7% below consensus, driven mainly by lower HCV sales, the note said.
"Gilead is driven by Hepatitis C virus and HIV sales. We see HCV sales ~$200M below consensus due to continued pricing pressure globally and lower market share in Europe," the note said.
Bruce Kamich's Technical Analysis
The stock price of Gilead has been in a downtrend the past 12 months. Prices are now above the 50-day moving average line but below the declining 200-day average. The on-balance-volume, or OBV, line has been declining since late April and is telling us that volume has been heavier on days when Gilead has closed lower -- a sign of liquidation and aggressive selling.
Countering this more-aggressive selling is a bullish divergence between the lower lows in price from May to June and the higher lows from the 12-day momentum study.
With the trend still pointed down, it is not hard to imagine that near-term fundamental news could also be bearish.
Nordstrom
reports quarterly financial results on Aug. 11.
"Even the low-end of JWN's 2016 sales and EPS forecast requires a 2H16 comp inflection, which looks optimistic, and based on numerous indicators we track, we think JWN could potentially cut its 2016 sales outlook, likely triggering a negative EPS revision (similar to 1Q)," according to Morgan Stanley analyst Kimberly Greenberger.
Bruce Kamich's Technical Analysis
In this daily chart of Nordstrom, we can see the sharp mark down for the stock the past year. Prices are trying to stabilize as the OBV line has improved from the May low. Prices are now above the 50-day average, but below the 200-day average.
A May/June bullish divergence may be pointing to an upside surprise for Nordstrom, in my opinion.
Rackspace Hosting
reports quarterly financial results on Aug. 8.
"Rackspace has been experiencing slowing revenue growth as the pace of its public cloud segment is slowing," analyst Simon Flannery wrote. "The company is transitioning to service-only offerings for third party public clouds. The post-Brexit devaluation of the British pound negatively impacts Rackspace's 2016 revenue guidance, given Rackspace's ~25% exposure to the currency and downside risk to economic growth."
Bruce Kamich's Technical Analysis
When I look at this chart of RAX, I think there are greater odds that it rallies over $26 than it trades lower. Prices are above the 50-day and 200-day averages after a sideways trend since May. The OBV line is very bullish and tells us that buyers have been aggressive with RAX and added to long positions in recent months. The price action and the momentum study are not sending off red flags.
United Natural Foods
reports quarterly financial results in September.
"We see a negative risk/reward setup for UNFI into fiscal 4Q (July) results, expected early September; our EPS estimate of $0.62 for 4Q16 (vs. $0.72 in 4Q15) is below consensus -- we see pressure across each of UNFI's major business segments," according to analyst Vincent Sinisi.
Bruce Kamich's Technical Analysis
I see a decent-looking bottom formation when I look at this chart of United Natural Foods. The moving averages are rising and there is a golden cross of the 50-day and 200-day averages. The OBV line has been rising since March.
The rally has slowed recently (weaker momentum readings in June and July), but United Natural Foods looks like it wants to trade higher, in my opinion. I think the bears will be caught offsides.