NEW YORK (TheStreet) -- This earnings season has seen lots of volatility for stocks following quarterly reports. This is why investors need to understand the risk/reward for a stock, including its year-to-date return before its earnings report, and what the key trading levels are.
Today we'll look at how to trade shares of the following companies, which plan to report earnings after the closing bell Monday: Netflix (NFLX - Get Report), Chipotle (CMG - Get Report), Texas Instruments (TXN - Get Report), Zions Bancorp (ZION - Get Report) and Packaging Corp. (PKG - Get Report).
The best year-to-date performer is Netflix, which is up 21%. There is a second-place tie between Chipotle and semiconductor giant Texas Instruments, both of which are up 11%.
The PHLX Semiconductor Index, also known as the SOX, is up 20% on the year, so Texas Instruments is a laggard.
The BKW Banking Index is a year-to-date laggard and is up just 2.2%, but component Zions down 3.9%.
Packaging Corp., producer of containerboard and corrugated packaging products, is up 6.9% year to date, and its earnings report and guidance should be considered an indicator for broader economic growth.
Let's take a look at the stock profiles. Two "Crunching the Numbers" tables follow.
Chipotle ($592.42) set an all-time intraday high at $622.90 on March 21 then declined to as low as $472.41 on April 28 as investors temporarily became concerned about elevated price-to-earnings ratios. The stock was below its 200-day simple moving average as a short-term "reversion to the mean" between April 28 and May 21. This moving average is now at $538.06.
Analysts expect Chipotle to report earnings per share of $3.05. The stock's price-to-earnings ratio, based on trailing 12-month earnings, remains elevated at 54. Chipotle is not a dividend stock.
The weekly chart is positive but overbought with its five-week modified moving average at $580.13. Monthly and quarterly value levels lag at $565.69 and $501.02, respectively, with a semiannual pivot at $608.44 and weekly and semiannual risky levels at $645.80 and $654.89, respectively.
Netflix ($444.17) traded to an all-time intraday high at $475.87 on July 2 after trading as low as $299.50 on April 28 on the concerns about valuations. The stock traded back and forth around its 200-day SMA between April 7 and May 16, and the 200-day moving average is now $379.20.
Analysts expect the company to report EPS of $1.14. The company's 12-month trailing P/E ratio remains extremely elevated at 134. Netflix is not a dividend stock.
The weekly chart is positive but overbought with its five-week MMA at $429.77. Semiannual value levels lag at $359.04 and $341.57 with monthly and quarterly risky levels at $463.61 and $472.26, respectively.
Packaging Corp. ($67.67) traded to an all-time intraday high at $75.09 on March 6 and is now just above its 200-day SMA at $66.10.
Analysts expect the company to report EPS of $1.10 after the closing bell today. The company's 12-month trailing P/E ratio is 16.4 with a dividend yield of 2.4%.
The weekly chart is negative with its five-week MMA at $69.28. Semiannual value levels are $66.90 and $54.88 with weekly and monthly risky levels at $72.28 and $73.66, respectively.
Texas Instruments ($48.82) set a multiyear intraday high at $49.77 on April 1 then traded as low as $44.54 on April 16 and is well above its 200-day SMA at $44.53.
Analysts expect the company to report EPS of 59 cents. The stock's 12-month trailing P/E is 23.5 with a dividend yield of 2.5%.
The weekly chart is positive but overbought with its five-week MMA at $48.02. Semiannual and annual value levels are $41.08 and $34.21, respectively, with a monthly pivot at $49.08 and semiannual and quarterly risky levels at $49.32 and $50.54, respectively.
Zions Bancorp ($28.78) set a multiyear intraday high at $33.33 on March 20 and the stock has been trading back and forth around its 200-day SMA at $29.52 since April 11.
Analysts expect the regional bank to report EPS of 46 cents after the closing bell today. The company's 12 month trailing P/E ratio is 16.6 with a dividend yield of just 0.6%.
The weekly chart is neutral with its five-week MMA at $29.42 with a rising 12x3x3 weekly slow stochastic reading. A semiannual pivot is $28.29 with weekly and monthly risky levels at $30.52 and $31.18, respectively.
Crunching the Numbers With Richard Suttmeier: Moving Averages & Stochastics
This table provides the technical status for the stocks profiled in today's report.
There are five columns with moving average titles: Five-Week Modified Moving Average; 21-Day Simple Moving Average; 50-Day Simple Moving Average; 200-Day Simple Moving Average; and the 200-Week Simple Moving Average.
The column labeled 12x3x3 Weekly Slow Stochastics shows the pattern on each weekly chart with a reading of oversold, rising, overbought, declining or flat.
Interpretations: Stocks below a moving average are listed in red.
Five-Week Modified Moving Average (MMA) is one of two indicators that define whether a weekly chart profile is positive, neutral or negative. The other is the status of the 12x3x3 weekly slow stochastic.
A stock with a positive technical rating is above its five-week MMA with rising or overbought stochastics.
A stock with a negative technical rating is below its five-week MMA with declining or oversold stochastics.
A stock with a neutral technical rating has a profile that is not positive or negative.
The 200-Week Simple Moving Average (SMA) is considered a long-term technical support or resistance level and as a "reversion to the mean" over a rolling three- to five-year horizon. (Even Apple (AAPL) declined to its 200-week SMA in June 2013.)
The 21-Day Simple Moving Average is a short-term technical support or resistance used by many hedge fund traders to adjust positions. A stock above its 21-day SMA will likely move higher over a rolling three- to five-day horizon and vice versa.
The 50-Day Simple Moving Average is also a technical support or resistance used by many strategists and commentators in financial TV.
The 200-Day Simple Moving Average is another technical support or resistance level, and I consider this level as a shorter-term "reversion to the mean" over a rolling six- to 12-month horizon. (Even Apple tested or crossed its 200-day SMA in nine of the last 10 years.)
Crunching the Numbers With Richard Suttmeier: Earnings & Where to Buy & Where to Sell
This table presents the EPS estimates including date and before or after the close, and where to buy on weakness and where to sell on strength.
"EPS Date" is the day the company reports its quarterly results.
"EPS Estimate" is the EPS estimate from Wall Street analysts.
Value Levels, Pivots and Risky Levels are calculated based upon the last nine weekly closes (W), nine monthly closes (M), nine quarterly closes (Q), nine semiannual closes (S) and nine annual closes (A). I have one column for pivots, which is a magnet for the period shown. The columns to the left of the pivots are first and second value levels. The columns to the right of the pivots are first and second risky levels.
Investors who wish to buy a stock should use a good-'til-canceled limit order to buy weakness to a value level. Investors who want to sell a stock should use a GTC limit order to sell strength to a risky level.
At the time of publication the author held no positions in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff
Now let's look at TheStreet Ratings' take on some of these stocks.
TheStreet Ratings team rates NETFLIX INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:
"We rate NETFLIX INC (NFLX) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance and impressive record of earnings per share growth. However, as a counter to these strengths, we find that the company has favored debt over equity in the management of its balance sheet."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 4.8%. Since the same quarter one year prior, revenues rose by 24.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Powered by its strong earnings growth of 1620.00% and other important driving factors, this stock has surged by 63.98% over the past year, outperforming the rise in the S&P 500 Index during the same period. Although NFLX had significant growth over the past year, our hold rating indicates that we do not recommend additional investment in this stock at the current time.
- NFLX's debt-to-equity ratio of 0.61 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.74 is weak.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. When compared to other companies in the Internet & Catalog Retail industry and the overall market, NETFLIX INC's return on equity is below that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: NFLX Ratings Report
TheStreet Ratings team rates TEXAS INSTRUMENTS INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:
"We rate TEXAS INSTRUMENTS INC (TXN) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth, compelling growth in net income, revenue growth and notable return on equity. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Powered by its strong earnings growth of 37.50% and other important driving factors, this stock has surged by 27.04% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, TXN should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- TEXAS INSTRUMENTS INC has improved earnings per share by 37.5% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, TEXAS INSTRUMENTS INC increased its bottom line by earning $1.92 versus $1.50 in the prior year. This year, the market expects an improvement in earnings ($2.32 versus $1.92).
- The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Semiconductors & Semiconductor Equipment industry average. The net income increased by 34.5% when compared to the same quarter one year prior, rising from $362.00 million to $487.00 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 9.7%. Since the same quarter one year prior, revenues slightly increased by 3.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Semiconductors & Semiconductor Equipment industry and the overall market, TEXAS INSTRUMENTS INC's return on equity exceeds that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: TXN Ratings Report