Cree, Rackspace, Two Others Set to Report

NEW YORK (TheStreet) –- The stocks of four companies that are scheduled to report their quarterly results during the next two days are profiled here as earnings season winds down.

First up after Monday’s closing bell is Rackspace (RAX), a company that provides data-center hostiing services and that was a momentum stock until January 2013. The stock set a multiyear low at $26.18 on May 9, and is down 22% year to date.

Paint and coatings maker Valspar (VAL) will report before the opening bell on Tuesday. It set an all-time high at $82 on July 18, and traded as low as $74.46 on Aug. 1.

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Two companies that will report after the closing bell on Tuesday are LED lighting company Cree (CREE), whose stock is down 21% year to date, and watchmaker Fossil (FOSL), which is down 13% year to date.

Before taking a detailed look at today’s stock profiles, let’s look at this week’s key levels for the major equity averages.

On Friday, I suggested that investors book profits when I presented the case for a “Black Hole” bear market. Overly simplified, the Nasdaq Composite Index needs to close above its five-week modified moving average at 4368 this week to avoid having a negative weekly chart profile.

Here are today’s stock profiles. Two “crunching the numbers” tables follow.

Cree ($49.40) has been below its 200-day simple moving average at $62.35 on Feb. 25, trading as low as $44.52 on May 15. The stock closed on Friday above its 50-day SMA at $48.76 and below its 200-day SMA, which is now at $55.12.

Analysts expect the company to report earnings per share at 31 cents. Cree has a 12-month trailing price to earnings ratio of 39.4 and does not pay a dividend.

The weekly chart is positive with its five-week modified moving average at $49.01 and its 200-week simple moving average at $44.22. Semiannual and annual value levels are $35.77 and $32.52, respectively, with a monthly pivot at $50.37 and weekly and annual risky levels at $51.22 and $55.64, respectively.

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Fossil ($104.37) has been below its 200-day SMA at $113.40 since April 4, trading as low as $97.29 last Monday, although it closed on Friday above its 50-day SMA at $103.46.

Analysts expect the company to report earnings of 96 cents per share. Fossil has a 12-month trailing P/E ratio of 16 and doesn't pay a dividend.

The weekly chart is positive with its five-week MMA at $103.07 and its 200-week SMA at $99.07. Weekly and monthly value levels are $100.08 and $89.85, respectively, with annual and quarterly risky levels at $111.30 and $133.06, respectively.

Rackspace ($30.37) has been below its 200-day SMA at $48.15 since Nov. 12, trading as low as $26.18 on May 9. The stock is below all five moving averages in the first “crunching the numbers” table with its 200-day SMA now at $35.81.

Analysts expect the company to report earnings of 17 cents per share. It has a 12-month trailing P/E ratio of 48.7 and doesn't pay a dividend.

The weekly chart is negative with its five-week MMA at $32.14 and its 200-week SMA at $44.64. A weekly value level is $26.91with a monthly pivot at $30.48 and quarterly and semiannual risky levels at $51.44 and $61.06, respectively.

Valspar ($77.20) closed on Friday above its 50-day SMA at $76.24. Analysts expect the company to report earnings per share of $1.16. Valspar has 12-month trailing P/E ratio of 19.8 and a dividend yield of 1.4%.

The weekly chart is neutral with its five-week MMA at $76.17 with declining 12x3x3 weekly slow stochastics. Annual value levels are $58.67 and $47.64 with a monthly pivot at $76.67 and quarterly and semiannual risky levels at $81.94 and $83.69, respectively.

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Crunching the Numbers with Richard Suttmeier: Moving Averages & Stochastics

This table provides the technical status for the stocks profiled in today’s report.

The 12-month trailing price to earnings ratio

The Dividend Yield

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 readings from 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 or not 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 and as a "reversion to the mean" over a rolling three to five year horizon.

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 and I consider this level as a shorter-term "reversion to the mean" over a rolling six- to 12-month horizon.

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.

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-until-canceled GTC 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.

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This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

TheStreet Ratings team rates CREE INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

"We rate CREE INC (CREE) 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, largely solid financial position with reasonable debt levels by most measures and impressive record of earnings per share growth. However, as a counter to these strengths, we find that the stock has had a generally disappointing performance in the past year."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • CREE's revenue growth has slightly outpaced the industry average of 8.9%. Since the same quarter one year prior, revenues rose by 16.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • CREE has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 5.48, which clearly demonstrates the ability to cover short-term cash needs.
  • 45.24% is the gross profit margin for CREE INC which we consider to be strong. Regardless of CREE's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, CREE's net profit margin of 6.94% is significantly lower than the industry average.
  • 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, CREE INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • CREE's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 32.10%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Although its share price is down sharply from a year ago, do not assume that it can now be tagged as cheap and attractive. The reality is that, based on its current price in relation to its earnings, CREE is still more expensive than most of the other companies in its industry.

Richard Suttmeier is the chief market strategist at ValuEngine.com. He has been a professional in the U.S. Capital Markets since 1972, transferring his engineering skills to the trading and investment world.

Suttmeier has an engineering degree from Georgia Tech and a Master of Science degree from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. He became the first long bond trader for Bache in 1978, and formed the Government Bond Department at LF Rothschild in 1981, helping establish that firm as a primary dealer in 1986. This experience gives him the insights to be an expert on monetary policy, which he features in his newsletters, and market commentary.

Suttmeier's industry licenses include, Series 7 and Registered Principal (Series 24). He has been the Chief Market Strategist for ValuEngine.com since 2008 and often appears on financial TV.

Click here for details on Suttmeier's "Buy and Trade" investment strategy.

Richard Suttmeier can be reached at RSuttmeier@Gmail.com

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