3 Easy Money Stocks That Will Pop After Earnings
It’s the last quiet week of earnings announcements before the rush of first quarter results hit the wires. But never fear, I’ve uncovered three companies that are poised to beat earnings and most likely put some profits in your pockets.
All three should be considered “EZ money stocks” as they’ve regularly rewarded investors in the days surrounding their quarterly results. Each has the potential to return more than 15 times the average 1-year CD rate of 0.28%, according to Bankrate.com.
Walgreens Boots Alliance Inc. (NASDAQ: WBA) – Consistently a Money Maker
In the last three years, the consumer services company’s stock price headed higher on nine out of 12 quarterly checkups. On average, WBA shares increased 3.83% in the three days before and after winning announcements.
The drug store chain will release its fiscal 2016 second quarter earnings results at 7 a.m. Eastern time Tuesday, April 5th, 2016, followed by a conference call with management beginning at 8:30 a.m. Eastern time.
Wall Street analysts believe the company will earn $1.28 per share. After watching this company for many years my estimate is a nickel higher. Anticipate WBA putting something closer to $1.33 on the bottom line. If we’ve made the right call, it will be the sixth consecutive bullish surprise.
It’s no surprise that Walgreens consistently bypasses the consensus as the company has better than average earnings power. The retailer boasts a healthy return-on-equity (ROE) of 17.41%, assets outpacing liabilities, and a stockpile of cash.
Quality of earnings gets a bullish checkmark, too. In the first quarter, year-over-year (YoY) revenue increased by an attractive 48.5%. Meanwhile, selling, general and administrative expenses (SG&A) rose at a slower pace of 35.4%. The difference means higher operating profit margins, which in turn means more money filters to the bottom line.
Don’t be surprised to see the trend of lower costs relative to sales continue as increasing efficiencies is a priority of WBA’s Board of Directors.
While bettering financial statement ratios is primacy for management, increasing foot-traffic is the domain of register receipts. According to Google Trends, searches for the keywords “Walgreens hours” hopped 18% compared to last year. An increase in the search term “Hours” is a good proxy to approximate an increase in the number of customers walking the aisles.
In this case, it should translate to more shoppers and more money for Walgreens Boots Alliance and investors on Tuesday morning.
Darden Restaurants, Inc. (NYSE :DRI) – Cooking Up Predictable Profits
Darden plans to release its fiscal 2016 third quarter financial results before the market opens on Tuesday, April 5th, 2016, with a conference call to follow at 8:30am ET.
The number crunchers and opinion makers predict the restaurants chain operator will earn $1.19 for the quarter, up 20 cents compared to last year. Management already set expectations of diluted net earnings per share from continuing operations to be approximately $1.18 to $1.21. My estimate is even higher at $1.25.
For those who don’t know, DRI owns and operates approximately 1,500 restaurants under the Olive Garden, LongHorn Steakhouse, Bahama Breeze, Seasons 52, The Capital Grille, Eddie V’s, and Yard House brand names. You’ve probably heard of at least one of them or even had a bite there.
Like Walgreens, another positive earnings surprise would make it six in a row for the restaurateurs. Shares of DRI moved higher during the three days before and after announcing quarterly reports seven of the last 12 quarters, including the last five in a row.
When investors give results a positive review, the average gain is a little more than 4% – not bad for six days work. Last time out, the stock popped 9.09%. Hopefully, the nearly double-digit trend continues.
Speaking of trends, Google Trends show healthy search volumes for all restaurant brands except The Capital Grill. However, the flagship name, Olive Garden increased nicely with Eddie V’s and Yard House rising sharply YoY.
The latter two should incrementally add to the health of the Darden’s financial statements. Extra dough should make for something sweet when earnings are announced. Management lowered costs YoY, increasing profit margins.
Cost of Goods Sold (CoGS) dipped to 80% of revenue from 82%, and SG&A slid to 9.9% of sales from 12.5% compared to 2015. Over on the balance sheet, inventory also dropped as a percent of the top-line. Normally, the triumphant trio provides an easier path to bullish earnings surprises.
The combination of management’s up-to-date guidance, web searches, and favorable financial statement trends make another better than expected earnings announcement from Darden Restaurants a near lock.
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ConAgra Foods Inc. (NYSE: CAG) – Stepping into Gains for Shareholders
CAG will host its third quarter earnings webcast and conference call on Thursday, April 7th, 2016.
ConAgra is a “Food Giant” with more than 39,000 employees. Some of their recognizable brand names include Banquet, Chef Boyardee, Egg Beaters, Healthy Choice, Hebrew National, Orville Redenbacher’s, Peter Pan, Reddi-wip, Slim Jim, Swiss Miss, Van Camp’s, and Wesson.
Wall Street believes CAG will be stepping into $0.59 per share, the same as last year. However, the AlleyEstimate says earnings might come in higher than expected. ConAgra could go all the way to $0.63 per share.
Last quarter the company disappointed, missing the consensus view by a penny. A return to winning ways would most likely propel shares higher. Eight out of the last 12 quarters, shareholders celebrated modest gains. Typically, CAG’s price fed investors a 3.9% profit in the three days before and after earnings announcements.
Food companies are notorious for slim profit margins. Literally, every penny in savings can have an outsized impact. Fortunately, the consumer goods company cut costs YoY and quarter-over-quarter (QoQ).
The combination of CoGS and SG&A were trimmed to 85.72% of revenue versus 88.47% and 87.85%, versus a quarter ago and last year, respectively. While the difference might not seem like much, a 2% improvement means as much as an extra penny and a half in earnings per share (EPS). That is the difference between a bullish and bearish surprise and hundreds of millions of dollars in market value.
Pricing power is also a key driver for food companies. A lot of the stuff is perishable. The more that gets tossed in the garbage, the less money a company makes if they can’t pass the cost to customers. Again, the balance sheet shows management’s efforts to keep prices higher. Inventory is down 22% compared to last year, which means less waste and a greater take for CAG.
ConAgra Foods’ cost cutting and inventory control should put the company on track for a positive surprise and rising fortunes for the stock price.
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Note: Rich Bieglmeier is the author of this article. He has practiced the art of technical analysis and the science of fundamental analysis since 1991. He draws on a wealth of experience and practical application to help investors find actionable investment opportunities.
Category: Stocks
