A trading strategy built around company earnings reports can be a risky strategy. But of course, with significant risk can come significant returns.
The analyst consensus expectations of revenue and earnings per share (EPS) set the bar but it is often the case the bar gets raised by stronger than anticipated results. Conversely, the less frequent earnings misses can really sink a stock.
The second major component of a quarterly earnings report is guidance. Management’s crystal ball of what the next period or full year may show can be equally if not more important than the numbers posted in the reported quarter.
This means that finding strong earnings trade candidates involves identifying companies that are not only likely to surpass expectations but have the catalysts in place to drive further momentum. Here are three names that check both boxes.
What Can Drive an Earnings Beat at Penn National Gaming?
Penn National Gaming (NASDAQ: PENN) is set to report before the open on August 5th. The Street will be looking for EPS of $0.93 on revenue of approximately $1.4 billion. Not bad numbers especially given the company’s ties to the tourism industry, but there’s a good chance they’re even better.
The pandemic undoubtedly put Penn National Gaming’s growth plans off course yet it has moved full speed ahead to adapt its business model to the economic recovery and gaming customers of the future.
The casino and horse racing facility operator is leaning on new technology to roll out cashless, cordless, and contactless offerings. The so-called ‘three C’s’ are likely to resonate with the safety-conscious modern consumer and attract a wider, perhaps younger base to its 40-plus gaming facilities. More advanced technology is also making Penn National Gaming a more efficient company that should lead to some strong top and bottom-line results in the quarters ahead.
The company’s move into online sports betting also serves to be a solid revenue contributor and source of better-than-expected results. The recently launched Barstool Sportsbook app is off to a hot start and may be a big reason Penn National hits the jackpot for earnings traders.
Should Investors Set Their Sights on FireEye?
When FireEye (NASDAQ: FEYE) reports after the close on August 5th, the company will be judged against the $249 million in revenue and $0.09 EPS benchmarks.
Last quarter the cybersecurity play delivered mixed results but gave a better-than-expected outlook for the second quarter. The stock stumbled a bit, but then went on a nice run to reach its highest level since January 2021.
This time around FireEye looks poised to beat on both revenue and profits due to increasing demand for cybersecurity solutions amid a wave of high-profile attacks. Although consistent with management’s guidance range, the Street’s expectation for only $3 million in additional revenue compared to the second quarter seems conservative in an environment when enterprises are ramping their cybersecurity spending.
At the same time, expanding profit margins bode well for a bottom-line beat. FireEye’s adjusted gross margin expanded to an industry-leading 73% last quarter. This profit level is likely to persist as it exerts pricing power and continues to improve its cost structure.
FireEye is not only a good earnings play candidate but one of the least expensive ways to play the cybersecurity theme. As IT spending continues to recover in a post-COVID corporate world focused on protecting their assets, expect FireEye to emerge a winner.
Is Magna International Stock a Pre-Earnings Buy?
Last quarter Canadian auto technology company Magna International (NYSE: MGA) trounced the consensus EPS estimate by 18% and beat handily on the top line. The result was driven by an increase in light vehicle production worldwide especially in the key growth market of China where production soared 87%. Global production and Magna’s financials would have been even better absent the ongoing semiconductor chip shortage.
This quarter the story will likely be similar. Vehicle production remains tepid and therefore demand for Magna’s auto body exteriors and power systems is likely to have been limited. However, management has been understandably conservative with its sales estimates of late, which has set the stock up for some sizeable beats. The first-quarter report sparked a three-day climb from roughly $94 to $99 that potentially gave swing traders a 5% gain.
The second-quarter result will mainly hinge on vehicle production and therefore chip supply issues, but also consumer confidence. Although car dealers are struggling to maintain both new and used car inventory, the fact that there is strong underlying demand underpinned by rising consumer confidence is a major positive that should gradually become more apparent in Magna’s results.
Momentum has been building since late July in Magna stock since it shed 20% from its early June peak. Technical indicators point to that selloff as overdone, so there could be significantly more upside if Magna can once again deliver a positive surprise.
Before you consider Penn National Gaming, you'll want to hear this.
MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Penn National Gaming wasn't on the list.
While Penn National Gaming currently has a "Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.
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