UPS, Boeing ride bumpy earnings road
A slip in shipping and the Dreamliner crash deflate prospects for both companies.
This week earnings reports and corporate guidance battle the Federal Reserve for headlines as Fed Chief Bernanke testifies before the House Financial Services Committee on Wednesday and the Senate Banking Committee on Thursday.
Bernanke will likely repeat the theme he presented last week and re-iterate that QE 3 and QE4 will continue for the foreseeable future. The problem is that stock specific negative news can trump the jawboning from the Fed. Between testimonies traders and investors will be reading the Beige Book Wednesday afternoon.
Before Bernanke speaks we will see key economic data: retail sales on Monday, CPI, industrial production, the NAHB Housing Market Index on Tuesday, and housing starts Wednesday morning. Of these, my focus is on the housing market index vs. the neutral 50 reading and single family housing starts vs. a neutral annual rate of 600,000 units.
Bernanke's testimony also begins after the market digests earnings reports from the eight stocks that report quarterly results on Monday and Tuesday. To review my pre-earnings profiles view The Street's Earnings Scorecard: Yum, Yahoo! On Deck, which includes four key bank earnings and two Dow components.
On July 5 on TheStreet, I profiled four bank stocks, two community banks and two of the four 'too big to fail' money center banks.
Here's how they performed late last week vs. my value levels, pivots and risky levels:
Commerce Bancshares (CBSH) ($45.88) matched EPS estimates earning 72 cents per share. The stock traded to a new multi-year high at $46.97 on July 11 then dipped to $45.01 the same day continuing to trade between my monthly value level at $41.48 and my semiannual risky level at $47.20. I have a weekly pivot this week at $45.44. The stock still has a "hold" rating and is 24.4% overvalued after gaining 22.6% over the last 12 months.
Bank of the Ozarks (OZRK) ($44.84) matched EPS estimates earning 57 cents per share. The stock traded to a new multi-year high at $46.85 on July 8 testing my monthly risky level at $46.27 where investors could have booked profits. My semiannual value level is $41.09 with annual and weekly pivots at $43.44 and $43.88, and the monthly risky level at $46.27. The stock still has a "hold" rating and is 26.4% overvalued after gaining 47.6% over the last 12 months.
JP Morgan Chase (JPM) ($54.97) reported a beat of a penny earning $1.45 per share. Before reporting quarterly results per-market Friday, the stock traded up to $55.87 on Thursday vs. its multi-year high at $55.90 set on May 30. At the high on Thursday and Friday investors could have booked profits at my monthly risky level at $55.58. My semiannual value level is $50.37 with a weekly pivot at $55.33. The stock still has a "hold" rating and is 17.7% overvalued after gaining 61.5% over the last 12 months.
Wells Fargo (WFC) ($42.63) beat EPS estimates by a nickel earning 98 cents per share. Before reporting quarterly results per-market on Friday the stock traded up to $43.08 on July 9 giving investors the opportunity to book profits at my weekly risky level at $43.06. My semiannual value level is $40.24 with a weekly pivot at $42.73. The stock still has a "hold" rating and is 28.0% overvalued after gaining 29.8% over the last 12 months.
Here are two brand name stocks that had negative events last Friday:
United Parcel Service (UPS) ($86.12) is a company that investors think is a proxy for the U.S. and global economies. If you believe that Fed policy will eventually work, UPS is a logical bet that an economic recovery will result in increased demand for package delivery services.
At ValuEngine we have been warning that Fed policy is not working, and when I wrote on TheStreet, The Earnings Bar Is Hurdle for Transportation Stocks on July 10 I re-iterated that transportation stocks should be considered a "source of funds" as 78.6% of all stocks in the sector are rated "strong sell" or "sell."
On Friday morning a press release from UPS told investors that the company would not meet earnings expectations and reduced full-year guidance. This is a clear sign that the economic recovery will be lackluster at best.
Last Thursday before this news, UPS set a new multi-year high at $91.78, which is between my monthly pivot, now a risky level at $91.06 and my semiannual risky level at $96.32. The key levels to hold on weakness are a weekly value level at $83.90, semiannual value level at $83.04 and a quarterly value level at $82.62. The stock still has a sell rating and is 15% overvalued after gaining 9.6% over the last 12 months.
UPS will report earnings July 23, and before that report EPS estimates should be lowered from the current consensus of $1.18 per share.
Boeing (BA) ($101.87) was flying high to a new multi-year high at $108.15 on Friday, until word came out about a fire on an Ethiopian 787 Dreamliner at London's Heathrow Airport. The stock traded as low as $98.99 on this news.
On July 10 I wrote on TheStreet, Book Profits on Aerospace Stocks, where I explained that additional sequestration spending cuts loom. In this post Boeing was downgraded to sell from hold, which is a call to book profits on this industry leader. Thursday's high was between my monthly pivot at $103.24 and my semiannual risky level at $109.49. This week's risky level is $104.12. My annual value levels are $93.21 and $88.82. After Friday's weakness Boeing has been upgraded to "hold" from "sell." The stock is 40.0% overvalued after gaining 42.1% over the last 12 months.
Boeing reports earnings July 24, and analysts' consensus is $1.57 per share.
At the time of publication the author held no positions in any of the stocks mentioned.
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