Two Blowout Earnings Reports and What to Look For to Predict One
We've now seen the first two Mag 7 earnings reports from the Q2 earnings season, and Wall Street didn't like them. Alphabet (GOOGL) actually beat consensus estimates on both the top and bottom lines, but it didn't seem to matter.
GOOGL showed decent relative strength going into the report, and delivered strong results, but it seems the good news was already baked into the price as, by the next morning, there was definitely a "sell on the news" price action. If there's a positive here, it's that despite gapping down after earnings, GOOGL mostly held its own after that.
The same cannot be said for Tesla (TSLA), which was crushed after missing its earnings estimate, $0.33 vs. $0.50.
TSLA looked awful going into earnings and I said as much recently. I didn't expect good news from TSLA and we didn't see any. Instead, the lack of relative strength was a hint of missed estimates and, in that regard, TSLA delivered.
But while earnings news thus far hasn't helped the Mag 7, there have already been a couple of massive beats. Let's check those out.
First, World Kinect Corp (WKC) had been trading very strong heading into earnings and for good reason. WKC beat revenue estimates by nearly 30% and absolutely crushed its earnings estimate, $1.29 vs. $0.75. That led to a gap higher on Friday, though we did see some selling after that opening strength.
This is exactly what I want to see heading into an earnings report: absolute and relative strength of a stock and its peer group showing relative strength vs. the S&P 500 ($SPX). That's usually a sign of an upcoming strong earnings report and, again, that's exactly what we saw.
Health care providers ($DJUSHP) have been strengthening for the past four months. While other strong areas like semiconductors ($DJUSSC) have weakened over the past four to six weeks, the DJUSHP just keeps on trucking higher. The group does show a negative divergence on its daily chart, though, so expectations should be lowered in the very near-term. Still, this is a group that has shown excellent relative strength and I'd expect strong reports coming out.
Speaking of strong health care provider reports, Tenet Healthcare Corp (THC) attempted a major breakout after reporting way-above-expectation revenue and earnings. Revenues easily cleared estimates by roughly 5%, while earnings came in at $6.12 despite consensus estimates having been pegged at $4.08, a 50% beat. The initial reaction is probably about what you might expect.
Check out THC's volume, which was the highest of the past 52 weeks. THC had not been a leader within the health care provider space, but might just be for the foreseeable future. The stock needs a breakout; from there, I'd look for a solid uptrend to take place. Friday's intraday high of 246.81 nearly eclipsed the stock's all-time high of 247.21, set just under five months ago, in early March. Given the strength in the group, I'd keep THC on a watchlist. It's now on our Strong Earnings ChartList (SECL), which we provide to our EarningsBeats.com members.
Q2 Earnings Event
First, I plan to feature the strongest Mag 7 stock in our FREE EB Digest newsletter on Monday morning as it approaches its earnings date this week. If you're not already an EB Digest subscriber, you can CLICK HERE to enter your name and email address to get your free subscription started. I'll send you that Mag 7 stock first thing Monday morning.
Next, I'll be hosting our quarterly earnings event, this time our Q2 Earnings webinar, on Monday, July 27th, at 5:00pm ET. Attendance requires a paid membership, but a FREE 30-day trial will do the trick. I'll be announcing companies that I believe are setting up to absolutely blow away Wall Street's consensus estimates, similar to WKC and THC. I'll also provide other companies that have already reported strong results, highlighting key price, gap, and moving average support to consider for potential entry.
I hope to see you on Monday!
Happy trading!
Tom
