The earnings schedule may seem full next week, but a closer look reveals only around 15 or so S&P 500 names on the list. Disney (NYSE:DIS) is the biggest name next week, although retail will take most of the attention with such names as Macy’s (NYSE:M), Kohl’s (NYSE:KSS) and Nordstrom (NYSE:JWN).
But there are some smaller companies worthy of a look. One is Weight Watchers International (NYSE:WTW), which reports after the close on Tuesday (Nov. 8).
Analysts expect WTW to earn 94 cents per share, a 36% increase from a year ago. The company has averaged that same 36% growth rate over the past four quarters, although the past two quarters have averaged 66%.
One thing you can say about WTW – it moves after earnings. In the week following the past four reports, the stock has logged the following gains/losses: -20.9%, +8.0%, +38.6% and -5.2%.
The shares are currently riding the tailwind of a strong October rally that covered more than 40% from bottom to top. The stock is consolidating those gains, but has found support at its 10-day moving average this week. The shares have plenty of room to move higher, though, with around 20% of upside available to the all-time high reached in May.
Sentiment toward WTW is tilted toward the skeptical, which is somewhat surprising given that the shares have gained a whopping 90% so far this year. There’s plenty of short interest to fuel a short-squeeze, and just half the covering analysts consider the stock a “Buy.”
The put/call ratio is coming off a peak, an indication that options traders are switching from puts to calls. The last four peaks in this ratio have preceded rallies in the shares.
We like WTW’s prospects heading into earnings. Competitor Herbalife (NYSE:HLF) beat estimates this week, although their outlook came up short. But the Street has not punished the stock as it has others that didn’t please on the outlook. WTW’s heavy advertising is targeting men, a growth area that has long been ignored. And the economy has not seemed to affect WTW’s growth to any great degree.
With plenty of pessimism waiting to unwind into buying pressure, technical support on the chart, and a solid record of beating earnings estimates (the last miss came more than three years ago), look for the stock to pop toward its all-time highs above the $80 level. Buy the WTW Nov 70 Call for around six bucks.