Who said this was the off-season for earnings? We may not see any huge tickers next week, but there are still 52 S&P names on the schedule. That’s more than enough for any earnings junkie.
Express Scripts (ESRX), the pharmacy management services provider, reports on Wednesday, Feb. 24, after the close.
The company has a great earnings track record, having met or beaten the past 11 quarterly estimates. Analysts are looking for 90 cents this quarter, a modest gain of just 8% from a year ago. That’s a good sign, given that the company has posted an average of 15% growth during the past four quarters. Another good sign is that competitor CVS Caremark (CVS) reported solid numbers last week.
On the charts, ESRX is on a mini rally after bouncing along its 100-day moving average for three weeks. Shares popped above their 50-day moving average Wednesday, a trendline they’ve struggled with for the past month. Next up is the January high, about 5% above the current stock price.
What strikes us about this trade is option activity. There’s little doubt that options players are dead set against the stock as earnings approaches. The put/call ratio has spiked to an annual high. Better yet, the ratio appears to be forming a peak, meaning that this pessimism is on the verge of unwinding, which often leads to more buying pressure.
Express Scripts is in a solid industry that is largely recession-proof. Managing drug subscriptions is a good business to be in, as evidenced by results from CVS. Look for ESRX to beat the estimate once again and for the shares to continue its move higher with major fuel coming from unwinding pessimism among options traders.
On another note, we waxed bullish about Whole Foods Market (WFMI) primarily because of a good deal of pessimism toward the high-end grocer. Tuesday night, the company posted a 79% increase in earnings, handily beating the analyst estimate. What’s more, the company boosted its yearly forecast. The Street obviously loved the news, as WFMI popped 12.5% Wednesday.
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