Just four S&P 500 (SPX) companies report — Nike (NKE), GameStop (GME), FedEx (FDX) and Discover Financial Services (DFS). To be honest, none of the four blow my hair back … bullishly or bearishly.
But I found one that looks very interesting, based on its post-earnings history of the past year. It’s AAR Corp. (AIR), an aerospace supplier and service provider based in Illinois. The company reports on March 16 after the close.
AIR doesn’t mess around when it comes to earnings, having met or beaten the last nine estimates. And the estimate for this quarter calls for a profit decline of 27% thanks, in part, to a bankruptcy filing by Mesa Air, an AIR client. Since the market has been warned about the shortfall, don’t look for any downside surprises.
The key is how AIR does after earnings, which usually is nothing short of spectacular. Try this on for size: During the past four quarters, the stock has spiked an average of 14.5% in just the one day following earnings. That’s one day.
AIR’s chart looks promising, although the January peak at $26 looms overhead. But there isn’t anything else in the stock’s way (including call open interest) until the all-time high at $39, reached in late 2007. The way AIR pops after earnings, $26 shouldn’t pose much of a challenge.
The other thing I like about AIR is the huge short interest. According to Yahoo Finance, the short interest ratio is 12.1 and the shorts, as a percentage of the float, is 11.6%. These are huge numbers that could lead to a severe short squeeze, especially if the company issues a decent-to-strong earnings report.
With a solid record of huge post-earnings gains, modest earnings expectations and monster short interest, AIR looks poised for a major move higher. Buy call options.
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