Earnings reports are definitely on the decline, as fewer than 10 S&P 500 companies are on the schedule. But that doesn’t mean the cupboard is bare this week. The largest representation, once again, belongs to retail, with discount and specialty retailers among the notables. 

So let’s take a look American Eagle Outfitters, Inc. (NYSE: AEO), which reports Wednesday before the open. Analysts expect a healthy increase in profits from a year ago — 17 cents versus 8 cents per share.

One thing you can say about AEO is that the analysts usually get it right. In the past five years, the company’s figure has equaled the consensus nine times, varied by a penny 10 times, and been 2 cents off just once. In that span, the company has missed the estimate just once.

Conclusion? Don’t expect any surprises.

Despite playing it close to the vest with expectations, the stock tends to move significantly after earnings. And the move is usually higher. Over the past three quarters, the stock has traded about 9% higher two weeks after each earnings report. That’s the kind of move that options traders love.

On the chart, AEO has struggled for nearly two months. The shares are off more than 20% from their March high, but appear to be finding strength around the $15 level. A bounce here has plenty of room on the upside. In fact, there’s about 5% of free space until the shares hit the 20-day moving average.

Overall sentiment toward AEO is mixed, with plenty of room for pessimism to unwind. The put/call ratio has spiked to an annual high. A peak here would be bullish for the shares, as it was in February and November.

Analysts are lukewarm on AEO, with 18 of 31 rating the stock a “buy.” That leaves plenty of room for upgrades.

Playing a call on AEO may require some patience, as the stock’s post-earnings momentum usually takes a couple of weeks. Given the market’s recent weakness, it may also take some guts. But if stocks show signs of stabilizing, jumping on bullish earnings plays is one way to leverage market strength.

Look at the AEO June 15 Calls as a solid play.

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