Kraft Foods (KFT), the home of such household brand names as Oscar Mayer, Nabisco and Maxwell House, reports earnings after the bell on Thursday, May 6. Analysts expect the same profit number (45 cents per share) as last year, although the “whisper number” is two cents higher.
Considering that KFT has missed just one earnings forecast in the past 17 quarters, it’s a pretty safe bet that the company should exceed the current modest expectations.
KFT is definitely not a stock that is running higher heading into earnings. If anything, it’s been the opposite. After peaking at an 18-month high in mid-April, the stock dropped more than 5% and is now hovering around its 50-day moving average. This trendline has been very supportive for the shares, having contained pullbacks in January and February.
The other sign that the Street is less than excited about KFT is the put/call ratio, which has spiked to a multi-year high. Even better, the ratio is showing signs of declining, which suggests that call buyers are migrating back to KFT. That tells us that buying pressure could pick up, which fits nicely with chart support.
We’re always watching for “buy the rumor, sell the news” situations to identify stocks that may be vulnerable to a post-earnings sell-off. That doesn’t appear to be the case here. The stock has pulled back to strong support, and sentiment is skeptical and could unwind into buying, especially if earnings surprise the Street.
With solid upside potential and limited downside risk, look at KFT call options before earnings hit Thursday.
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