This week brings a number of quality earnings reports with food- and auto-related companies leading the way, including ConAgra Foods, Inc. (NYSE: CAG), Darden Restaurants, Inc. (NYSE: DRI), General Mills, Inc. (NYSE: GIS), AutoZone, Inc. (NYSE: AZO) and CarMax, Inc. (NYSE: KMX). We’ll also see Adobe Systems Inc. (NASDAQ: ADBE), Carnival Corporation (NYSE: CCL), Nike, Inc. (NYSE: NKE), and our pick today — Bed Bath & Beyond Inc. (NASDAQ: BBBY).
BBBY reports on Wednesday after the close. Analysts expect a profit of 63 cents per share (the whisper number is a penny less), a gain of 21% from a year ago. Expectations haven’t been a problem for BBBY considering that the last miss came nearly four years ago.
The stock usually reacts sharply after earnings, moving an average of 5% in just the one day following the past four reports. Two have been up and two down, so there’s no pattern of success or failure to rely upon.
Instead, we’ll look at BBBY’s chart, which shows strong support from the 200-day moving average after the stock rallied 18% in the first couple of weeks of September. Call open interest isn’t an issue until the 44 strike, which leaves about 5% of upside room to rally before potential resistance kicks in.
Sentiment should not stand in the stock’s way either. The put/call ratio is coming off a peak, usually a sign of unwinding pessimism. And fewer than half the covering analysts rate the stock a “buy,” leaving room for upgrades.
The setup for BBBY looks positive. Another earnings beat could bring some upgrades and a continuation of the falling put/call ratio. That could add buying pressure that uses the 200-day as a solid foundation to resume the rally that began at the beginning of this month.
The BBBY Oct 42 Calls should give you plenty of bang for your buck if BBBY rallies after earnings. Remember that the company reports Wednesday night, so get in before then.
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