Despite the shortened holiday week next week, earnings reports will command some attention. We’ll hear from tech with Adobe Systems Incorporated (NASDAQ: ADBE), Red Hat, Inc. (NYSE: RHT) and Jabil Circuit, Inc. (NYSE: JBL). On the retail front there is Walgreen Company (NYSE: WAG), Bed Bath & Beyond Inc. (NASDAQ: BBBY) and Nike, Inc. (NYSE: NKE). Other notable names reporting include ConAgra Foods, Inc. (NYSE: CAG), Paychex, Inc. (NASDAQ: PAYX), Darden Restaurants, Inc. (NYSE: DRI) and Carnival Corporation (NYSE: CCL).
For this week’s earnings trade, let’s take a closer look at Walgreen, which reports on Wednesday before the open. The company had solid sales results in November, showing a 0.9% rise after a 0.2% gain in October. Analysts expect a modest 8% increase in profits from a year ago.
Despite a spotty record in beating earnings estimates, the stock has performed well after recent reports, including a one-day 11% pop after last quarter’s numbers.
WAG’s chart appears to be setting up for another gain. The shares are consolidating into their 10-day moving average after surging 9% in just one week earlier this month. Next up is the 2010 high at the $38 level, followed by the 2009 top around $40. With no overhead resistance from moving averages or call open interest, the path higher appears relatively clear.
Negative sentiment could also help WAG after earnings. Along with modest growth expectations, short interest is high enough to spur a short squeeze. And just 13 of 24 covering analysts rate the stock a “buy,” leaving room for upgrades. In fact, WAG was just upgraded to a “buy” last week by UBS AG (NYSE: UBS).
WAG is in a comfortable position within the retail spectrum. With wide product appeal (including its drug business) and lower prices, the company has shown strong sales numbers that should translate into earnings strength next week. With solid chart support and modest expectations, look for a nice gain after earnings and into the new year.
Options traders can play the in-the-money WAG Jan 37 Calls to leverage the expected move.
