With just four S&P 500 (SPX) companies reporting quarterly results next week, it’s clear we’ve entered the doldrums between earnings season. Another thing that’s clear is this market’s rough treatment of earnings reports. Quick pops on good news can turn into losers before day’s end, while earnings or revenue misses … well, let’s just say, it ain’t been pretty.
With that in mind, we’re looking for bearish candidates among the few reporters next week. One that appears to fit the bill is Best Buy Co., Inc. (NYSE: BBY), which steps into the confessional before the open on Tuesday, June 15.
BBY usually does well in beating the consensus earnings estimate, having bested the last five of six. But that hasn’t translated into good price performance.
Over the past four quarters, the stock has dropped an average of 4.3% the day of the earnings release. To make matters worse, BBY has beaten the analyst estimate in three of those quarters. With the market scrutinizing every earnings report for the slightest misstep, BBY needs to not only beat estimates handily, but deliver a clean report. That’s a tall order.
On the charts, the stock is off about 20% from its April high and is trading below all major daily moving averages. Trouble lurks overhead with the 20-day, 100-day and 200-day trendlines ready to lend resistance. In addition, the 40 strike contains heavy June call open interest, which should also keep any rallies in check.
Sentiment isn’t really a factor for BBY. Just over half the rating analysts consider the stock a “buy,” while the put/call ratio is sitting in the middle of its annual range. Short interest is negligible. The important point is that there’s ample room for more selling should BBY fail to impress the Street next week.
With the consumer still not ready to commit to buying, and with too many question marks surrounding the economy, BBY is in a tough spot. The company needs a blowout report to overcome the market’s bearish bias toward recent earnings numbers. We say the odds are against that happening.
Look at the close to the money BBY puts to play an expected slide that follows the pattern of recent post-earnings weakness for BBY.
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