Pre-Earnings Analysis

1. CREE- Cree reports Q2 earnings after the bell tonight. Analysts are looking for $0.22 per share on revenue of $412M. Shares have dropped the day after earnings on 6 out of the last 7 reports. EPS trends for FY15 continue to trend lower, dropping to $0.97 from $1.08 per share just three months ago. Earnings are expected to fall over 41% this year, but sales are projected to increase 2.4% to $1.69B. The LED light bulb maker has typically met quarterly expectations. However, the reason for the string of post-earnings crashes has been to weak guidance for the following quarters. Cree is also dealing with competitors supposedly infringing on their patents and could sue for over 10 different infringements by Feit Electric. The stock trades at a P/E ratio of 21.29x (FY16 estimates), price to sales ratio of 2.17x, and a price to book ratio of 1.23x. Heading into the results the call to put ratio is 1.56:1. The options market is pricing in a $3.11 move, or 10.05%, in either direction through the end of the week. In the previous seven reports there was only one instance when the next day’s closing price was less than $3.11. Consider taking a long volatility trade in Cree instead of a directional trade if you are looking to play earnings for tonight.

1. NFLX- Netflix reports Q4 earnings after the bell tonight. Analysts are looking for $0.45 per share on revenue of $1.48B. They are expected to add 4M new subscribers, 1.85M of those being domestic. Growth declined to 980K new additions in the third quarter vs 1.29M in Q3 of the previous year. Shares have fallen after earnings on 4 out of the last 7 reports (down on two in a row). The stock trades at a P/E ratio of 73.39x (2015 estimates) with 35.1% EPS growth, 23% revenue growth, price to sales ratio of 3.91x, and a price to book ratio of 11.78x (average analyst price target of $451.03). Heading into the results the put to call ratio is 1.17:1. The options market is pricing in a $36.70 move, or 10.82%, in either direction through the end of the week.

Two latest articles

Progress Software Is One To Avoid Even After The 7% Post-Earnings Drop (Seeking Alpha)

1 On 1 Options Mentoring: Learn more about my 1 on 1 equity/options mentoring courses that help can you improve your trading odds and risk management skills.

More Of My Commentary/Articles: Check out my contributor content for TraderPlanet, Seeking Alpha, and TheStreet.com.

Social Media: Follow me on Twitter and StockTwits!

CREE NFLX