Good News Shrugged Off: Earnings This Week

Investors are looking past good quarterly results and punishing stocks that missed estimates.

In the last week, companies like Walt Disney (DIS), Allergan (AGN), Electronic Arts (EA) and KLA Tencor (KLAC) beat estimates, only to drift or fall. The tepid response comes amid fears about a renewed trade war with China, plus buyer fatigue after four months of solid gains.

DIS, for instance, couldn’t have done much better than it did, with top and bottom-line results pushing ahead of estimates. Several interesting forces seem to be at work in the Magic Kingdom.

First, everyone’s excited about its new streaming-video service. After all, that’s why DIS is up 15 percent in the last month. (It’s the best performer in the Dow Jones Industrial Average over that period.)

Walt Disney (DIS) chart with select moving averages.

Second, the movie business is on fire thanks to the Avengers franchise. Executives are also leveraging that success to promote the streaming service later in the year.

Third, the old theme-park business is surging. Market Insights has reported on how Americans increasingly want experiences (like travel) rather than things. It looks like DIS is benefiting from this social trend.

Health Care Hammered Again

Next, Botox maker AGN fell despite beating estimates. It was the latest example of poor sentiment toward healthcare as price squeezes and political risk hit the industry. Other pharmaceuticals like Mylan (MYL) and Regeneron (REGN) were punished even more severely after missing estimates.

By the way, did you know that the sector-tracking SPDR Healthcare ETF (XLV) just had a so-called “death cross” chart pattern? That’s when the 50-day moving average falls below the 200-day moving average, the opposite of a so-called “golden cross.”

SPDR Healthcare ETF (XLV) with “death cross” chart pattern.

Technology Mixed

Some well known technology companies slid on decent results, while some newer growth stocks continued their rallies.

Videogame maker EA and semiconductor equipment company KLA both drifted after beating estimates. Both seem to face broader industry-level headwinds. EA is struggling with the threat of new competitors like Fortnite, while KLAC’s chip-business is highly sensitive to President Trump’s tariff war against China.

But then you had streaming-video player Roku (ROKU), which beat across the board and raised estimates. Stay tuned for a special report next week on this rapidly evolving corner of the media industry.

Roku (ROKU) chart with select moving averages.

Match (MTCH) also shot to new all-time highs on strong earnings and guidance. Investors keep falling in love with the company’s Tinder service and were reassured by management seeing little threat from Facebook’s (FB) planned dating service.

Mercadolibre (MELI) was another up-and-coming growth stock. The Latin American e-commerce firm shot to new all-time highs after strong electronic-payment volumes pushed earnings above estimates. Is MELI the new Square (SQ), Buenos Aires-style?

Most other technology stocks weren’t so lucky. Cybersecurity providers Arista Networks (ANET) and Fortinet (FTNT), both recent additions to the S&P 500, got hammered after reporting. ANET, in particular, faces worries around delayed orders from a certain unidentified large customer.

Ride-sharing company Lyft (LYFT) also struggled in its first quarterly report after going public. Revenue beat but earnings missed. Investors hammered the stock lower, creating a tough road for large rival Uber’s (UBER) initial public offering (IPO) tomorrow.

Fox, Newell Push Higher

A pair of other consumer-facing names had good quarters. Fox (FOXA), now a strand-alone cable-TV company after selling its movie studios to DIS, shot past consensus estimates. Ditto for consumer-products company Newell Brands (NWL).

Two other companies should be mentioned:

  • Builders Firstsource (BLDR): The home-construction supplier crushed estimates. It presents its products as a way for builders to be more efficient and to save labor costs. That could make it interesting, given the tight job market.
  • SolarEdge Technologies (SEDG): The green-energy company blew past estimates, the latest example of a bullish run in solar stocks.

In conclusion, political worries have “trumped” earnings in the last week. But there were still some important results. Hopefully this post helped keep you up to speed.

This article was written by David Russell, TradeStation Securities, Inc., part of the Monex Group Inc, published on 09/05/2019.

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