According to FactSet, 101 S&P500 companies had reported third-quarter earnings as of Thursday morning. Out of those companies, 58.4 percent saw their share price rise following earnings, while 41.6 percent saw their stock fall following the report.
Bespoke Investment Group identified the stocks that experienced the greatest average absolute percentage change in share price during the trading day following their respective earnings reports. These businesses have reported earnings for at least eight consecutive quarters.
Bespoke focused on the companies that had yet to report quarterly results.
“While all of the stocks listed on these tables have historically seen violent moves in response to earnings, there is no way of knowing whether the large moves will be to the upside or downside, so tread lightly!” said the report.
Cardlytics, an advertising platform, is at the top of the list, with an average absolute percentage change of 18.2 percent.
In recent years, the stock has experienced wild swings post-earnings, ranging from a 42.9 percent increase following the release of third-quarter earnings in 2019 to a 36.7 percent drop following the release of first-quarter earnings in 2020.
Cardlytics is expected to report earnings on November 2nd.
Snap is ranked second on Bespoke’s list, with its shares moving 17.6 percent on average after earnings.
The stock closed up 23% the day after the company reported its second-quarter earnings for this year. The social media and camera company will report third-quarter earnings after the market closes on Thursday.
Pinterest is the third-most volatile stock on the list, with its stock fluctuating 17.5 percent on average during its post-earnings trading day.
On Wednesday, it was revealed that PayPal was in advanced talks to acquire Pinterest. Pinterest’s stock soared as a result of the news.
Roku, cloud computing platform Fastly, and home automation company Arlo Technologies are also on Bespoke’s list.
Morgan Stanley double-downgrades U.S. Steel
Analyst Carlos De Alba downgraded US Steel from overweight to underweight in a rare double-downgrade. In a note to clients on Sunday, De Alba stated that the steel industry should take a step back and that U.S. Steel should underperform.
“Despite solid free cash flow generation, compelling dividend yield, and relatively attractive valuations on our 2022 estimates, we believe steel stocks will trade below their intrinsic value as long as steel prices trend downward,” the note stated. “We are downgrading X to UW because we believe the company is still in the early stages of a significant investment cycle, which will dampen FCF generation in the coming years.”
Steel, like many other commodities, has risen in price in 2021, but Morgan Stanley believes the metal has reached its peak. Hot rolled coil steel is expected to average $1,800 per ton this quarter before falling to $865 per ton in the fourth quarter of 2022, according to the firm.
Morgan Stanley believes that U.S. Steel’s strategic shift to more electric arc furnaces will hurt investors in the short term.
“We believe that X’s recently announced $3 billion greenfield EAF will generate better returns than capital spent in its legacy asset base.” However, it will slow the pace of balance-sheet deleveraging, which was a key component of our previous positive view on the stock, according to the note.
RBC upgrades Albemarle
Because of its “unique low cost position and global scale,” the company said it will benefit from the rollout of electric vehicles. The global chip shortage has hampered production, but as supply chains improve, analysts led by Arun Viswanathan predict that demand for electric vehicles will rebound stronger than before.
Given the central role lithium-ion batteries play in electric vehicles, an increase in demand would benefit lithium companies like Albemarle.
“With ALB‘s expectation of lithium volumes from EVs and the overall electronics market growing 35-40 percent annually through 2025,” Viswanathan wrote, “we expect lithium demand to remain healthy.”
According to Albemarle, EV demand will increase from 3.4 million units in 2020 to 35 million units by 2030. The increase could cause a shortage of supplies and a price increase.
“ALB accounts for 35% of global output, and we believe that high entry barriers, difficulty adding supply, and robust demand growth expectations will likely support balanced-to-tight markets, lithium prices, and ALB’s 35% Lithium EBITDA margins and earnings power,” RBC said.
HSBC downgrades Krispy Kreme
“Unlike other quick service restaurants (QSR) that mostly operate on a franchise model, Krispy Kreme’s strategy of transitioning from a franchise model to company owned operations is weighing heavily on its balance sheet and thus on returns to equity holders”.
Krispy Kreme went public in July with an initial public offering at a price of $17 per share. The stock has struggled to gain traction in the public markets, and it is now down 18% from its IPO price.
According to HSBC, one of the factors holding back the stock is the structure of the IPO itself.
“Three-eighths of the shares in DNUT were distributed to minority holders as part of the IPO.” This is greater in size than the float. Their lock-up period ends at the end of the year. “While we identified this overhang as a potential risk in our initiation report, no mitigating solution has emerged,” according to the note.
HSBC reduced its price target for Krispy Kreme from $25 to $14 per share. On Wednesday, the stock closed at $13.92 per share.
Bank of America addresses supply chain issues
Covid-related production shutdowns in other countries, combined with pent-up demand in the United States, have put a strain on retail supply chains.
The emergence of “supply chain constraints, port delays, and product shortages… has cast a cloud over the outlook for earnings results for at least 2H21, potentially into 1H22,” according to Elizabeth Suzuki of Bank of America in an Oct. 19 note.
The Wall Street firm examined hardline retailers’ inventory positions as well as consumer demand trends to determine which stocks were most and least vulnerable to supply issues.
Big home improvement stores (Home Depot and Lowe’s) are best positioned.
With many supply issues stemming from shipping and ports, Bank of America believes that the less supply chain exposure to overseas, the better.
“Among the retailers in our coverage universe, the large home improvement retailers are the best positioned in terms of strong inventory positions and relatively low reliance on overseas imports,” Suzuki said.
According to the firm, scale also helps a company deal with supply disruptions.
“In a supply-constrained environment, we continue to believe that ‘bigger is better’ for retail, because the largest retailers have the strongest purchasing power with their suppliers and tend to have better leverage over transportation partners,” Suzuki explained.
Home Depot and Lowe’s were singled out by Bank of America as retail stocks that investors should consider purchasing.
Worst-placed: Home furnishings (Bed Bath & Beyond, Williams-Sonoma)
Companies with low inventory and high exposure to imports are the worst positioned in the hardline retail category, according to Bank of America.
“We see the most risk to the upcoming quarters’ sales volumes in retailers that have experienced the most severe inventory draw-downs and source a significant portion of their inventory from overseas,” Suzuki said.
According to the bank, home furnishers are affected by both ailment.
“Not only is supply not keeping up with demand in the home furnishing/décor category, but the category is heavily reliant on overseas imports,” Suzuki explained.
According to the firm, Bed Bath & Beyond and Williams-Sonoma will underperform due to supply chain issues.
Specialty is the most improved (Best Buy and Petco)
According to Bank of America, specialty retailers are likely past the worst of their supply issues.
“The specialty retailers in our coverage… had tight supply in recent quarters… but have since rebuilt their inventory positions,” Suzuki said.
According to Bank of America, Best Buy and Petco are the best-positioned specialty retailers for the holiday season.