• Tue. Apr 23rd, 2024

Do Earnings Warnings Really Matter? | Don’t Ignore This Chart!

Do Earnings Warnings Really Matter? | Don't Ignore This Chart!


Of course they do. One of the key metrics in any business valuation is earnings/earnings growth. When a company cuts its forecast, Wall Street must decide whether it’s a “one off” type of earnings miss or if it’s more indicative of a longer-term trend. The latter is clearly worse, but any negative earnings forecast or change is going to increase the number of skeptics. FedEx Corp (FDX) lost more than 21% of its value on Friday after cutting both its revenue and earnings forecast. Was it justified? Perhaps, but maybe a bigger question is whether United Parcel Service (UPS) deserved to be whacked 4.5% for the business sins of FDX. This is many times where opportunities lie. UPS has been outperforming FDX for the past couple years – obviously, for good reason. Market participants are much more comfortable with the business plan and strategy of UPS. Below is a chart of UPS and, in the bottom panel, you’ll see a “paired” chart, where UPS has been the BIG winner vs. FDX for quite awhile. Check this out:

With the exception of March through June of this year, UPS has been crushing FDX on a relative basis. So when FDX announces a cut to its revenue/earnings forecast, should we automatically assume UPS has similar business troubles, because they’re in the same industry? I don’t think so. UPS has been trading in a price range from 170-230 for more than a year and Friday’s sympathy drop takes UPS closer to this range support. 170 would seem to be a very solid reward-to-risk entry point, if you want exposure to this area of the market – especially after FDX lowered prices for everyone.

Using “pairs” like I did in the above example is a great technical way to compare stocks within the same industry. It’s a very quick visual that provides us the Wall Street consensus as to how the big firms view two companies. On Monday, I plan to do a similar comparison, examining two very well-known companies in one of the best-performing industry groups of 2022. You might be surprised by the winner in this pairing. If you’re not already a FREE EarningsBeats.com Digest newsletter subscriber (no credit card required), CLICK HERE to enter your name and email address and receive this comparison.

Happy trading!


Tom Bowley

About the author:
Tom Bowley is the Chief Market Strategist of EarningsBeats.com, a company providing a research and educational platform for both investment professionals and individual investors. Tom writes a comprehensive Daily Market Report (DMR), providing guidance to EB.com members every day that the stock market is open. Tom has contributed technical expertise here at StockCharts.com since 2006 and has a fundamental background in public accounting as well, blending a unique skill set to approach the U.S. stock market.

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Image and article originally from stockcharts.com. Read the original article here.