Earnings Edge: 2 Sector Giants Poised for Earnings Swing (PEP & BLK)
This week’s Earnings Edge features two giants in their respective industries: PepsiCo and BlackRock.
The first, beverage juggernaut PepsiCo Inc. (Nasdaq: PEP), is reporting earnings tomorrow before the market opens.
Then, before Wednesday’s market open, we’ll get results from asset management goliath BlackRock Inc. (NYSE: BLK).
Both are not expected to make big moves on their earnings announcements, and a couple percent would be huge. But they are sitting at key levels on their price charts.
Breakouts are great entry points, whether they’re to the upside or downside. Once a major trend breaks, you know exactly how to trade the stock.
That’s why we’ve been focusing on stocks around earnings that are near a breakout point.
Last week’s Earnings Edge stocks were on the move with their earnings announcements.
PriceSmart Inc. (Nasdaq: PSMT) shares were lower going into earnings, then saw a 3.5% pop — but the stock is still stuck within the trends I was watching. Just stay patient and wait for the breakout in either direction.
AZZ Inc. (NYSE: AZZ) on the other hand, surged on earnings. The stock trended along the key support before the announcement, which is the bottom of its price channel. Then with earnings last Friday, the stock surged more than 10%. This was enough to breakout to the upside of the wedge pattern and signals further gains ahead for the stock. Don’t use the 10% pop as a reason to sell, but look to ride it even higher.
With PepsiCo and BlackRock on deck this week, let’s take a look at what you can expect…
Earnings Edge Stock No. 1: PepsiCo Inc. (Nasdaq: PEP)
Earnings Announcement Date: Tuesday, before the open.
Expectations: Earnings at $1.53 per share. Revenue at $17.9 billion.
Average Analyst Rating: Outperform.
PepsiCo stock is sitting at all-time highs, with earnings on the line this week.
All-time highs are not an easy feat. Fellow beverage giant Coca-Cola Co. (NYSE: KO) is still about 10% below its all-time highs from 2020.
And with Pepsi just barely breaching these highs, investors will be looking to earnings for confirmation this week. Is it worth riding higher, or has it already run too hot?
Pepsi’s high from February 2020 was around $147. It topped that in December by just 1%. Here the stock is again, sitting just 1% above its previous all-time high.
Trust me, all eyes are on earnings this week.
PepsiCo’s Upward Trend Is Closing on Resistance
Shares are riding this upward price channel nicely so far, but it is awfully close to the red resistance line.
What concerns me at times like this, without waiting for the resistance line to break, is that the support is almost 3% lower.
So that means PEP could fall up to 3% and still be in an uptrend. In other words, you wouldn’t sell because then you risk missing out on the next rise to the resistance level. It’s a classic uptrend scenario.
Options markets are only betting on a 1% move, so more of the norm for Pepsi — which tends not to make big moves on earnings. That could change this week with so much riding on the announcement.
My advice… Be patient and let the trends break. Then follow PEP from there.
Earnings Edge Stock No. 2: BlackRock Inc. (NYSE: BLK)
Earnings Announcement Date: Wednesday, before the open.
Expectations: Earnings at $9.31 per share. Revenue at $4.59 billion.
Average Analyst Rating: Outperform.
BlackRock is also trading at new all-time highs, but BLK is up more than 50% from its February 2020 peak.
It’s a sharp rally for the financial giant, and, as we saw on Thursday, investors are starting to question this wild rally.
With inflation concerns and economic concerns bubbling up, financial stocks will be on high alert.
When it comes to BLK’s price chart and looming breakout point, we have the same issue as PepsiCo — we are trading well above the key support.
BLK Could Swing Either Direction on Earnings
The stock is riding a clear upward price channel that isn’t that steep. It is actually almost a sideways pattern, but it still leaves the risk heading into earnings on the downside.
Now, BlackRock isn’t as steady as Pepsi.
BLK is prone to some sharp swings on earnings. Its last three reports have seen swings of 2%, 4% and 4.5%.
That’s why it’s a bit surprising to see the options market only price in a 1.7% move.
BLK could fall 3% or pop 3%, and it would still be riding within this uptrend. A breakout could easily push it more than 2% in either direction.
I like the odds of BLK making a wider swing than 1.7%, I’m just not sure which direction.
If you like trading options, it may be a good spot for a straddle trade — where you buy a call option and put option at the same strike price on the same stock.
My colleague Mike Carr used this the other week in our options newsletter, True Options Masters. It netted one reader roughly a 20% gain in a single day.
We share all sorts of active trading insights there.
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Chad Shoop is a Chartered Market Technician and options expert for Banyan Hill Publishing. He is the editor of three leading newsletters: Quick Hit Profits, Automatic Profits Alert and Pure Income. His content is frequently published on Investopedia and Seeking Alpha. Check out his YouTube Channel to see his latest market insights.
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Investing has consumed my life since college. While double majoring in finance and economics at the University of North Carolina at Greensboro, I founded the university’s economics club, joined the finance club and participated in the Chartered Financial Analyst research competition to represent our school.