Earnings Edge: Disney Poised for Stellar Breakout; XL Small Cap Struggles
I’m sure everyone is familiar with the giant company we’ll cover in the Earnings Edge today, The Walt Disney Co. (NYSE: DIS). Additionally, we’ll look at a small-cap stock looking to breakout — XL Feel Corp. (NYSE: XL).
But first, a quick recap of our breakout stocks from last week…
Electronic Arts came in right at analyst expectations for earnings, but it wasn’t enough to win over investors. After opening higher last Thursday, EA sold off during the day to breakout to the downside of the triangle pattern we were watching.
Look for EA to head even lower from here.
Teradata reported better-than-expected earnings. As I laid out in our Earnings Edge, this is what I was looking for to trigger a new trade in my Quick Hit Profits research service.
It popped 5% on the news of an earnings beat that crushed analyst expectations by 60%.
But, then the stock swung to a 5% loss – a 10% drop from the highs of the day. This also sent the stock back down into the wedge pattern I showed you for the stock. Until that wedge pattern has a clear break, I’ll hold off on adding calls for now. It’s one to keep on your radar until it breaks out.
Now let’s dive into our two must-watch stocks this week…
Earnings Edge Stock No. 1: XL Fleet Corp. (NYSE: XL)
Earnings Announcement Date: Thursday, after the close.
Expectations: Earnings at ($0.06) per share. Revenue at $4.4 million.
Average Analyst Rating: Outperform
I’ve got to be honest. I had no idea this company, and what they do, even existed. It’s mainly for large-scale corporations who manage fleets of vehicles that they run constantly, but this is some advanced technology if the costs are right.
XL can transform several normal vehicles into hybrid electric vehicles (EVs) with a few modifications. Mostly for trucks, vans and buses that operate in fleets.
The sweet part is that the tech can boost miles per gallon, a key cost factor for anyone managing multiple vehicles, by as much as 50%.
It exploded onto the scene late last year, seeing XL’s price surge over 200% from November to December before giving up all the gains and crashing 80%.
Now, shares are trading in a wedge pattern that we need to watch…
XL’s Wedge Indicates a Risky Pick
The key resistance in red is trending lower but is also 30% above XL’s list price.
That means shares could jump 30% and still be stuck in a wedge pattern, and no new trend has emerged.
On the downside, it won’t take a huge drop to break that key support in green. And if it does, look out below. Shares could fall to 50% in quick fashion.
While its technology is interesting, XL has to find new fleet operators willing to spend the big bucks and transform normal vehicles.
It is benefiting from the trend in EV demand, but as more EVs roll out, it could be doom unless XL adapts since customers would no longer need to transform existing vehicles.
For now, look for XL to make a big move one way or the other on earnings this week.
Earnings Edge Stock No. 2: The Walt Disney Company (NYSE: DIS)
Earnings Announcement Date: Thursday, after the close.
Expectations: Earnings at 0.55 per share. Revenue at $16.7 billion.
Average Analyst Rating: Outperform.
Did you all see the new details on the Star Wars hotel, Galactic Starcruiser?
I can already see the hoards of people who are going to be like: “Just take my money!”
I know the headlines are attacking the price. Over a grand for a night for one person. About five grand for a family of four for the two-night adventure. I say: Who cares?
Disney hotels are some of the more expensive ones, running for $1,000 or more a night without any additional features. The Star Wars one is an all-inclusive experience, complete with all your meals, a park pass and more.
This thing is going to be a huge hit and it will be sold out for years.
I know those stats won’t be out yet, but you can bet the company will reveal some of the excitement it is seeing after releasing details last week.
All I can say is, I’ll be signing up.
I’m not a Star Wars nerd or anything like that. But I enjoy the experiences Disney puts on for my family and me. Until a trip to space costs around $5,000, Disney will be sold out for this stellar experience right here on planet earth.
It’s the type of care that Disney has put into this hotel to make it a “one of a kind” experience that has helped propel the typically stable stock to a $200 peak earlier this year.
Since setting that all-time high, shares have drifted lower, trading in a nice wedge formation.
DIS Trends Towards a Breakout
The declining resistance level in red is closing in on the rising support line in green.
This is the kind of stuff I have been highlighting each week in Earnings Edge because it shows a breakout is on the way.
Not only are we likely to get a bigger than expected move out of earnings on stocks like this, but once the key trends are broken, we know to expect the stock to continue in the same direction for the next few weeks, at minimum.
I’m definitely bullish on Disney long-term, but the short-term headaches and rising costs from the pandemic could hamper the stock for now.
That’s why the chart above is so critical. It tells us the next major trend for the stock. So we’ll keep a close eye on it this week and see if we get a new trend emerging.
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.