3 Stocks Gapping Up After Better-Than-Expected Earnings Reports

Levi Strauss NYSE: LEVI, Smart Global Holdings NASDAQ: SGH and The Greenbrier Companies NYSE: GBX all gapped higher after reporting quarterly earnings. 

While that’s the ideal scenario you’d like to see in a stock you own, it’s not always clear how to handle a stock prior to its earnings report. That’s especially true for a stock you’re thinking of buying or one you recently bought and are holding with a small gain. 

No matter what the analysts’ forecast is for a company’s earnings, any number of things can send the stock lower. You simply can’t consistently and accurately predict how shares will behave immediately following a report. 

For example, a company may miss analysts’ forecasts, which typically (but not always) sends the price lower. 

Recently, missed views haven’t been much of an issue. In April, as first-quarter earnings rolled in for 110 of the S&P 500 firms, financial data company Refinitiv reported that 85.5% of those companies beat analysts’ earnings views. 

Refinitiv further noted that 78% of companies topped Wall Street views in the past four quarters.

That number shows you that stronger-than-expected earnings reports began before the post-pandemic earnings boom we’re currently seeing. This month, as second-quarter earnings roll in, we’ll see the year-over-year comparisons to 2020’s second quarter, when pandemic closures wreaked the most havoc on global sales. Naturally, those comparisons, on the whole, will be quite easy to beat.

But other factors besides the earnings themselves catch the attention of institutional buyers. If a company beats views, but warns that sales going forward may be lower than expected, that can send a stock down. So can an item deep in the earnings report itself. For example, perhaps a company notes, in passing, that higher prices for inputs, such as commodities or even shipping, could be a headwind. That one sentence could send shares lower.

But a good number of stocks do rise following the earnings reports.

Levi Strauss is a familiar name of a very old company, but the stock is still a newcomer to the public markets, having made its debut in March 2019. 

On Thursday, the iconic jeans-maker reported earnings per share of $0.23, handily trouncing views of $0.09 per share.

In the earnings call, CEO Chip Bergh said the increasingly casual nature of American attire contributes to the company’s growth. He added that over the past year, 35% of Americans changed their waist size, both up and down (contrary to the popular belief that Americans only gained weight during the pandemic). That means a fresh wardrobe is in order. 

Levi’s shares rose 1.36% Friday, to 28.38 in four-and-a-half times average volume. The stock is etching the right side of a cup pattern.

Smart Global Holdings, which designs and manufactures electronics gear for computing applications, gapped up 17.81% on July 7, following its third-quarter earnings report.

The California-based company earned $1.39 per share, up 99% from a year ago. Revenue came in at $437.7 million, an increase of 56%. Growth on both the top- and bottom lines accelerated in the past two quarters. 

The company has beaten earnings views in each of the past six quarters. 

In the earnings call, company executives cited strength in three business segments: Memory solutions, intelligent platform solutions and Cree LED, which SGH acquired earlier this year. 

The company said those business units should contribute to strong gross margins going forward. 

The stock surpassed a buy point of $57.69 from a cup pattern, but retreated in the two sessions after its earnings report. It’s currently finding support above all its key moving averages. 

Greenbrier makes equipment for the railroad industry. The stock jumped 8.07% Friday in more than double average volume following the company’s third-quarter report. 

The company reported per-share income of $0.69 on revenue of $450.1 million. Those numbers were down 34% and 41%, respectively, from a year ago. 

Nonetheless, those results easily topped views, sending the stock higher. 

The company also announced good news about new orders: It booked new railcar orders for 3,800 units valued at $400 million. The Diversified new railcar backlog as of May 31, 2021, stood at 24,800 units with an estimated value of $2.6 billion. 

The stock has been forming a consolidation below a February high of $50.21. It hit resistance around $50 three times since then, in addition to two other occasions where it hit resistance between $48 and $49. In other words, there’s clearly been a price ceiling where investors haven’t been excited about buying more shares. 

It’s currently below buy range, so you’d like to see if there’s enough upside momentum following the report to propel the stock to new highs.