The following research was written with Christine Short, VP of Research at Wall Street Horizon.
Executive Summary and Corporate Earnings Outlook (week of August 9):
- Q2 earnings season is setting records in terms of EPS beat rates, but the future is uncertain regarding global regulatory risks and domestic infrastructure spending.
- We profile a large cap Japanese firm facing operational challenges in the semiconductor market.
- Two US-based small cap stocks with recent bouts of share price volatility are featured with unusual earnings dates.
Earnings Outliers
Two earnings outliers are highlighted this week. By using the Z-score, clients can gauge how statistically unusual a company’s earnings date is relative to normal. We analyze five years of earnings trends to develop a normal earnings date. Wall Street Horizon clients are alerted when a firm has an earnings date Z-score greater than 3.0.
First up is a company in a tough industry at the moment. Tokyo Electron Ltd (OTC:TOELY), (T:8035) is a $66 billion large cap Technology firm based in Tokyo and listed on the Nikkei 225 index. The stock also trades in the US on the OTC market under the ticker TOELY. Tokyo Electron (TEL) develops, manufactures, and sells semiconductor production equipment and industrial electronics for flat panel displays. While US-listed semiconductor stocks are inching to new highs, TEL has been trading sideways much of this year.
Macro Issues Keeping A Lid On Growth
The persistent global squeeze on the supply of semiconductors is impacting TEL’s business. Another major issue for the firm right now is the regulatory situation in China—a major customer area. Given China’s recent crackdown on several industries, including technology, TEL’s stock price has wavered with volatility in the region. Shares peaked in early Q2 near ¥50,000 and then fell to near ¥45,000. The stock is little changed from its January high as supply issues and regulatory hurdles appear to be weighing on near-term growth. Still, profits for the Japanese large cap have bounced back from 2020’s decline, but are still below 2019’s peak as of the most recent fiscal year-end last March.
Outlier Analysis
- May 1 – Wall Street Horizon set an unconfirmed earnings date of July 27 based on TEL history of reporting Q1 results between July 25 and July 30.
- May 26 – TEL released an extensive list of “Personnel Changes for Executive Officers of Tokyo Electron Ltd. Effective on June 17th, 2021”.²
- July 8 – TEL had not announced an earnings date; we pushed the estimated reporting date to August 5.
- July 21 – Our analysts found that the firm’s website calendar noted an earnings date of August 16 which is much later than normal.
The August 16 earnings date resulted in a very high Z-score of 10.68. Traders should be prepared for unusual information to be disclosed within the earnings report next Monday and possible share price volatility.
Next up is BK Technologies (NYSE:BKTI); a $54 million micro cap Technology company listed on the American Stock Exchange. Headquartered in Florida, the firm produces two-way radio communications equipment for first-responders including firefighters, EMS, police, and federal agencies. Business growth for this small company often depends on municipalities selecting BKTI for communications equipment. Its stock price has been an underperformer in the last several years with high volatility.
Stock Drops On Secondary Offering News
A particular corporate event type has hampered shares of BK Technologies in the last year—secondary offerings. On December 11, 2020, Wall Street Horizon noted a secondary offering of shares. While there was little price reaction that day, the stock fell hard on high volume on a subsequent secondary in early June.
Outlier Analysis
- Looking ahead, BKTI normally reports Q2 earnings between August 1 and August 6.
- May 14 – Wall Street Horizon set an unconfirmed earnings date of August 4 based on BKTI normally reporting Q2 earnings between August 1 and August 6.
- July 15 – BKTI announced via press release that it would post results on August 11.
- July 20 – BKTI announced the appointment of John Suzuki as the new CEO effective July 19.
Portfolio managers should keep this stock on their radar for potential volatility this Wednesday. The later than usual earnings date resulted in an elevated Z-score of 3.7.
Earnings Revisions
One company with an earnings revision is profiled this week. Wall Street Horizon gathers and tracks firms from around the world that publicly declare an earnings date, but then publicly change it. By moving a reporting date, a firm indicates there might soon be unusual news that could draw stock price volatility.
Applied Industrial Technologies (NYSE:AIT) is a $3.5 billion small cap stock in the Industrials sector. The Ohio-based manufacturer distributes and provides services for industrial motion and control technologies. It focuses on bearings, power transmission, fluid power, flow control, and automation solutions. Shares are listed on the NYSE and the company is in the S&P 600 Small Cap index. The firm’s profits took a big hit in FY 2020, but growth has returned as domestic GDP surges in 2021. Passage of a broad infrastructure bill could bolster earnings, but the outlook remains uncertain. Like many cyclical stocks, AIT peaked in Q2 and has struggled to re-find its footing.
Revision Analysis
AIT has a history of reporting Q2 results between August 10 and August 12.
- July 22 – Wall Street Horizon updated the Q2 2021 earnings date to August 11 before market per a company press release.
- July 27 – AIT issued an updated press release stating, “Applied Industrial Technologies today announced that it has changed the date of its previously announced earnings release and conference call due to a scheduling conflict.”
Wall Street Horizon reconfirmed the earnings date to August 17 before market. The later than usual earnings date resulted in a Z-score of 3.28.
Conclusion
Recent weeks have shown that macro issues like regulatory risks, supply shortages, and uncertain spending bills can impact stocks significantly. What can be more impactful to small cap stocks are corporate events and news that are not found on the front page of financial publications.