The times before and after the closing bell allow us to see earnings news that will affect stocks before the market opens, and what might happen with the markets the next day. This is the time when we want to be watching for earnings news to find potential movers the next day.
Seeing whether the stock is having a gap opening (up or down) will tell us the initial reaction on the news. However, if the stock can hold that opening price, it may be a good time to buy. (See more about these "holes" in stock price charts at Playing The Gap.)
A Side Comparison Of Texas Instruments And SanDisk
Texas Instruments and SanDisk announced earnings results for the third quarter that were less than analyst expectations. Texas Instruments on October 20 reported earnings of 43 cents per share versus analyst estimates of 44 cents, according to FactSet Research. The company also cut earnings estimates for Q4 to 30-36 cents per share, compared with analysts' estimates of 44 cents.
"Through the balance of the last three weeks of September, where ordinarily you'd be seeing a building demand for the holiday season, we in fact had a slowing demand. ... That has held through the first 20 days of October," said Texas Instruments CEO Rich Templeton.
On October 20, SanDisk reported a loss of 59 cents per share compared with an expected 27-cent loss, according to analysts polled by Reuters Estimates. The company also announced that it would sell off 30 percent of its manufacturing to Toshiba.
"Our industry continues to experience excessive inventories, operating losses and weakening balance sheets as a result of investment decisions that were made well before the current global economic crisis," said SanDisk CEO Eli Harari.
This means we are seeing earnings weakness in the semiconductor area as it struggles to work off excess inventory. With both companies showing caution, it would not be surprising to see the stocks continue to remain flat to weak for the time being.
Netflix Reports Strong Earnings
The same night, Netflix reported stronger than expected earnings of 33 cents a share, compared with estimates of 31 cents, according to analysts polled by Thomson Reuters. The movie-rental company ended the quarter with 8.67 million subscribers, compared with its projected 8.8 million.
"Since July ... the economy has deteriorated markedly," said Netflix CEO Reed Hastings. "It now appears that the recession means continued subscriber growth for Netflix, but not as fast as last year."
The company also said it expects to reach 500,000 Blu-ray subscribers (who receive higher-definition discs and will begin paying an extra $1 surcharge) in the current quarter. In spite of the weak economy, the company maintained its earnings estimates for Q4. This is a sign of strength. It would not be surprising to see shares of Netflix continue to do well in this environment.
Clearly, earnings announcements that we see before the opening and after the closing bell can have an impact on stock prices. By watching the opening, and seeing if the company can hold its initial losses or gains, we get an indication whether it is a good long or short position.
Learn more about interpreting companies' after-hours announcements at Surprising Earnings Results.