Tell-tale earnings
06/12/18

First things first: If Casey’s General Stores (CASY) hasn’t released earnings yet today, they’re probably about to. (Go ahead and check; we’ll wait.)

Casey’s is a (mostly) Midwestern convenience-store chain with more than 2,000 stores and revenues of more than $2 billion in the most recently reported quarter. Until not too long ago, its stock was doing good business, too—the following weekly chart shows the stock rallied more than 600% from its 2009 low to its mid-2016 highs around $136:

Casey’s General Stores (CASY), 5/5/08 – 6/11/18. Casey’s (CASY) weekly price chart. Breakdown below support.

Source: OptionsHouse


Since then, though, the stock has been more or less marking time, mostly wandering lower in a wide trading range. The last downswing brought prices close to $95 share—and below the longer-term support level implied by the stock’s 2016 and 2017 lows.

The daily chart below shows trading slowed to a crawl the past couple of weeks, as the stock has continued to hug its recent lows and has found it difficult to catch a bounce. (Interestingly, CASY’s biggest intraday up move in months occurred on May 23 amid rumors—which turned out to be false—that a hedge fund was taking a large position in the company.1)

Casey’s General Stores (CASY), 2/1/18 – 6/11/18. Casey’s (CASY) daily price chart. Tight trading range

Source: OptionsHouse


While some analysts over the past year or so have looked at CASY and seen an oversold stock with room to rally, others have criticized the company for its aggressive pursuit of growth via capital spending, which according to one report has increased 150% since 2011 and 37% over the past two years.3 Regardless, lately the bears have been more right than the bulls.

The company has muffed six of its past seven earnings estimates (dating back to its Q4 2016 release), and the one time it beat its earnings number it missed on revenues.2 Aside from whether the company makes or misses its numbers today, given the stock’s seemingly critical price position, what matters is how the market reacts to those numbers.

Stock sell-offs on good earnings numbers were common in the most recent earnings season. In this case, few experienced traders would be surprised if CASY plunges below its current short-term support, but they will also pay close attention to how the stock closes out the trading session and follows through tomorrow. The stock has already traded back above the former long-term support level—and fallen back below it. Failure to mount a rally relatively soon after this earnings report may lead bears to see more potential downside.

Earnings can often be counted on to provide some volatility. Casey’s may be about to get pushed out of its range whether it likes it or not.

Market Mover Update: Applied Optoelectronics (AAOI) fell more than 7% yesterday to below $42—continuing the pullback from the June 4 high of $49.75—while prices for the June 29 $55 call options referenced in “Rally pumps up the volume in options” were more than cut in half.

 

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1 StreetInsider.com. Casey's General Stores (CASY) Earnings. 6/11/18.

2 Reuters. Hedge fund Jana Partners has no shares in Casey's Stores—spokesman. 5/23/17.

3 Seeking Alpha. Penney: Why I'm Bearish On Casey's General Stores. 10/17/17.