Stock shares can Climb despite Missing Expectations (MDR)


Stock news drives the markets, right? It seems that is not the case sometimes, even when big news like an earnings report hits the street. Evidently stock shares can climb to new highs, although their companies report earnings below expectations. A fine example of that was McDermott International last week, which gained 15% on the very same day they published the earning reports. Despite missing expectations of $0.19 per share (the publicly announced net income was $0.04 per share) in the fourth quarter of 2011, the stock rose above the most recent resistance level touching the 200-day moving average! It looks like a profit is a profit and other factors like future company plans may influence investors, who continue trusting a company that misses earnings’ estimates!

The stock news about McDermott International (MDR) is probably old news by now. I wish I had commented on this on Thursday, when the breakout actually took place. Nevertheless, this price movement will surely be mentioned in articles to come, as a proof that no one can predict the market 100%.

Earnings reports usually act as a magnet for day traders who scan the stock market for active stocks. Day traders and scalpers seek volatility and liquidity, which an earnings report can provide adequately. McDermott’s stock was no exception, since traded volume tripled on that day. Shares began trading at what was in the end the lowest of the day ($13.70) and went up to the high of $15.30. With 13 million shares changing hands, I’m sure many traders added that stock in their favorites. Imagine what would have happened if the earnings report beat the expectations!

McDermott International Earnings Report

McDermott International Earnings Report. Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.

In the meantime I am not complaining at all! 3 months ago I was saying that McDermott International was one of five stocks to watch. If only I had bought more than 100 shares that I actually did back then, the 30% gain would translate to bigger profits. Yet, I’m quite confident in my stock pick which reacted exceptionally to the negative news! McDermott might owe that to the Inpex Ichthys subsea contract (McDermott is an engineering company specializing in oil and gas projects worldwide) that was awarded to the company’s Australian unit in January, which was mentioned in Zacks Equity Research. Zacks analysts also point out that the company missed their full year earnings projection of $0.79 (actual $0.64), while Travis Hoium at The Motley Fool believes that due to McDermott’s positive outlook, rising energy prices and future earnings from Latin America region will increase next year’s earnings for a much better report. Perhaps I’ll double up my money on this investment!

For the time being MDR stock was a great example of stock shares climbing, despite a missing-expectations earnings report!

Disclaimer: I’m long MDR since early December.