An Election Day Earnings Play (CLH)

Earnings season enters the second half this week, with the number of reports starting to decline. But with nearly 1,000 companies reporting (around 80 from the S&P 500), this is hardly a quiet week. On the other hand, the week lacks the sizzle of big “sexy” names that usually get investors revved up. Besides, a few other things going on this week — elections, the Fed and QE2, the October employment report — may just squeeze earnings out of the spotlight. Nonetheless, this is an earnings column, so let’s look at a company reporting this week that may be affected by the elections. Without delving into politics and trying to avoid the “broad brush” analysis that accompanies elections, we must focus on investor perceptions. What might investors feel will happen if the balance of power swings toward the Republican side of the ledger?  Well, one perception is that environmental issues might be pushed a little lower on the priority list. And that could affect clean-up companies such as Clean Harbors, Inc. (NYSE: CLH), which reports earnings on Wednesday before the open.  Politics aside, the problems we’re seeing with CLH are that the company usually misses earnings estimates, does poorly after reporting, is encountering technical resistance, and has too much optimism among analysts and options players. Prior to beating estimates last quarter, the company missed on earnings for five straight quarters, with some by a wide margin. Analysts expect an 86% gain in profits this quarter, so the pressure is on. And the stock has lost ground in the few days following the past four reports. On the charts, the shares have been in a nice rally since late August, gaining about 17%. But for the past couple of weeks, the $70-$71 region has been a problem. This area also marked peaks in May and June, which lends credence to the current resistance. As for sentiment, the put/call ratio is trolling at an annual bottom, although option volume is low. And 10 of 11 analysts rate the stock a “buy,” which leaves more room for downgrades than upgrades. The bottom line is that CLH is facing a variety of headwinds that may be exacerbated by Tuesday’s election results. And even without politics, the stock’s prospects look shaky at best.  A CLH Nov 70 Put should allow enough time for a post-earnings drop to play out. Watch out for the spread on the option, though, as volume is low. Don’t pay more than 20 cents above the bid price.
tdp2664
gol2664
InvestorPlace