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Tree (NASDAQ: TREE) Quarterly Earnings Blow Out Estimates
5th trading alert on Lending Tree turned out to be a winner.
On the strength of last night's earnings release, the stock gapped up this
morning to a high of $14.40, nearly attaining the $15 to
price range we were looking for, which we still believe could easily be
attained by the stock over the next week or two.
Your net return on invested capital
for two weeks would have come in at 20% if you sold at the
high, or 40% if you purchased the shares on margin.
The May 10 call options we suggested
at $2.85 traded to a high of $4.20 (48% return), and the
May 12 1/2 calls we identified at $1.20 traded to a high of $2.20 (83%)
The stock has backed off the highs
made early, and filled the gap created by today's strong open. We suspect
once all the "buy on mystery, sell on history" money has come out of the
stock, it will probably turn around and head higher.
Last night after the close, Lending
Tree announced record revenues and earnings which blew away analysts'
estimate. Lending Tree reported revenues of $39.2 million, an 84%
increase versus the $17.9 million in revenues it generated during
the first quarter of 2002 and a 13% increase over last quarter. The the
company reported earnings of $.18 per share, significantly better than
even the most optimistic analyst's forecast.
Lending Tree also announced
it now expects to generate revenues of $155.8 million, an increase of 12%
versus its previous estimates, and diluted EPS of $0.70, 40% above
its previous EPS guidance of $0.50. If the company meets these estimates,
it would result in 2003 revenue growth of 40% versus the previous year.
This company seems to be on the leading
edge of the resurgence in internet business models which are proving out.
eResearch Technologies (NASDAQ: ERES)
eResearch was the subject
of a Trading Alert we published back in our December
2, 2002 edition at about $15. As you can easily see from the
chart, the stock has been a huge win for shareholders over the past five
months. 20/20 hindsight clearly shows we should have published more editions
on the stock.
eResearch is a premier provider
of outsourced clinical trials for the major pharmaceutical and biotech
companies. Short sellers have been killed in this stock as the company
has continued delivering upside surprises to the delight of shareholders.
eResearch announces March
quarterly earnings after the close tomorrow. As with Lending Tree,
due to the company's extraordinary track record of surprising to the upside,
we anticipate eResearch will also be good for an earnings trade.
Earnings estimates are $.19 per share on about $13 million in revenues.
As was the case with Lending Tree,
if eResearch announces a blow out quarter, we would expect the stock
to trade to all new all time high, and probably breach the $30 level.
In light of the extraordinary performance
of the stock over the past five months, we recommend this idea for an earnings
trade only. A Stop Loss of $26 would be prudent. If the company
announces a disappointing quarter, the stock could open lower than $26,
so your risk is greater than a couple of points.
The first time we reported on eResearch,
there were no options trading on the stock. Due to the substantial price
and volume increase over the past five months, options are now trading
on this stock.
Since the trade is so short term,
you can look at the May options. The 25 calls traded at $4 today. The 27
1/2 calls traded at $2.10, and the super risky May 30 calls are trading
at about $1.
eResearch closed at $28.26
Charts Provided Courtesy