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Should You Consider Playing These Earnings Announcements?

Earnings announcements could be a nice way to benefit from strong investors’ sentiment as investors start accumulating potentially outperforming stocks before their quarterly report cards are presented. Verint Systems Inc. (NASDAQ:VRNT), UniFirst Corp (NYSE:UNF), and Paychex, Inc. (NASDAQ:PAYX) are companies which are scheduled to reports earnings this week.

Since these companies have presented encouraging earnings results in the recent past, investors could look favorably at buying the stocks. Here is a closer look:

New York based Verint Systems Inc. (NASDAQ:VRNT) provides actionable intelligence solutions and value added services to corporate customers for enterprise workforce optimization and security intelligence. Although the latest quarter was negatively affected by higher selling costs, its nine month profit was still up 88.3 percent to $16.6 million while revenues increased 7 percent to $610.6 million.

The stock generally gets favorable ratings from analysts and the reasons for this are many. Consistently increasing top line is one while strong management is another. Analysts tracking the company expect quarterly earnings of $0.75 per share on total revenues of $226 million. Revenues for the quarter ended 31 January 2012 stood at $212 million. The stock has been in an uptrend lately, having appreciated more than 21 percent over the past quarter. The uptrend seems to be intact as the stock continues to trade above the 50-day and 200-day moving averages. However, trading volumes following the results would hold the key for a breakout to happen.

Improving job market good for business service providers 

UniFirst Corp (NYSE:UNF), a supplier of workplace uniforms and protective work-wear clothing, has outperformed the wider markets with 6 percent monthly gains while advancing in excess of 19 percent over the quarter. In the most recent quarter, the company reported a 6.2 percent growth in its top line to $332 million. Top line growth, coupled with a deleveraged balance sheet, resulted in a 19.3 percent growth in quarterly earnings to $30.2 million.

Not surprisingly, the stock jumped 8 percent after the quarterly results. On a forward basis, earnings are expected to grow which is reflected in a forward price earnings ratio of 15.8. Probably the best thing about the company’s business model is the fact that over 85 percent of its revenue, which comes from U.S. and Canadian rental and cleaning, is largely recurring in nature. This can only be expected to go up as industrial activity is on an increase in the U.S. The company also revised its 2013 guidance for revenue and earnings indicating strong business fundamentals. The stock has a beta of 1.23 which indicates the stock tends to move ahead of the market in case of a rally.

Paychex, Inc. (NASDAQ:PAYX) is also a player operating in the field of business services and provides payroll, human resource, and outsourcing solutions for small to medium-sized businesses. The company is scheduled to report its third quarter report this Thursday and going by the 9 percent gains the stock has made in the last quarter, investors may be in for another leg of the rally.

The gains were largely reflective of the positive traction after previous quarterly results exceeded analysts’ expectations. Technically, the stock looks well planted with current price moving above the 50-day and 200-day moving averages. With a booming job market, the prospects of the company presenting another bumper quarter this time are real. Simply put, the stock may be headed to new levels.

The downside with these stocks is of shorts triggering a sell-off in event of companies are not able to match the market’s expectations. As the prices are already quite high, it would not be easy for these high beta stocks to get support at lower levels. Thus, trades should be carried with strict stop losses.