Why Are These Stocks Trending on Friday?

With S&P 500 futures lower again in pre-market trading because of deep uncertainty over the direction of crude prices, shares of Lennar Corporation (NYSE:LEN), BlackBerry Ltd (NASDAQ:BBRY), Darden Restaurants, Inc. (NYSE:DRI), and CarMax, Inc (NYSE:KMX) are trending because each company just released their latest earnings results. Given that earnings results can sometimes be a good predictor of the future direction of stocks, let’s take a closer look.

In addition, since Insider Monkey has done a lot of research into what the smart money likes and doesn’t like, let’s also analyze relevant hedge fund sentiment toward these stocks. In the eyes of most traders, hedge funds are assumed to be underperforming, old investment tools of the past. While there are more than 8000 funds in operation at present, Hedge fund experts at Insider Monkey look at the aristocrats of this group, around 730 funds. Contrary to popular belief Insider Monkey’s research revealed that hedge funds underperformed in recent years because of their short positions as well as the huge fees that they charge. Hedge funds managed to outperform the market on the long side of their portfolio. In fact, the 15 most popular small-cap stocks among hedge funds returned 102% since the end of August 2012 and beat the S&P 500 Index by 53 percentage points (see the details here).

Given the strong U.S. economy and optimistic home builder sentiment, many analysts were expecting good things from Lennar Corporation (NYSE:LEN)‘s fourth quarter, and the home builder certainly didn’t disappoint. For the quarter, Lennar reported EPS of $1.21, beating estimates by $0.09 per share. Revenue rose by 14% year-over-year to $2.94 billion, in-line with estimates. As a sign of strong demand, the company’s backlog increased 14% year-over-year to 6,646 homes. For the full year, Lennar earned $3.46 in EPS on revenues of $9.5 billion. CEO Stuart Miller said:

Our core homebuilding business continued to produce strong operating results in the fourth quarter as gross and operating margins were 24.6% and 15.5%, respectively. Our home deliveries and new orders both increased 10% in the fourth quarter, compared to the same period last year. Our efficient Everything’s Included® manufacturing model helped mitigate the impact of a tight labor market. We also continued to see the benefits of our focus on digital marketing through improved S,G&A leverage

The hedge fund sentiment towards Lennar Corporation (NYSE:LEN) has been bullish, with the number of funds among those we track long the company increasing by five to 49 during the third quarter.

Don’t stick a fork in BlackBerry Ltd (NASDAQ:BBRY)‘s turnaround plans just yet, as the company reported a third quarter loss of just $0.03 per share, beating estimates by $0.11 per share. Although revenue retreated by 29.8% year-over-year to $557 million, the tech company’s top line also exceeded expectations $67.96 million. Non-GAAP software and services revenue is going the right way, with sales from the segment jumping by 183% year-over-year to $162 million. Blackberry made some news earlier by launching its first Android phone, PRIV, and spending a good chunk of change to acquire Good Technology. On the back of these, BlackBerry continues to anticipate positive adjusted EBITDA and free cash flow. Among the 18 funds long BlackBerry Ltd (NASDAQ:BBRY) are Jim Simons’ Renaissance Technologies and Cliff Asness’ AQR Capital Management.

On the next page, we examine Darden Restaurants Inc, and CarMax Inc.
Darden Restaurants, Inc. (NYSE:DRI) shares have opened over 2% higher today after the company reported second quarter EPS of $0.54, beating estimates by $0.12 per share on revenue of $1.61 billion, versus estimates of $1.62 billion. The company’s same-restaurant sales rose 1.6% year-over-year. The guidance is solid, with management raising their fiscal year 2016 EPS to the range of $3.25 to $3.35 from the previous range of $3.15 to $3.30. The board also authorized a new $500 million buyback program. After spinning-off its select real estate and restaurant assets into a separate REIT named Four Corners Property Trust, Inc. (NYSE: FCPT) in November, Darden Restaurants, Inc. (NYSE:DRI) is beginning to turn the corner. At the end of September, 33 funds from our database amassed over 15% of Darden’s outstanding stock.

Of the four stocks mentioned today, CarMax, Inc (NYSE:KMX) is the only company that missed both earnings and revenue estimates for its most recent quarter. For its third quarter, CarMarx reported EPS of $0.63 on revenue of $3.54 billion, missing estimates by $0.05 per share and $70 million, respectively. Used unit sales in comparable stores retreated 0.8%, while gross profit per used vehicle dropped 0.6 percentage points to $2,160. CEO Tom Folliard said:

“We had a challenging sales quarter, which together with higher advertising expenses, contributed to the year-over-year decline in third quarter net earnings. However, we continued to grow both total revenues and EPS, reflecting the contributions from new stores and continued share repurchase activity.”

CarMax spent $445.7 million to repurchase 7.7 million shares in the third quarter. The company still has $1.55 billion remaining under its repurchase program. 27 elite funds were long CarMax, Inc (NYSE:KMX) at the end of September, down from 40 at the end of June.

Disclosure: None