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Bear of the Day

With the market in disarray it was easy for me to find a Bear of the Day to pick on. I’d say about 90% of the stocks I looked at during Thursday’s trading session were down. But when I look for a Bear of the Day, I want to find a stock that may be trading too high for its current earnings picture. This way I could give somebody a warning and allow them to take a little closer look at a stock position they may not have investigated recently.

Today’s Bear of the Day is Zacks Rank #5 (Strong Sell) Briggs & Stratton (BGG - Snapshot Report). BGG is in the farming machinery industry that ranks in the bottom 12% of our Zacks Industry Rank. I’m sure you’ve seen the brand on a lawnmower or leaf blower in the past. BGG is one of the world’s largest producers of air cooled gasoline engines for outdoor power equipment. The company designs, manufactures, markets and services these products for original equipment manufacturers worldwide.

Last quarter BGG missed earnings by 6 cents, reporting 81 cents versus consensus estimates of 87 cents. This marked the third quarter in a row the company has missed. Over the last 30 days two analysts have dropped their estimates for the current year and next year, dropping consensus from $1.05 to 91 cents for this year and from $1.38 to $1.26 for next year.

The price and consensus chart shows the history of downward earnings revisions BGG has been dealing with since early 2013 when the stock was trading above $25. Since then, negative revisions have slashed these estimates in half and have put pressure on the stock price. Thursday Briggs & Stratton closed the trading day at $20.37. The stock and its earnings are cyclical in nature. The March quarter was supposed to be one of the stronger quarters for BGG. The disappointment there may translate to worse news in the coming months.

From a technical perspective the story is not any better. After trading near $23 the stock consolidated in a range a little wider than a dollar. As you’d expect in a range bound market the 25 day moving average offset by 5 days (25x5) was basically horizontal. This helped to confirm the range trade from mid-February to mid-April.

Since then the stock has broken down below support and finds itself firmly locked into a downtrend. The first confirmation was the break below the range bottom at $21.50. After dipping below that level, the 25x5 turned down into a negative slope while the price was stuck below it. Recently BGG tried to rally after finding a bid at the February low. The bad news came when BGG tried to break back above the bottom of the February to April range at $21.50 and failed miserably. The two big days we saw last Friday and this past Monday were erased on Tuesday and Wednesday. Today gave $20 as a last ditch effort of support. Another big day on volume and BGG could be retesting $18 in a hurry.

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