Weekly Preview: Economic Data Takes Center Stage In Earnings Lull
Next week, key economic data points will be the focus of markets as the end of quarter earnings lull comes to an end. However, a few key earnings reports are expected and could also move markets.
Earnings from key companies next week including Lennar (NYSE: LEN), General Mills (NYSE: GIS), and Blackberry (NASDAQ: BBRY). However, the earnings calendar remains thin in quantity of companies reporting.
Home-builder Lennar is expected to report second quarter results on Tuesday. With the recent rise in mortgage rates and fears over the slowdown in the housing market, comments from the company could have a large impact on the broad market. Lennar is expected to report EPS of $0.33 vs. $2.06 a year ago on revenue of $1.33 billion vs. $930.16 million a year ago.
Sterne Agee's analysts weighed in on Lennar ahead of earnings. They reiterated their neutral rating and $45.00 price target on the stock Friday.
”We are maintaining our Neutral rating ahead of Lennar's EPS release. We believe investor apprehension about the direction of mortgage rates has resulted in volatile trading that is not reflective of positive fundamentals for the industry or for Lennar. Consequently, we believe a cautious approach is warranted ahead of Lennar's release.”
“At our F2Q13 unit backlog absorption (a/k/a backlog conversion ratio) estimate of 85%, we are at the low end of management's forecast range of 85% to 95% for 2Q and for 3Q. In F4Q13, Lennar expects unit backlog absorption to increase to a range of 90% to 100%.”
Meanwhile, ISI Group has the same price target as Sterne Agee at $45.00 but they have a buy rating on the stock. However, they are below consensus for the quarter.
“For the 1st time in numerous quarters, our EPS estimate of $0.27 is below the Consensus estimate of $0.33. While believing there is modest upside to our estimate, we think a meaningful beat compared to the Street forecast may prove challenging. The upside risk to our number lies primarily with the SG&A Ratio, as we believe management's guidance of a 100 bps improvement is likely conservative.”
“We forecast Total Revenues of $1,342M, up 44%, with Homebuilding Revenue contributing $1,181M (+48%) of that total. Consensus is $1,306M. We forecast unit Closings of 4,243, up 33%, with an ASP of $278K, up 11.5%. Our Backlog Conversion rate estimate is 86% compared to 118% last year.”
“This Quarter's Key Issues Include: 1) Strategy for growing OM back to top of industry? 2) Rialto update on plans for stronger growth and profitability? 3) West Coast Land JV updates and how we should think about earnings contributions? 4) Multi-Family update and how management looks at its growth prospects and potential profitability?”
Consumer goods maker General Mills is expected to report fourth quarter results on Wednesday. The company is expected to report fourth quarter EPS of $0.53 vs. $0.60 a year ago on revenue of $4.32 billion vs. $4.07 billion a year ago.
Bank of America's analysts weighed in ahead of the report. They have a buy rating with a price objective of $50.00 on the stock.
“We are forecasting F4Q13 EPS of $0.55 and FY13 EPS of $2.70, which is $0.01 above the EPS guidance range (management recently preannounced and raised its EPS guidance from $2.66-$2.68 to $2.68-2.69). Key elements of our forecast: 1) Sales are forecasted to be up +4.5% y/y in F4Q13 and 5.7% y/y for FY13; US Retail organic growth is forecasted to be +1% for F4Q13 and FY13. 2) Gross margin is forecasted to be down -200bps in F4Q13 and -70bp for the year, driven by changes in business mix (Yoplait) and timing of merchandising. 3) Operating margin is forecasted to be down -160bps in F4Q13 and down -30bps for the year.”
Meanwhile, Morgan Stanley more cautious with an equal-weight rating and a $49.00 price target on the stock. “Company issues include yogurt headwinds (unchecked declines in core cup, and limited sequential share growth in Greek), continued momentum in Int'l (after DD EBIT growth in F13) and the balance between cash returns / M&A beyond 2014. Key industry issues include: (i) Greater clarity on F14 inflation, and the risk of continued promotional increases; (ii) Efforts to evolve the breakfast daypart; and (iii) With improved GM's, achieving balance between reinvestment and margin expansion.”
“Although Mills has fallen short of its HSD EPS target for the past two years, F14 targets seem secure (and arguably conservative) given limited inflation, improved volume, and the absence of several headwinds faced in 2013. We note that Mills historically has exceeded its initial targets, particularly in years of limited inflation.”
“With GIS trading at 16.2x 2014e P/E and +23% YTD, we believe – as noted in our recent downgrade – that an EW rating is warranted (underperformance in the event of further Fed easing also remains a risk). However, we remain generally positive on Mills' ability to deliver HSD EPS growth over time, and continue to prefer GIS to many of its higher-yield, US-focused peers.”
Mobile device maker and always exciting stock to follow Blackberry is expected to report fourth quarter results on Friday. Blackberry is expected to report first quarter EPS of $0.09 vs. a loss of $0.37 per share a year ago on revenue of $3.377 billion vs. $2.814 billion a year ago.
Societe Generale recently upgraded the stock to a buy ahead of earnings. They now have a buy rating and a $17.00 price target on Blackberry.
“RIM will report Q1 FY14 results on 28 June 2013. Expectations are diverse. According to Bloomberg, over the last month analysts' Q1 FY14 sales expectations have ranged from $3.1bn to $4.1bn while operating profit expectations stretch from a loss of $100m to a profit of almost $350m. We believe that this reflects the uncertainties caused by the portfolio change and the introduction of the new Z10 and Q10 handsets, while the impact of falling services revenue is adding more uncertainty.”
“However, our recent channel checks suggest that RIM's new models are selling well. We are forecasting Z10 sales to be in excess of 4m handsets (1m previous quarter) with Q10 sales just under 1m units. We have little sales evidence for Blackberry 7 models, which suggests that volumes may have fallen sharply. We have found some supporting evidence for RIM's improving situation in analysis by Kantar and gs.statcounter.com.”
“Interestingly, this evidence is stronger in the UK, one of the first markets where the Z10 and Q10 handsets were launched. So our base case scenario now assumes that the new handset sales have been faster than we previously assumed. We have increased this quarter's forecasts, with lower sales of older handsets (ASP $200) and higher sales of the new Z10 (ASP $500) and Q10 (ASP $550) models. This boosts our sales to $3.7bn (from $2.7bn) and increases our EPS for the quarter from $0.00 to $0.06. Longer term, we have boosted our handset sales assumptions, now going for almost 23m BB10 units this year (previously 16m) and this increases our EPS by 20% to $0.85 from $0.71 previously.”
“As we raise our forecasts, this also leads to an increase in our DCF target price from $13 to $17 (WACC 10.0%, LT margin 8%, LT growth 3%) for a projected 24% 12m TSR. (There is no 12-month forecast dividend.) We therefore upgrade our recommendation from Sell to Buy. As always with our forecasts, the key is the long-term operating margin: a 1% change in this margin changes our valuation by $1.70, all else being equal.”
Jefferies notes that good results from Blackberry suppliers in recent weeks bode well for the stock heading into earnings. They have a buy rating and a $22.00 price target on the stock.
“We believe Jabil and Wistron are the two main manufacturers of BBRY's BB10 handsets. Last night Jabil reported strong results in its May Q for its High Velocity segment, which we believe to be primarily sales to BlackBerry: 24% Y/Y (+13% guidance), +34% Q/Q. Aug Q segment guidance of +15% Y/Y (implies -4% Q/Q) is solid and we expect substantial upside. Wistron reported revenues for the month of May of +16% M/M and +21% Y/Y. While BBRY is a ramping customer for Wistron, it was <10% of Wistron's revenues in 2012 with most of Wistron's business from notebooks, which are quite weak. Wistron's notebook ODM peers reported May sales of 0% M/M and -7% Y/Y, highlighting Wistron's outperformance.”
“We surveyed hundreds of Orange, Vodafone, and EE stores in the U.K. to determine inventory levels for the Z10 and the Q10. For the Z10, we found only 3% of stores to have 5+ units in stock, 78% of stores had 1-4 devices on hand, and 19% of stores were out of stock. For the Q10, we found 19% of stores to have 5+ units in stock, 79% of stores had between 1-4 devices on hand, and 2% of stores were out of stock. We find recent reports mentioning large inventory levels to be inconsistent with our checks.”
“Based on our FY14 estimates, our price target is 15x P/E, above peers' CY13 median of 12x due to BBRY's CY14 MDM potential. Risks: 1) BB10 fails; 2) current subscriber base declines more quickly than expected; 3) lack of interest in OS licensing by other handset OEMs.”
Key Economics Releases
The economic calendar is dense next week beginning on Monday with the German IFO Business Climate Index followed by the Chicago Fed National Activity Index, the Dallas Fed Manufacturing Survey, the weekly 3- and 6-month bill auctions, and a speech from the Fed's Richard Fisher.
Tuesday kicks off with the Italian retail sales report followed by chain store sales, durable goods, and the FHFA house price index. Also, the Case-Shiller Home Price Index is expected as are new home sales, consumer confidence, and the Richmond Fed Manufacturing Index.
On Wednesday, the big report of the week is due out as the U.S. GDP report is due out. Also expected are the corporate profits report and a 5-year note auction. Overnight, the German employment report and unemployment rate could be a risk event.
Thursday morning brings the weekly jobless claims report as well as personal income and outlays, pending home sales, and the Kansas City Fed Manufacturing Index. Also, Fed members Jerome Powell and Dennis Lockhart are expected to speak.
On Friday, the Chicago PMI is due out and Fed members Lacker, Pinalto, and Williams are set to speak. Also, the Canadian GDP report is due out as well as the Michigan Consumer Confidence Survey.
- Earnings Expected From: American Greetings (NYSE: AM), Gencorp (NYSE: GY), and Sonic (NASDAQ: SONC).
- Economic Releases Expected: German IFO Business Climate Index, Chicago Fed National Activity Index, Dallas Fed Manufacturing Survey, and the weekly bill auctions.
- Earnings Expected From: Apollo Group (NASDAQ: APOL), Barnes and Noble (NYSE: BKS), Carnival Corp. (NYSE: CCL), Lennar Corp. (NYSE: LEN), and Walgreens (NYSE: WAG).
- Economic Releases Expected: Italian retail sales, weekly chain store sales, durable goods, the weekly Redbook, the FHFA Home Price Index, the Case-Shiller Home Price Index, new home sales, consumer confidence, the Richmond Fed Manufacturing Index, and more bill auctions.
- Earnings Expected From: Bed Bath and Beyond (NASDAQ: BBBY), General Mills (NYSE: GIS), Monsanto (NYSE: MON), and Progress Software (NASDAQ: PRGS).
- Economic Releases Expected: the U.S. GDP report, corporate profits, a 5-year note auction, and a speech from the Fed's Naryana Kocherlakota.
- Earnings Expected From: ConAgra Foods (NYSE: CAG), Nike (NYSE: NKE), Winnebago Industries (NYSE: WGO).
- Economic Releases Expected: initial jobless claims, personal income and outlays, pending home sales, the Kansas City Fed Manufacturing Index, speeches from the Fed's Powell and Lockhart, and a 7-year note auction.
- Earnings Expected From: Finish Line (NASDAQ: FINL) and Blackberry (NASDAQ: BBRY).
- Economic Releases Expected: Chicago PMI, Canadian GDP, Reuters/University of Michigan Consumer Confidence Index, and speeches from the Fed's Lacker, Pinalto, and Williams.
Latest Ratings for LEN
|Mar 2015||Keefe Bruyette & Woods||Maintains||Outperform|
|Jan 2015||Keefe Bruyette & Woods||Maintains||Outperform|
© 2015 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.