Weekly Preview: Earnings Season Continues, Fed In Focus, Economic Maelstrom Expected
Weekly Preview: Earnings Season Continues, Fed In Focus, Economic Maelstrom Expected
Next week, earnings season continues with hundreds of companies set to report earnings. Also, there is a flood of economic data due out in the next week from around the world. Further, the Federal Reserve, the Bank of England and the European Central Bank all are set to issue interest rate decisions in the coming week.
In the coming week, hundreds of earnings will be released in the U.S. alone as markets are in the heart of earnings season. However, traders will be watching key earnings from Dollar General (NYSE: DG), Herbalife (NYSE: HLF), and Mastercard (NYSE: MA) as they are some of the more important reports due out next week.
Dollar General is expected to report second quarter results on Tuesday, July 30. The company is expected to report second quarter EPS of $0.74 vs. $0.69 a year ago on revenue of $0.69 a year ago. Revenue is expected to have risen to $4.36 billion vs. $3.95 billion a year ago.
Goldman Sachs initiated coverage on the stock ahead of earnings. They have a neutral rating and a $58.00 price target on the stock.
“While we are positive on the long-term growth potential ahead of DG, consensus estimates already embed outsized EPS growth over the next three years even as trade-down benefits wane further into a recovery. Furthermore, the recent rally on the heels of FDO's 3Q release leaves valuation at a premium to history. As a result, we await a better entry point to become more constructive, all else equal.”
“We forecast a 15% EPS CAGR over the next three years (vs. 14% 10-year average). Key assumptions underlying our estimates are (1) significant store expansion opportunities based on our proprietary saturation analysis support 5-7% square footage growth, (2) in-store initiatives and secular consumer shifts power 4% comps, and (3) SG&A leverage more than offsets lower margin product introductions to drive op margin expansion.”
They also highlight some upside risks to their investment thesis: “better same-store sales from in-store initiatives, less margin pressure, and SG&A leverage.”
Meanwhile, Deutsche Bank is slightly more optimistic heading into earnings with a buy rating and $ 56 price target. They commented following Dollar General's updated guidance on its buyback program last month.
“As a result of the buyback announcement, we have updated our forecasts. Our 2Q EPS remains $0.75, while our 3Q estimate moves up by $0.01 to $0.71 and our 4Q estimate moves up a penny as well, to $1.06. Our full year forecast now stands at $3.22 (tweaked $0.01 higher), at the high-end of the company's guidance range of $3.15-$3.22.”
Herbalife is expected to report second quarter results after the bell on Monday. The company is expected to report second quarter EPS of $1.18 vs. $1.10 a year ago on revenue of $1.16 billion vs. $1.03 billion a year ago.
Herbalife shares will be sensitive to comments about any ongoing FTC investigation into its MLM structure. As such, earnings numbers may not be the most important figures releases. Also, any comments from Carl Icahn in or around the release will be closely watched.
Height Securities wrote last week on the status of the regulatory procedures. They said, “Concerns about FTC and Congressional action have grown this week. We continue to believe that HLF will not be deemed an illegal pyramid and put out of business, but we accept there is some risk of marketing violations at the federal and/or state level.”
“We believe negative headlines out of Washington will continue, if not escalate, in coming months and, therefore, uncertainty among investors may grow as this regulatory process ultimately heads toward a manageable outcome for the company.”
Meanwhile, Sadif Investments is neutral on the stock heading into earnings. “Herbalife Ltd. is an above average quality company with a neutral outlook. Herbalife Ltd. has strong business growth and is run by efficient management. The trend in Herbalife Ltd. fair value exchange rate against its closest rated-competitor, Nu Skin Enterprises, Inc., has been stable.”
“With the recent steep rise in Herbalife Ltd.s share price, the possibility of the company's shares being overbought increases.” They sight an internal metric in the piece that indicates that shares are slightly overbought currently based on projected operating results.
Mastercard is expected to report second quarter results pre-market on Wednesday. Analysts forecast earnings per share of $6.30 for the quarter vs. $5.65 a year ago on revenue of $2.00 billion vs. $1.82 billion a year ago.
J.P. Morgan weighed in on the stock heading into earnings. They currently have an overweight rating on the stock and a $603.00 price target.
“MasterCard is the #2 global card network worldwide and benefits from the ongoing global secular shift toward card-based and electronic payments. MasterCard's business is highly defensible and characterized by recurring revenues, high incremental margins, low capital expenditures, and high free cash flow. We remain Overweight as we think shares offer premium growth among large-cap names and are a relative safe haven against the backdrop of slowing macro trends.”
“We think a premium to the broader payment processing space is warranted given MA's faster EPS growth profile. Shares are approaching our price target, but we remain Overweight as we think shares are a relative safe haven against the threat of slowing macro trends, and we see potential for additional share repurchases. We note our target multiple is a slight premium to our long-term forecast EPS growth rate, which we think is reasonable.”
Meanwhile, Deutsche Bank notes that the recent draft legislation out of the EU on credit card fees should not be a problem for Mastercard. The analysts reiterate a buy and $756 price target.
“MA believes that the proposal poses no revenue or increased competitive risk. In contrast, the proposal provides an opportunity for MA to gain share from the domestic networks as issuers have freedom to co-badge and the card schemes and processing is unbundled.”
“MA believes that legal separation may not require a split-up at the company holding level. In addition, the proposal could be delayed due to long- drawn legislative process and the final recommendation could be watered-down as networks and banks actively lobby the European Parliament and Council members.”
Key Economics Releases
Key economic releases next will focus on the global manufacturing sector, central banks, and the U.S. employment market. On the manufacturing front, the Chinese manufacturing PMIs are due out late Wednesday followed by the eurozone, British, and U.S. manufacturing readings on Thursday.
Also, central banks will be in focus. The Federal Reserve is set to give its interest rate decision on Wednesday and this month, there will be no press conference or updates to the forecasts. The Bank of England and the European Central Bank will both then issue their respective statements on Thursday morning with eyes on the newly launched forward guidance from both of the banks.
Lastly, Friday's employment situation report in the U.S. is much awaited with economists forecasting that the economy added 185 thousand jobs in July vs. 195 thousand in June. Private payrolls are expected to have gained 195 thousand jobs vs. 202 thousand a year ago with manufacturing payrolls expected to be flat vs. last month's drop of six thousand. The unemployment rate is also expected to drop to 7.5 percent from 7.6 percent.
- Earnings Expected From:American Capital Agency (NASDAQ: AGNC), Anadarko Petroleum (NYSE: APC), Express Scripts Holdings (NASDAQ: ESRX), Herbalife (NYSE: HLF), Loews (NYSE: L), Simon Property Group (NYSE: SPG), and Vertex Pharmaceuticals (NASDAQ: VRTX).
- Economic Releases Expected: pending home sales, the Dallas Fed Manufacturing Survey, and the weekly 3- and 6-month bill auctions.
- Earnings Expected From: Aetna (NYSE: AET), Amgen (NASDAQ: AMGN), Coach (NYSE: COH), 3D Systems (NYSE: DDD), Dollar General (NYSE: DG), Discovery Communications (NASDAQ: DISCA), Corning (NYSE: GLW), JetBlue (NASDAQ: JBLU), Merck (NYSE: MRK), NYSE Euronext (NYSE: NYX), Pfizer (NYSE: PFE), Sprint Nextel Corp. (NYSE: S), Symantec (NASDAQ: SYMC), TRW Holdings (NYSE: TRW), and U.S. Steel (NYSE: X).
- Economic Releases Expected: Spanish GDP, the weekly Redbook, the S&P Case-Shiller Home Price Index, consumer confidence, and a 4-week bill auction.
- Earnings Expected From: Allergan (NYSE: AGN), CBS Corp. (NYSE: CBS), Comcast (NASDAQ: CMCSA), Hercules Offshore (NASDAQ: HERO), Hess (NYSE: HES), Honda Motor Corp. (NYSE: HMC), Humana (NYSE: HUM), Level 3 Communications (NYSE: LVLT), Mastercard (NYSE: MA), MetLife (NYSE: MET), Realogy Holdings (NYSE: RLGY), Boston Beer Company (NYSE: SAM), Sodastream International (NASDAQ: SODA), Whole Foods (NASDAQ: WFM), and Yelp! (NYSE: YELP).
- Economic Releases Expected: the German unemployment report, the eurozone unemployment rate, MBA Purchase Applications, ADP Employment Report, Second Quarter GDP, the Chicago PMI, the FOMC statement, and the Chinese manufacturing PMIs.
- Earnings Expected From: AIG (NYSE: AIG), Apache (NYSE: APA), ArcelorMittal (NYSE: MT), Arena Pharmaceuticals (NASDAQ: ARNA), AstraZeneca (NYSE: AZN), Chesapeake Energy (NYSE: CHK), Clorox (NYSE: CLX), ConocoPhillips (NYSE: COP), DirecTV (NASDAQ: DTV), Exxon Mobil (NYSE: XOM), Fortress Investment Group (NYSE: FIG), Kellogg (NYSE: K), LinkedIn (NYSE: LNKD), Marathon Petroleum Corp. (NYSE: MPC), Onyx Pharmaceuticals (NASDAQ: ONXX), Proctor and Gamble (NYSE: PG), Time Warner Cable (NYSE: TWC), and Walter Energy (NYSE: WLT).
- Economic Releases Expected: the eurozone manufacturing PMI, the British manufacturing PMI, the Bank of England interest rate decision, the European Central Bank interest rate decision, Challenger job cut report, initial jobless claims, PMI Manufacturing Index, ISM Manufacturing Index, construction spending, and Australian PPI.
- Earnings Expected From: Cablevision Systems (NYSE: CVC), Eaton (NYSE: ETN), and Viacom (NASDAQ: VIAB).
- Economic Releases Expected: the British construction PMI, the employment situation report, and factory orders.
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