Benzinga Weekly Preview: Japan And China Take Center Stage; Syria Still In Focus
Next week US congress will make a decision about whether or not to use military force in Syria, despite a lack of support from all international leaders.
While France, Canada and Australia have backed President Obama’s plan to launch targeted military strikes in Syria, others, like the UK, are not on board.
The Federal Reserve’s tapering schedule will also play a large role in markets next week as investors continue to try to predict the bank’s timeline ahead of its policy meeting. Strong data next week could add to speculation that September will be the start date for the bank to start reeling in its $85 billion per month bond buying plan.
Strong PMI data from China this week has boosted confidence that the nation’s economy is picking up. Next week industrial production, retail sales and inflation data will help paint a better picture of how solid the recovery is.
After the Bank of Japan left interest rates unchanged this month, new data will help determine whether or not the bank will need to cut rates in the future. The BOJ governor was confident that the Japanese economy was on the path to recovery, which could push the government to raise the country’s sales tax in April. Some speculate that the Japanese government could announce its decision about the tax hike over the weekend.
Key Earnings Reports
Next week investors will be waiting for several key earnings reports including The Pep Boys Manny, Moe & Jack (NYSE: PBY); The Kroger Co. (NYSE: KR), Ulta Salon, Cosmetics & Fragrance (NASDAQ: ULTA), Unilife Corp (NASDAQ: UNIS)
The Pep Boys Manny, Moe & Jack
On Tuesday, Pep Boys is expected to announce EPS of $0.19, compared to last year’s EPS of $0.12.
In June, the analyst team at Benchmark gave Pep Boys a Buy rating with a price target of $15.00. Benchmark expects that the company’s revenue will increase by 4 percent and sees store units increasing by 5 percent.
“The store unit increase would mainly be driven by the smaller service centers, whose sales per store are more than 60% less than the average supercenter. We expect comps to be back half of the year loaded. Q4 should have upside potential as we anniversary the mild winter of the past two years.”
The Kroger Co.
On Thursday, Kroger is expected to announce EPS of $0.60, compared to last year’s EPS of $0.51.
The analyst team at Goldman Sachs downgraded Kroger’s rating from Neutral to Sell in July, citing flagging industry tailwinds and the fact that the company’s shares are trading at a premium valuation with regard to their history. However, Goldman noted that Kroger is still considered one of the top conventional grocers.
“We continue to view KR as best in-class among conventional grocers due to its price leadership, superior loyalty program and history of sustaining leading market share. However, KR shares are up 73% vs. the S&P 500 +21% over the past twelve months, the greatest relative outperformance other than into the recession of 2001 and amidst consolidation in 1998. While consolidation may support EBITDA, we expect the waning benefits from the shift to generics and muted inflation will weigh on the core. Given these headwinds and evolving competition, we expect the multiple to re-rate to long-term averages. The corresponding downside to our price target prompts our downgrade.”
Ulta Salon, Cosmetics & Fragrance
On Thursday, Ulta is expected to report EPS of $0.67, compared to last year’s EPS of $0.54.
In August, Piper Jaffray gave Ulta an Overweight rating with a price target of $129.00 and encouraged investors to buy the stock because of its long term growth potential.
“No doubt, we understand why folks would demonstrate concern when a major global beauty company like Estee Lauder indicates the prestige U.S. beauty market slowed in growth in their FQ4 (ended in June) and is expected to grow slower than the global prestige market's rate of 3%-4% in their FY14. That said, we believe the slowdown is wrapped up more with the slowdown seen across the board with U.S. department stores than the specialty stores segment (of which ULTA is counted). We believe ULTA is in the business of gaining share of mind and share of beauty wallet as it 1) expands their door count, 2) expands their inclusion of prestige beauty brands, and 3) expands their loyalty program.”
On Tuesday, Unilife is expected to announce a loss of $0.13 per share, compared to last year’s loss of $0.21 per share.
On Wednesday, Cantor Fitzgerald gave Unilife a Buy rating with a price target of $6.00. The aggressive rating is due to the company’s expectation of several supply contracts and clinical development agreements which are expected to generate revenue in 2014. However, uncertainty caused Cantor Fitzgerald to lower the price target.
“We continue to like UNIS' broad portfolio of customized drug delivery systems and recurring revenue model that could lead to profitability in relatively short order. However, this relies on UNIS commercializing its much-discussed (yet elusive) development pipeline, setting up FY:14 as a pivotal year for the company, in our view. We reiterate our BUY rating on the potential from this pipeline, but we lower our PT from $7.50 to $6 on increased uncertainty over timing.”
Key Economic Releases
Data from Asia will be prominent next week as investors size up the Japanese and Chinese recoveries. Industrial production, retail sales and inflation data from China will be highly anticipated as strong data will confirm speculation that the nation’s economy is on the mend.
The Japanese sales tax hike will also play into markets next week as data from the region will help determine whether or not the BOJ will have to make changes to its economic policy in the future.
- Earnings Expected From: Avid Technology, Inc. (NASDAQ: AVID), PVH Corp. (NYSE: PVH), MVC Capital, Inc. (NYSE: MVC)
- Economic Releases Expected: Australian business confidence, US consumer credit
- Earnings Expected From: The Pep Boys- Manny, Moe & Jack (NYSE: PBY), Unilife Corporation (NASDAQ: UNIS), Oxford Industries, Inc. (NYSE: OXM)
- Economic Releases Expected: Italian GDP, French industrial production, Indian imports and exports, Chinese retail sales and industrial production
- Earnings Expected From: Accretive Health, Inc. (NYSE: AH), Men’s Wearhouse, Inc, (NYSE: MW), Vera Bradley, Inc. (NASDAQ: VRA)
- Economic Releases Expected: Australian unemployment rate, French current account, German CPI, British Unemployment rate, Reserve Bank of New Zealand interest rate decision
- Earnings Expected From: Converse Inc. (NASDAQ: CNSI), Kroger Company (NYSE: KR), Ulta Salon, Cosmetics & Fragrance (NASDAQ: ULTA)
- Economic Releases Expected: Eurozone industrial production, Italian industrial production, Spanish CPI, French CPI, Indian industrial production, manufacturing output and CPI
- No Notable Earnings Expected.
- Economic Releases Expected: US retail sales, Japanese industrial production
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