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Benzinga Weekly Preview: Earnings Season Gets Into Full Swing

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Earnings season will be in well underway next week with several large banks set to release earnings reports.

The US government will also be in focus as the world hopes an agreement is reached before the October 17 budget deadline. If a deal is reached before Thursday, attention will likely shift back to the Federal Reserve and whether or not the bank will begin tapering its $85 billion per month bond buying program in December.

Key Earnings Reports

Next week investors will be waiting for several key earnings reports including General Electric Company (NYSE: GE), Intuitive Surgical, Inc. (NASDAQ: ISRG), Peabody Energy Corporation (NYSE: BTU), Nokia Corporation (NYSE: NOK), PrivateBancorp, Inc. (NASDAQ: PVTB),Yahoo! Inc. (NASDAQ: YHOO), Bank of America Corp (NYSE: BAC) and Verizon Communications Inc. (NYSE: VZ).

General Electric Company

General Electric is expected to report third quarter EPS of $0.36 on revenue of $35.90 billion, compared to last year’s EPS of $0.36 on revenue of $36.35 billion.

Merrill Lynch has a Buy rating on General Electric with a price objective of $26.00 on October 10. The analysts at Merrill Lynch cited the company’s new Predix software platform as a major driver of the company’s value.

“Over time, the standardization of protocols and platforms will be a key goal as the Industrial Internet becomes more pervasive. GE has developed Predix internally, to be a common platform for its software offerings across end markets, as there is currently no off-the-shelf solution. Currently, the Predix is a closed system, however GE anticipates opening the platform to third-party partners and developers in 2014 to develop their own customer-specific or market-specific solutions. In our view, the most important aspect of GE’s Predix software is the development of a unique scalable common platform for data analytics to address various industrial end markets utilizing GE’s domain expertise.”

Goldman Sachs took a more conservative stance on GE, giving the stock a Neutral rating with a $26.00 price target.

“Our view is based on limited upside to 2013/2014 EPS coupled with a balanced risk/reward at this time. Specifically, we believe the 2013 margin targets are aggressive and a lower asset base at Capital will weigh on 2014 growth. Over the long term, we like GE’s position in attractive markets, simplification efforts and actions since the global financial crisis to make Capital stronger/safer. However, while GE appears well on its way to achieving its ENI reduction targets, we believe more can be done to improve its returns/ growth profile, making it a more attractive investment longer-term.”

Intuitive Surgical, Inc.

Intuitive Surgical is expected to report EPS of $3.40 on revenue of $525.47 million, compared to last year’s EPS of $3.54 on revenue of $537.80 million.

JP Morgan has an Overweight rating on Intuitive Surgical with a $530.00 price target on October 9. The analysts at JP Morgan maintained its Overweight rating following the American College of Surgeons Clinical Congress, saying the company has the potential to drive penetration into the general surgery market.

“As a near-monopoly with a recurring revenue stream, ISRG is uniquely positioned to gain further share in surgical procedures, driving above-peer revenue and EPS growth for the foreseeable future; continued procedure adoption in gynecology, other urology, and general surgery will be more than enough to offset declines in prostatectomy and the weak European environment, in our view. Reiterate Overweight.”

The team at Wedbush was similarly optimistic about the company and has an Outperform rating with a price target of $495.00.

“Based on our breakdown of Intuitive Surgical’s MAUDE Database Analysis the company posted on its website Thursday evening and updated over the weekend, we estimate that the yet-to-be-reported 3Q13 worldwide procedure growth could be approximately 16% yr/yr, which would represent a decent result, in our opinion, given the numerous headwinds and concerns that have weighed on the technology and stock year to date. However, we would note that our methodology is far from being an exact science.”

Peabody Energy Corporation

Peabody is expected to report a third quarter loss of $0.04 per share on revenue of $1.79 billion, compared to last year’s EPS of $0.51 on revenue of $2.06 billion.

The team at Sterne Agee has a Buy rating on Peabody with a $30.00 price target on October 10. Their predictions were largely based on the company’s settlement with Patriot and United Mine Workers of America.

“Under the terms of settlement, Peabody would provide a total of $310M payable over four years through 2017 (for discounted value of $272M at 10%) to fund the newly established Voluntary Employee Beneficiary Association (VEBA) and settle all Patriot and UMWA claims involving Patriot bankruptcy. Peabody also would provide $140M of credit support to Patriot for five years.”

Merrill Lynch has an Underperform rating on Peabody with a $15.00 per share price objective.

“We expect the shares to re-rate lower going forward, as BTU is no longer a steady PRB-focused coal miner. Downside (upside) risks to our price objective are: (1) substitution risk (boost) for thermal coal due to structural oversupply of U.S. natural gas, (2) excess (deficit in) met coal supply from slowing (growing) global demand and the ramp (reduction) of new projects in Mongolia, Mozambique, and other countries, (3) rising (falling) costs related to environmental and regulatory changes, (4) met coal and coke substitution risk (boost), (5) slowing (growing) Chinese steel demand, (6) weather disruptions, (7) AUD dollar FX risk, (8) met and thermal coal price weakness (strength), (9) shortage (surplus) of coal miners, and (10) port disruption.”

Nokia Corporation

Nokia is expected to report third quarter EPS of $0.00 on revenue of $7.91 billion, compared to last year’s loss of $0.09 per share on revenue of $9.05 billion.

At the beginning of October, Merrill Lynch has a Buy rating on Nokia with a $7.07 price objective, saying the company had many prospects for the future.

“We see a number of positive catalysts ahead for Nokia shares. EGM on 19th November: We expect the Microsoft/Nokia deal to be approved at this EGM. This should help pave the way for a major overhaul of the capital structure. Nokia could also provide extra disclosures around the deal and the Advanced Technologies division in advance of the EGM. New CEO & strategy update: We believe Nokia will update investors on its strategy post the sale of the handsets business. This could potentially happen after the appointment of a CEO, which in itself could be a positive catalyst. Given Nokia’s strong net cash position (we model €8bn at FY14) we believe that the company could also reinstate its dividend, which could help to broaden its investor base.”

Societe Generale also has a Buy rating on Nokia and raised its price target from €5.30 to €6.20.

“As we have raised our forecasts, our DCF-based target price increases to €6.2 (WACC 10.0%, LT margin 12%, LT growth 3%). This is supported by our revised SOTP which values Nokia at €6.3 per share. We therefore stick to our Buy rating with 26% projected 12m TSR, which has no dividend payment.”

PrivateBancorp, Inc.

PrivateBancorp is expected to report third quarter EPS of $0.37 on revenue of $131.96 million, compared to last year’s EPS of $0.27 on revenue of $131.96 million.

Sterne Agee has a Neutral rating on PrivateBancorp as of July 22, citing low revenue growth as reason for the rating.

“We are raising our 2013E and 2014E EPS to $1.50 (+$0.05) and $1.60 (+$0.05), respectively, and introducing a 2015E EPS of $1.85. PVTB remains Neutral-rated given sluggish revenue growth (1% Y/Y; -1% LQA) and the EPS contribution from reserve bleed (i.e., provision < NCOs). Although we project additional reserve releases over the next year, the magnitude seems likely to fall, given a reserve that represented 1.47% of loans at 2Q13-end.”

Yahoo! Inc.

Yahoo! is expected to report third quarter EPS of $0.33 on revenue of $1.09 billion, compared to last year’s EPS of $0.35 on revenue of $1.09 billion.

As of the end of September, Merrill Lynch has a Buy rating on Yahoo! and raised its price objective to $38.00 following the Alibaba’s September 26 press release.

“We are raising our 2013E and 2014E EPS to $1.50 (+$0.05) and $1.60 (+$0.05), respectively, and introducing a 2015E EPS of $1.85. PVTB remains Neutral-rated given sluggish revenue growth (1% Y/Y; -1% LQA) and the EPS contribution from reserve bleed (i.e., provision < NCOs). Although we project additional reserve releases over the next year, the magnitude seems likely to fall, given a reserve that represented 1.47% of loans at 2Q13-end.”

Goldman Sachs also has a Buy rating on Yahoo! with a $39.00 price target. The team at Goldman suggested that Yahoo’s Asian assets would drive the company’s shares.

“We expect Q3 revenues from Yahoo to be roughly in line with consensus and guidance, with EBITDA at the high end of guidance and above consensus when the company reports after the close Tuesday, October 15. Though overall traffic growth has been stable, the mix continues to shift towards lower eCPM mobile usage and programmatic buying continues to pressure premium inventory pricing, offsetting improvements in revenue per search. The value of the Asian assets on Yahoo’s balance sheet remains the primary driver of shares of YHOO and continues to offer upside even under our relatively conservative scenarios. “

Bank of America Corp

Bank of America is expected to report third quarter EPS of $0.18 on revenue of $22.08 billion, compared to last year’s EPS of $0.00 on revenue of $20.43 billion.

The analyst team at JP Morgan has an Overweight rating on Bank of America with a price target of $16.00 citing, among other things, the improving housing market for its positive rating.

“We continue to rate Bank of America Overweight longer term relative to our universe due to the significant benefit from potential housing market recovery, potential for significant increase in normalized earnings, ongoing improvement of capital levels, relatively attractive valuation, and position as a leading retail and commercial banking franchise in the US. BAC’s normalized earnings should benefit from the large cost cutting program under way, faster reduction in the very large legacy asset servicing and other credit related expenses as the housing market continues to improve, and decline in litigation expenses. There has been some good progress on mortgage related issues – some issues remain to be resolved but BAC has put aside sizable additional reserves.”

ISA Financials has a Buy rating on Bank of America with a $16.00 price target, noting that the positives outweigh the headwinds.

“It’s gotten tougher in Broker & Universal bank land as stocks & valuations have pushed higher while returns and earnings prospects haven’t kept pace, and there are still questions about the strength economic backdrop and pending regulation. We subscribe to the notion that growth will pick up in the coming 12-18 months and that there are enough positive/less negative trends to warrant owning this group.”

Verizon Communications Inc.

Verizon is expected to report third quarter EPS of $0.75 on revenue of $30.17 billion, compared to last year’s EPS of $0.64 on revenue of $29.01 billion.

Canaccord Genuity has a Buy rating on Verizon with a $55.00 price target on October 3. The team at Canaccord noted Veriozon’s upcoming launch of the Verizon Cloud as a driver of success.

“Verizon announced that it will launch Verizon Cloud, a newly-designed platform that offers Cloud Compute and Cloud Storage services to enterprises. With more flexible offerings, improving performance and more competitive pricing, we believe the new service will enable the company to become a more formidable competitor in the enterprise cloud market. We believe that a successful launch of Verizon Cloud will help drive the recovery of enterprise revenue growth in 2014 and possibly pressure competitors in the space.”

Economic Releases

If US politicians aren’t able to reach a deal about the nation’s borrowing limit over the weekend, the pressure will be on next week as lawmakers race against the clock. Democrats and Republicans will need to come to an agreement on the government’s borrowing authority before the October 17 deadline in order to avoid the US defaulting on loans.

Industrial production data for August will also be closely watched next week, especially in Europe after July’s industrial production figures were worse than expected. Investors will be looking for eurozone industrial production to confirm that the block is on the right track to continue operating out of recession.

Daily Schedule

Monday

  • Earnings Releases Expected: Citigroup Inc. (NYSE: C), Stanley Furniture Company, Inc. (NASDAQ: STLY), Wintrust Financial Corporation (NASDAQ: WTFC)
  • Economic Releases Expected: Swiss PPI, eurozone industrial production

Tuesday

  • Earnings Expected From: Yahoo! Inc. (NASDAQ: YHOO), CSX Corporation (NYSE: CSX), Intel Corporation (NASDAQ: INTC), Johnson & Johnson (NYSE: JNJ), Coca-Cola Company (NYSE: KO)
  • Economic Releases Expected: US trade balance, German ZEW economic sentiment, British CPI, French CPI, Japanese industrial production

Wednesday

  • Earnings Expected From: Bank of New York Mellon Corporation (NYSE: BK), Stanley Black & Decker, Inc. (NYSE: SWK), US Bancorp (NYSE: USB), Bank of America Corp (NYSE: BAC), Pepsico, Inc. (NYSE: PEP), American Express Company (NYSE: AXP), eBay Inc. (NASDAQ: EBAY)
  • Economic Releases Expected: US Beige Book, Canadian manufacturing sales, US CPI

Thursday

  • Earnings Expected From: UnitedHealth Group Incorporated (NYSE: UNH), Verizon Communications (NYSE: VZ), PrivateBancorp, Inc. (NASDAQ: PVTB), PPG Industries, Inc. (NYSE: PPG), Philip Morris International Inc (NYSE: PM), Nokia Corporation (NYSE: NOK), Peabody Energy Corporation (NYSE: BTU), Intuitive Surgical, Inc. (NASDAQ: ISRG), Chipotle Mexican Grill (NYSE: CMG)
  • Economic Releases Expected: Chinese GDP, Chinese industrial production, Chinese retail sales, US industrial production, US housing starts, US building permits

Friday

  • Earnings Expected From: General Electric Company (NYSE: GE), Schlumberger N.V. (NYSE SLB), Morgan Stanley (NYSE: MS), Honeywell International Inc. (NYSE: HON), Suntrust Banks, Inc. (NYSE: STI)
  • Economic Releases Expected: US Leading Indicators, British Mortgage Approvals

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