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Benzinga Weekly Preview: Earnings Season Continues, Delayed US Data To Hit Markets

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With the US government back up and running, a spate of delayed data is expected to hit markets next week. The most anticipated report will be non-farm payrolls, due out on Tuesday. Investors will be looking to US data for a clearer picture of the nation’s economic health and clues about the Federal Reserve’s taper plans.

Key Earnings Reports

Next week investors will be waiting for several key earnings reports including Caterpillar, Inc. (NYSE: CAT), Boeing Company (NYSE: BA), Amazon.com, Inc. (NASDAQ: AMZN), Netflix, Inc. (NASDAQ: NFLX), Procter & Gamble Company (NYSE: PG), and Bristol-Myers Squibb Company (NYSE: BMY).

Caterpillar, Inc.

Caterpillar is expected to report third quarter EPS of $1.70 on revenue of $14.40 billion, compared to last year’s EPS of $2.54 on revenue of $16.44 billion.

On October 16, the analyst team at Morgan Stanley gave Caterpillar an Equal-weight rating with an $84.00 price target. The firm said it did not see any positive catalysts in the company’s future and the stock would only become more attractive if a major restructuring program were announced.

“Investors are very bearish on CAT headed into earnings; we believe that the stock would only become investible if two events play out: 1) A large ($200m+) restructuring program is announced within Resource; and 2) An achievable ($6-8) EPS guidance range is provided during 4Q earnings. We do not see a near-term catalyst to drive the stock out of its recent $81-88 trading range.”

Merrill Lynch gave Caterpillar a Neutral rating with an $88.00 price target just two days earlier, citing a slow growth environment as an obstacle to success.

“Our PO of $88 is based on our discounted cash flow model and implies a 2014EPE of 12.6x and EV/Sales of 1.23x. CAT has traded at 14-15x EPS historically, but we are not convinced the stock will rerate to this multiple in the slower growth environment that we foresee. Upside risks to our price objective are: 1) a faster than- expected recovery in the global economy, 2) a resurgence in the global commodity super-cycle, 3) favorable sector M&A, 4) sharp recovery in China. Downside risks are: 1) Ineffectiveness of global monetary stimulus measures, 2) recession in China, 3) difficulty with the Bucyrus acquisition, 4) lack of demand recovery leading to significant production cuts, 5) increasing pricing pressure.”

Boeing Company

Boeing is expected to report EPS of $1.54 on revenue of $21.65 billion, compared to last year’s EPS of $1.35 on revenue of $20.01 billion.

Merrill Lynch gave Boeing a Buy rating with a $130.00 price objective on October 14. The firm cited rising oil prices and rapid changes in the dollar’s value as risks to the company’s order activity.

“Risks to our price objective are: A sharp and prolonged surge in oil prices to well above $100/bbl would be negative to aircraft demand. A downturn in commercial aviation, due to an exogenous factor, could adversely affect Boeing's financial results. Given the number of new systems, materials and construction techniques, Boeing would be materially affected if there were additional problems with the development or manufacturing of the 787. Given that aircraft are priced in dollars, an unexpected rapid revaluation in the dollar could significantly affect order activity. Execution risk on defense programs could result in cost overruns and margin contractions. We view the current presidential administration as a potential ceiling to defense stocks as political control, in our view, is a key driver of defense spending.”

On October 13, the analyst team at Goldman Sachs also gave Boeing a Buy rating.

“We expect another modest (1-2%) upward revision to full-year 2013 EPS guidance. The most upside to Boeing's 2013 outlook likely resides in the BCA margin, which it currently forecasts to be greater than 9.5% for the full-year vs. the 11.0% it achieved YTD. Upside from greater than anticipated share repurchase is also possible. Boeing will likely not provide initial 2014 guidance until it reports 4Q in January.  We revise our 2013/2014/2015E to $5.49/6.71/7.82 from $5.47/6.73/7.86 to reflect minor revisions in our annual commercial aircraft forecast."

Amazon.com, Inc.

Amazon is expected to report a third quarter loss of $0.09 per share on revenue of $16.77, compared to last year’s loss of $0.60 per share on revenue of $13.81 billion.

In September, Canaccord Genuity gave Amazon a Buy rating based on the company’s 2.5 percent growth acceleration from August to September.

“When considering the entire quarter, Channel Advisor Q3/13 SSS data suggests 25.1% y/y growth compared to 29.0% y/y average growth in Q2/13. This represents deceleration of about 3.9 percentage points while we are currently modeling a 3.2 percentage point deceleration in Amazon Marketplace (Media plus EGM) revenue growth in Q3/13. When considering just the past month, Channel Advisor September data suggests 2.5 percentage point growth acceleration compared to August, which we believe is positive for the stock sentiment in the near term.”

On October 14, the analyst team at JP Morgan gave Amazon a Neutral rating with a $285.00 price target. The firm said that the near term risk and reward is balanced, but that the company will become more valuable over time.

“When considering the entire quarter, Channel Advisor Q3/13 SSS data suggests 25.1% y/y growth compared to 29.0% y/y average growth in Q2/13. This represents deceleration of about 3.9 percentage points while we are currently modeling a 3.2 percentage point deceleration in Amazon Marketplace (Media plus EGM) revenue growth in Q3/13. When considering just the past month, Channel Advisor September data suggests 2.5 percentage point growth acceleration compared to August, which we believe is positive for the stock sentiment in the near term.”

Netflix, Inc.

Netflix is expected to report third quarter EPS of $0.48 on revenue of $1.10 billion, compared to last year’s EPS of $0.13 on revenue of $905.09 million.

Piper Jaffray gave Netflix a Neutral rating with a $245.00 price target and said that although the company has a strong position, risks will include video-on-demand competition and increased cost to obtain subscribers.

“Netflix continues to have strong mindshare and, despite having a limited selection of newer release films for streaming, remains well positioned for growth in the movie rental category. Netflix participates directly in DVD-by-mail and movie streaming categories, but does not participate in the segment that will likely decline the most over the next two years–retail stores. In these two segments combined (DVD-by-mail & streaming), Netflix' services address 54% of current teen rental habits, up from 50% one year ago.”

On October 16, Hudson Square Research reduced its rating for Netflix from a Buy rating to a Hold rating.

“While we continue to expect strong sub growth, with the shares up some 250% YTD, a premium valuation, and with potential risk to 4Q EPS consensus, we move to the sidelines, reducing our rating from Buy to Hold”

Procter & Gamble Company

Procter & Gamble is expected to report first quarter EPS of $1.06 on revenue of $21.09 billion, compared to last year’s EPS of $1.06 on revenue of $20.74 billion.

Deutsche Bank gave Procter & Gamble a Buy rating with a $90.00 price target on October 17. The rating was largely attributed to the company’s work on packaging innovation.

“P&G appears close to commercializing breakthrough packaging innovation Based on industry sources, patent searches, newspaper articles and the newly created company website (www.imflux.com, a wholly owned subsidiary of P&G), we believe P&G is likely getting closer to a much-discussed but still esoteric packaging innovation that can purportedly be applied broadly across the company’s brands and sold to third-party, non-competing companies. While the data on iMFLUX is still vague, the company seems to be ramping up quickly, constructing a manufacturing facility near P&G’s Beckett Ridge Technical Center outside Cincinnati to commercialize a breakthrough polymer injection molding technology.”

On October 10, Goldman Sachs said it expects to see a return to growth as the company returns to promotional intensity.

“PG’s sales improved in the period on strength in the family care and beauty segments. Sales for the latest quad week period was up 2.4%, which compares with down 0.7% in the quad-week ending August 31. On a rolling 12-week basis sales growth also improved in the period to 1.3% vs. 0.7% in August. While we do not break out North America in our model, we are modeling total company organic sales growth of 4.3% in the corresponding 1Q14E – We are incrementally more confident in our estimates given the return to positive growth this month. We believe the improvement was in-part driven by the company’s return to promotional intensity. Promoted sales growth for the latest quad-week y/y was up at 5.9% vs. down 15.6% in August. On a 2-year stacked basis, PG’s sales trends saw measurable improvements in both the quad-week and R12W periods. Looking across categories, strength in paper products, cosmetics and batteries outweighed continued relative weakness in laundry and shaving categories.”

Bristol-Myers Squibb Company

Bristol-Myers is expected to report third quarter EPS of $0.44 on revenue of $4.02 billion, compared to last year’s EPS of $0.41 on revenue of $3.74 billion.

JP Morgan gave Bristol-Myers an Overweight rating with a price target of $52.00 on October 16. The firm noted that the company’s immunotherapy platform had several potential catalysts for growth over the next year.

“We rate Bristol Overweight ahead of a number of important catalysts over the next 12-18 months for the company’s immunotherapy platform. These include initial nivolumab/Yervoy combo data in NSLSC as well as the completion of several nivolumab phase III studies. While Bristol trades at a high multiple on near-term earnings (25x 2014E), we forecast a roughly 13% EPS CAGR for the company through 2020 with substantial potential upside to these estimates as we get additional clarity on the company’s pipeline.”

At the beginning of October, Goldman Sachs noted that Bristol-Myers valuation is closely related to an interferon-free oral Hep C regimen will likely be the first of its kind.

“We expect BMY's regimen to be the first interferon-free all oral regimen approved and represents a significant upgrade from standard of care. The Japanese HepC patent population is generally older patients and is extremely concerned/sensitive to side effects. There are about 1 million patients with Genotype 1b, of which 30-50% are diagnosed. Interferon is not well tolerated and Telaprevir (which has been disappointing) has side effects including severe skin rash. We expect the lower serious AE rate and high SVR to be a positive for significant market uptake for BMY’s regimen. We currently model around $1 bn in peak sales (2020) for BMY’s entire HepC franchise – the bulk of which will likely come from Japan where we expect BMY to take the majority of the market. Our estimates are clearly dependent on treatment rates and pricing which is still yet to be determined.”

 Economic Releases

Delayed US non-farm payrolls data will finally hit the markets on Tuesday, which analysts are expecting to fall in line with previous payrolls reports from before the shutdown. The US unemployment rate will also be heavily anticipated, which is expected to remain at 7.3 percent.

With the government shutdown over for the moment, investors will likely shift their focus back to the Federal Reserve and when the bank will begin to cut down on its massive stimulus program. US home sales data will be closely watched to see if it will strengthen the case for the taper.

Daily Schedule

Monday

  • Earnings Releases Expected: Gannett Co, Inc. (NYSE: GCI), Netflix, Inc. (NASDAQ: NFLX), W.R. Berkley Corporation (NYSE: WRB), Discover Financial Services (NYSE: DFS)
  • Economic Releases Expected: Japanese leading economic index, German PPI, Italian industrial sales, US existing home sales, US crude oil stocks change

Tuesday

  • Earnings Expected From: The Travelers Companies, Inc. (NYSE: TRV), EMC Corporation (NYSE: EMC), Regions Financial Corporation (NYSE: RF), United Technologies Corporation (NYSE: UTX)
  • Economic Releases Expected: Swiss trade balance, US nonfarm payrolls, US unemployment rate, Canadian retail sales,

Wednesday

  • Earnings Expected From: Caterpillar, Inc. (NYSE: CAT), Boeing Company (NYSE: BA), Bristol-Myers Squibb Company (NYSE: BMY), Dr Pepper Snapple Group, Inc. (NYSE: DPS)
  • Economic Releases Expected: Australian CPI, Bank of England policy meeting minutes, British mortgage approvals, eurozone consumer confidence, New Zealand Trade Balance.

Thursday

  • Earnings Expected From: Starwood Hotels & Resorts Worldwide, Inc. (NYSE: HOT), Sirius XM Radio Inc. (NASDAQ: SIRI), USG Corporation (NYSE: USG), Amazon.com, Inc. (NASDAQ: AMZN)
  • Economic Releases Expected: eurozone manufacturing PMI, eurozone services PMI, Chinese manufacturing PMI, US initial and continuing jobless claims

Friday

  • Earnings Expected From: AbbVie (NYSE: ABBV), Moodys Corporation (NYSE: MCO), Simon Property Group (NYSE: SPG), Rockwell Collins, Inc. (NYSE: COL)
  • Economic Releases Expected: US durable goods orders, British GDP, New Zealand business confidence

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