Benzinga Weekly Preview: Earnings Season Continues
As we head into the second full earnings week, results have been mixed with banks coming in better than expected and weak results from retailers.
Several hundred companies are expected to report next week, including several hot stocks.
Key Earnings Reports
Shares of Starbucks (NASDAQ: SBUX) made all time highs at the end of November at $82.50 but have since pulled back. Analysts are expecting EPS of $0.63 versus $0.57 for the same period last year.
Brian Sozzi of Belus Capital Advisors explained why investors may be disappointed with the upcoming figures. “Starbucks has a higher than 50% probability of only reaffirming its FY14 EPS guidance on its January 24 release day, in part a function of newfound challenges in its U.S. business. That, in my view, will trigger selling by investors on fear the business has underappreciated operational hiccups, and a reduced probability for a typical Starbucks late April EPS fiscal year guidance raise. “
Credit Suisse on the other hand calls Starbucks one of the best positioned stocks, citing rising employment and wages.
Operating in the same industry and also trading near all time highs is McDonald’s (NYSE: MCD). The analyst consensus is EPS of $1.39.
Credit Suisse picked Starbucks as one of its favorites in the restaurant industry and noted McDonald’s as one of its least favorites stating, “Years of value-driven share gains have left MCD over-indexed to the most financially stressed consumers, which is an ongoing risk to the comp outlook.” They have a $96 price target.
Morgan Stanley on the other hand upgraded the company to overweight. The most recent report explained, “with a target of $115. We’re playing the ‘ketchup’ trade as one of few names that did
not experience multiple expansion in ‘12-’13 but could re-rate in ‘14. We’re early and note that current top line remains challenged with limited visibility on when it improves, but structural advantages should eventually benefit sales again. Low earnings growth expectations make estimate achievability better than many peers and creates a favorable risk/reward balance.”
Microsoft (NASDAQ: MSFT) is one of the biggest companies to report next week. It will be interesting to see if any updates regarding the management change will be made. The street is expecting EPS of $0.68 versus $0.76 for the same period last year.
Regarding the CEO transition, Morgan Stanley stated, “The CEO transition debate centers around two potential outcomes; an external CEO focused on efficiency versus an internal candidate keeping to the current growth strategy…With the added complexity of the NOK deal, we see less room for a new CEO to enact major strategic changes, which may limit further sentiment improvement.”
They have a $46 price target in the bull case and $18 in the bear case.
Netflix (NASDAQ: NFLX) is probably the hottest stock to report for the upcoming week, making an all time high just a few weeks ago, but down almost ten percent since the beginning of the year.
Morgan Stanley downgraded the stock to underweight on January 7 with a $310 price target. A key reason is increasing competition in 2014. “Even if Netflix’s churn levels fall to record lows, we estimate that over 48MM out of 92MM residential broadband households (~53%) would need to watch Netflix over the next 12 months to meet our 2014E domestic sub forecast of 39MM. If monthly churn is closer Netflix’s long-term average of ~4%, the number of households would need to reach ~52MM (~57%).”
On January 16, Nomura initiated coverage on the stock with a neutral rating and $360 price target. “As the addressable market for Internet video continues to grow, we believe Netflix will maintain its position as the leading Internet video programmer. However, we believe Street models already forecast healthy expectations for subscriber growth; while we are positive on original content and cable box integration, we do not believe these are material subscriber acquisition channels. Netflix benefits from latent pricing power, in our view, but a price raise is unlikely. As such, we await a more attractive entry point for the stock.”
Fortunately, next week is light in terms of economic data as investors will be busy keeping track of earnings. They key figures to watch next week continue to be initial and continuing jobless claims as investors wait to see if December’s disappointing nonfarm payroll figure will be continued.
- U.S. markets closed in observation of Martin Luther King, Jr. Day.
- Earnings Releases Expected: Advanced Micro Devices (NYSE: AMD), Cree (NASDAQ: CREE), Halliburton (NYSE: HAL), Johnson & Johnson (NYSE: JNJ), and Verizon (NYSE: VZ)
- Earnings Releases Expected: Intuitive Surgical (NASDAQ: ISRG), Lockheed Martin (NYSE: LMT), McDonald's (NYSE: MCD), Microsoft (NASDAQ: MSFT), Southwest (NYSE: LUV), and Starbucks (NASDAQ: SBUX)
- Economic Releases Expected: Initial and continuing jobless claims, existing home sales, the FHFA Housing Price index, leading indicators, and natural gas and crude inventories
- Earnings Releases Expected: Procter and Gamble (NYSE: PG), Kimberly-Clark (NYSE: KMB), and Xerox (NYSE: XRX)
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