Benzinga Weekly Preview: Fed Minutes To Shed Light On The Bank's Future

The Federal Reserve will release its policy meeting minutes which are likely to capture the markets’ attention as investors try to put together a timeline for the bank to raise interest rates.

Fed Chair Janet Yellen has given mixed signals about the bank’s position; on one hand promising to maintain an accommodative stance, but also remarking that the key interest rate could increase as soon as six months after the bank finishes tapering its bond buying program. Most are hopeful that next week’s minutes will shed some light on the bank’s actual timeline.

Key Earnings Reports

Next week investors will be waiting for several key earnings reports including JP Morgan Chase & Co. JPM, Alcoa Inc. AA, Rite Aid Corporation RAD and Family Dollar Stores FDO.

JP Morgan Chase & Co.

JP Morgan Chase & Co. is expected to report first quarter EPS of $1.43 on revenue of $24.67 billion, compared to last year’s EPS of $1.59 on revenue of $25.85 billion.

On April 4, Macquarie upgraded their rating for JP Morgan to outperform with a price target of $68.00. The firm noted that JP Morgan will likely benefit as the US and European economies return to growth.

“Investors wanting to incorporate a thesis of improving US and European economies and increasing short-term interest rates may find it very challenging to find new ideas in the bank space, especially for liquid names with attractive valuations. Large regional banks are trading north of 12x 2015E, equating to 84% of the S&P multiple, well above the historical relative multiple of 77%. Moreover, larger domestic plays such as BAC & WFC also appear rich, trading at 11.5x and 12.4x, respectively. As a result, we are upgrading the shares to Outperform from Neutral, as we believe JPM may benefit from a sector rotation as one of the cheapest ways to play this theme.”

Rite Aid Corporation

Rite Aid Corporation is expected to report fourth quarter EPS of $0.04 on revenue of $6.54 billion, compared to last year’s EPS of $0.13 on revenue of $6.46 billion.

Deutsche Bank gave Rite Aid a buy rating with a $7.00 price target on March 6. The analysts at Deutsche bank cited Rite Aid’s distribution agreement expansion as a reason for their optimism.

“Rite Aid and McKesson announced an expanded distribution agreement on February 18, with McKesson taking over generic drug sourcing and distribution for RAD. We estimate the agreement could free approximately $200-300 million in working capital from Rite Aid’s inventory. We expect the proceeds will be used for store capex and deleveraging, which could result in lower debt costs and potential debt ratings agency upgrades.”

Also on March 6, JP Morgan took a more conservative stance with an overweight rating, citing the company’s lower than expected same store sales as reason for their caution.

“This morning, RAD reported February same store sales that were below our expectations on an overall basis, with pharmacy slightly above our estimate and front end below. Total sales of $2.515 billion were slightly above our $2.496 billion estimate. Excluding the impact of flu-related scripts and flu shots, comparable scripts remained essentially flat versus January. Excluding the impact of flu-related OTC products, front end saw a sequential deceleration and would have been negative for the first time since October (although not called out by the company, this may have been driven partly by weather). With the slight shortfall in overall SSS and the sequential deceleration in front end SSS, we would expect a neutral to negative reaction to today’s report given the recent strength.”

Alcoa Inc.

Alcoa Inc. is expected to report first quarter EPS of $0.05 on revenue of $5.56 billion, compared to last year’s EPS of $0.11 on revenue of $5.83 billion.

On April 1, Morgan Stanley gave Alcoa an equal weight rating, noting that investors were likely to shift their focus from the company’s first quarter results to management’s comments on the earnings call.

“Strong performance continues despite expensive valuation. AA shares are up ~50% vs. one year ago on a strong re-rating. AA’s one-year forward earnings estimate (2015 consensus EPS is $0.61) has declined from one year-ago levels. The stock’s re-rating has been driven by optimism on slower aluminum supply growth in China, tightening bauxite supply, and increase in aluminum use in auto body sheet products. We expect management commentary on these issues on the earnings call to garner the most attention from investors.”

Family Dollar Stores, Inc.

Family Dollar Stores, Inc. is expected to report second quarter EPS of $0.91 on revenue of $2.78 billion, compared to last year’s EPS of $1.21 on revenue of $2.89 billion.

Belus Capital Advisors gave Family Dollar Stores a sell rating with a $60.00 price target on January 21, noting that their caution was based on the company’s uncertain medium term health.

“To us, seeing Family Dollar shares valued at 19.1x estimated August 2014 consensus earnings is profoundly rich (there is a takeover, or activist involvement, component embedded in there) given the previous 12-months of operating performance and the new round of changes now underway at the company, both of which call into question if consensus estimates have fallen enough (we still sense optimism in Family’s Dollar’s guidance). The margin outlook is simply weak, a combination of macro forces (SNAP reductions) and the required price investments needed to drive traffic and hopefully, a transaction. Further adding margin risk is a new store opening and renovation program on steroids, and in need of a re-think as older stores underperform and inventory productivity is not at the highest it could be. Although the returns on new stores and remodels continue to be solid according to management, we believe shareholders would be better off if the pace was tapered and all eyes were on once and for all fixing store layouts and a merchandise assortment that has skewed too pricey.”

Economic Releases

Economic data will be relatively thin next week, but investors will be watching the Bank of England to see whether or not the central bank will follow suit with the European Central Bank and maintain its key interest rate. Spring meetings of the International Monetary Fund and the World Bank will also kick off in Washington, where discussions about central bank policies will be the highlight.

Daily Schedule

Monday

Earnings Releases Expected: A. Schulman, Inc. SHLM, Team, Inc. TISI, ZEP Inc. ZEP

Economic Releases Expected: Japanese current account, US consumer credit, Chilean trade balance, Swiss CPI, Spanish industrial production, German industrial production

Tuesday

Earnings Expected: International Speedway Corporation ISCA, WD-40 Company WDFC, Alcoa Inc. AA

Economic Releases Expected: French trade balance, British industrial production, British manufacturing production, Canadian housing starts, US redbook

Wednesday

Earnings Expected: Bed Bath & Beyond Inc. BBBY, Ruby Tuesday, Inc RT, Progressive Corporation PGR, Constellation Brands STZ

Economic Releases Expected:  Chinese trade balance, Australian unemployment rate, US oil inventory report, Mexican CPI, British trade balance, German trade balance

Thursday

Earnings Expected From: Family Dollar Stores, Inc FDO, Pier 1 Imports, Inc PIR, Rite Aid Corporation RAD, Shaw Communications Inc SJR

Economic Releases Expected:  Chinese CPI, Chinese PPI, Bank of England interest rate decision, Irish CPI, Greek unemployment, French CPI

Friday

Earnings Expected From:  JP Morgan Chase & Co. JPM, Fastenal Company FAST, Wells Fargo & Company WFC

Economic Releases Expected: German CPI, French current account, Spanish CPI, US PPI