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With the U.S. military planning targeted airstrikes in Iraq, nerves are likely to have an impact on markets next week, as the decision to intervene could escalate the conflict. Concerns about the relationship between the West and Russia will also play into geopolitical worries as sanctions take effect and tension rises.

Key Earnings Reports

Next week, investors will be waiting for several key earnings reports including Sysco Corporation (NYSE: SYY), CST Brands (NYSE: CST), Dean Foods Company (NYSE: DF), Priceline.com Incorporated (NASDAQ: PCLN) and Wal-Mart Stores (NYSE: WMT)

Sysco Corporation

Sysco is expected to report fourth quarter EPS of $0.50 on revenue of $12.14 billion, compared to last year’s EPS of $0.47 on revenue of $11.60 billion.

On May 5, Credit Suisse gave Sysco a Neutral rating with a $40.00 price target, noting that poor weather was responsible for third quarter earnings, but that there is some potential for growth.

“Sysco reported modestly disappointing Q3 earnings, but accelerating trends throughout the quarter and better progress in business transformation suggests underlying momentum may finally be showing some improvement. Earnings of $0.38 fell short of our estimate of $0.41 and consensus of $0.40. The miss was driven primarily by weaker than expected sales, as poor weather in January and February pressured results and slightly higher costs.

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"That being said, there were positive data points. We were somewhat encouraged by an improvement in case volumes in March and April, better GP$/case performance, the successful implementation of ERP in additional operating companies and what seems to be at least some improvement in category management. The company also continues to sound confident in a calendar Q3 close of the U.S. Foods deal with integration plans progressing.

"We continue to rate SYY Neutral. While the industry seems to be better, it’s too early to call this a real trend (especially with inflation ramping), there is still near-term uncertainty surrounding the U.S. Foods deal (FTC/negative synergies), and execution risk on company-specific initiatives remains.”

S&P Capital IQ gave Sysco a Sell rating  with a $37.00 price target on August 2. The analysts at S&P noted that the company’s acquisition of U.S. Foods will likely be completed this year.

“In December 2013, the company agreed to acquire U.S. Foods, the second-largest food distributor in the U.S., for a total enterprise value of $8.2 billion, pending customary closing conditions and regulatory approvals. We believe the transaction will be completed in calendar 2014 and see benefits being achieved through improved purchasing power, supply chain efficiencies, the elimination of overhead and from the refinancing of U.S. Foods debt ($4.7 billion as of December 2013).”

CST Brands

CST is expected to report second quarter EPS of $0.49 on revenue of $3.22 billion, compared to last year’s EPS of $0.66 on revenue of $3.21 billion.

On July 11, Credit Suisse gave CST an Underperform rating with a $29.00 price target, saying that the company’s EPS growth will likely face some headwinds in the near-term.

“Management is pursuing the right approach to the business in driving margin in fuel (at expense of volume) and growth in margin in merchandise. Furthermore, exiting ownership of 100 underperforming stores with potential to establish a wholesale fuel operation is prudent -- CST could collect estimated $50 million in proceeds and surrender $10 million in EBITDA (5x) -- or less if wholesale business is established.

"A meaningful wholesale business in the U.S. contained within an alternative capital structure would take time to establish. Finally, despite $370 million of cash/ample liquidity, CST is somewhat limited by VLO separation agreement until May 2015.”

On August 7, S&P Capital IQ raised its rating for CST to Hold from Sell, noting the company’s agreement to buy the general partner of Lehigh Gas Partners LP.

“We raise our 12-month target $6 to $37, as CST agrees to buy the general partner of Lehigh Gas Partners LP. This target reflects an 19  percent increase from our prior valuation reflecting higher value potential we see created from this partnership. Over five years, upon completion, the deal could add 1421 percent to cash flows from asset drop-down (sale) options.

"CST also approved up to $200 million in share repurchases. The approximately $85-million transaction should close in Q4, subject to standard approvals. On August 12, we expect CST to report Q2 EPS of $0.68 vs. $0.54.”

Dean Foods Company

Dean Foods is expected to report a second quarter loss of $0.05 on revenue of $2.32 billion, compared to last year’s EPS of $0.26 on revenue of $2.23 billion.

On May 8, Credit Suisse gave Dean Foods a Neutral rating with a $15.00 price target, citing industry headwinds for their caution.

“Dean Food reported an adjusted first quarter EPS loss of $0.05, missing our estimate of $0.00 and consensus of $0.01. Management attributed the $67 million year-over-year decline in operating profit to a few factors: Volume was down nearly six percent from the partial loss of the Wal-Mart PL business and general category weakness; gross margin declined 385 bps year over year as Class I prices increased 22 percent; and extreme winter weather had a negative $4 million ($0.03 per share) impact on the school milk business.”

On August 5, Morgan Stanley gave Dean Foods an Equal-Weight rating with a $15.00 price target, noting that dairy prices have remained high longer than expected.

“With Class I milk still at peak through August, we are more cautious -– despite likely ongoing margin improvement in F15 on fundamentals. We see near-term risk despite DF’s recent pullback and lower our F14 EPS to $0.40. Remain EW, $15 PT.

"Following a brief decline in June, Class I prices have increased sequentially during July and August and are likely to remain near peak levels ($23+/cwt) in Q3. While we forego a detailed analysis of production and export dynamics supporting this trend, Class IV (butter/milk powder) prices have proven more resilient than expected, delaying a fall toward 'normalized' prices ($18-20) until year-end.”

On August 2, S&P Capital IQ gave Dean Foods a Hold rating with a $19.00 target price. The analysts at S&P downgraded their rating for Dean Foods largely based on the rising commodity prices.

“We recently downgraded our opinion on DF shares to Hold from Strong Buy based on valuation. We see persistently high commodity costs and the loss of a large customer in 2013 hurting sales and margins in the first half of 2014.

"However, with comparisons easing in the second half of 2014, we believe DF is well positioned to take advantage of recent new business wins and cost-cutting efforts as commodity prices stabilize.”

Priceline.com Incorporated

Priceline is expected to report second quarter EPS of $12.04 on revenue of $2.15 billion, compared to last year’s EPS of $9.70 on revenue of $1.68 billion.

On August 7, Merrill Lynch gave Priceline a Buy rating with a $1,375.00 price target, citing the company’s newly revealed partnership with Ctrip as reason for their optimism.

“Yesterday, Priceline and Ctrip announced an expanded strategic partnership that aligns Priceline more closely with Ctrip and should enable Priceline to more aggressively target the China market opportunity. Historically, Priceline has not pursued the China opportunity aggressively, and we think the expanded partnership suggests that Priceline would rather work with a partner than go it alone.

"Given the size of the China opportunity, and difficulty (and losses) faced by many U.S. Internet companies trying to operate in China, we see the partnership as a positive.”

On August 6, Credit Suisse gave Priceline an Outperform rating, also citing the company’s partnership with Ctrip as a positive growth catalyst.

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“We see this as a validation of our initiation thesis (Crouching Eagle, Hidden Dragon) that Priceline stands to be one of very few Western Internet companies that will meaningfully benefit from the Chinese Internet economy. Our belief is that discrete opportunities exist for Western companies with unique supply/content/technology to partner with Chinese companies that have a demand base.

"Given Booking.com’s difficult to replicate supply base of over 350,000 EU properties (vs. EXPE at ~85k), and Ctrip's demand base (at plus 45 percent a share), we view the partnership as providing clear mutual benefits for both parties.”

On August 2, S&P Capital IQ gave Priceline a Hold rating with a $1,300.00 price target, noting that the company is attempting to expand its Asian customer base.

“We look for this global leader in online travel services should consolidate its market share

gains in 2014, after strong 2013 growth in gross bookings and room nights. We note over four-fifths of Priceline's gross bookings, revenues and operating profits are derived from international businesses (mostly Europe).

"Despite some concerns with Europe, we think positive secular trends as a growing percentage of travel purchases are made online. Priceline recently noted ongoing progress with the Kayak integration. It hopes to replicate its European success in Asia with Agoda (acquired in 2007).”

Wal-Mart Stores

Wal-Mart is expected to report second quarter EPS of $1.21, compared to last year’s EPS of $1.24.

On August 6, Merrill Lynch gave Wal-Mart a Buy rating with a $90.00 price objective, noting that the company has a positive growth outlook for both U.S. and international markets.

“Our $90 price objective is 15-16x projected earnings multiple on our F16 earnings of $5.70, which is above Wal-Mart's two-year forward multiple of the past three and five years of 12-13x, but slightly below its 10-year average of 17x.

"The premium multiple also reflects an outlook for stable U.S. and global growth opportunities, a more consistent International profit growth outlook and a high ROIC of 12-13 percent in F14 vs. Target's 9-10 percent and is in-line with our peer group of large-cap global consumer staple stocks. Our $90 price objective is also supported by our DCF analysis (assumes a 9-10 percent expected return and 7.5X terminal EBITDA multiple on F2020).”

On July 24, Credit Suisse gave Wal-Mart an Outperform rating with an $87.00 price target. The analysts at Credit Suisse noted that the departure of the company’s CEO Bill Simon disappointed, but that strong management throughout the company will likely help propel the company in the future.

“The operating management at Walmart U.S. remains stable in aggregate, which we consider to be a major positive for the story. Consequently, Greg Foran (currently CEO of Wal-Mart Asia) will take the reigns as CEO of the U.S. segment without the need to modify Wal-Mart's domestic strategy, which is focused on general merchandise, small stores and e-commerce for the future.

"We continue to believe that Wal-Mart has an opportunity to be a better capital allocation story, as well as take advantage of market share opportunities as the overall industry continues to rationalize.”

On August 2, S&P Capital IQ gave Wal-Mart a Hold rating with a $78.00 target price, noting that customer spending will likely be conservative in the near-term.

“We expect Wal-Mart's core customer to spend cautiously over the near term given government benefit reductions and job market uncertainties. However, we think downside macro risks will be somewhat mitigated by Wal-Mart's low-priced offerings of everyday items, aggressive pricing investments and increased marketing of its value message.

"Longer term, we believe an acceleration in small format growth in the U.S. will help support EPS growth.”

Economic Releases

Next week, investors will be watching for key U.S. data, including retail sales for a better picture of the nation’s growing recovery. Most expect to see the retail sales figure increase for the sixth consecutive month in July, something that will add to speculation about the Fed raising interest rates early.

Daily Schedule

Monday

  • Earnings Releases Expected:  Sysco Corporation (NYSE: SYY), Dean Foods Company (NYSE: DF), Priceline.com Incorporated (NASDAQ: PCLN), Valero Energy Partners LP (NYSE: VLP), Caesars Entertainment Corporation
  • Economic Releases Expected: Japanese household confidence, Canadian housing starts

Tuesday

  • Earnings Expected: Flowers Foods, Inc. (NYSE: FLO), CST Brands (NYSE: CST), Valspar Corporation (NYSE: VAL), Fossil, Inc. (NASDAQ: FOSL), Synacor, Inc. (NASDAQ: SYNC)
  • Economic Releases Expected: Japanese GDP, U.S. redbook, German ZEW economic sentiment, Italian CPI, Japanese industrial production

Wednesday

  • Earnings Expected: Home Inns & Hotels Management Inc. (NASDAQ: HMIN), SeaWorld Entertainment (NYSE: SEAS), Sonic Foundry, Inc. (NASDAQ: SOFO)
  • Economic Releases Expected:  US oil inventory data, US retail sales, eurozone industrial production, British unemployment rate, Spanish CPI, German CPI, French CPI, Chinese industrial production

Thursday

  • Earnings Expected From: Wal-Mart Stores, Inc (NYSE: WMT), Applied Materials, Inc. (NASDAQ: AMAT), Perrigo Company (NYSE: PRGO)
  • Economic Releases Expected:  eurozone CPI, eurozone GDP, German GDP, French GDP

Friday

  • Earnings Expected From: Estee Lauder Companies, Inc. (NYSE: EL), James Hardie Industries plc. (NYSE: JHX)
  • Economic Releases Expected: U.S. industrial production, U.S. PPI, British GDP

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