On Sunday, Germans will head to the polls to determine whether or not Angela Merkel and her coalition government will be returned to power. Although Merkel is widely favored to be re-elected, her coalition partners may not be so lucky. If new parties are awarded seats in parliament, the uncertainty in the largest European economy could weigh on markets.
Key Earnings Reports
Next week investors will be waiting for several key earnings reports includingBlackBerry BBRY, Accenture plc. ACN, Nike, Inc. NKE, Jabil Circuit, Inc. JBL, Bed Bath & Beyond Inc. BBBY
BlackBerry
BlackBerry expected to report a loss of $0.15 per share on revenue of $3.06 billion, compared to last year’s loss of $0.27 per share on revenue of $2.78 billion.
At the beginning of September, the analyst team at Canaccord Genuity gave BlackBerry a sell rating with a target of $8.00, citing weak sales and the strong probability that BlackBerry 10 will not be competitive in the market.
“Our global surveys indicate very weak Z10, Q10, and Q5 sales along with sharply declining legacy BB7 sales.Given the weak BlackBerry smartphone sell-through trends, our conversations with global distributors also indicate high levels of BlackBerry smartphone channel inventory, leading us to lower our F2014/15 BlackBerry smartphone sell-in estimates. We believe the special committee formed by
BlackBerry’s board to explore strategic alternatives such as joint ventures, strategic partnerships, or a sale of BlackBerry is consistent with our belief BlackBerry will ultimately end up selling the company due to the difficult competitive smartphone market and low probability BlackBerry 10 can return BlackBerry to sustained profitability. We maintain our SELL rating and $8 price target.”
On September 12th, Jefferies gave BlackBerry a buy rating with a price target of $15.00. The firm said BlackBerry’s board will likely face three options:
“1) a potential LBO bid; 2) a strategic bid for the whole; 3) breaking the company into three pieces; 4) selling the company as a whole. A combination of options is also possible. We believe Microsoft's acquisition of Nokia's handset business makes Microsoft's potential acquisition of BBRY more likely rather than less. We think BBRY's strategic review process will be complete by November.”
Accenture plc.
Accenture is expected to report EPS of $1.00 on revenue of $6.89 billion, compared to last year’s EPS of $0.88 on revenue of $6.84 billion.
Goldman Sachs gave Accenture a buy rating with a 12 month price target of $85.00. Goldman is predicting a modest recovery in revenue growth and cited significant cash flow and capital allocation among the reasons for the positive rating.
“We reiterate our Buy rating on ACN given its unique global IT services positioning, significant cash flow, and capital allocation. Although recent results have disappointed we believe the model remains structurally sound and look for improved performance headed into FY14 as cyclical demand and revenue conversion pressures abate.”
Jefferies was more conservative and gave Accenture an in-line rating with a price target of $71.00 on Friday.
“Key to ACN's print on 9/26 will be initial F14 guidance. We expect the new CFO to naturally provide an outlook on the conservative side, but feel that Street estimates are generally well-calibrated. After lowering the near-term bar last quarter, we could see a little upside in F4Q results, and we also anticipate a dividend hike, as is typical on the F4Q call. ACN remains a premiere global franchise, but we maintain our Hold rating given current valuation.”
Nike, Inc.
Nike is expected to report EPS of $0.78 on revenue of $6.97 billion, compared to last year’s EPS of $0.64 on revenue of $6.47 billion.
Piper Jaffray gave Nike a neutral rating with a price target of $71.00 last week. The analyst team noted several upcoming events that could positively affect the company’s shares as reason to raise the 12 month price target, but declined to increase Nike’s rating.
“We believe the next several weeks potentially offer a compelling trade opportunity for NKE shares on the long side. The following events over the next four weeks could all be positive catalysts for NKE shares: Dick's Sporting Goods analyst day on September 18th, Nike's FQ1 earnings in late September, Nike's analyst day on October 9 and NKE shares being added to the DJIA on September 23. Furthermore, we believe product innovation such as Flyknit, mildly improving macroeconomic conditions in China and several global sporting events in 2014 provide a favorable backdrop. Lastly, NKE's earnings multiple relative to UA is approaching its historic low, which has typically been a good indicator of NKE's relative outperformance. We have raised our 12-month price target from $64 to $71, but are maintaining our Neutral rating given valuation.”
On September 18th, Wedbush took a similar stance on Nike shares, giving them a neutral rating with a $64.00 price target.
“While our bias remains long, and we have admittedly missed opportunities to become more constructive, nevertheless, we raise our target to $64. We apply a peak 20x forward multiple on our calendar 2014 estimate of $3.15 (which yields a $63 target). We also apply an above-peak 15x EV/EBITDA multiple to our calendar 2013 EBITDA estimate of ~$4.0b (which yields a price target of $63). On an absolute basis, our revised DCF is based on a WACC of 6.5%, a takeout multiple of 14x and a beta of 0.6 yields a $65 target.”
Jabil Circuit, Inc.
Jabil Circuit is expected to report EPS of $0.54 on revenue of $4.53 billion, compared to last year’s EPS of $0.54 on revenue of $4.34 billion.
Merrill Lynch gave Jabil Circuit a buy rating with a $25.00 price objective in mid March despite near term risks due to lower revenue at BlackBerry and Apple.
“In the near term we see headwinds of lower revenues from Blackberry, and lower than expected revenues from Apple (lack of a low priced phone). Accordingly, we are modestly adjusting our near-term revenue and EPS estimates lower (~0.05 impact from each in F14). Given these changes, our prior above consensus estimates are now slightly below consensus (Figure 1). However, we remain optimistic about the longer-term mix shift towards higher margin DMS (Diversified Manufacturing Services) business and see cash flows improving significantly as capex starts to drop sharply in F14. We would be particularly aggressive buyers on any possible weakness after the company reports earnings on Sep 25th”
Bed Bath & Beyond Inc.
Bed Bath & Beyond is expected to report EPS of $1.15 on revenue of $2.81 billion, compared to last year’s EPS of $0.98 on revenue of $2.59 billion.
Deutsche Bank gave Bed Bath & Beyond a hold rating with a $78.00 price target, citing the stock’s recent underperformance.
“BBBY reports 2Q13 on September 25th, after market. We are modelling a 3.2% comp, in line with consensus and guidance of 2%-4%. We are also in line on EPS at $1.15 vs guidance of $1.11-$1.16. We don’t believe the quarter sets up for much upside. Our model implies a flattish comp and a slight acceleration on a stacked basis as industry growth of 4.5% is a bit better than last quarter. But, expectations are low, as indicated by recent stock underperformance, reducing near term downside risk. We maintain our Hold rating.”
Wedbush gave Bed Bath & Beyond an outperform rating with an $85.00 price target this week, noting that the company is expected to have solid growth over the long term.
“On a longer-term basis, we believe BBBY is a solid growth story and should continue to benefit from industry dominance, good visibility for cross-merchandising opportunities (HBA, food), future growth potential for newer concepts, and strong balance sheet and cash flow. The company is investing aggressively in its new online platforms, and is complementing these efforts with the roll-out of a new POS system to enhance multi-channel capabilities. Against easier comparisons in 2013, and accounting for adjustments, we believe valuation is attractive at these levels, especially versus peers trading at higher multiples.”
Key Economic Releases
German elections will be key next week as investors look to see who gains seats in parliament. Although Angela Merkel is likely to be reelected, her coalition could struggle to be reinstated. If Merkel and her coalition partners do not return to power, the uncertainty could take down recent progress in Europe’s markets.
PMI data from across Europe will also come in to focus as investors look for clues about the state of the eurozone’s economy. Most are anticipating generally positive data that will contribute to mounting evidence of the strength of the regions recovery.
Housing data from the US is also likely to be at the top of investors’ minds; many are expecting to see new home sales at their highest level in six years.
Daily Schedule
Monday
- Earnings Releases Expected: Red Hat, Inc. RHT, S&W Seed Company SANW
- Economic Releases Expected: Flash PMI for China, France, Germany, the eurozone and the US, Results of German federal government elections
Tuesday
- Earnings Expected From: CarMax Inc KMX
- Economic Releases Expected: US consumer confidence, Italian international trade data
Wednesday
- Earnings Expected From: Jabil Circuit, Inc. JBL, Bed Bath & Beyond BBBY, AutoZone, Inc. AZO, Synnex Corporation SNX
- Economic Releases Expected: US new home sales, housing starts, and durable goods; German and French business sentiment and consumer sentiment, Italian consumer confidence,
Thursday
- Earnings Expected From: Nike, Inc. NKE, Accenture plc. ACN
- Economic Releases Expected: US Pending Home Sales and initial jobless claims; French consumer confidence,
Friday
- Earnings Expected From: BlackBerry BBRY, Vail Resorts, Inc. MTN
- Economic Releases Expected: US Consumer Sentiment and Personal Income, Japanese inflation data
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