Benzinga Weekly Preview: Earnings Season Continues, Albeit A Tad Slower
Next week will be another busy one for earnings reports with several notable releases due out.
Investors will also be tuned in on Wednesday as Janet Yellen addresses congress about the nation’s economic outlook ahead of Congress’ Joint Economic Committee.
After several conflicting data releases, Yellen will get the opportunity to explain why the Fed is planning to continue tapering but hold off on raising its key interest rate.
Key Earnings Reports
On Monday, Tyson Foods is expected to report first quarter EPS of $0.62, compared to last year’s EPS of $0.36.
The analysts at Credit Suisse gave Tyson Foods a Neutral rating with a $40.00 price target as of May 1. Credit Suisse noted that the protein industry can be volatile, causing some uncertainty for their estimates.
“We are raising our FY 15 EPS estimate to $2.95 vs. consensus of ($3.09). The tight supply environment will keep Tyson's chicken profit margins at peak levels longer than we previously expected. That said, we remain below consensus because we still harbor concerns regarding the inherent volatility of the protein industry, which makes it difficult to have a lot of conviction in forward estimates. We think the stock needs those estimates to keep revising higher in order to support the current P/E of 13.5x forward EPS.”
As of April 26, S&P Capital IQ had a similar perspective with a Hold rating and a $38.00 price target. The analysts at S&P see the company growing in the long term, especially in international markets.
“Over time, we expect the company to benefit from growth opportunities in emerging international markets, where we think rising incomes and changing lifestyles will bolster consumer demand for higher protein and packaged products. Improved infrastructure in foreign markets could also help sales, while economies of scale are likely to boost profitability.”
On Tuesday, Disney is expected to report first quarter EPS of 0.97, compared to last year’s EPS of $0.79.
As of April 21, Merrill Lynch gave Disney a Buy rating with a $94.00 price objective, noting that the company will likely see continuing innovation which will help it to grow in the medium term.
“In our view, DIS’ recent DISH affil. deal (granting personal OTT packaging rights to broadband-only “cord nevers”) represents a new lever to preserve/grow the Pay TV base for ESPN, w/similar deals likely to follow (e.g. DTV). OTT rights will also likely be granted to new entrants such as Sony and MSFT, albeit at substantially higher rates. Separately, we est. the 8/14 launch of the SEC Network offers a $650-850mn annualized rev. opportunity assuming $1.25/sub./mo. in affil. fees can be achieved in SEC states, $0.25 in non-SEC states and a 75:25 affil.adv. mix. DISH and T have already agreed to distribute the service, w/CMCSA maintaining a large presence in AL and TWC/DTV also present in the southeast.”
As of April 26, S&P Capital IQ had a similar opinion and gave the company a Buy rating with an $88.00 price target. The analysts at S&P see most of the company’s revenue coming from its networks and theme parks.
“We see consolidated revenue up 6.7% in FY 14 (Sep.), to $48.05 billion, and 6.3% in FY 15, to $51.07 billion, mainly driven by the media networks (ESPN, ABC, Disney Channel, ABC Family -- as well as Disney Junior and XD channels), and the worldwide theme parks and resorts. In addition, we expect the Marvel and Lucasfilm acquisitions to provide a strong stable of franchises with significant upside for multi-platform exploitation across the filmed entertainment and consumer products businesses. We see margin expansion, aided by a ramp-up of TV retransmission and digital streaming deals (e.g., Netflix, Amazon), higher-margin merchandise licensing, international TV syndication, and theme parks cost savings, combined with relatively modest profitability milestone for the interactive unit. However, we see FY 13 constraints on certain film write-offs in the latter half of that year.”
Wunderlich Securities was more conservative as of March 27 and gave Disney a Hold rating with a $77.00 price target following Chairman Alan Horn’s CinemaCon presentation.
“Although there was no footage or details on 2015's Star Wars Episode 7, well received product included Disney (DIS)-branded live actioners Maleficent and 2015's Cinderella, and Pixar's creative Inside Out 2015 project. Marvel films included Captain America, leading into next year's Avengers: Age of Ultron; while Guardians of the Galaxy will offer a new parallel Marvel universe. We value the studio at a likely Street high $16.2B. We also link valuation upside to box office share and home entertainment conversion ratios. Event films from Disney Animation (with Frozen now at $1.05B globally), Disney live action, Pixar, Marvel and LucasFilm support a top position even with fewer releases than other studios.”
On Tuesday, DirecTV is expected to report first quarter EPS of $1.49, compared to last year’s EPS of $1.20.
As of May 1, Morgan Stanley gave DirecTV an Equal-weight rating, noting that the possibility of AT&T acquiring DirecTV is surprising as it may not be beneficial for AT&T.
“For T, a possible DTV deal would be consistent with recent comments and could be financially attractive … AT&T has recently been refocusing on the US over Europe, particularly in light of cable consolidation. DTV could be financially attractive, as T would be acquiring a higher‐growth asset at a similar EV/EBITDA multiple, which combined with synergies (primarily programming, marketing, and G&A on the cost side, increased ability to sell wireline broadband on the revenue side) could make the deal ~5% accretive to EPS. This theoretically would raise leverage to ~2.3x, though T could possibly look to divest DTV’s valuable LatAm assets to reduce leverage. However, strategically, such a deal would be somewhat surprising, as it would not address T’s spectrum priorities: Beyond applying greater scale to the U‐Verse video business, strategic benefits to AT&T are not clear. DTV lacks spectrum assets (vs. peer DISH), and we believe synergies would be minimal for the wireless business. However, AT&T could leverage DTV’s scale and industry‐leading brand to launch a nationwide,‘over the top’ video service creating a more clear entry point vs. AT&T’s recent investment with the Chernin Group, in our view. For DTV, a combination could enable it to sell an integrated triple‐play in T’s wireline footprint (~33M homes T plans to cover with U‐Verse, and LTE + TV in rural areas), benefiting churn over time.”
S&P Capital IQ was more optimistic on May 1 and raised its rating from Hold to Buy, citing the possibility that DirecTV may be taken over by AT&T.
“Our 12-month EV/EBITDA target price is up $11 to $90, with an increasingly plausible takeover premium on new indications that DTV may be a target AT&T's (T 35****) overtures, according to an unconfirmed report by the Wall Street Journal. Despite some strategic and regulatory questions, and with cable competitors charging ahead on a new wave of pay TV consolidation, we see an increasingly credible scenario for a potential combination of the 2nd and 5th largest U.S. pay TV providers, in a seemingly transformational deal that would further reshape an evolving U.S. pay TV landscape.”
On Monday, Pfizer is expected to report first quarter EPS of $0.55, compared to last year’s EPS of $0.54.
Before Pfizer’s bid for AstraZeneca was confirmed, Merrill Lynch gave the company a buy rating with a $36.00 price objective on April 22. The analysts at Merrill Lynch noted that the company’s robust finances would likely allow the company to make a deal without equity.
“PFE currently has ~$5bn in net cash (incl. pension liability) and ~$22bn in annual EBITDA. Assuming the speculated deal value of ~$100bn, PFE could potentially finance the deal without equity, which would imply a net debt/EBITDA ratio in the 3x-4x range. We note PFE typically has 70%-90% of its cash offshore and so an ex-US deal could potentially provide a more efficient use of cash vs. US-based targets.”
On April 21, Credit Suisse noted the positive tax implications that a deal with AstraZeneca could have.
“Financial merits from potential cost restructuring and tax synergies may provide accretion opportunities. AZN's 2013 operating margin was ~33% vs. PFE's 42%, so there is certainly room for cost synergies. Historical data suggest pretax synergies of ~30% of AZN’s combined SG&A and R&D ($13.1 Bn in 2013) is possible in a large deal of this sort (Exhibit 2). PFE's net cash balance was ~$12 Bn as of 4Q13, with ~70%-90% held ex US. Furthermore, UK has a low corporate tax rate that is projected to fall to 20% by 2015 and could be one of few countries of interest for companies looking to move out of the US (Exhibit 4). AZN itself has guided towards 2014 tax rate of 23%. Nonetheless, speculated price tag of ~$100 billion implies ~4x AZN's 2014 revenues, which might be seen by bears as expensive.”
As of April 23, S&P Capital IQ gave Pfizer a Buy rating with a $35.00 price target, noting that the company is working towards creating new drugs which will likely catapult the company into the future.
“We believe Pfizer is progressing on its stated objectives to develop new innovative drugs and implement value-enhancing strategic initiatives. We think PFE has a fairly robust pipeline of new drugs, the most significant of which, in our opinion, is palbociclib therapy for breast cancer. PFE also plans to internally separate into three distinct business segments. One innovative unit will consist of drugs with patent exclusivities beyond 2015, with the other two units comprising vaccines, older drugs and consumer items. We believe the new structure represents a prelude for a potential eventual splitup of PFE into three separate firms.”
Next week the European Central Bank will be in the spotlight as investors wait to see if the bank will finally make a policy move to help combat the region’s lackluster inflation. Most are expecting that the ECB will hold off until its June meeting despite recent worse than expected price data.
- Earnings Releases Expected: Pfizer (NYSE: PFE), Sysco (NYSE: SYY), Occidental Petroleum (NYSE: OXY)
- Economic Releases Expected: US ISM non-manufacturing PMI, US services PMI, Indian services PMI
- Earnings Expected: Walt Disney (NYSE: DIS), UBS AG (NYSE: UBS), Emerson Electric (NYSE: EMR), DirecTV (NASDAQ: DTV)
- Economic Releases Expected: Chinese services PMI, US redbook, Canadian trade balance, eurozone retail sales, British services PMI, eurozone services PMI, Reserve Bank of Australia interest rate decision
- Earnings Expected: HSBC Holdings (NYSE: HSBC), Anheuser- Busch (NYSE: BUD), Duke Energy (NYSE: DUK)
- Economic Releases Expected: Chinese trade balance, Australian unemployment rate, US crude inventory data, Chinese unemployment rate, French industrial production
- Earnings Expected From: Priceline (NASDAQ: PCLN), Valeant Pharmaceuticals (NYSE: VRX), CBS (NYSE: CBS), Apache Corporation (NYSE: APA)
- Economic Releases Expected: Chinese CPI, Chinese PPI, European Central Bank Interest Rate Decision, Bank of England interest rate decision, Spanish industrial production, German industrial production
- Earnings Expected From: Hilton Worldwide (NYSE: HLT), Ralph Lauren (NYSE: RL), Alcatel Lucent (NYSE: ALU)
- Economic Releases Expected: British manufacturing production, British industrial production, German trade balance
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