Benzinga Weekly Preview: Investors Get A Break As Earnings Slow
Earnings season is almost complete, but several hot names are expected to report next week. These include Tesla (NASDAQ: TSLA), Wal-Mart (NYSE: WMT), Newmont Mining (NYSE: NEM), and Coka Cola (NYSE: KO).
After crashing post Q3 earnings, shares of the car maker are above where they were for the last earnings report. Despite the high valuation, most analysts are bullish on the company.
Morgan Stanley has an Overweight rating on the company, citing strong sales despite several fires. Morgan Stanley also commented on the company’s plans to build a battery factory: “Tesla's plans for a 'Giga' battery factory starting to get more attention as a call option on the economics of mass produced batteries and the business model. We found the final sentence of Tesla's prepared remarks on its plans to build the worlds’s largest lithium ion battery factory intriguing: ‘It is amassive, massive opportunity to push the cost curve down to levels people haven't even dreamed of yet.’ We find investors are starting to seriously ask if Tesla can be much more than just a car manufacturer. If this company can establish a technological and scale lead in every storage and infrastructure, might we one day look back at Tesla's humble beginnings as a car maker much as Amazon began as a book seller?”
Bank of America stands out as one of a few banks with an Underperform rating on Tesla, it has a bold $65 price target.
“We estimate Tesla would need to sell approximately 330K vehicles per year by 2020, or 15X expected 2013 volume, to begin to justify its current market price. Furthermore, we estimate that luxury vehicle EBIT margins of about 11.5% would be required on this volume, which appears a stretch given that the majority of the company’s sales will likely be attributable to the more mass market oriented Gen 3 model by that time. In short, we believe significant fundamental headwinds confront Tesla’s current stock price and that another sharp correction could be forthcoming.”
The world’s largest retailer is expected to report EPS of $1.60 on revenue of 130.63 billion Thursday.
Credit Suisse recently upgraded the company to outperform with an 80 dollar price target. An interesting point it makes regards the closing of JCPenney stores. “we estimate Tesla would need to sell approximately 330K vehicles per year by 2020, or 15X expected 2013 volume, to begin to justify its current market price. Furthermore, we estimate that luxury vehicle EBIT margins of about 11.5% would be required on this volume, which appears a stretch given that the majority of the company’s sales will likely be attributable to the more mass market oriented Gen 3 model by that time. In short, we believe significant fundamental headwinds confront Tesla’s current stock price and that another sharp correction could be forthcoming.”
Deutsche Bank has a Hold rating on Wal-Mart with a $75 price target. “The company stated that it had positive comps during the Holiday season, but its SSS were weighed down by the negative impact from the reduction in SNAP benefits (18% of all SNAP benefits spent at WMT) as well as the impact from winter storms that resulted in store closures and hurt traffic during the period. Our forecasts have been revised to SSS of -0.6% (Flat prior) and -0.5% (1.5% prior) at WMT and Sam’s respectively, taking our 4Q EPS to $1.58 ($1.67 prior). We believe the SSS update is likely somewhat in-line with expectations, given the cautious commentary throughout retail in recent weeks, particularly in light of a very weak January sales period.”
Last week as a big week for gold miners. Several companies in the industry announced decreased costs while the price of gold rallied. Newmont picked up more than ten percent on the week.
JP Morgan downgraded the stock from Overweight to Neutral at the beginning of February with a $26 price target. “Newmont closed off 2013 with a strong performance but the outlook for 2014 is more complex. Newmont is busy adjusting its production profile from one focused on maximum gold production and growth, to one which targets quality ounces. It has guided to lower AISC, capital and G&A costs for 2014 and will use a little more conservative $1,300/oz gold price for year end reserve estimates and impairment tests.
"Newmont is expecting to deliver 5.0-5.3moz in 2014 on a consolidated basis, which is roughly 8% lower than our earlier forecast. The production at the Ahafo mine is expected to fall to 383koz (midpoint) this year after the mine produced 570koz in 2013. Similarly, Yanacocha’s production will fall to 940koz after it delivered 1022koz in 2013. The AISC guidance is marginally lower by $25/oz at $1,125/oz compared to 2013 guidance and may have disappointed some investors.
"Overheads and capex would fall meaningfully in 2014. This year’s capex is expected to be $1.3-1.4b of which 90% is attributed to the sustaining portion. Overhead expenses including G&A, exploration expense and other expense are forecast to decline substantially compared to 2013. However, the tax rate is expected to increase to 34-37%.”
Coca-Cola used cold weather as an excuse for missed earnings throughout 2013. The recent wave of chilly weather. More interestingly, the company announced acquisition of ten percent of Green Mountain Coffee Roasters at the beginning of the month.
Morgan Stanley commented, “While the financial terms of the agreement were not disclosed, we expect and believe the agreement should be viewed as a modest positive, given Coke can potentially utilize alternative methods of driving beverage demand, highlighted by Starbucks’ favorable experience from its GMCR partnership on the coffee side. Coke also gets first mover advantage with GMCR. However, the final impact is likely to be modest in the next couple of years, and it will take time to build cold system household penetration (SodaStream is currently at a 1% share). There is also cannibalization risk, which would likely be managed through deal economics. Coke did indicate it expects the bottlers to ‘have a role which is complementary.’”
The biggest piece of economic data to pay attention to next week are the FOMC minutes released Wednesday. When Janet Yellen gave her congressional testimony this week, she implied that there will be no drastic changes.
As always, initial and continuing jobless claims will be notable. However, January’s comparatively strong nonfarm payrolls (versus December) take some pressure off of the release.
Monday - President's Day, U.S. Markets Closed
- Earnings Releases Expected: Access Midstream Partners (NYSE: ACMP), Herbalife (NYSE: HLF), Medtronic (NYSE: MDT), Panera Bread (NASDAQ: PNRA), Potbelly (NASDAQ: PBPB), Coke a Cola (NYSE: KO)
- Economic Releases Expected: NAHB Housing Market Index
- Earnings Releases Expected: Avis (NASDAQ: CAR), Jack in the Box (NASDAQ: JACK), Tesla (NASDAQ: TSLA)
- Economic Releases Expected: FOMC Minutes, PPI
- Earnings Releases Expected: Directv (NASDAQ: DTV), Groupon (NASDAQ: GRPN), Newmont Mining (NYSE: NEM), Nordstrom (NYSE: JWN), Walmart (NYSE: WMT)
- Economic Releases Expected: Initial and Continuing Jobless Claims, CPI, Natural Gas Inventories, Crude Inventories
- Earnings Releases Expected: Dish Network (NASDAQ: DISH)
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