Next week eurozone finance ministers will hammer out the details
of the eurozone's proposed banking union in an attempt to solidify
plans for the project before the end of the year.
Bridging the deep divide among the bloc's members over how to
set up a resolution mechanism for failing banks will be top
Key Earnings Reports
Next week, investors will be waiting for several key earnings
reports including Toll Brothers Inc. (NYSE:
), Adobe Systems Incorporated (NASDAQ:
), AutoZone, Inc (NYSE:
), Costco Wholesale Corporation (NASDAQ:
) and H&R Block, Inc. (NYSE:
Toll Brothers Inc.
Toll Brothers is expected to report fourth quarter EPS of $0.41
on revenue of $981.62 million, compared to last year's EPS of $2.35
on revenue of $632.83 million.
Bank of America has a Buy rating on Toll Brothers with a $42.00
price objective at the beginning of November. The analysts at
Merrill Lynch cited Toll Brother's successful deal to acquire
Shapell Homes in Southern California as part of the reason for
"As announced by TOL late last night, the company was successful
in its bid to acquire Shapell Homes, a high-end private California
home developer controlling around 5,200 lots in coastal Northern
and Southern California. The total cost of the transaction was
around $1.6bn or roughly $307K per lot, not all too surprising
given the location of the lots and the expensive entitlement
process (97.5% of lots to be purchased are already entitled).
Overall we view the transaction as positive as the acquisition
affords TOL a platform for continued growth in California, a state
experiencing strong housing growth, and where TOL has been land
constrained. In the near-term, gross margins are likely to be a
little below TOL's given the step-up in land basis due to purchase
International Strategy & Investment Group had a similar
outlook on Toll Brothers and has a Buy rating with a $52.00 price
target on December 1st. ISI noted that it expects Toll Brothers to
provide optimistic commentary regarding ongoing trends within the
company. ISM revised its fourth quarter EPS estimates to reflect
Toll Brothers' pre-released revenues and orders.
"With the pre-announcement, we have moved our F4Q 2013 EPS
estimate and our 2014 estimate. We have moved our F4Q estimate to
$0.47, up from $0.40. Consensus is $0.42, but contains a mix of
estimates before and after the pre-announcement. The higher
earnings is primarily from higher Closings numbers, which also
helps the SG&A leverage. Our 2014 estimate is $1.72, up from
$1.65. That obviously will be revised as we get better acquisition
visibility from management."
Following the acquisition announcement, Goldman Sachs was more
conservative and has a Neutral rating on Toll Brothers. Goldman
Sachs noted that although the deal was likely solid, more details
"The deal was not entirely a surprise since it was reported in
the press several months ago that Toll was one of the leading
bidders. Since the recovery began, California has been one of the
most difficult markets in which to buy land. With this deal Toll,
which is heavily weighted to the east coast, should see a step
function move higher in West coast sales. We would note Shappell,
which builds homes at an average price of $791K year-to-date, fits
well with Toll's luxury focus. On the company's call today we will
look for details around expected margins on the land and returns.
While the proposed acquisition seems to have a strategic fit, given
the intense competition to buy land in California, we want to
better understand the economics."
Sterne Agee has an Underperform rating on Toll Brothers with a
$25.00 price target on November 7th, noting that although the
Shapell acquisition added value, the near-term impact on EPS would
likely be small.
"We are raising our FY13E EPS to $0.89 from $0.83 based on the
F4Q13 preannouncement and raising FY15E EPS to $2.45 from $2.42 to
reflect today's stock offering and the Shapell transaction. We are
trimming FY14E EPS to reflect transaction costs and a negative
gross margin influence from the acquired Shapell neighborhoods.
Reiterate our Underperform rating and $25 PT."
Adobe Systems Incorporated
Adobe is expected to report third quarter EPS of $0.32 on
revenue of $1.03 billion, compared to last year's EPS of $0.61 on
revenue of $1.15 billion.
Goldman Sachs has a Neutral rating on Adobe with a $57.00 price
target on December 2nd, noting that the company's Creative Cloud
was likely to pay a large role in Adobe's outlook.
"Investors will likely once again focus on Creative Cloud
adoption. We are forecasting 344k net new subscribers in F4Q13, up
from 331k last quarter, at an ARPU of $36 per month, down from $37
last quarter. Thus, we are forecasting subscription revenue of
$129mn, up from $95mn in F3Q13. For F1Q14, we expect the company to
guide revenue to bracket consensus of $1.019bn (GSe $1.029bn), or a
range of $1.00bn-1.05bn. Our expected guidance range assumes normal
seasonality of up 2% qoq excluding product cycle launches plus a
roughly $30mn sequential headwind from the shift to subscription,
and November quarter results around the midpoint of its forecasted
Autozone is expected to report third quarter EPS of $6.29 on
revenue of $2.11 billion, compared to last year's EPS of $5.41 on
revenue of $1. 99 billion.
Goldman Sachs reduced its rating on AutoZone on November 26 from
Buy to Neutral and raised its 12 month price target to $500.00,
noting that the stock's recent rise was cause for caution.
"We remove AZO from the Buy List, and rate the shares Neutral.
The stock has approached our prior 12-month $470 target, rising
with a strong market despite sluggish recent fundamentals. We are
guarded on the aftermarket sector given fading demand drivers,
namely in the DIY sub-segment, where AZO sharply over-indexes vs.
peers. In our view, the company continues to execute well, but
lofty returns appear to serve as impediment to a full-on commitment
to growing commercial. Also, ROC looks poised to fall from powerful
JP Morgan has an Overweight rating on AutoZone with a $515.00
price target on December 4th and noted that the future was looking
bright for the company.
"While we have been disappointed with AZO's results, we believe
the business should see improved trends in subsequent quarters
given expectations for a cold and snowy winter (the first in three
years, particularly in the Northeast) and the lapping of the
payroll tax increase on Jan 1."
International Strategy & Investment Group LLC was more
aggressive and a Strong Buy rating on AutoZone with a price target
of $461.00. ISI cited a particularly positive meeting with CEO Bill
Rhodes as part of the reason for the optimism.
"Our AZO HQ visit with CEO Bill Rhodes on 11/7 confirmed
consistency and execution are key levers to drive shareholder
value. Strategic focus remains steady with augmented inventory/
potential AAP-GPI disruption to boost comps. AZO management remains
committed to DIY, with profitable commercial growth, and steady
shareholder returns key ingredients to long term value creation.
Opportunity remains for share grab with inevitable AAP-GPI merger
disruption. Longer term initiatives to close a 40-50% DIFM
productivity gap vs. peers are critical. We believe enhanced
inventory availability initiatives (rolling out chain-wide over 3-4
quarters) will be a focus, along with hub expansion strategy."
Costco Wholesale Corporation
Costco is expected to report third quarter EPS of $1.04 on
revenue of $25.47 billion, compared to last year's EPS of $0.95 on
revenue of $23.72 billion.
JP Morgan has an Overweight rating on Costco with a price target
of $128.00 on the 5th of December. The analysts at JP Morgan noted
that although deep discounts in November may have cut into the
company's profits, better trends are expected in the future.
"The two and three year trend in most metrics, including core
comps and traffic, softened as Costco may have been impacted by
November's highly promotional environment where the consumer was
attracted to deep discounts at other retailers. Indeed, at the
category level, the sequential deceleration in traffic (+4.25% vs.
+6.0% in October) was seen mostly in discretionary categories with
Softlines slowing to MTHSD from LDD and hardlines turning to
negative MSD from flat (and seasonal was down).Electronics remained
negative for the fifth straight month as the weak backdrop was
compounded by competitors' aggressive price cuts for the holidays.
Once the deep discounts pass and COST gets through tough compares
in December in these categories, we expect a better trend to
emerge. Today's release also supports our view that sales growth
has been muted so far this holiday season.Finally, gas prices and
FX were a larger drag on total comps (-200 vs., -120e) and this
will pressure sales growth (and leverage) should prices remain at
On December 6th, Goldman Sachs was more conservative with a
Neutral rating and a $126.00 price target. Goldman Sachs also noted
how Black Friday sales likely impacted the company.
"COST's November sales tracked light of our expectations, as
aggressive promotional activity by competitors around Black Friday
diverted consumer focus and traffic. This effect was most
pronounced in hardlines categories - particularly in consumer
electronics, toys, and seasonal items - that were emphasized in
holiday promotions at key competitors. Given COST's everyday low
price model, we are not particularly concerned by its November
results and consider this slowing as a one-off, as opposed to a
shift in underlying trends."
Jefferies also noted Costco's struggling sales due to Black
Friday discounts and Thanksgiving Day promotions and has a Hold
rating with a $103.00 price target on December 5th.
"The company indicated to us that competitors opening early on
Thanksgiving and promotions running early in the week likely had a
negative impact on business. This may be construed as a temporary
impact, but after several months of softer electronic sales, we
think that area of the business could be seeing some share shift to
competitors that appear to be faring better."
Deutsche Bank was more aggressive on Costco with a Buy rating
with a $132.00 price target on December 5th. Deutsche Bank noted
that the company has been experiencing solid traffic at its
"Impressively, traffic was up a little over 4.25%, slightly
ahead of our +4.0% forecast, which while a deceleration from the
standout performance in October (+6%), is still relatively in line
with the T6M avg. of +4.8%. On ticket, it was down a little more
than 2.0% as a result of the FX drag and gasoline deflation."
H&R Block, Inc.
H&R Block is expected to report a third quarter loss of
$0.37 per share on revenue of $137.85 million, compared to last
year's loss of $0.37 on revenue of $137.26 million.
Barrington Research has an Outperform rating on H&R
Block as of December 6th, noting that Obamacare provides a new
opportunity for tax preparation next year.
"The tax preparation industry will be among the most important cogs in the ObamaCare machine and the potential for revenue growth by H&RBlock and other tax
prep firms is tremendous. On September 4, H&R Block announced a deal with online insurance company GoHealth to provide HRB customers with the option of buying health insurance over the Internet. HRB also has a pilot program in 30 offices in Phoenix where it has licensed insurance professionals in each office available to discuss what is available on Arizona's Marketplace. While the ACA impact will not be material until fiscal 2015 at the soonest, we view the opportunity as potential for upside, as it is not currently factored into our estimates."
Morgan Stanley has an Overweight rating on on H&R Block as
of October 23rd, citing the filing delay for the 2014 tax season as
a barrier to success.
"F14 delay negative but likely already anticipated by tax
companies. The filing delay for the 2014 tax season will make lives
more difficult for the tax companies as they again risk the loss of
customers who can't file early in the year and "forget" to file
later. This year we had a similar delay and IRS data through May 11
shows total returns filed are still down 80bps y/y. While 2013 had
the added negative impact of changes to Earned Income Tax Credit
(EITC) forms, HRB and INTU (covered by MS analyst Jennifer Swanson
Lowe) have already issued conservative guidance of only ~1% market
growth in 2014, at the low-end of historical 1-2% growth."
As of October 25th, Oppenheimer has an Outperform rating on
H&R Block with a $32.00 price target off the back of a meeting
with the company's CFO Gregory Macfarlane.
"We recently conducted meetings with CFO Gregory Macfarlane. HRB
appears well positioned to benefit over coming years as the
Affordable Care Act (ACA) implementation is closely linked to the
tax filing process. An additional catalyst exists as investors
anticipate announcement in coming quarters of a transaction that
would alleviate HRB of its (regulation-laden) bank charter/allow
for continuation of HRB's financial offerings (e.g. debit cards)
via partnership/free-up capital likely to be returned to investors.
HRB's stock has appropriately re-rated higher, though we see
potential for incremental upside. Tempering FY15E EPS to $2.06
(+25% y/y) from $2.10 on increased bank transaction timing
uncertainty, we're introducing FY16E EPS of $2.32 (+13%
y/y)/reiterating our Outperform rating/increasing our PT from $30
Europe's industrial production figures will be closely watched
next week as investors look for clues about where the bloc's
economy is heading in the final quarter of the year. Some see the
data showing a modest improvement in November, which would indicate
soft growth in the fourth quarter. However, individual members'
data could raise concerns about the growing gap between eurozone
nations as countries like France are expected to put out poor
Earnings Releases Expected: Vail Resorts, Inc. (NYSE:
), ABM Industries Incorporated (NYSE:
) Economic Releases Expected: German trade balance, Australian GDP,
Eurozone investor confidence,
German industrial production,
Earnings Expected From: Toll Brothers Inc. (NYSE:
), AutoZone, Inc. (NYSE:
), H&R Block, Inc. (NYSE:
) Economic Releases Expected: French industrial production, Italian
industrial production, British industrial production, British trade
balance, British manufacturing production, US Federal Budget
Earnings Expected From: Costco Wholesale Corporation (NASDAQ:
), Joy Global Inc. (NYSE:
), Vera Bradley, Inc. (NASDAQ:
) Economic Releases Expected: German CPI, French current account,
New Zealand interest rate decision, Australian unemployment rate
Earnings Expected From: CIENA Corporation (NASDAQ:
), lululemon athletic inc. (NASDAQ:
), Adobe Systems Incorporated (NASDAQ:
) Economic Releases Expected: French CPI, eurozone industrial
production, Irish CPI, Brazilian retail sales, US retail sales, US
business inventory data
Earnings Expected From: No notable earnings releases expected
Economic Releases Expected: eurozone employment change, US
PPI, Spanish CPI
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
Free Trading Education -
Check out the free events taking place on Marketfy
this week. Spaces are limited. Sign up today.