Weekly Preview: Earnings to Watch This Week 8-21-22 (CRM, NVDA, PTON, ZM)

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Credit: Reuters / Gary Hershorn - stock.adobe.com

Five times would not the charm for the S&P 500 Index and the Nasdaq Composite, both of which snapped a four-week winning streak, ending lower on a weekly basis for the first time in almost a month. The market responded not only to a rise in Treasury yields, but also the likelihood that the hawkish stance the Federal Reserve has adopted to combat rising inflation might be here to stay.

While the prospect of “peak inflation” remains a possibility, there has been no indication — at least from Fed policy makers — of any plans to remove the foot off the rate hike gas pedal. And this sentiment sent a blow to market on Friday as the Dow Jones Industrial Average fell 292.30 points, or 0.86%, to end Friday’s session at 33,706.74. The S&P 500 gave up 55.26 points, or 1.29%, to finish at 4,228.48. Of the eleven S&P sectors, only six closed higher for the week, lead by Consumer Staples as the top gainer, while the Communication Services was the worst performer.

The tech heavy Nasdaq Composite, which has been a strong out-performer during the recovery, declined 260.13 points, or 2%, to end at 12,705.22. For the week, the Nasdaq took more of the punishment, falling 2.6%, while the S&P 500 fell 1.2%. The Dow slipped just 0.2%. This marks the largest weekly decline for each of the major benchmarks in almost six weeks. Some analysts have been questioning the length of the rally from the May lows, wondering when will the inevitable would pullback occur.

While the earnings from the S&P 500 companies have been better than expected, and injecting optimism into the market, valuations have gotten somewhat stretched in the process. While stocks are still off their peaks, expected earnings have also been slashed. As such, some pundits have argued that the “risk-reward” had gotten less favorable, especially after the S&P 500 index had broken above a resistance level of 4,231, which has been closely watched as a metric that affirms the bottom was reached.

Now the attention has turned to the Federal Reserve, which meets in September, and investors are wondering what actions they plan to take. I warned last week that it was premature to raise the “all clear” flag. The market’s penchant for knee-jerk reactions was the premise for that warning. It wouldn’t be a surprise to see stocks, namely the S&P 500, trade in a tight range of 100 to 150 points in the next two months until there is clearer direction of the impact of Fed decisions. Until then, here are the earnings I’ll be watching this week.

Zoom Video (ZM) - Reports after the close, Monday, Aug. 22

Wall Street expects Zoom to earn 93 cents per share on revenue of $1.12 billion. This compares to the year-ago quarter when earnings came to $1.36 per share on revenue of $1.02 million.

What to watch: Shares of Zoom might have moved impressively, rising almost 45% higher from its 52-week low in mid-May. But currently trading at around $100, the video conferencing specialist still has ways to go to regain its all-time high level of almost $600. And due to increased competition from Microsoft (MSFT), Zoom might not ever reach that level. Last week analyst Tyler Radke from Citigroup downgraded the stock to Sell from Neutral, citing "new hurdles to sustaining growth.” Radke noted that Zoom’s growth has always been more challenging. Adding, "although new SKUs such as Phone are promising, we believe increasing churn in [small and medium business]/online, and rising competition in enterprise will more than offset new product strength and drive estimates below consensus.” That said, Zoom’s valuation remains appealing given that the company continues to generate strong free cash flow. MKM Partners analyst Catharine Trebnick initiated coverage of the company with a Buy rating due to several "key catalysts" in the months ahead. Trebnick who has a $135 price target on the stock, noted that the slower growth outlook has "created more attractive entry points for investors." To reverse the stock’s bearish trend, in addition to growth re-acceleration, Zoom on Monday will have to issue strong revenue and earnings forecast.

Salesforce (CRM) - Reports after the close, Wednesday, Aug. 24

Wall Street expects Salesforce to earn $1.03 per share on revenue of $7.7 billion. This compares to the year-ago quarter earnings of $1.48 per share on revenue of $6.34 billion.

What to watch: Wall Street analysts have reversed the pessimism that has hurt Salesforce stock heading into its earnings report. Down nearly 26% year to date, and nearly 40% from highs above $300 last November, Salesforce has been impacted by the re-pricing of tech stocks amid the recent correction. This is even though the company hasn't shown it felt any adverse impact from the macro conditions. Not only has its quarterly revenue growth maintained a growth pace in the mid-20s, Salesforce has grown its CRM market share during the downtrend. The the first quarter, the company revenue grew 24% year over year, easily surpassing the 19% growth rate analysts expected. Heading into this quarter, investors should expect another strong beat. Analyst Brian White of Monness, Crespi, Hardt has a Buy rating and a $225 price target on Salesforce, expecting 20% upside. Salesforce is "uniquely positioned" to capitalize on the digital transformation trend that so many companies are undergoing,” White noted. The analyst highlighted that, although expected revenue growth could slow in the quarter to $7.69 billion, it would still reflect a 4% sequentially increase. The company’s SaaS business model and its customer relationship management continues to be industry standard. But on Wednesday investors will focus on Salesforce’s billings and booking metrics to assess whether the strength of the business in the quarters ahead.

Nvidia (NVDA) - Reports after the close, Wednesday, Aug. 24

Wall Street expects Nvidia to earn 49 cents per share on revenue of $6.7 billion. This compares to the year-ago quarter when earnings came to $1.04 per share on revenue of $6.51 billion.

What to watch: Driven by prolonged supply chain headwinds, semiconductor stocks have struggled for most of the year. Although Nvidia has been broadly considered the best of the bunch, the company’s weak outlook has put a damper on its growth expectations, causing a 10% plunge in the stock after it warned of disappointing Q2 gaming revenue. Surprisingly, the company’s revenue projection were not only below street expectations, but it suggests little-to-no growth at all. While this might represent a solid buying opportunity for the stock, there’s still the question of when will it bottom out. Analyst Tristan Gerra of Baird who rates the stock as Neutral with a $150 price target, does not expect an immediate recovery. "While the sharp and below-expectation slowdown in data center revenue in the quarter was due to supply chain disruptions, according to Nvidia, we model slowing [year-over-year] and [quarter-over-quarter] comps ahead," Gerra wrote in a note to clients. The entire chip industry has also suffered a decline in average selling prices, which analysts believe will impact the company’s gaming revenue and datacenter revenue. To reverse the stock's decline the company on Wednesday will need to talk positively about its growth prospects for the next quarter and beyond.

Peloton (PTON) - Reports before the open, Thursday, Aug. 25

Wall Street expects Peloton to lose 77 cents per share on revenue of $682.94 million. This compares to the year-ago quarter when the loss was 56 cents per share on revenue of $936.9 million.

What to watch: Peloton stock has spun out of control for some time. The exercise machine specialist has been hurt from a combination of factors. Aside from waning consumer demand, the brand has also been hurt from some negative headlines. But the company is taking steps to firm up its business, including experimenting with "Fitness as a Service," which it hopes can get more people excited about the product, as well as price increases on select items such as the Bike+ and Tread products to boost its profit margins. Analyst Ronald Josey at Citigroup has applauded these moves, saying "While it remains early in Peloton’s turnaround, given continued strong engagement levels and its evolving go-to-market approach, we believe the service can build out its subscriber base.” Josey reiterated a Buy rating on Peloton’s with a price target of $28, expecting Peloton’s new strategy can lead to expanding gross margins and free cash flow. With reset expectations, on Thursday investors will want to hear how the company plans to deliver revenue and profit growth in the quarters ahead.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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