Weekly Preview: Earnings to Watch This Week (ADBE, NIO, NKE)

It would be premature to predict that the worst of the market correction is behind us, but there are signs that the negative sentiment has begun to shift. On Friday the Dow Jones Industrial Average did what it did just the day before, erasing early-session losses for a strong move higher. This bullish trend has also been noticeable throughout the week in both the S&P 500 and the Nasdaq Composite. Dip-buyers were back shopping for bargains, reversing prior concerns about military conflict in Eastern Europe.

The Dow on Friday added 274.17 points, rising 0.8% to close at 34,754.93. The blue-chip index was powered by gains in Salesforce (CRM), Apple (AAPL), Microsoft (MSFT) and IBM (IBM) which, combined, averaged 3% gains for the session. The S&P 500 also performed strongly Friday, adding 1.17%, or 51.45 points to end at 4,463.12. Driven by better-than 3% rise in Tesla (TSLA) and a 6% rise in Nvidia (NVDA), the tech-heavy Nasdaq Composite Index gained 2.05%, adding 279.06 points to finish at 13,893.84. As noted, all three indexes erased losses that began earlier in the week to close out the week with gains.

For the week the Dow gained 5% which was a notable accomplishment, considering the pounding the index had been under. Why the sudden reversal in sentiment? Many analysts believe that the decision by the Federal Reserve on Wednesday to raise interest rates removed one major uncertainty that was impeding stocks. Wednesday’s rate increase marked the first in a new series of interest rate hikes the Fed is expected to enact. This, along with the weekly decline in treasury bond yields, created a perfect storm for stocks.

Whether or not this trend continues remains to be seen. But the current mood suggests increasing exposure to risk assets, particularly in the beaten-down segments of the market such as technology and consumer discretionary stocks. The Nasdaq, for example, is still some 15% below its 52-week high reached in November. This means the index is still in correction territory, which is defined as a decline of 10% or more below the high. This buying opportunity is hard to ignore, given the resiliency we have witnessed in the economy and labor data.

What’s more, recent earnings results from the likes of FedEx, which is often regarded as a gauge of global economic activity, suggests improvement in spending and business activity have begun. As such, I continue to believe staying invested in the market is the best way to counter inflation, especially given all of the positive offsetting factors that still exists. And as for earnings, here are the stocks I’ll be watching this week.

Nike (NKE) - Reports after the close, Monday, Mar. 21

Wall Street expects Nike to earn 71 cents per share on revenue of $10.6 billion. This compares to the year-ago quarter when earnings came to 90 cents per share on revenue of $10.36 billion.

What to watch: Shares of Nike have fallen 11% over the past thirty days, including almost 18% in the past six months, and are down 23% year to date, compared to the 7% decline in the S&P 500 index. However, Nike’s underperformance doesn’t reflect the operational excellence the company has displayed over the past several quarters. Some of the factors that has pressured the stock include supply chain issues. Meanwhile, the Russia-Ukraine conflict could add additional pressures to revenue. According to John Kernan, analysts at Cowen, Nike could suffer higher commodities prices, which could also impact revenue in Europe for the just-ended quarter. "Ocean freight rates are down from their record highs of mid-2021, but are still elevated and lapping much lower rates from a year ago... Current freight rates are in excess of $10k per container from Shanghai to Los Angeles, considerably higher than the $1,000 to $1,500 cost prior to the pandemic,” noted Kernan. With these challenges in mind, investors on Monday will look to see whether the athletic apparel giant can continue to assert itself as one of the better-performing names within the retail sector.

Adobe (ADBE) - Reports after the close, Tuesday, Mar. 22

Wall Street expects Adobe to earn $3.34 per share on revenue of $4.24 billion. This compares to the year-ago quarter when earnings came to $3.14 per share on revenue of $3.91 billion.

What to watch: Adobe stock has declined 32% over the past six months, compared to the 1% rise in the S&P 500 index. Despite benefiting from the massive secular digitization trend that is poised to remain hot over the next two years, Adobe shares have been punished amid the recent correction in tech stocks. And things might get worse, according to Citigroup analyst Tyler Radke who recently lowered the price target from $611 to $455. Citing increased competition, Radke believes that Adobe’s key Net New annual recurring revenue metric, or nnARR, is likely to see "lower-than-typical upside.” In maintaining his Neutral rating, the analyst believes Adobe is likely to also suffer from slower digital marketing spending, which he says could limit revenue. However, Adobe was defended by Wedbush Securities which picks the company among the list of beaten up stocks that should be owned following last week’s interest rate hike and what is referred to as the Federal Reserve issuing a "bright green light" to investors to buy stocks. While the stock is certainly cheap, the company is facing some tough year-over-year comparisons. How much will that impact expectations?

Nio Limited (NIO) - Reports after the close, Thursday, Mar. 24

Wall Street expects Nio to report a per-share loss of 21 cents on revenue of $1.53 billion. This compares to the year-ago quarter when it reported a per-share loss of 16 cents on revenue of $1.03 billion.

What to watch: Shares of Chinese electric vehicle maker Nio have been in reverse over the past year, losing some 60% of its value. With the stock now down 40% year to date, including 24% plunge over the past thirty days, analysts are coming into the company’s defense. Barclays analyst Jiong Shao recently assigned a Nio with an Overweight rating and price target of $34, reflecting 61% upside from current levels. "We believe that the rapid adoption of EVs around the world and booming EV sales have presented China’s EV makers a rare opportunity to not only take a sizable market share of the domestic auto market – the largest in the world with about 25-30% global share by units sold per annum – but also build a dominant position on the world stage," noted Shao. These trends are poised to benefit Nio in 2022. On Tuesday the company can make a strong case for itself and the stock by delivering a top- and bottom line beat, along with strong delivery guidance for the next quarter and full year.

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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