Weekly Preview: Earnings to Watch This Week (AVGO, NIO, SPLK, ZM)
Stocks ended a brutal trading week somewhat mixed on Friday, booking sharp declines for the week. The market appears tempted to correct, suggesting the long-awaited disconnect (whether perceived or real) between Wall Street and Main Street might soon end.
Or will it?
The month of March is right around the corner, and with the House on Saturday passing President Joe Biden’s $1.9 trillion coronavirus relief package, which includes $1,400 cash payments to households, this could be one potential catalyst to avert a selloff. That is, of course, unless rising bond yields — often a predictor of falling equity prices — continue to climb. For the month of February, the Benchmark bond yields — both the 10-year Treasury note TMUBMUSD10Y and the 30-year long bond TMUBMUSD30Y — saw their biggest monthly rise in five years.
On Friday, despite both benchmarks giving up some ground, lead by 12 basis-point decline in 10-year Treasury yield, stocks couldn’t mount a rebound. The Dow Jones Industrial Average fell 469.64 points, or 1.5%, to close at 30,932.37. The Blue Chip index, which lost 2% for the week, was weakened by 6.3% decline in Salesforce (CRM) which fell despite a strong earnings beat on Thursday. Declines in IBM (IBM), Boeing (BA) and Walmart (WMT) also pressured the Dow.
The S&P 500 index, which saw some very late volatile trading on Friday, closed 18.19 points lower to 3,811.15 to end the week down 2.4%. The Nasdaq Composite Index, however, bucked the trend, ending higher by 72.92 points, or 0.56% to close at 13,192.35. Even then, the tech-heavy index had its worst week since October, losing 5% for the week. How long will this pullback last? Both the Dow and S&P 500 are trading near their 50-day moving averages which is a key psychological benchmark for traders. Will these levels hold?
The first half of February produced a massive runoff into all-time highs for the major averages. Investors have been looking for an excuse to take profits. And unlike years (or decades) past, market corrections can happen in a matter of days, not months. For long-term buy-and-hold investors, who can handle the day-to-day market volatility, a market correction of 10% would be a Christmas gift in terms of finding cheap stocks to buy, especially given the re-opening plays and pent-up demand consumers will have for products and services that disrupted by the pandemic.
As far as earnings this week goes, here are the stocks I’ll be watching.
Nio Limited (NIO) - Reports after the close, Monday, Mar. 1
Wall Street expects Nio to report a per-share loss of 7 cents on revenue of $1.01 billion. This compares to the year-ago quarter when it reported a per-share loss of 39 cents on revenue of $406.88 million.
What to watch: The Chinese electric vehicle maker, which is vying to become the next Tesla (TSLA), has posted quadruple-digit returns over the past year. No longer cash-strapped, the company has reported record deliveries in five consecutive months. And there is no slowing down. But can the stock continue to rise at its massive rate? China's passenger electric vehicle sales has soared over the past six months and rose more than 120% year over year. And there’s evidence to suggest that this level of growth is not only accelerating, but sustainable. These trends a poised to benefit Nio in 2021. On Monday, the company can allay concerns about valuation by delivering a top- and bottom line beat, along with strong delivery guidance for the next quarter and full year.
Zoom Video (ZM) - Reports after the close, Monday, Mar. 1
Wall Street expects Zoom to earn 79 cents per share on revenue of $811.77 million. This compares to the year-ago quarter when earnings came to 15 cents per share on revenue of $188.25 million.
What to watch: Zoom shares have cooled off considerably over the past four months. The shares have fallen as much as 44% since the stock reached its all-time high of $588.84 on October 19. During that same span the S&P 500 has risen some 15%. As coronavirus vaccine candidates started showing success, along with mass distribution, the market has grown concerned about Zoom’s ability to maintain its growth rate, as impressive as it has been. The thinking is, effective vaccines may enable schools, universities and corporations to open up again which, in turn, may reduce the need for the collaborative services Zoom provides. The company, however, is reportedly looking to diversify its revenue stream by entering the contact center space. To reverse the trend in the share price Zoom will have to issue strong forecast, particularly given the positive news surrounding vaccine.
Splunk (SPLK) - Reports after the close, Wednesday, Mar. 3
Wall Street expects Splunk to earn 4 cents per share on revenue of $682.03 million. This compares to the year-ago quarter when earnings came to 96 cents per share on revenue of $791.18 million.
What to watch: The machine data analytics company has seen its stock price fall about 30% over the past six months. And if you’ve bought and only held the stock over the past nine months and one year, your shares have lost 21% and 7%, respectively, trailing the S&P 500 index in each time frame. While the company understands customer behavior and can assess online end-to-end business transactions and deliver strong revenue growth, investors have shifted their focus on the company’s valuation. In that vein, the stock price — now trading at just 10 times revenue — appears more reasonable with revenue growth estimates calling for 20%. With the company coming off a quarter during which revenue fell 11%, the management team on Wednesday will need to convince a skeptical market that Splunk can return to growth much sooner than anticipated.
Broadcom (AVGO) - Reports after the close, Thursday, Mar. 4
Wall Street expects the company to earn $6.55 per share on revenue of $6.61 billion. This compares to the year-ago quarter when earnings came to $5.25 per share on revenue of $5.86 billion.
What to watch: After taking a massive hit earlier in the year from the pandemic, Broadcom stock has been one of the strongest beneficiaries from the rebound in the chip sector has that occurred int he second half of last year. The shares have risen almost 40% during that span, besting the 11% rise in the S&P 500 index. On a mission to become the world leader in infrastructure technology, the company has gone on an acquisition spree and diversified its business away from its core semiconductor segments. With its focus also shifting to datacenter growth, which accounts for 35% of total revenue, Broadcom has a strong portfolio of services, particularly given its 5G capabilities. For the stock to maintain its uptrend, it will take upbeat semiconductor revenue guidance and datacenter results that excites the market.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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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