Weekly Preview: Earnings to Watch This Week (BB, MU, LULU, WBA)
Is the tech selloff finally over? Those who are in the bullish camp are eagerly waiting for that question to be answered after painfully watching the effect rising inflation and bond yields have had on the Nasdaq Composite over the past four months. While there are now encouraging signs that tech stocks have bottomed, it’s nonetheless too soon to send the all-clear signal. Volatility has somewhat subsided, but it has not gone away completely.
However, for those who can stomach the volatility, buying cheap stocks today seems like a good strategy for long-term gains. And it seems that’s exactly what the dip-buyers continues to do. On Friday the Dow Jones Industrial Average rose 153.30 points, or 0.44%, to close at 34,861.24. Strong performances in IBM (IBM), Nike (NKE), Exxon Mobil (XOM) helped offset weakness in Salesforce (CRM) and Microsoft (MSFT) which ended lower. The S&P 500 index SPX rose 22.90 points, or 0.51%, to end the session at 4,543.06, while the Nasdaq gave up 0.16%, losing 22.54 points, to finish at 13,138.72.
The Nasdaq’s reversal was notable, given that it touched an intraday low at 14,169.30, pressured by declines in Nvidia (NVDA), Tesla (TSLA), Moderna (MRNA) and Roku (ROKU). The three main averages each booked gains for the second consecutive week despite persistent concerns about the effect of the Russia-Ukraine war, focusing instead on what some have interpreted as hawkish commentary from the Federal Reserve. For the week, the Nasdaq was the largest gainer, rising 2%, followed by the 1.8% rise in the S&P 500 and 0.3% rise in the Dow.
Friday’s solid performance followed Thursday’s rally during which the Dow rose almost 350 points. It’s becoming more apparent that investors are now less stunned about the prospects of high interest rates and how quickly the Fed might need to act in order to temper pressures of inflation. The effect of rising yields is yet another factor in the equation, forcing investors to reconcile concerns about valuation. This week, both the S&P 500 index and the Dow regained their 50-day and 200-day moving averages, suggesting a bottom from the recent selloff has now been reached.
I said this recently and it bears repeating: Increasing exposure to the most beaten-down segments of the market such as Technology and consumer discretionary stocks may soon pay off. Despite the strong gains over the past two weeks, the Nasdaq remains 12.6% below its 52-week high reached in November, underscoring how the once highflying tech sector had been under pressure. The recovery has been impressive. The question is, will the trend continue?
As for earnings, here are this week’s stocks I’ll be watching.
Lululemon (LULU) - Reports after the close, Tuesday, Mar. 29
Wall Street expects Lululemon to earn $3.27 per share on revenue of $2.13 billion. This compares to the year-ago quarter when earnings came to $2.58 per share on revenue of $1.73 billion.
What to watch: After a 26% decline over the past six months, Lululemon’s stock has fallen 20% year to date, trailing the 5% decline in the S&P 500 index. In January the stock plummeted 7% after the company guided for EPS and revenue at low end of its range. This raised concerns that shares of the yoga apparel giant have stretched too far. The market also questioned whether Lululemon’s impressive revenue growth and strong customer acquisition had reached an inflection point, particularly with intense competition from Nike (NKE) and Under Armour (UA). What’s more the company’s direct-to-consumer (DTC) revenue growth had begun to decelerate as DTC revenue regressed back towards pre-pandemic levels. But is now the time to take a position? The company is still well-positioned to dominate a $3 trillion global wellness market. Meanwhile, the company is expanding internationally while growing its online, DTC business. LULU management has done an amazing job delivering shareholder value. It is hard to bet agains them over the long-term.
Micron (MU) - Reports after the close, Tuesday, Mar. 29
Wall Street expects Micron to earn $1.98 per share on revenue of $7.53 billion. This compares to the year-ago quarter when earnings came to 98 cents per share on revenue of $6.24 billion.
What to watch: Micron stock remains one of the better performers in the chip sector, rising 6% over the most six months, sharply outperforming both the tech sector and its peer group within semiconductors. That outperformance is poised to continue, according to analysts at Citigroup. Citing strong and stable DRAM memory pricing (used in various mobile devices such as smartphones), which should bode well for the company, Citigroup analyst Christopher Danely recently reiterated his Buy rating on the stock with $120 price target. From current levels of $78 that represents potential premium for more than 53%. Danely believes DRAM pricing could rise in the second-half of the year due to low supply and a recovery in demand. The market is also optimistic about demand prospects of memory chips that will power cloud computing, AI, and 5G. As such, on Tuesday for Micron stock to keep rising, the company will need to issue strong guidance that instills confidence that DRAM memory pricing will in fact recover as anticipated.
Walgreens (WBA) - Reports before the open, Thursday, Mar. 31
Wall Street expects Walgreens to earn $1.38 per share on revenue of $33.23 billion. This compares to the year-ago quarter when earnings came to $1.26 per share on $32.78 billion in revenue.
What to watch: Walgreens has executed strongly over the past several quarters, delivering beats on both the top and bottom lines. Notably, the company has found ways to offset downbeat foot traffic during the delta variant with solid front-end revenue. However, that has not prevented the stock from selling off. The shares are down 10% year to date, while falling 9% over the past year, trailing the S&P 500 in both spans. Investors have also grown frustrated with the company’s seeming inability to find an acquirer for its Boots chain. But all of that may soon change. Bank of America, Credit Suisse and Royal Bank of Canada are among banks that are in discussions to help fund the bid, according to a Sky News report. Operating more than 9,000 retail locations across America, Puerto Rico and the U.S. Virgin Islands, Walgreens valuation is attractive at current levels, given the growth the company is poised to realize over the next several quarters. On Thursday investors will look for Walgreens to provide more doses of strong execution.
BlackBerry (BB) - Reports after the close, Thursday, Mar. 31
Wall Street expects BlackBerry to lose 7 cents per share on revenue of $177.25 million. This compares to the year-ago quarter when earnings came to 3 cents per share on revenue of $210 million.
What to watch: BlackBerry shares have been on a steady uptrend over the past month, rising some 15.5%, including 10% gains over the past week, thanks to a recent upgraded by investment firm RBC Capital Markets, noting that the company’s "valuation has normalized.” The shares are currently priced at just four times forward enterprise value to revenue estimates which is half the valuation of eight times to cybersecurity sector trades four. While analyst Paul Treiber did upgrade the stock to Sector Perform from Underperform, it’s not exactly a full-blown endorsement. Treiber maintained his $7 price target, saying “We believe that BlackBerry’s valuation now more appropriately reflects the company’s near-term fundamentals, opportunities, and potential risks.” Nevertheless, with BlackBerry stock still down 20% year to date, the market will want to see whether its fundamentals can justify a higher price. The Canadian software and services company has a lot to prove, namely whether it can finally grow revenue. Investors will want to see improved trends in its Enterprise Software Services segment (its largest business) which has struggled for several consecutive quarters.
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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