Weekly Preview: Earnings to Watch This Week (BB, MU, LULU, WBA)
Is the tech selloff finally over? Bulls are eagerly waiting for that question to be answered after watching the painful effect rising bond yields have had on the Nasdaq. While there are encouraging signs that tech stocks have bottomed, it’s still nonetheless too soon to send the all-clear signal. That is, if you can’t stand the volatility. However, for those who can, buying cheap tech stocks today may soon prove to have been a wise decision.
On Friday, the Dow rose 453.40 points, or 1.4%, to close at 33,072.88. Strong performances in IBM (IBM), Microsoft (MSFT) and Intel (INTC) helped offset weakness in Boeing (BA), Disney (DIS) and Salesforce (CRM) which ended lower. The S&P 500 index SPX rose 65.02 points, or 1.7%, to end the session at 3,974.54, while the Nasdaq gained 1.24%, adding 161.05 points, to finish at 13,138.72. The Nasdaq’s reversal was notable, given that it touched an intraday low at 12,878.72, pressured by declines in Tesla (TSLA) and Roku (ROKU).
The three main averages performed a stunning reversal to closed sharply higher Friday, despite persistent concerns about not only rising bond yields, but also a fear of weakened global economic recovery. The prospect of higher inflation stemming from the Biden administration’s $1.9 trillion fiscal stimulus package is another pressure point for the market. This is even though some analysts continue to expect the outcome to eventually yield a more potent recovery for the U.S. economy.
Friday’s reversal, more importantly, was enough to prevent both the Dow Jones Industrial Average and the S&P 500 index from logging their second consecutive week of declines. For the week, both the Dow and the S&P 500 posted solid respective gains of 1.4% and 1.6%. The Nasdaq, however, fell 0.6%. While the Nasdaq wasn’t as lucky, the tech-heavy index remains in a stronger position to outperform as the year progresses. When looking at the broader picture, however, a trend has begun to emerge.
Friday’s market reaction was similar to Thursday when stocks, as they were rebounding from a two-day losing streak, wiped out earlier losses and turned higher in volatile trading. Aside from bond yield concerns, investors are seemingly trying to asses the risk-and-reward potential in relation to the pace of re-opening. Previously unloved sectors such as commodity cyclicals are now popular, while highflying segments such as technology has come under pressure. As such, there are opportunities in stocks like Netflix (NFLX) which has fallen 6.8% this month, while pandemic winner Zoom (ZM) has dropped 16%.
As for earnings, I'll be watching these stocks when they report this week.
BlackBerry (BB) - Reports before the open, Tuesday, Mar. 30
Wall Street expects BlackBerry to earn 3 cents per share on revenue of $245.11 million. This compares to the year-ago quarter when earnings came to 9 cents per share on revenue of $291 million.
What to watch: BlackBerry shares have surged some 145% from their March 2020 lows of $2.70. The gains were further driven by the Reddit-induced short squeeze mania that sparked interest in other highly-shorted stocks like GameStop (GME) and AMC Entertainment (AMC). With BlackBerry stock now up 45% year to date, the market will want to see whether its fundamentals justify the price. The Canadian software and services company has a lot to prove, namely whether it can finally grow revenue which is expected to fall more than 14% this quarter. The bulk of the decline is likely to come from its Licensing and Other segment revenue. Investors will want to see improved trends in its Enterprise Software Services segment (its largest business) which has struggled for several consecutive quarters.
Lululemon (LULU) - Reports after the close, Tuesday, Mar. 30
Wall Street expects Lululemon to earn $2.49 per share on revenue of $1.66 billion. This compares to the year-ago quarter when earnings came to $2.28 per share on revenue of $1.48 billion.
What to watch: After a 56% rally over the past year, Lululemon’s stock has fallen 10% year to date, trailing the 6% rise in the S&P 500 index. There has been concerns that shares of the yoga apparel giant have stretched too far, particularly amid increased competition from Nike (NKE) and Under Armour (UA), among others. Currently, the company trades at a forward P/E ratio of 69 times and a forward Price/Sales ratio of 9.5 time, well above the S&P 500 index. But that’s not the first time Lululemon, which is positioned to dominate a $3 trillion global wellness market, has heard the valuation argument. This seems like a good buying opportunity for investors who have a longer-term horizon. Lululemon continues to dominate retail, positioning itself as the leader of the secular health and wellness trend. Meanwhile, the company is expanding internationally while growing its online, direct-to-consumer business. Expect the company to provide updates on those initiatives, along with projected profit margin expansion.
Walgreens (WBA) - Reports before the open, Wednesday, Mar. 31
Wall Street expects Walgreens to earn $1.12 per share on revenue of $35.47 billion. This compares to the year-ago quarter when earnings came to $1.52 per share on $35.82 billion in revenue.
What to watch: Operating more than 9,000 retail locations across America, Puerto Rico and the U.S. Virgin Islands, Walgreens has played an important role in the country’s Covid vaccination efforts, supporting vaccinations across 43 states and jurisdictions as part of the Federal Retail Pharmacy Program. The pharmacy retail giant recently reported receiving roughly 1 million vaccine doses from Johnson & Johnson (JNJ), Moderna (MRNA) and Pfizer (PFE). With expansion efforts still underway, Walgreens expects to increase its testing capacity to reach 3 million per month, amounting to more-than a threefold rise since last April. The company’s vaccine execution mirrors its operating metrics which has lead to two straight earnings beats, thanks to strong cost management. This is even as concerns related to higher drug costs have impacted the sector. On Wednesday investors will look for Walgreens to provide more doses of strong execution.
Micron (MU) - Reports after the close, Wednesday, Mar. 31
Wall Street expects Micron to earn 94 cents per share on revenue of $6.2 billion. This compares to the year-ago quarter when earnings came to 45 cents per share on revenue of $4.8 billion.
What to watch: Micron stock remains one of the better performers in the chip sector, rising 17% year to date, sharply outperforming not only the tech sector, but also the iShares PHLX Semiconductor ETF (SOXX) which has risen 11%. And when factoring the 80% returns Micron has delivered in the past six months, it seems investors are now certain that the demand disruptions caused by the pandemic, namely Micron’s NAND and DRAM (used in various mobile devices such as smartphones), have drastically improved. The market is also seemingly optimistic about demand prospects of memory chips that will power cloud computing, AI, and 5G. At the same time, however, there are conflicting reports from Korea indicating some weakness in sales of Apple (AAPL) products, which can impact Micron’s revenue. As such, on Tuesday Micron will need to issue guidance that firmly points to the confidence it has in the memory chip business.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.