Weekly Preview: Earnings to Watch This Week (COUP, GME, LULU, ORCL)
Despite persistent concerns about valuation, stocks ended Friday near all-time highs, albeit somewhat mixed. This is after the August jobs report from the Labor Department came in much lower than expected. Ahead of the report, and particularly given the spread of the delta variant, analysts and economists had questioned the strength of the job market’s recovery from the pandemic.
Friday’s report did little to quell those concerns. But it was just good enough, if judging by the market’s reaction. On Friday both the Dow Jones Industrial Average and the S&P 500 index ended ended modestly lower. The Dow gave up 74.73 points, or 0.2%, to ended the session at 35,369.09. Declines in IBM (IBM), Intel (INTC) and Disney (DIS) offset gains in Apple (AAPL). The S&P 500 slipped 1.52 points, or less than 0.1%, to 4,535.43, while the tech-heavy Nasdaq Composite Index added 32.34 points, or 0.2%, to close at all-time high of 15,363.52.
Notable tech winners were DocuSign (DOCU) which rose 5.26% Friday after reporting earnings on Thursday that not only beat on both the revenue and profits, DocuSign also issued bullish guidance. Cloud specialist MongoDB (MDB) also powered the Nasdaq, rising 26% on Friday after a strong earnings beat. For the week, the Nasdaq was the biggest winner, rising 1.6%. The Dow saw a modest 0.2% loss, while the S&P 500 added 0.6%.
The fact that all three major averages are still trading near all-time highs underscores the level of optimism investors still have about the strength of the economic recovery. Notably, the weaker-than-expected jobs report didn't have the bearish effect it would typically have. The U.S. economy added 235,000 jobs in August, far fewer than forecast for an increase of 720,000, according to the Labor Department.
Despite the downbeat figure, the unemployment rate touched a new pandemic low, falling to 5.2% from 5.4%. This is, in part, because jobs data for June and July were raised from initial readings. The jobs date for June were revised higher to 962,000 from 938,000, while the July reading was adjusted to 1.05 million from 943,000. What’s more, average hourly earnings rose 0.6% month-over-month. Not only was that figure better than the 0.3% that was expected, it surpassed the 0.4% rise in July.
As it stands, wages rose 4.3% year over year, beating both the 3.9% expected and 4.0% reading for July. These figures, which confirms inflation is still high, may force the Feds to delay its long-anticipated tapering plan. This will continue to drive the dip-buying in stocks we have seen repeatedly as investors rush in on any signs of weakness to add shares ahead of the economic recovery. In other words, there are still reasons to be bullish on equities and stay confident in the market.
As far as earnings go, here are the stocks I’ll be watching this week.
Coupa Software (COUP) - Reports after the close, Tuesday, Sep. 7
Wall Street expects Coupa to lose 6 cents per share on revenue of $162.98 million. This compares to the year-ago quarter when it earned 21 cents per share on revenue of $125.92 million.
What to watch: Shares of Coupa, a provider of a cloud-based corporate spend management software, have risen more than 17% over the past month, including 13% in one week as investors returned to high-growth software stocks. Even with the Coupa’s recent popularity, shares have fallen 25% in six months, trailing the 17% rise in the S&P 500 index. And on a year-to-date basis, the stock has lost 24.4%, while the S&P has gained 21%. Aiming to become a BSM (Business Spend Management) leader, Coupa makes money by analyzing large quantities of corporate transactional expense data, looking for spending patterns and areas of inefficiency. With its total addressable market measured at $56 billion and growing, Coupa’s platform helps customers with actionable insights that can lead to improved inventory management, smarter purchasing decisions, while lowering expenditures. But concerns about slower growth and Coupa’s valuation — currently at 40 times forecasted revenue — has kept the stock in a tight range. The company on Tuesday can change that narrative by delivering a top- and bottom line beat, along with confident guidance.
GameStop (GME) - Reports after the close, Wednesday, Sep. 8
Wall Street expects GameStop to lose 67 cents per share on revenue of $1.12 billion. This compares to the year-ago quarter when it lost $1.40 per share on revenue of $942 million.
What to watch: Does it still pay to play GameStop? Enthusiasm surrounding the arrival of Ryan Cohen, Chewy (CHWY) founder, who is charged with turning the GameStop into an e-commerce power has not waned. This is even though the brick-and-mortar retailer has yet to show financial success in the digital realm. Nevertheless, GameStop shares have surged more than 35% over the past month, including 5% gains this week. Having soared more than 80% in six months and more than 1000% year to date, investors want to know how much better can things get. Just as importantly, the market wants GameStop to demonstrate it is more than just a “meme stock” fueled by Reddit-induced euphoria. From that standpoint, the stock still ranks amongst the top five in daily discussions on WallStreetBets. On Tuesday the company can steer the conversation towards fundamentals with a strong Q2 earnings beat.
Lululemon (LULU) - Reports after the close, Wednesday, Sep. 8
Wall Street expects Lululemon to earn $1.18 per share on revenue of $1.33 billion. This compares to the year-ago quarter when earnings came to 74 cents per share on revenue of $902.94 million.
What to watch: Has Lululemon stock stretched too far? Since marching to an all-time-high price of $415, the share have fallen about 7%, including 4% over the past month. And if you’ve held the sock over the past year, you’re down about 2.5%, compared to a 27% rise in the S&P 500 index. While the yoga specialist continues to dominate retail, positioning itself as the leader of the secular health and wellness trend, valuation concerns have emerged. Despite the recent decline, LULU has returned nearly 200% since the depths of the pandemic, as it flexed its retail dominance. As it stands, with the shares currently priced at 56 times forward earnings, LULU trades at a massive premium to the retail sector which is priced at roughly 14 times forward earnings. In other words, the stock is priced for perfection. The company, however, has shown it deserves that premium by consistently driving margin expansion and realizing operating leverage to drive faster bottom-line growth. On Wednesday LULU will need to guide in a manner that suggests its premium position in retail won’t be derailed.
Oracle (ORCL) - Reports after the close, Thursday, Sep. 9
Wall Street expects Oracle to earn 97 cents per share on revenue of $9.78 billion. This compares to the year-ago quarter when earnings came to 93 cents per share on revenue of $9.37 billion.
What to watch: Oracle shares have surged 35% over the past six months, more than doubling both the 17% rise in the S&P 500 index and the 15% gain in the Technology Select Sector SPDR ETF (XLK) during that span. Now up 30% year to date and trading near 52-week highs, Oracle stock sports a premium to its historical valuation. Seen as a transformation play based on its business transition towards a cloud subscription-based model, Oracle must continue to demonstrate its fundamentals can sustain its recent growth rate — similar to what Microsoft (MSFT) evolved to a decade ago. As such, Oracle’s growth strategy, which is highly focused on customer retention and migrating existing on-premises customers to the cloud, remains a key factor in assessing the stock’s ability to sustains its current level. In other words, the market will want to see whether Oracle can compete with incumbents such as Salesforce (CRM), Workday (WDAY) and Amazon (AMZN) and stake a larger share of the cloud market.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.