Weekly Preview: Earnings to Watch This Week (CRM, PANW, PTON, SPLK)
When assessing the recent movements and tumultuous swings in the stock market, it seems there continues to be a persistent back-and-forth between price and value. The consecutive days of selling that ensued earlier in the week, driven by concerns about Federal Reserve policy in the face of rising inflation pressures, seemingly gave way to positive economic news. Will that trend continue?
Despite ending the previous session mixed, stocks regained some lost ground on Friday, bouncing back from earlier declines with the Dow Jones Industrial Average which bounced back from a three-session losing streak, rising 225.96 points, or 0.65% to close at 35,120.08. The S&P 500 index ended 35.87 points higher, or 0.81%, to close at 4,441.67, while the tech-heavy Nasdaq Composite gained 1.19%, adding 172.88 points to end the session at 14,714.66. Even with Friday’s bounce, all three benchmarks still ended with losses for the week.
In the five-day period, the S&P 500 lost 0.6%, while the Nasdaq gave up 0.8%. The Dow was the biggest decliner, losing 1.1% for the week. Notably, the averages suffered despite strong earnings reports from notable S&P 500 companies across all sectors. Investors have turned their attention to, among other concerns, the imminent tapering of Federal Reserve bond buying as well as the spread of the coronavirus delta variant’s impact on the economy. Over the past seven days, daily average of new cases un the U.S. have risen to 143,827 as of Thursday, up 44% in a span of two weeks.
What’s more, it also has not helped that China has seemingly unleashed a war against its own tech companies, fearing they are growing too powerful. As such, many Chinese stocks such as Alibaba (BABA), Baidu (BIDU), among others, have sold off precipitously. The former is down 50% from its 52-week high.
On the bright side, there have been plenty of opportunities for the markets to plunge lower, say, into a 5% correction, but that hasn’t happened. “Buying the dip” has been the go-to strategy for investors who have been on the sidelines waiting for better entry points. This was also in play on Friday.
To be sure, fears of rising inflation won’t go away — not immediately. And last week’s reading of minutes from the Fed which (to some) suggested an unwinding of accommodative asset purchases is imminent, fueled the flames of concern as to how long the Fed can keep rates lower. At the same time, these concerns should be partially offset by the better-than-expected reading on weekly initial jobless claims, showing that the number of new filings fell to its lowest point since the onset of the pandemic.
The jobless claims data, which was somewhat overlooked due to fears of rising inflation, supports the optimism that there is tons of upside to come in the market in the next two quarters with society getting back to normal. In that vein, it’s starting to appear that cyclical stocks such as energy, financials and materials — the sectors that stand to benefit from the re-opening of the economy — have finally begun to move higher, driven by their better-than-expected earnings results. These have been the names we’ve be talking about since the start of earnings season.
Not only have these sectors exceeded analysts top- and bottom-line estimates, in many cases, their outlook for Q2 and beyond have come better-than-expected, suggesting that the strong revenue and profit growth trend will continue well into the economy re-opening. And that’s where investor patience and discipline for high quality stocks — despite the back-and-forth between price and value — have to kick into high gear. Here are the ones I’ll be watching this week.
Palo Alto Networks (PANW) - Reports after the close, Monday, Aug. 23
Wall Street expects Palo Alto Networks to earn $1.43 per share on revenue of $1.17 billion. This compares to the year-ago quarter when earnings came to $1.48 per share on revenue of $950.4 million.
What to watch: Software stocks have come roaring back over the past couple of weeks. Among the biggest gainers have been cybersecurity specialists such as Palo Alto Networks which has become popular amid the recent surge in cyberattacks. Without question, Cybersecurity will be one of the hottest sectors in tech in the next few years as corporations scramble to combat not only rising hacker sophistication, but also implement defenses needed to support their digital expansion. Not to mention, preventing public embarrassment associated with breaches and ransom payment demands. Currently worth $200 billion, the cybersecurity market is projected to grow to approximately a 10% compound annual growth rate within the decade. Palo Alto which has arguably best-of-breed products and services compared to its competitors, is poised to be a beneficiary of that growth. The question on Monday, however, will be whether the company can get investors (and analyst) excited about its stock relative to its competitors.
Salesforce (CRM) - Reports after the close, Wednesday, Aug. 24
Wall Street expects Salesforce to earn 92 cents per share on revenue of $6.24 billion. This compares to the year-ago quarter earnings of $1.44 per share on revenue of $5.15 billion.
What to watch: Shares of Salesforce have been one of the more popular components on the Dow, rising recently to their highest level since hitting $260.84 per share on Nov. 24, 2020. And there’s more room to run, according to JMP Securities analyst Patrick Walravens who rates the stock as Outperform. Citing the company’s is continued market share gains and its ability to benefit from the digital adoption of its enterprises customers, Walravens last week raised his price target on the stock to $320 per share from $282. The company’s SaaS business model and its customer relationship management services have been key to Salesforce’s growth in the past five years. Among the many growth catalyst, not only are Salesforce’s billings and booking metrics should reflect improving demand trends, the company is poised to realize stronger profit margins in the quarters ahead. On Wednesday Salesforce will need to convince the market of how it plans to execute in the direction suggested by the analyst.
Splunk (SPLK) - Reports after the close, Wednesday, Aug. 24
Wall Street expects Splunk to lose 69 cents per share on revenue of $562.82 million. This compares to the year-ago quarter when the loss was 33 cents per share on revenue of $491.66 million.
What to watch: The machine data analytics company has seen its stock price fall almost 20% over the past six months, against a 13% gain for the S&P 500 during that span. And if you’ve bought and only held the stock over the past nine months and one year, your shares have lost 21% and 30%, 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 fiscal 2022 revenue growth estimates calling for 22%. With the company coming off a quarter during which revenue grew 16% year over year, the management team on Wednesday will need to convince a skeptical market that Splunk can continue to reaccelerate its growth rate and capture market share.
Peloton (PTON) - Reports after the close, Thursday, Aug. 25
Wall Street expects Peloton to lose 44 cents per share on revenue of $921.66 million. This compares to the year-ago quarter when it lost 27 cents per share on revenue of $607.1 million.
What to watch: Peloton stock has been under heavy selling pressure, plunging as much as 52% from an all-time high go $171 in December to $82 per share in May. Meanwhile, over the past six months, the shares have fallen some 25% against a 13% gain for the S&P 500 during that span. While the market still believes in Peloton’s long-term positioned to disrupt the fitness industry through its at-home connected subscription platform, the company is navigating some near-term headwinds. Aside from supply chain constraints, there has been concerns surrounding safety stemming which sparked an investigation by the Consumer Product Safety Commission (CPSC). The company recently announced it issued a repair that ensures the machine’s touchscreen console remains securely attached to the Tread at all times, which it says has been approved by the CPSC. Now might be a good time to take a position in the stock, given that demand still high for its fitness products and subscriptions interest still accelerating. But the company has plenty to prove on Thursday before.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.