Weekly Preview: Earnings to Watch This Week (FCEL, ORCL)
As I’ve mentioned in previous posts, after record gains over the past six months, the market appears tempted to correct. The first half of the year produced a massive runoff into all-time highs for the major averages. Investors have been looking for an excuse to take profits. And it appears that time has come as the Dow Jones Industrial Average and S&P 500 declined on Friday for a fifth straight session, thanks to economic uncertainty.
The question is, if (or when) the correction comes, how long will it last? It’s also worth asking, how pronounced the pullback be? It has been more than seven months since the S&P 500 saw a 5% pullback. During that span, it has risen more than 30%. For some context, the S&P 500 has more than doubled from its March 2020 pandemic low. Meanwhile, despite the five-day decline, it has given up just 1% from a record close hit on Sept. 3. While I remain bullish long term on the market, stock valuations are at historically high levels by almost every measure.
This, understandably, has gotten investors a bit nervous as stocks continue to rally to all-time highs. Is this five-day decline a warning sign? On Friday the Dow Jones Industrial Average, despite rallying more than 200 points shortly after the market opened, ended the session down 271.66 points, or 0.78% to close at 34,607.72. Though the Blue Chip index was pressured by declines in, among others, Apple (AAPL). The iPhone maker was the biggest laggard weighing on the Dow, losing more than 3%.
Other notable Down decliners included Microsoft (MSFT), Salesforce (CRM) and IBM (IBM) which also pressured the S&P 500 Index into a decline of 34.70 points, or 0.77% to close at 4,458.58. The Nasdaq Composite lost 132.76 points, or 0.87% to close at 15,115.49. The tech-heavy index extended suffered declines from Tesla (TSLA), Coinbase (COIN), CrowdStrike (CRWD) and DocuSign (DOCU). These declines followed Thursday’s reversal when the Dow fell 151.69 points, or 0.4%. The S&P 500 closed down 20.79 points, while the Nasdaq Composite lost 38.38 points.
For the holiday-shortened week, the Dow has given up 1.5%, logging its second straight weekly decline, while both the S&P 500 and Nasdaq Composite shed 1%. And as I mentioned last week, taking into account the Fed's transitory inflation message, there remains plenty of reasons to maintain confidence in the market, especially when given the positive employment data we have witnessed. To be sure, the Covid risk is not to be discounted. The U.S. is averaging just about 150,000 new cases per day. And with only 53% of the population fully vaccinated, that’s going to remain a concern.
But given all of the positive offsetting factors, the economic recovery is sustainable. And until there are clearer signs of a market pullback, I continue to believe staying invested in the market is the best way to counter inflation.
As far as earnings, here are the stocks I’ll be watching this week.
Oracle (ORCL) - Reports after the close, Monday, Sep. 13.
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.
FuelCell Energy (FCEL) - Reports after the close, Tuesday, Sep. 14.
Wall Street expects FuelCell to lose 5 cents per share on revenue of $20.69 million. This compares to the year-ago quarter when the loss came to 8 cents per share on revenue of $18.73 million.
What to watch: As the trillion-dollar infrastructure bill moves forward, can FuelCell Energy, a leading maker of hydrogen fuel cells, play a significant role in the expected spending spree? Momentum in renewable energy has not fully reached the levels of six months ago, but there is some evidence that the market is starting to feel more optimistic about the industry’s prospects. The the trillion-dollar infrastructure bill is headed for a vote in the House on Sept. 27. The package includes $8 billion for hydrogen projects. FuelCell Energy, which continues to advance new technologies like carbon capture and hydrogen generation, is one of several companies that stands to benefit from the spending. FuelCell’s generation portfolio, an important segment, continues to perform well, posting record revenues in the most-recent quarter. The generation segment which is expected to be a key contributor to the company’s profitability targets in FY2022. With competitors like Plug Power (PLUG) and Ballard Power (BLDP) also fighting for position, on Tuesday the market will want to know how realistic FuelCell’s growth targets remains.