Weekly Preview: Earnings to Watch This Week 9-24-23 (BB, NKE, MU)

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Credit: Carlo Allegri - Reuters / stock.adobe.com

The multi-month rally in stocks that recently pushed the S&P 500 index to 14-month highs might have come to an end, but the bull market is still intact. But with stocks falling again on Friday, and all three major averages booking weekly losses, investors have begun to wonder whether the market has finally run out of steam.

Friday’s decline in stock marked the fourth straight day of losses for the three major indexes. Chief among investors’ concerns is that the Federal Reserve, after pausing its rake hike on Wednesday, signaled that it intended to keep interest rates higher for longer. On Friday The Dow Jones Industrial Average slid 106.58 points, or 0.31%, to close at 33,963.84. Among the Dow’s notable decliners were Salesforce (CRM), Microsoft (MSFT), IBM (IBM) and Intel (INTC). Notably, Apple (AAPL) rose, adding 0.5% as the tech giant is expected to see a boost in new iPhone 15 shipments.

The S&P 500 shed 9.94 points, 0.23% to close at 4,320.06, while the tech-heavy Nasdaq Composite slipped 0.09%, losing 12.18 points to close at 13,211.81. On Friday nine of the eleven S&P sectors ended in negative territory, with Technology and Energy being the two gainers. For the week, the S&P 500 and the Nasdaq Composite dropped 2.9% and 3.6%, respectively. The blue-chip Dow gave up 1.9% on the week.

Last week’s declines marked the third straight negative week and worst weekly performance since March for both averages. The bearish performance in the three averages were the result of discouraging hawkish statements made by Federal Reserve ongoing policy on interest rates and its attempts to curb inflation. The Fed reiterated expectations for more rate hikes this year, though investors are betting that the rate hikes have been completed.

Although inflation levels have moderated over the past several months, they remain elevated when compared to two years ago. In other words, the Fed watch will continue until there is a more definitive metric to suggests that the Fed will put an indefinite pause on its hike cycle. Meanwhile, the decline has prompted up the bears who have waged the “AI-hype” argument on multiple occasions, insisting that the valuation concerns has caught up to the bulls. That part remains to be seen. But until then, here are the stocks I’ll be watching this week.

Micron (MU) - Reports after the close, Wednesday, Sep. 27

Wall Street expects Micron to lose $1.18 per share on revenue of $3.91 billion. This compares to the year-ago quarter when earnings came to $1.45 per share on revenue of $6.64 billion.

What to watch: The improved prospects for memory chips have driven a rebound in Micron stock, which has risen some 17% over the past six months, compared to an 8% rise in the S&P 500 index. Meanwhile, its shares are up 38% year to date, besting the 12.5% rise in the S&P 500 index. The stock performance aside, the euphoria surrounding the potential of generative AI can’t be ignored when evaluating Micron and its implications for the semiconductor sector. So, while the stock suggests there is cautious optimism about better days ahead for Micron, the inherent downturn cycle of memory chip industry still grappling with price erosion.

The memory supply chain is expected to bottom out in the second half of 2023, which will lead into a cyclical recovery in early 2024. This explains why the stock has done so well in recent months. Its management, meanwhile, has made the best of the bad situation by trimming operating expenses to maintain margins and preserve the company’s balance sheet. These cost cuts have helped Micron achieve its profitability goals as it waits for demand and price stability to return. On Wednesday these are among the topics the company will need to discuss, along with issuing positive guidance that instill confidence that memory pricing can rebound in the quarters ahead.

BlackBerry (BB) - Reports after the close, Thursday, Sep. 28

Wall Street expects BlackBerry to lose 6 cents per share on revenue of $132.03 million. This compares to the year-ago quarter loss of 5 cents per share on revenue of $166.67 million.

What to watch: BlackBerry shares have rebounded impressively so far this year, rising 57% year date, compared to a 13% rise in the S&P 500 index. The strong stock performance comes even as the once-proud tech company, which has been in a perpetual turnaround mode, has yet to display meaningful improvements. What’s more, in an effort to shore up its balance sheet with ample cash, the company has sold its highly-prized patents. However, CEO John Chen recently boasted confidence about the company’s direction and competitive position, saying, “We’ve got a stable and focused leadership team that's driving that business in a very focused way.”

Meanwhile, regarding some of the competition, Chen, said “some of our other competitors, they're on their third CEO in two years. I think the execution issues of some of our competitors represent an opportunity for us to step in and drive growth. So, we're very excited about what the growth prospects look there.” While the company does have a strong cybersecurity presence, particularly with an emphasis on AI-powered solutions, the rivals that BlackBerry is dismissing shouldn’t be taken lightly. Nevertheless, BlackBerry management aims to hit revenue of $1.2 billion in fiscal 2027, believing it has an enormous opportunity to service customers in need of device security as the number of connected devices continue to grow. With BlackBerry stock up so strongly this year, the market on Thursday will want to persistent justification that it deserves its valuation.

Nike (NKE) - Reports after the close, Thursday, Sep. 28

Wall Street expects Nike to earn 74 cents per share on revenue of $13 billion. This compares to the year-ago quarter when earnings came to 93 cents per share on revenue of $12.69 billion.

What to watch: It would be a gross understatement to say that Nike stock has underperformed the market. Shares of the global athletic retailer have fallen 23% year to date, trailing the 13% rise in the S&P 500 index. When expanding that horizon to one year and three years, Nike has fallen 9% and 30%, respectively, compared to respective gains of 145 and 32% by the S&P 500 index in the same time span. The company’s prospect won’t immediately improve, according Erste Group which just lowered its rating on Nike to Hold from Buy, citing the current macroeconomic backdrop. "The fact that consumer sentiment has also deteriorated significantly, particularly in the important sales market of China, and sales there have fallen, is currently having a negative impact," warned analyst Hans Engel. 

But it’s not all bad news. When compared to its industry peers, Nike’s margins remain above average, and its valuation is below the long-term average. What’s more, there continues to be a slight recovery in China, Nike’s second-largest market. As the company stands to benefit from the ongoing re-opening in China which has relaxed some of its Covid restrictions to spur economic growth, there’s could be some upside in Nike's fundamentals. But in the near term, for the stock to race higher, the company must figure out ways to revive revenue growth and reaccelerate profit margins.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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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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