Weekly Preview: Earnings to Watch This Week 1-7-24 (C, DAL, TLRY, WFC)
Three consecutive down days was not what investors expected the market would produce to start off the new year, but things aren’t as bad as they appear. Despite the three major averages snapping a nine-week winning streak Friday, the positive gains were a step in the right direction on the heels of a stronger-than-expected jobs report.
The impressive December jobs report, which also beat an expected decline in the unemployment rate, sent stocks modestly higher on Friday. The somewhat favorable response to the strong jobs report is a surprise to many investors and a stunning reversal of what has typically interpreted as “bad news” for the stock market. Friday’s jobs report revealed that 216,000 new jobs were created in December which came in higher than economists had predicted.
The increase in jobs not only blew away the 170,000 that was expected, it also accelerated from the 173,000 increase for November, which was revised from the original +199,000 estimate. The stronger-than-expected number also kept the unemployment rate unchanged at 3.7%, which beat the 3.8% consensus. In response, the Dow Jones Industrial Average rose 25.77 points, or 0.07%, to close at 37,466.11. The S&P 500 index added 8.56 points, or 0.18% to end at 4,697.24, while the tech-heavy Nasdaq Composite gained 13.77 points, or 0.09%, to end at 14,524.07.
Even with the positive gains Friday, it was the first negative week in ten for the three major averages, led by the Nasdaq, which suffered a decline of 3.25%, marking the steepest weekly performance in four months. The S&P 500 was the second worst with a weekly decline of 1.52%, while the Dow fell 0.59% for the week. The good news vs. bad news debate was again in play. While investors have been betting on a series of rate cuts, Friday’s strong jobs report could compel the Fed to reconsider the urgency and the frequency of the cuts.
Heading into this week, investors will be weighing several questions, including whether those rate cut expectations need to be dialed back. What does that mean to the first quarter S&P 500 estimates and multiple expansion discussions? For the broader market as a whole, it is nonetheless encouraging to see the sustained jobs growth, which is typically a lagging indicator of where the economy truly is. That question will be clearer following the fourth quarter results of the holiday shopping season. Here are the stocks I’ll be watching this week.
Tilray Brands (TLRY) - Reports after the close, Tuesday, Jan. 9
Wall Street expects Tilray to report a per-share loss of 6 cents on revenue of $195.1 million. This compares to the year-ago quarter when the loss came to 11 cents per share on revenue of $144.14 million.
What to watch: Investors who have waited patiently for Tilray to make new highs have been rewarded. The stock has surged close to 40% over the past six months, while rising some 22% in just thirty days. But expand that horizon by twelve months and the picture is not as rosy. The shares have suffered, falling 22% over the past year, trailing the broader S&P 500 index’s 23% rise. Meanwhile over the past three years, the stock has lost 76% of its value. Although the Canadian cannabis company continues to make financial and fundamental improvements, its long-term success closely hinges on legalization on the federal level.
Tilray and other cannabis companies are highly dependent on the U.S. government to do two things: One is to legally reclassify marijuana and/or Congress must pass the long-awaited SAFE Banking Act or similar legislation. The latter would open the cannabis industry to more investment opportunities. While the management has expanded the company’s reach into international markets, investors are still waiting for the company to show it can compete effectively in the Canadian cannabis market where it has had to deal with not only slumping prices, but also competition from the black market. The company has pivoted slightly by slowing down production at cannabis facilities to raise cash, while at the same time, diversifying the business into wellness products and beverages. As such, the company's ability to move the business beyond the hope of the U.S. legalizing cannabis will be a key question on Tuesday's .
Citigroup (C) - Reports before the open, Friday, Jan. 12
Wall Street expects Citigroup to earn 97 cents per share on revenue of $18.88 billion. This compares to the year-ago quarter when earning were $1.16 per share on revenue of $18.01 billion.
What to watch: Commercial bank stocks such a Citigroup did not fare as well as investors expected in 2023, particularly amid a period of rising interest rates. Banks often benefit from increasing interest rates which increases not only their net interest margins but also their overall profits. While that was, in come cases, true for Citigroup, the stock still underperformed the broader S&P 500 index over the past year. This is even as the stock outperformed the S&P 500 index in the last six months of the year, rising 16% compared to 5.6% for the S&P 500.
Last week Wolfe Research analyst Steven Chubak upgraded the stock to Outperform from Peer Perform, listing the bank among the cyclical names with “idiosyncratic tailwinds.” The analyst noted that, "Our Top Picks screen best across multiple scenarios in terms of risk-reward, with a combination of asset sensitive 'quality' on sale and undervalued cyclical names.” Meanwhile, from a fundamental view, it appears Citigroup shares are severely discounted compared to the underlying value on its balance sheet. As the stock trades at $54 per share, the bank boasts more than $210 billion in total equity, which equates to book value of more than $90 per share, equating to about a 40% discount to book value. And when factoring the bank’s 3.83% dividend yield, the risk-reward cited above seems even more appealing as we enter the new year and with the Fed navigating a soft-landing.
Delta Air Lines (DAL) - Reports before the open, Friday, Jan. 12
Wall Street expects Delta to earn $1.16 per share on revenue of $13.55 billion. This compares to the year-ago quarter when earnings came to $1.48 per share on $12.29 billion in revenue.
What to watch: Thanks to a resurgence in business and holiday travel activity, airline stocks were one of the strongest sectors in 2023, outperforming the broader S&P 500 index. Although Delta Air Lines have been one of the beneficiaries of a robust global travel demand, Delta stock has not fared as well as investors hoped it would, falling more than 16% over the past six months, compared to a 6% rise in the S&P 500 index. What’s more, over the past year, the sock has risen 15%, trailing the broader index’s 23% rise. But there’s still tons of value here, given Delta’s strong footing in both the domestic and international air travel markets.
According to the International Air Transport Association, the global airline industry is poised to earn net profit $25.7 billion in 2024, which would equate to a 10% rise year over year. Meanwhile, operating profit is projected to reach $49.3 billion in 2024, which is expected to be an $8.6 billion jump from last year. Just as impressive, the industry is expected to enjoy a 7.6% jump in revenue, reaching a record $964 billion in 2024. Close to 5 billion people are expected to travel in 2024, compared the pre-Covid record of 4.5 billion people in 2019. All of which bodes well for Delta in the new year. Ahead of the Q4 report, investors will focus on management’s commentary to detect any bullishness in booking pricing, capacity growth from both domestic and international travel, where it has reported a gradual recovery. As such, Delta remains one of the better bargains in transportation stocks.
Wells Fargo (WFC) - Reports before the open, Friday, Jan. 12
Wall Street expects Wells Fargo to earn $1.22 per share on revenue of $20.34 billion. This compares to the year-ago quarter when earnings were 61 cents per share on revenue of $19.66 billion.
What to watch: Over the past thirty days, Wells Fargo stock risen some 12%, besting the 2.85% gain in the S&P 500 index. However, expand that horizon by one year and the story is vastly different. The stock has returned some 17%, while the S&P 500 index has risen more than 23%. This is due, in part, to the degree of pessimism investors have had regarding not only the direction of the economy, but also the banking industry as a whole. This was also noticeable during fourth quarter and banks experienced subdued lending activities primarily due to macro factors such persistently high interest rates. There are also evidence that demand for commercial and industrial loans weakened in the first two months of the quarter.
But Wells Fargo still has some attractive qualities, particularly from a balance sheet perspective where the bank is not only fundamentally strong, but also offer an attractive dividend yield of 2.80% for investors who are looking for stable income. What’s more, during the last quarter, the bank showed improve financial performance, achieving not only strong revenue growth, but also diligent costs management to navigate inflationary headwinds by focusing on ways to lower expenses, and realize more efficiency to led to a 26-cent beat on the bottom line. That said, given Wells Fargo’s massive portfolio of large consumer products such as mortgages, credit cards, and personal loans, the bank still needs the economy to thrive to maintain its strong balance sheet which will allow the bank to execute its buybacks and pay dividends to shareholders. On Friday the bank will need another top- and bottom-line beat and confident guidance to affirm this bullish thesis.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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.
Read Richard's Bio