Earnings

Weekly Preview: Earnings to Watch This Week 3-3-24 (CRWD, NIO)

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Credit: Reuters / Gary Hershorn - stock.adobe.com

Will they or won’t they? That’s the prevailing question when discussing the whether the Federal Reserve, which is scheduled for two-day meeting this month, will finally cut rates. We know the Fed has finally pivoted to a dovish stance regarding interest rates, but the timing of the first rate cut is less certain.

While inflation has meaningfully moderated based on recent CPI data, those aren’t the only metrics weighing on the Fed’s decision. The Fed is also keeping a close eye on the roughly $2.4 trillion in mortgage-backed securities currently on its balance sheet, a point made on Friday by Federal Reserve Governor Chris Waller. While speaking at the U.S. Monetary Policy Forum held in New York, Waller said, "I would like to see the Fed’s agency MBS holdings go to zero.”

The Fed amassed its roughly $2.4 trillion holdings during its asset-purchase spree, or what was referred to as quantitative easing, at the height of the financial crisis in 2007. The program was rejuvenated during the pandemic and again implemented to reduce long-term bond and mortgage rates. However, with the pandemic now behind us, the Fed has prioritized reducing its balance sheet, a program called quantitative tightening. It has done so by trimming $1.3 trillion since June 2022, but there’s more work to do.

However, based on Friday's market activity, investors aren’t too concerned. Stocks not only finished higher Friday, but both the S&P 500 and Nasdaq Composite index posted record levels. On Friday the Dow Jones Industrial Average rose 90.99 points, or 0.2%, to close at 39,087.38. While notching its fifteenth record close of the year, the S&P 500 added 40.81 points, or 0.8%, to finish at 5,137.08, while the Nasdaq Composite index gained 183.02 points, or 1.1%, to end at 16,274.94. The tech-heavy Nasdaq reached a record level, its first record close since November 2021.

For the week, the Nasdaq was the biggest winner, gaining 1.7%, the S&P 500 rose about 1%, while Dow slipped 0.1%. With the market now in record territory, one of the toughest things for investors to do is to maintain confidence in the overall direction of stocks. With inflation easing, combined with a stable economy, the Central bank is poised to cut. While there are still some questions about how aggressive the Fed will be in its easing policy, there’s a belief that three cuts are on the table. These cuts are not likely to start this month. But does it really matter?

On the earnings front, even as earnings season is all but over, there are still some key companies worth watching. Here are two in particular:

NIO Inc. (NIO) - Before the open, Tuesday, Mar. 5

Wall Street expects NIO to report a per-share loss of 32 cents on revenue of $2.34 billion. This compares to the year-ago quarter when it reported a per-share loss of 52 cents on revenue of $2.34 billion.

What to watch: Weakening EV vehicle demand in China, along with intense competition, continues to pressure NIO’s growth and the company’s market share, which has steadily eroded in three straight years. And it doesn’t appear as if investors have more patience to allow the company to turn things around. Currently trading near 52-week lows, the stock has plummeted some 35% year to date, compared with 8% rise in the S&P 500 index. And if you've only held NIO stock over the past three years, you’re down almost 90%, while the S&P 500 index has risen 35% in that span.

While some would argue that NIO stock may be an opportunity at current levels, JPMorgan analysts Nick Lai recently offered some caution, lowering his rating on NIO stock to Underweight and 40% cut to its price target. The new price target of $5 is roughly 14% below current levels. The analyst cited not only the company’s slow January sales, but also sales and earnings momentum for all of 2024. There’s a lot merit to these concerns in light of the company’s February deliveries, which were underwhelming.

The company delivered 8,132 EVs in February, down 19.1% from the 10,055 vehicles delivered in January, and 33.1% lower than the 12,157 vehicles delivered in February 2023. The lack of new EV models, compared to its rivals, is another area of concern. And when just focusing on fiscal 2024 expectations, investors are right to question whether NIO can meet EPS expectations, based on previous revenue per delivery metrics. Despite all of the bearishness, the company on Tuesday can make a strong case for its value by delivering a top- and bottom line beat, along with strong delivery guidance for the next quarter and full year.

CrowdStrike (CRWD) - Reports after the close, Tuesday, Mar. 5

Wall Street expects CrowdStrike to earn 82 cents per share on revenue of $839.08 million. This compares to the year-ago quarter when earnings were 47 cents per share on revenue of $637.37 million.

What to watch: The global cybersecurity market is projected to grow at a compound annual rate of 10.5% to over $58 billion by 2031. That compares to a market size that was valued at more than $20 billion in 2022, according to Straits Research. This growth bodes well for CrowdStrike and its next-generation endpoint security technology platform that is aimed at stopping data breaches before they can inflict damage. The cybersecurity specialist has consistently outperformed the overall cybersecurity industry when it comes to growing revenues and profits.

Investors are expecting another strong quarter, evidenced by the stock’s strong performance. The shares have risen 23% year to date, including 115% over the past six months, compared to a year-to-date rise of 7% for the S&P 500 index. The shares have returned 161% over the past twelve months. But don’t think about cashing in your chips just yet, according analyst Raymond James analysts who recently initiated coverage on the stock with an Outperform rating and a $330 price target which assumes 5% premium from current levels. Offering a diversified suite of IT products, the company continues to benefit from its leadership position in various cybersecurity categories, and thus is expected deliver more growth on both the top and bottom lines when it reports results for the quarter that ended January. CrowdStrike one of a handful of vendors well-positioned to capitalize on both cybersecurity and the growing adoption of generative AI platforms in coming years. That’s likely to be the case for the foreseeable future.

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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