Weekly Preview: Earnings to Watch This Week 8-13-23 (HD, PANW, WMT)
The anticipated Fed Pivot might now be delayed based on new inflation data that suggests more work might need to be done to curb the cost of living. While some economists have agreed that the we have already reached “peak inflation,” investors are nonetheless in risk-off mode as stocks continue to struggle for direction.
Stocks ended Friday mixed, even as there is some belief that Federal Reserve may pause its rate hike in next months' policy meeting. Friday’s session comes on the heels of several days of selling pressure that sent the all three major benchmarks lower for a second consecutive week. During the modest pullback, growth and tech stocks have seen the biggest declines. Stocks such as Meta Platforms (META), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Google parent Alphabet (GOOG , GOOGL) have given up some gains. Is now a good buying opportunity?
On Friday the Dow Jones Industrial Average rose 105.25 points, or 0.3%, to end Friday’s session at 35,281.40. The S&P 500 gave up 4.78 points, or 0.11%, to finish at 4,464.05. Of the eleven S&P sectors, four closed in negative territory, lead by Technology. Among the seven gainers, Energy was the most popular on Friday. The tech heavy Nasdaq Composite, which has suffered over the past two weeks, ended 93.14 points lower, or 0.68%, to end at 13,644.85.
For the week, the Nasdaq was down 1.90%, while the S&P was down 0.31%. The Dow bucked the trend, rising 0.54% for the week. The market's main concern over the past several weeks has had to do with the direction of the overall economy. More prominently, can the Fed control inflation in a manner that prevents a recession? The consumer price index (CPI) for July, which is the Federal Reserve’s major inflation gauge, arrived softer than expected, climbing 3.2% year over year, below the 3.3% estimate.
While the July CPI is good news for the market, it was muddled by Friday's release of the producer price index (PPI), which tracks the price wholesalers pay for raw goods. On a month-over-month basis the PCI rose 0.3%, which is higher than the 0.2% economists expected. While the Fed has been expected to pause the rate hike in September, the hotter-than-expected PCI may cause them to think differently which caused the choppiness in recent trading. Will the trend continue next week?
And on the earnings front, as the season begins to wind down, there are still key companies that have yet to report. Here are the stocks I’ll be watching.
Home Depot (HD) - Reports before the open, Tuesday, Aug. 15
Wall Street expects Home Depot to earn $4.45 per share on revenue of $42.24 billion. This compares to the year-ago quarter when earnings were $5.05 per share on revenue of $43.79 billion.
What to watch: Home Depot stock has under-performed the market for much of the year. The company has been adversely impacted by soaring interest rates, which have helped to slow the housing market. Higher input costs and weakening consumer demand has caused margin erosion within its business. Interest rate hiking cycles have historically hampered home improvement stocks. That said, there is still confidence in the housing market, which has held up relatively well, despite the rising mortgage rates. On Tuesday investors will be keen on the company's overall revenue total and any trends in growth. This includes both comparable-store sales and total revenue generated across its various product categories. From an execution perspective, factors like housing market conditions, renovation activity, and home improvement spending patterns will be closely watched.
Elsewhere, given that Home Depot caters to both professionals and do-it-yourself consumers (DIY customers), analysts will focus on both segments and their respective revenue performance, which can offer insights into consumer behavior. Any commentary on supply chain disruptions, inventory levels, and the ability to manage product availability amidst global challenges will reveal the company's operational resilience. While the company has established a strong track record for beating estimates, the company’s guidance on Tuesday will be the main driver of the stock as it will indicate where the management believes the housing market and consumer spending will be in the next several quarters.
Walmart (WMT) - Reports before the open, Thursday, Aug. 17
Wall Street expects Walmart to earn $1.69 per share on revenue of $159.93 billion. This compares to the year-ago quarter when earnings came to $1.77 per share on revenue of $152.86 billion.
What to watch: Shares of Walmart have gone on a nice run, recovering from earlier losses to now trade near a 52-week high of $160. While the stock is up just 13% year to date, trailing the 16% rise in the S&P 500 index, the comparison should be presented in the context of not only rising inflation, but also the company's numerous setbacks in 2022. For that matter, the retail sector has suffered amid rising inflation and the impact on consumers as the Federal Reserve raised interest rates to combat the rising cost of living. The world's largest retailer has not been immune to higher input costs and supply chain disruptions. It’s for this reason, among others, Walmart is expected to deliver a year-over-year decline in earnings on higher revenues when it reports results.
During the quarter, investors will be looking for signs of steady revenue growth, particularly in core segments like groceries and e-commerce. Any shifts in consumer behavior, including online shopping trends, will be of interest. While e-commerce is vital, the performance of Walmart's physical stores, particularly same-store sales figures and foot traffic trends, will help gauge the health of its brick-and-mortar presence. Analysts will scrutinize how Walmart is managing supply chain challenges, looking for any signs that logistics and operating margins issues are in the rearview mirror. Operating margins and expenses will reveal how well Walmart is managing costs and optimizing its operations. Any commentary on strategies to address rising labor and supply chain costs will be noteworthy. All told, the company on Thursday will need to talk positively about market share growth, along with providing upside guidance for the next quarter and full year.
Palo Alto Networks (PANW) - Reports after the close, Friday, Aug. 18
Wall Street expects Palo Alto to earn $1.28 per share on revenue of $1.96 billion. This compares to the year-ago quarter when earnings came to 80 cents per share on revenue of $1.55 billion.
What to watch: Cybersecurity specialist Palo Alto Networks have consistently outperformed the overall cybersecurity industry when it comes to growing revenues and profits. Offering a diversified suite of IT products, the company continues to benefit from its leadership position in seven key 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 July. Investors are expecting another strong quarter, evidenced by the stock’s strong performance. Its shares have risen 57% year to date, including 33% over the past six months, compared to a year-to-date rise of 16% for the S&P 500 index.
But now might be the time to take some profits, according to investment firm Oppenheimer Securities. Despite maintaining its Outperform rating on Palo Alto, Wedbush removed the name from its Top Picks List, citing limited upside due to near-term growth worries. Analyst Ittai Kidron, who has an Outperform rating on the stock and price target of $290, cited the strong year-to-date surge in the stock as the reason for the removal. "With the shares now trading above pre- and post-COVID averages, we'd look to lock in some gains near term and therefore are removing PANW from our Top Picks list for the year," Kidron wrote in an investor note. "To be clear, our action only reflects near-term dynamics. We remain bullish long term and suggest long-term investors stay the course.” The company on Friday will be tasked with demonstrating it can still deliver more upside during this recent pullback.