Weekly Preview: Earnings to Watch This Week (BYND, HD, NKLA, PANW)
When assessing the recent movements and tumultuous swings in the stock market, it seems there continues to be a persistent back-and-forth between price and value. The consecutive days of selling that ensued earlier in the week, driven by concerns about Federal Reserve policy in the face of rising inflation pressures, seemingly gave way to positive economic news. Will that trend continue?
Stocks lost more ground on Friday, though they bounced off from the lows of the day. Unlike previous sessions, dip-buyers didn’t come save the day which suggests that the market expects more downside in the weeks ahead. The major averages closed out a tough week, booking sharp losses. The Dow Jones Industrial Average gave up 232.91 points, or 0.68% to close at 34,079.12. The blue-chip index was pressured by declines in Intel (INTC) and Boeing (BA), which fell by more than 5% and 2%, respectively.
The declines in Intel and Boeing accounted to a close-to 40-point drag on Dow. Other Dow members driving the declines included Salesforce (CRM), Caterpillar (CAT) and Walt Disney (DIS) which each lost more than 1%. The S&P 500 index ended 31.34 points lower, or 0.72%, to close at 4,348.92, while the tech-heavy Nasdaq Composite declined 1.23%, losing 168.65 points to end the session at 13,548.07. Notably, the averages suffered despite solid earnings reports from notable S&P 500 companies across all sectors.
Aside from geopolitical concerns, investors have turned their attention to, among other concerns, the imminent tapering of Federal Reserve bond buying as well as the expected rise in interest rates which is expected to start as early as next month. At the same time, these concerns should be offset by (as an example) the better-than-expected reading on weekly initial jobless claims, showing that the number of new filings fell to its lowest point since the onset of the pandemic.
The jobless claims data, which was somewhat overlooked due to fears of rising inflation, supports the optimism that there is tons of upside to come in the market in the next two quarters. In that vein, it’s starting to appear that cyclical stocks such as energy, financials and materials are the new safe haven plays. These have been the names we’ve be talking about since the start of the year. And despite the back-and-forth between price and value, that’s where investor patience and discipline for high quality stocks becomes even more important.
As for earnings, here are the ones I’ll be watching next week.
Home Depot (HD) - Reports before the open, Tuesday, Feb. 22
Wall Street expects Home Depot to earn $3.17 per share on revenue of $34.85 billion. This compares to the year-ago quarter when earnings were $2.65 per share on revenue of $32.26 billion.
What to watch: Can the housing market remain resilient? Having surpassed revenue and profit estimates in the last eight quarters, Home Depot has benefited from a consistent rise in new home construction and home-related remodeling projects. But Home Depot stock hasn’t escaped the market selloff. Shares have fallen some 7% in thirty days and are down more than 16% year to date, trailing the 8% decline in the S&P 500 index. Nonetheless, the home improvement giant has established a strong track record for beating consensus estimates. Rising costs of construction materials, however, have placed pressure on the home improvement space. Shortages of building supplies have also been a concern. And it hasn’t helped that growth in employment in residential specialty trade contractors have slowed down as demand for home improvement wanes. That said, the pandemic environment has created an opportunity for Home Depot to take market share over the next two to three years, according to various Wall Street analysts. The company’s guidance on Tuesday will provide a hint of how realistic that forecast might be.
Palo Alto Networks (PANW) - Reports after the close, Tuesday, Feb. 22
Wall Street expects Palo Alto Networks to earn $1.64 per share on revenue of $1.28 billion. This compares to the year-ago quarter when earnings came to $1.55 per share on revenue of $1.02 billion.
What to watch: Software stocks have been punished during the recent selloff. And Palo Alto, despite its success, hasn’t escaped that wrath. Shares of the cybersecurity giant have fallen more than 10% year to date, trailing the 8% decline in the S&P 500 index. Investors who have waited for a better entry point can do well here, given the company’s projected earnings growth rate of 27.5% annually over the next five years. Without question, cybersecurity will be one of the hottest sectors in tech in the next few years as corporations scramble to combat not only rising hacker sophistication, but also implement defenses needed to support their digital expansion, and that's not to mention preventing the public embarrassment associated with breaches and ransom payment demands. Currently worth $200 billion, the cybersecurity market is projected to grow to approximately a 10% compound annual growth rate within the decade. Palo Alto which has arguably best-of-breed products and services compared to its competitors, is poised to be a beneficiary of that growth. The question on Tuesday, however, will be whether the company can get investors (and analyst) excited about its stock relative to its competitors.
Nikola (NKLA) - Reports before the open, Thursday, Feb. 24
Wall Street expects Nikola to lose 30 cents per share on revenue of $2.57 million. This compares to the previous quarter when the loss came to 38 cents per share on zero revenue.
What to watch: Since briefly breaking above $15 following its November Q3 earnings report, shares of the electric truck maker are down by more than 50%. Surprisingly, the shares have underperformed even as the company not only delivered its first vehicle, Nikola also settled its SEC investigation in December. To be sure, the company still has a tough road ahead before it becomes the next Tesla (TSLA). But with several headwinds now removed, the road is less treacherous. One aspect being that the company has seen its truck orders increased. Since it delivered its first battery electric vehicle (BEV), Nikola has received orders totaling close to 600 BEVs and fuel cell electric vehicle (FCEV). Based on this estimate, the company is now projected for close to $3 billion in revenue by fiscal 2025. What’s more, in January, the company’s flagship vehicle the Tre BEV became eligible for a $120,000 incentive from California. If the company on Thursday can instill optimism that growth and profitability can still be achieved in the quarters ahead the stock may yet find some traction to climb higher.
Beyond Meat (BYND) - Reports after the close, Thursday, Feb. 24
Wall Street expects Beyond Meat to lose 71 cents per share on revenue of $101.36 million. This compares to the year-ago quarter when the loss came to 34 cents per share on revenue of $101.94 million.
What to watch: Is it time to nibble on some Beyond Meat stock? The plant-based meat giant, which has seen its stock plunge almost 20% in thirty days, has seemingly lost its sizzle. Expand that timeframe by six months and one year, Beyond Meat stock has fallen 52% and 66%, respectively. The stock’s decline has been due to a combination of factors: Aside from valuation concerns and increased fears of emerging competitive threats, the company is also dealing with wage inflation and supply chain shortages which has impacted its once torrid growth pace. It also appears that commercial traction is fading, which has resulted in steepening losses. The company is coming off a quarter where revenues were up just 13%, while operating losses increased to $54 million, tripling on a sequential basis. But believing the bottom is in after the recent selling pressure, analysts at Barclays recently issued a two-notch upgrade on the stock. The analyst believes the current share price does not reflect Beyond Meat’s growth potential in the U.S. foodservice channel and the international segment.
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.
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