5 Stocks to Watch this Week 6/27 - NKE, CCL, MON, MU, DRI
Consumer Discretionary - Textiles, Apparel & Luxury Goods | Reports June 28, after the close.
The Estimize consensus is calling for earnings per share of 51 cents on $8.296 billion in revenue, 3 cents higher than Wall Street on the bottom line and $35 million on the top. Compared to a year earlier this reflects a 4% increase in earnings and 7% in sales. Revenue growth is largely in line with past performances but earnings growth had been over 20% for the past 7 quarters. Muted expectations coupled with increasing uncertainty has driven shares down 17% year to date.
What to Watch: Despite its size and reach Nike continues to astound investors with robust growth. The past 7 quarters have featured double digit bottom line growth and mid single digit top line growth. Nike’s primary focus in the past few years has been expanding its direct to consumer business. This has been the highest margin margin sector with the most impactful product cost per unit.
The sporting event’s calendar has worked favorably in 2016. Besides the annual events sports fans also get the Euros and Olympics this summer. Merchandise sales from these events and continued growth in China and emerging markets should offset some of the negative effects of Britain leaving the Union.
Nike will undertake heavy advertising investments to ensure they are featured at at the upcoming sporting events. This will likely weigh on the company’s bottom line and with foreign currency trending downwards, margins might see more trouble. Under Armour also has less exposure to the pound and the U.K. and may gain some market share on Nike if Britain falls into recession as a result of Brexit.
Consumer Discretionary - Hotels, Restaurants & Leisure | Reports June 28, before the open.
The Estimize consensus calls for EPS of $0.41, two cents higher than Wall Street’s consensus. Revenue expectations are slightly higher than the sell-side, with the Estimize community expecting $3.673 billion, as compared to $3.661 billion. Earnings expectations have trended upward by 12% since last quarter, while revenue estimates are only up 1%. This puts YoY growth expectations at 64% for EPS and 2% for sales. This is a stock that tends to trend positively into an earnings report, but then falls around 1% in the 30-day post earnings period.
What to Watch: An increase in domestic travel and lower fuel costs drove better-than-expected results during Carnival’s Q1. In fact, the cruise operator has beaten the Estimize EPS consensus by a wide margin in each of the last 8 quarters, while revenues have only surpassed expectations in 5 of those quarters. The company narrowed 2016 guidance towards its higher end in part due to increased bookings and higher prices for the remainder of the year.
In the wake of Brexit however, many analysts are wondering how this will impact the international travel industry. With the Pound and Euro plunging in recent days, and some economists predicting that Brexit could lead to a recession in Great Britain, a lot of uncertainty surrounds the industry in which Carnival operates.
On the bright side, Carnival has been offering trips to Cuba since May 1, when Cuba officially opened up a destination port for the first time in 50 years. Investors are hoping this may be able to offset some of the pain felt from Brexit.
Materials - Chemicals | Reports June 29, before market open.
The Estimize consensus is looking for earnings per share of $2.43 on $4.4 billion in revenue this quarter, 2 cents higher than Wall Street on the bottom and $20 million below on the top. Compared to a year earlier this reflects a 2% increase in earnings with sales expected to fall 3%. Fortunately the stock typically is a positive mover after reporting results, which should reconcile some of its losses of the past 12 months.
What to Watch: Chemically and genetically modified products have been a point of contention the past 5 years, causing many agricultural companies to abandon their traditional means of harvesting. However, Monsanto remains stuck in its ways and continues to mass produce chemically infused products. As a result Monsanto has missed its revenue target in the last 6 consecutive quarters.
The biggest news out of Monsanto this quarter has been a potential merger with Bayer AG. In May, Bayer proposed a takeover bid of $122 per share which Monsanto deemed insultingly low. While the two names are at odds, the pieces are still in motion for a potential takeover later this year. Since speculation started, shares have surged 25% as investor’s fear missing out.
Despite the looming takeover, the company remains exposed to various macroeconomic risks. The economic slowdown in China, a downturn in the agricultural industry, lower agricultural prices and the strength of the U.S. dollar will likely drag down earnings. Based on some of these issues, Monsanto has lowered its fiscal 2016 earnings guidance by nearly 50 cents.
Information Technology - Semiconductors | Reports June 30, after the close.
The Estimize consensus is calling for EPS of -$0.08, two cents higher than Wall Street. Revenue expectations of $2.96 billion are in line with the sell-side. Both top and bottom-line estimates have come down drastically since the last report, by 12% and 171%, respectively. This puts anticipated YoY EPS growth at -114% and revenue growth at -23%. This is not a company with a strong history of beating, only surpassing earnings expectations 50% of the time, and sales 44% of the time.
What to Watch: It’s been a rough market for semiconductors over the past year. Micron has managed to miss the Estimize sales consensus in each of the last 6 quarters, and has fallen short of earnings estimates in three of those quarters.
The continual decline of the PC market has unsurprisingly caused Micron’s core DRAM business to collapse. DRAM currently constitutes 70% of its revenue, of which half comes from PC sales. During the second fiscal quarter, DRAM average selling price and sales volume both dropped 10%. This trend is likely to continue during the third quarter.
On the other hand, Micron’s NAND business has been a bright spot. NAND bit shipments are expected to increase 10 to 15% quarter over quarter going forward, thanks to the mainstream adoption of solid state drives (SSD). Still, Micron must remain nimble in its product offerings to compete with tech giants like Samsung, SanDisk and Toshiba, as pricing pressure in SSD still remains a concern. Recent acquisitions of Elpida and Rexchip are expected to help adoption of MU’s memory products.
Consumer Discretionary - Hotels, Restaurants and Leisure | Reports June 30, before the open.
The Estimize consensus is calling for earnings of $1.10 per share on $1.82 billion in revenue, two cents higher than Wall Street on the bottom-line, but in-line on the top. In the last 3 months, estimates for EPS have fallen 5%, while sales estimates have remained flat. Year over year comparisons are now projecting a 7% increase in profitability with sales actually decreasing 3%. The company only beats the Estimize consensus both on the top and bottom-line in 50% of reported quarters.
What to watch: The trends that once favored fast casual chains like Chipotle and Panera are slowly shifting back to the fast food and casual dining sector. The shift has favored big names like McDonald’s and Darden Restaurants who have seen consistent growth after management changes in the past 2 years.
The operator of Olive Garden and LongHorn Steakhouse, amongst other brands, has been on the rise over the past few years. After Starboard Value overthrew the company’s board and implemented its own people and processes, Darden has surged. Shares are up nearly 10% from a year earlier, 7% on the year, supported by favorable comparisons. Earnings have maintained double digit gains and it's only a matter of time before revenue reaches those growth rates. Last quarter same-restaurant sales came in at 6.2% overall, with no brand coming in below the 4% mark.
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(Photo Credit: Maxime FORT)
