5 Stocks to Watch this Week 6/6 - PAY, VRX, LULU, RH, HRB
Information Technology - IT Services | Reports June 7, after the close.
The Estimize consensus is calling for earnings of 54 cents per share on $529.76 million in revenue, a penny higher than Wall Street on the bottom line and $2 million above on the top. Earnings per share estimates have increased 6% in the past 3 months, while revenue expectations have roughly remained flat. Compared to a year earlier, this reflects a 21% increase in EPS with revenue projected to rise 8%.
What to Watch: VeriFone is best known for its payment terminals found at a large portion of retailers worldwide. Its industry lead as a provider of electronic payment solutions has proved favorable for earnings. In the past two fiscal years both earnings and revenue have steadily increased with its upcoming results expected to do the same.
The recent move to EMV technology has been a key driver of success lately. VeriFone currently services over 29 million system terminals worldwide and growing. Meanwhile, the company has focused on growing its mobile point of sale market (mPos) market while adapting its traditional systems to Apple, Google and Samsung payment platforms. The mPOS market is considered a high growth area in the payment industry which spells big opportunity for VeriFone.
Last quarter, VeriFone continued to deliver strong earnings and even alluded to surpassing guidance for the year. Revenue grew 3% on a sequential basis and nearly 50% from a year earlier. Sales growth was surprisingly strong last quarter despite FX volatility that has hurt other multinationals. Nonetheless, VeriFone saw large declines in Asia and Latin American markets which should persist into Q2. Competition in these rapidly growing markets have put pressure on margins and revenue.
Valeant Pharmaceuticals (VRX)
Health Care - Pharmaceuticals | Reports June 7, after the close.
The Estimize consensus is calling for earnings of $1.46 per share on $2.355 billion in revenue, 4 cents higher than Wall Street on the bottom line and only about $9 million higher on the top. Since the holiday season earnings estimates have fallen 47% while revenue has dropped 17%. Year over year comparisons are now projecting a 25% decline in profitability with sales actually increasing 13%. This stock is a not a positive mover during earnings season, on average falling 5% in the 30 days after a report.
What to watch: Valeant Pharmaceuticals is prepared to announce its first quarter results tomorrow before the market opens. This earnings report marks the second since a scandal last fall put the company in the public eye. Since then, the stock has dropped over 90%, Michael Pearson was ousted as CEO, and Bill Ackman was placed on the board in an attempt to save the company. Tomorrow also marks the first report under new CEO Joseph Papa and will give investors an early indication of the company’s vision.
For investors, the actual numbers are not as important as what is said during the analyst call. The company’s old strategy of profitability, splash acquisitions and drug price increases, is no longer viable. Investors still don’t have an idea for what to expect moving forward. Meanwhile, Valeant’s fundamentals remain frightening. The company had over $31 billion in long term debt at the end of 2015. Without the possibility of raising its drug prices, Valeant will struggle to finance its debt. The company has already received multiple default notices associated with delayed filings of financial reports to the SEC.
With all these big questions remaining, everything hinges on what CEO Joseph Papa has to say tomorrow. If he can put investor’s concerns to rest, the stock could be in store for a quick pop. Otherwise, shareholders should expect more of the same and perhaps another double digit decline.
Lululemon Athletica (LULU)
Consumer Discretionary - Textiles, Apparel & Luxury Goods | Reports June 8, before the open.
The Estimize community calls for EPS of $0.31, 1 cent above Wall Street. Revenue expectations from Estimize are also slightly higher at $488.6 million as compared to the Street’s $487.55 million. Earnings estimates have decreased by 11% over last 3 months, now expected to show a YoY decline of 6%. Revenues estimates have remained flat during that time, and are still projected to show 15% YoY growth for the quarter. The retailer has a decent history of beating, surpassing the Estimize EPS consensus in 65% of reported quarters, and revenues 71% of the time.
What to Watch: Athleisure continues to be one of the fastest growing segments throughout the apparel industry, with retail otherwise hitting some major roadblocks this quarter. Many trace this trend directly to Lululemon. Despite a strong holiday quarter, with results even surpassing raised corporate guidance, expectations for Q1 are muted as competitors with lower price points begin to steal market share.
This past quarter was highlighted by a 17% increase in revenue supported by growth in key channels including comp store sales and direct to consumer revenue. Lululemon remains focused on undertaking new investments and initiatives to strengthen its position in the burgeoning athleisure space. In particular, the revamped womens leggings segment and the introduction of men’s clothing has accelerated same store sales growth and improved margins.
Lululemon remains well positioned to sustain its high income core customers but must remain aggressive to stave off competitive threats from Nike, Under Armour and Gap’s Athleta brand. As consumers become more value-focused, LULU is losing out to those with lower price-points, although their core remains very loyal.
Restoration Hardware (RH)
Consumer Discretionary - Specialty Retail | Reports June 8, after the close.
The Estimize consensus calls for EPS of $0.07, two cents higher than Wall Street. Revenue expectations are actually lower than the sell-side, with the Estimize community expecting $467.3 million, as compared to $469.89 million. However, sales numbers have been trending upward since the last quarterly report, increasing 10%, while earnings estimates have fallen 26%. This puts YoY growth expectations at -66% for EPS and 10% for sales. This is a company that has historically beaten on the top and bottom-line 55% of the time.
What to Watch: Upscale housing retailer, Restoration Hardware, has fared far worse than its peers in the space, with shares falling 56% since the beginning of hte year, and 63% in the last 12 months. However, shares were up 3% today, heading into the release.
Both top and bottom-line results missed the mark in Q4, with EPS declining 4% year-over-year due to out of stock merchandise, poor inventory planning and failure to fulfill orders. Investors are now concerned whether the company can actively pursue long term goals when it can’t address the immediate issues. Moreover, peers such as William Sonoma’s, parent company of Pottery Barn and West Elm, was able to put up impressive results when they reported two weeks ago.
Restoration Hardware and its peers been unable to reap the rewards of a stronger housing market, reflecting the overall lower demand for upscale furniture and home improvement as consumers become increasingly more value focused. This has helped home improvement retailers with a greater variety of price-points, such as Home Depot, crush their earnings results over the last several quarters.
Consumer Discretionary - Diversified Consumer Services | Reports June 9, after the close.
The Estimize consensus is calling for EPS of $3.16, one penny lower than Wall Street. Revenue expectations of $2.295 billion are also below the sell-side expectation of $2.310 billion. Estimates on both the top and bottom-line have remained relatively flat since the Q4 2015 report, with EPS now expected to grow 17% YoY, and revenues 0%. HRB doesn’t have a strong record for beating estimates, surpassing both top and bottom-line expectations only 46% of the time.
What to Watch: With the US tax filing deadline falling on April 15, the first quarter is one of the most profitable for H&R Block, one of the country’s largest tax preparation companies. After missing big in fiscal Q3 and Q4, the company is expected to rebound this quarter, attributing recent successes to a new, revamped pricing strategy, digital do-it-yourself (DIY) monetization, and franchise acquisition impacts.
Intuit, the makers of Turbotax, H&R Block’s Primary tax software competitor, has been working feverishly to retain market share. In January of 2015, H&R Block started a campaign offering their Deluxe + State desktop software free to basic or deluxe Turbotax software holders. Turbotax users were being charged a $40 upgrade fee, as the products they relied on would require an upgrade to carry out their taxes. In addition, switching to the Block would give users a 5% bonus with their federal refund if the funds were used via e-gift cards.
Intuit has already reported impressive numbers for the quarter, beating on both the top and bottom-line. Investors will be looking to see who the winner of this tax season was when H&R Block reports on Thursday.
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