Next week will be a busy one for both earnings data as well as economic releases.
Markets will also be keeping an eye on the US government as Congress reconvenes for its first session after the mid-term elections.
Tension between Republicans and Democrats in Washington following the vote have many worried about political instability as President Obama will have quite a bit of negotiating to do with the Republican-controlled Congress for the remainder of his term.
Key Earnings Reports
Next week, investors will be waiting for several key earnings reports including Wal-Mart Stores,Inc. (NYSE: WMT), Cisco Systems, Inc. (NASDAQ: CSCO), Macy’s Inc. (NYSE: M) and Dean Foods Company (NYSE: DF).
Wal-Mart
Wal-Mart is expected to report third quarter EPS of $1.12, compared to last year’s EPS of $1.14.
On October 16, Credit Suisse gave Wal-Mart an Outperform rating with an $87.00 price target, citing the company’s increased spending on online retail as a weight on the company’s operating margins. Analysts wrote:
“In light of WMT's outlook update and capital allocation strategy announced at yesterday's Analyst Day, we are adjusting our estimates. We adjust our 2014E EPS estimate to $5.00 (from $5.05) and our 2015E estimate to $5.25 (from $5.50). This reflects the company's stepped up investment in e- commerce, a more moderate reduction in total planned capex than expected, and the company's expectations for investment in price and hours, likely contributing to pressure on operating margins in 2015.”
On November 1, S&P Capital IQ gave Wal-Mart a Hold rating with a $75.00 price target, saying that cautious consumer spending could be a downfall for the company’s revenue growth.
Cisco
Cisco Systems, meanwhile, is expected to report first quarter EPS of $0.53 on revenue of $12.17 billion, compared to last year’s EPS of $0.53 on revenue of $12.08 billion.
On November 7, Credit Suisse gave Cisco an Underperform rating with a $20.00 price target, saying that the company could face some head winds with the emergence of software-defined networking. The note read:
“We currently assume switching revenues of $3.7bn (0.8%/-2.0% qoq/yoy) for F1Q5, showing continuous improvement from previous quarters. We look for continued evidence of the ramp of Nexus 9000 and early deployments of Insieme controller and commentary on the expected inflection in switching revenues.
"On the routing side we are looking for revenues of $2.0bn for F1Q15 (4.1%/-1.0% qoq/yoy) showing continued improvement from previous quarters helped by product refresh. We expect continued improvement business going further due to weak compares. SDN a secular threat to GM. Despite potential near term momentum, we remain concerned regarding the impact of SDN threatening what remains the most profitable part of the IT stack.
"We believe it will introduce competition at multiple points in the network and while the impact will take time, the threat will be very real, shrinking gross profit dollars for the entire networking stack. We see continuing margin pressures and project OMs of 26% LT, which results in little EPS growth despite ongoing buybacks.”
Also on November 7, Morgan Stanley gave Cisco an Overweight rating with a $30.00 price target, saying that the company is expected to provide conservative earnings guidance, which would be inline with estimates.
On November 1, S&P Capital IQ gave Cisco a Hold rating with a $25.00 price target, noting that economic head winds likely had an impact on the company’s growth. At the time, it wrote:
“We believe CSCO has faced challenges, as demand in emerging markets has declined notably. We view the shares as properly valued at current levels. While we see CSCO benefiting from a rapid rise in bandwidth consumption, we expect product transition issues and pricing pressure to persist for the next several quarters.
"Longer term, we believe the company's focus on holistic solutions for customers will help the company grow later in FY 2015. We believe the stock is trading at appropriate levels on a P/ E basis, as we remain concerned about the health of the global economy, especially in certain key emerging markets.”
Macy’s is expected to report third quarter EPS of $0.51 on revenue of $6.37 billion, compared to last year’s EPS of $0.47 on revenue of $6.28 billion.
On November 7, Credit Suisse gave Macy’s an Outperform rating with a $60.00 target price, saying that the company has a lot to gain from its latest partnership with Nike.
“As a test, Nike has started opening women's apparel shops inside Macy's, which we view as a potential negative down the road for both the established athletic retailers such as Dick's, FL, and FINL who have a high overlap with Macy's and are also attempting to improve their own women's businesses, and for the mono-brand athletic retailers such as LULU and Athleta," analysts wrote.
They added: "Macy's already has a competitive Nike assortment... but better presentation and service through these dedicated shop-within-shops (which will include Nike people), along with its new footwear shops (courtesy of Finish Line), could add more credibility to its athletic effort. We view this as another sign of non-athletic retailers ramping their focus on athletic and top brands expanding distribution to alternative channels. That is a risk for the traditional athletic retail stocks that have benefited from limited distribution of premium product historically."
On November 1, S&P Capital IQ gave Macy’s a Hold rating with a $58.00 price target, saying that the company’s customer engagement strategies have likely paid off.
“We see benefits from the successful execution of My Macy's and customer engagement strategies, as well as improved confidence among M's higher-income customer base at Bloomingdale's, over the next 12 months. We believe these positive factors, coupled with increased investments in its Omnichannel strategy will enable the company to drive top-line growth, while benefiting from cost reduction initiatives, in a challenging economy," the firm wrote.
On November 3, Morgan Stanley gave Macy’s an Overweight rating, noting that this year’s holiday shopping season will be packed with competition. The note read:
“While our store checks detected some softness in Oct sales, healthier (lower) inventory should help retailers navigate. As we anniversary last year's ~20% promotional increase, we found 50% of Softline retailers showed similar or lower promotional activity y/y. Clearance levels also remained healthier with 70% of stores we evaluate showing similar or lower clearance inventory y/y. However, the holiday shopping season starts earlier and earlier each year and the environment is more competitive than ever. WMT geared up for the holiday season by cutting prices on 20,000 items on Nov 1, while M and KSS will both open their doors at 6pm on Thanksgiving day.”
Dean Foods
Dean Foods is expected to report a third quarter loss of $0.13 on revenue of $2.35 billion, compared to last year’s EPS of $0.12 on revenue of $2.20 billion.
On October 23, Credit Suisse gave Dean Foods an Outperform rating with an $18.00 price target, noting that the rising price of dairy items has been a major contributor to the stock’s loss of value:
“DF shares have fallen over the past few weeks due to concerns regarding rising milk and butterfat prices in 3Q and several management departures. While we continue to believe that the company's results will radically improve when dairy costs fall from their unsustainably high levels, the degree of inflation in 3Q suggests that our positive thesis will take longer to materialize. We are lowering our 2014 and 2015 EPS estimates to ($0.34) and $0.83 and recommending a cautious approach on the quarter, but maintaining our $18/share target price, which assumes earnings power of $0.83 and EBITDA of $355M.”
On November 1, S&P Capital IQ gave Dean Foods a Hold rating with a $15.00 target price, noting that milk consumption is declining:
“We see persistently high commodity costs and the loss of a large customer in 2013 hurting sales and margins in the first half of 2014. We see volumes being pressured in 2014 by both historically high prices and secular declines in milk consumption. However, based on our expectation for an eventual increase in industry milk supplies, and with comparisons easing in the second half of 2014, we believe results will improve significantly in 2015.”
On November 4, Morgan Stanley gave Dean Foods an Overweight rating, noting that food sales have been disappointing:
“Overall large-cap Food sales were flat L4W, a slight deceleration from +0.6% L12W and trailing Total Food +2.2%. At the company level, trends generally decelerated compared to L12W results, with K and GIS exhibiting continued weakness, while trends improved at SJM & KRFT.”
Economic Releases
US retail sales will be in the spotlight next week as investors look for the October figure to show an improvement from September’s decline. Markets will also be eagerly awaiting the Eurozone’s third quarter GDP estimate. Most are expecting the figure to show the region’s economy grew 0.2 percent from July to September.
Monday
Earnings Releases Expected: Dean Foods Company (NYSE: DF), Caesars Entertainment Corporation (NYSE: CZR), Whitewave Foods (NASDAQ: WWAV), Sotheby's (NYSE: BID)
Economic Releases Expected: Japanese current account, Greek CPI, Eurozone investor confidence
Economic Releases Expected: Japanese household confidence, US rebook
Wednesday
Earnings Releases Expected: Cisco Systems, Inc. (NASDAQ: CSCO), Duke Energy Corporation (NYSE: DUK), Macy’s Inc. (NYSE: M), CBS Corporation (NYSE: CBS), UGI Corporation (NYSE: UGI), Flowers Foods, Inc. (NYSE: FLO)
Economic Releases Expected: Japanese industrial production, Eurozone industrial production, British unemployment rate
Economic Releases Expected: U.S. oil inventory data, Irish CPI, Italian CPI, Spanish CPI, German CPI, Chinese retail sales, Chinese industrial production
Friday
Earnings Releases Expected: Cablevision Systems Corporation (NYSE: CVC), HMS Holdings Corp (NASDAQ: HMSY)
Economic Releases Expected: U.S. retail sales, Eurozone CPI, Eurozone GDP, Italian GDP, German GDP, French GDP
