Weekly Preview: Earnings to Watch This Week 8-28-22 (AVGO, BIDU, CRWD, LULU)
The Fed is not pivoting from its hawkish stance regarding interest rates. Fed chairman Jerome Powell put those notions to rest Friday, speaking bluntly about policy decisions to combat inflation during his speech at Jackson Hole.
“Reducing inflation is likely to require a sustained period of below-trend growth,” Powell said. “While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses.”
The chairman insisted that the Fed will do whatever it has to do “until the job is done” of getting the cost of living back to its 2% target. Those blunt words didn’t excite investors. And Powell’s words also suggests that, despite what appears to be peak inflation, the period of rate decreases is perhaps farther away than the market anticipated. As such, stocks ended Friday’s trading taking it on the chin with the Dow Jones Industrial Average suffering its worst daily percentage drop in three months.
The Dow Jones Industrial Average on Friday suffered a 3.03% plunged, losing 1,008.38 points to close at 32,283.40. All of the blue chip components were down across the board, suffered by declines in Salesforce (CRM), Apple (AAPL), Microsoft (MSFT) and IBM (IBM). The S&P 500 also suffered, losing 141.46 points, or 3.4%, to finish at 4,057.66. This marked the S&P 500's biggest percentage decline since June 13. On Friday, only five stocks in the S&P 500 ended in positive territory. Meanwhile, the Nasdaq Composite Index fell 3.94%, giving up 497.56 points to finish at 12,141.71.
Notably, this was the Nasdaq’s largest percentage drop since June 16. For the week, all three benchmarks suffered declines of more than 4%, led by the Nasdaq which saw the biggest weekly decline 4.4%. This was the second consecutive week of losses for all three. But while the market reacted to Powell’s statements, it wasn't all bad news. While inflation remains high, the job market remains strong which Powell acknowledged, though he cautioned the market will have to weaken before inflation can be considered under control.
“These are the unfortunate costs of reducing inflation,” he said. “But a failure to restore price stability would mean far greater pain.” This phrase was interpreted as Powell effectively saying there will be no pivot to the hawkish stance. It seemingly caught the market by surprise. But that should not overshadow the positive economic data we have received. What’s more, although recent earnings have been anything but stellar, the results we have received so far have come better-than-expected. As such, with the recent decline, there are now opportunities for bargain hunters to find value. Here are the stocks I’ll be watching for the coming this week.
Baidu (BIDU) - Reports before the open, Tuesday, Aug. 30.
Wall Street expects Baidu to earn $1.58 per share on revenue of $4.23 billion. This compares to the year-ago quarter when earnings came to $2.39 per share on revenue of $4.84 billion.
What to watch: China’s regulatory crackdown on tech companies such as Baidu are now well-documented. Baidu has fallen victim to the impacts of increased regulatory scrutiny from the Beijing government. China’s pressure demanding better corporate governance, anticompetitive practices and improved political posture has sparked fears among U.S. investors that Baidu’s core marketing business won’t grow as expected, nor will it be able to accelerate its growth in the cloud. Chinese tech companies, the likes of Alibaba (BABA), JD.com (JD) and Tencent (TCEHY), are now working under new operating requirements imposed by the SAMR which includes forcing companies to increase its investments in the country, whether in the form of direct sales and marketing dollars or “strategic initiatives” investment. Baidu stock has been under pressure as a result. However, the shares have rebounded strongly over the past three months, suggesting investors are now more willing to take a risk with undervalued Chinese tech companies. Currently trading at around $138, Baidu is discounted relative to its long-term potential. For any of this perceived value to matter, on Thursday the company must speak positively about its growth potential despite the increased regulatory scrutiny in China.
CrowdStrike (CRWD) - Reports after the close, Tuesday, Aug. 30.
Wall Street expects CrowdStrike to earn 27 cents per share on revenue of $515.47 million. This compares to the year-ago quarter when earnings were 11 cents per share on revenue of $337.69 million.
What to watch: After struggling to find a bottom amid the tech correction, shares of CrowdStrike have surged almost 40% in the past three months. Having beaten revenue estimates for thirteen straight quarters, the cybersecurity specialist continues to produce strong financial results. Now armed with strong free cash flow and with a solid balance sheet, the management team has done a solid job executing on the company’s stated objectives of dominating the cloud security market. The company’s next-generation endpoint security technology platform aimed at stopping data breaches before they can inflict damage. In CrowdStrike’s last earnings report, revenue grew 61% year over year to $488 million, beating its own guidance of 52% growth. The company also issued guidance that was significantly higher than analysts' estimates. As such, despite the recent recovery, the stock remains attractively priced. The cybersecurity industry has played a critical role as more workloads move to the cloud. That’s likely to be the case for the foreseeable future. Recognized as a category leader, it would be a mistake to part with these shares now.
Lululemon (LULU) - Reports after the close, Thursday, Sep. 1.
Wall Street expects Lululemon to earn $1.86 per share on revenue of $1.77 billion. This compares to the year-ago quarter when earnings came to $1.65 per share on revenue of $1.45 billion.
What to watch: The combination of rising inflation, rising interest rates and the prospect of a recession were the ingredients that punished many retail stocks like Lululemon which has seen its shares fall 17% year to date and 21% over the past year. However, as inflationary metrics showed signs of easing, the pressure on retailers have also waned. For Lululemon, however, the company has shown its resilience during the decline. Thanks to its omni-channel operating model, including its direct-to-consumer sales strategy, the company posted strong revenue growth in the most-recent quarter. Despite intense competition from the likes of Nike (NKE) and Under Armour (UAA), Lululemon maintains its strong profit margins, while showing it has the ability to raise prices in order to do so. The Global Activewear Market is expected to grow to $455 billion in the next five year, according to Statista, rising from $380 billion. This means that Lululemon, generating just $6.64 billion in the past twelve months, still has tons of growth levers it can pull to dominate the athleisure market in the years ahead. The company’s international expansion strategy, combined with its powerful brand will continue to drive shareholder value. Aside from a top and bottom line beat on Thursday, investors will want to hear more about ways it is navigating inflation headwinds in the near-term.
Broadcom (AVGO) - Reports after the close, Thursday, Sep. 1.
Wall Street expects the company to earn $9.56 per share on revenue of $8.41 billion. This compares to the year-ago quarter when earnings came to $6.96 per share on revenue of $6.78 billion.
What to watch: After taking a massive hit over the past several months, chip stocks have come roaring back over the past several weeks, rising along with the rest of the tech sector on optimism that a recession can be averted. One of the biggest movers has been Broadcom which has seen its shares rise almost 10% in thirty days. And since mid-July, the stock has risen as much as 17% from a closing price of $476.30 on July 5th to $556.10, besting the S&P 500 index during that span. Having consistently beaten earnings expectations over the past two years, you would be hard-pressed to find a stronger management team within the chip space. On a mission to become the world leader in infrastructure technology, the company has gone on an acquisition spree and diversifying its business away from its core semiconductor segments. The company’s $61 billion acquisition of VMware is the latest example. Aside from expertise in data center infrastructure, networking, and storage, The VMware deal exposes Broadcom to various applications such as cloud management, arming it with strong portfolio of high-growth services to drive revenue for years to come. For the stock to maintain its uptrend, it will take upbeat revenue guidance and datacenter results to continue the cement the growth thesis.
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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