Weekly Preview: Earnings to Watch This Week (ACN, ADBE, FDX)
What direction will the market take to close out the year? And when assessing the level the conviction held by the bulls versus the bears, which side will be the first to blink? These questions don’t have easy answers, given the number of variables which are still at play, including concerns around the Fed’s tapering maneuvers, interest rates and rising inflation which stands at a 39-year high.
However, the questions do highlight the the prevailing see-saw battle between good news and bad news and how they should be interpreted. According to data released Friday from the Labor Department, inflation soared 6.8% year over year in November, higher than the 6.7% estimate analysts expected. You would have to go all the way back to 1982 to find the last time inflation ran this fast. Meanwhile, the consumer price index rose 0.8% for the month. Despite the strong reading, the markets powered higher on Friday, suggesting that some investors might have expected a higher number. Some estimates were as high as 7%.
Stocks ended Friday’s session higher Friday, while booking solid gains for the week. On Friday the Dow Jones Industrial Average added 216.30 points, up 0.6% to end the session at 35,970.99. The blue chip index was powered by shares of Apple (AAPL), Salesforce (CRM), Microsoft (MSFT) and IBM (IBM). The S&P 500 index rose 44.57 points or 0.95% to close at 4,712.02, while the tech-heavy Nasdaq Composite Index gained 113.23 points, 0.73%, to close at 15,630.60. The Nasdaq was aided by a 1.32% rise in Tesla (TSLA).
In the case of “good news versus bad news,” while inflation might be running hotter than the market would like, investors are also thinking that higher inflation could force the Federal Reserve to pump the brakes on its decision to taper the monthly bond-buying program. This idea is not too farfetched seeing as the S&P 500 index closed at record high in the face of increased uncertainty, compounded by fears that stock valuations have become stretched.
For the week, all three major benchmarks posted gains, with the Dow rising 4%, marking the blue chip index’s biggest weekly percentage gain in nine months. The S&P 500 index climbed 3.8% for the week, while the Nasdaq Composite advanced 3.6%. As for the direction stocks will take to end the year? Some suggest the Santa Claus rally has just begun, while there are concerns that the Fed — which will meet next week — could be the Scrooge in the story by tapering at a faster pace.
As for earnings, here are this week’s stocks to keep an eye on.
FedEx (FDX) - Reports after the close, Thursday, Dec. 16
Wall Street expects FedEx to earn $4.25 per share on revenue of $22.44 billion. This compares to the year-ago quarter when earnings came to $4.83 per share on revenue of $20.56 billion.
What to watch: Amid what appears to be short-term headwinds related to labor shortages and supply chain bottlenecks, FedEx stock has suffered immensely since the company reported second quarter results. Although Q2 revenue rose some 14% year over year, reaching $22 billion, FedEx posted 9% decline in adjusted operating income which fell to $1.49 billion. The company cited a challenging labor environment, including higher labor costs which pressured its margins and created inefficiencies. Since the results, the stock has fallen more than 30% from around $315 to a recent low of $217. It would appear, however, that the company has established some support around that area. Since the October low, the share price has risen as much as 17%. The company has taken aggressive steps to address its labor shortage. The question is, whether this will be yield meaningful improvements in the bottom line. And given that this is the all-important holiday quarter, on Thursday investors will want to hear increased level of optimism about profitability improvements within e-commerce and FedEx’s Ground segment. FedEx must also guide in a manner that suggests that the improvements shown will be sustainable.
Accenture (ACN) - Reports before the open, Thursday, Dec. 16
Wall Street expects Accenture to earn $2.63 per share on revenue of $14.16 billion. This compares to the year-ago quarter when earnings came to $2.17 per share on revenue of $11.76 billion.
What to watch: Compared to other tech/software stocks, Accenture stands out as one of the better-performing stocks over the past six months and on a year-to-date basis, during which the share price has returned 32% and 42%, respectively. A leading specialist in the IT consulting and outsourcing space, Accenture has outperformed the Technology Select Sector SPDR ETF (XLK) the S&P 500 index in both spans. Its business has benefited immensely from the rapid growing demand not only for IT services, but also from increased cloud adoption and digital transitions. The question is, with the stock already up some 50% in twelve months and trading at a 52-week high, can Accenture still be relied upon to deliver in 2022 in a meaningful way? The company’s guidance on Thursday will answer that question.
Adobe (ADBE) - Reports before the open, Thursday, Dec. 16
Wall Street expects Adobe to earn $3.20 per share on revenue of $4.09 billion. This compares to the year-ago quarter when earnings came to $2.81 per share on revenue of $3.42 billion.
What to watch: Adobe stock has risen 23% over the past six months, compared to the 11% rise in the S&P 500 index. The software giant is benefiting from the massive secular digitization trend that is poised to remain hot over the next two years. The question is about this year, particularly when looking at the strong comparisons Adobe is coming up against. For example, after averaging 23% revenue growth in its previous three quarters, revenue is expected to rise just 15% for all of fiscal 2022. That said, the company’s product offering remains a key differentiator from potential competitors. Adobe's Digital Media segment, its biggest business unit which encompasses Photoshop, After Effects, Adobe Acrobat and Adobe Sign, accounts for 74% of its total business as of Q3 2021. Meanwhile, the company’s smaller segment, its Document Cloud business, accounts for 13% of total revenue and grew by 31% year over year last quarters. This remains a massive opportunity for Adobe, in addition to its Digital Experience segment, which includes Adobe's analytics and commerce units (Magento and Marketo). While the stock is not cheap today it doesn’t appear as if it will get cheaper given the company’s many growth catalysts.
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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