Weekly Preview: Earnings to Watch This Week 8-6-23 (BABA, DIS, PLTR, PLUG)
A cooler-than-expected July jobs report, combined with an upbeat batch of corporate earnings, provided investors more reasons to be optimistic about what stocks will do in the second half of the year. The strong corporate earnings, which comes with upbeat guidance, continues diminish the thought of an imminent recession. Meanwhile, the soft jobs report presents more data points for the Fed to pause its rate hike policy.
What’s more, better-than-expected quarterly earnings from the likes of Amazon (AMZN) and Advanced Micro Devices (AMD), which sparked a rally in mega-cap tech and chips, suggests the Federal Reserve’s 25 basis-point interest rate hike on Wednesday could be the peak of the increase. In other words, the choppiness the market has witnessed this past week, where stocks seem to lack direction and conviction, could come to an end. But we may have to wait a little longer to be certain.
Stocks closed lower on Friday, with the the Dow Jones Industrial Average falling 150.27 points, or 0.43%, to close at 35,065.62. Leading the declines on the Dow were, among others, Apple (AAPL), which fell 4.8% after reporting Q3 earnings that revealed a decline in iPhone revenue. Apple’s decline in the Dow was offset by gains in Microsoft (MSFT), Intel (INTC) and Disney (DIS). The S&P 500 gave up 23.86 points, or 0.53%, ending the day at 4,478.03, while the tech-heavy Nasdaq Composite shed 0.36%, losing 50.48 points to close at 13,909.24.
Notably, stocks declined despite a softer July jobs report, showing the economy added 187,000 jobs, which is lower than the 200,000 economists expected. Despite the jobs miss, the unemployment rate ticked lower to 3.5% from 3.6% in June. The sour reaction by investors was likely due to the fact that average hourly wages rose 0.4% for the month, and 4.4% year over year. That came in slightly ahead of the 0.3% and 4.2% expected, respectively. Higher wages point to more inflation.
It remains to be seen what implications this report will mean for the Federal Reserve’s rate-hiking cycle. The market will get a hint when the consumer price index for July is revealed this week. It is expected that the report could have an even greater impact on rate expectations. Meanwhile, earnings reports delivered so far have been encouraging, revealing the expected slowdown in profits have been better than feared. So far, of the roughly of 84% of S&P 500 companies have provided their results, 80% have topped analysts estimates. Will the trend continue next week? Here are the stocks to watch.
Palantir Technologies (PLTR) - Reports after the close, Monday, Aug. 7
Wall Street expects Palantir to earn 5 cents per share on revenue of $534.34 million. This compares to the year-ago quarter when earnings came to 1 cent per share on revenue of $473.01 million.
What to watch: Add Panlantir to the long list of stocks that has surged amid the momentum of AI capabilities. The stock has gone on an impressive run, skyrocketing 122% in six months on investors’ hopes for its artificial intelligence software. Even more stunning is the fact that the shares have returned close to 200% year to date, including 20% over the past month. This compares with a 17% year-to-date rise in the S&P 500 index. Although the company is broadly known for its work with the U.S. government’s defense and intelligence agencies, Palantir's data analytics capabilities now includes a number of AI-powered services for organizations across public and private sectors. In referring to Palantir’s new artificial intelligence platform, CEO Alex Karp said the demand for the platform is “without precedent.” Meanwhile, Dan Ives, analyst at Wedbush Securities recently said that Palantir has built “an AI fortress that is unmatched.” Ives rates the stock as Outperform with $25 price target. “We believe PLTR will capitalize on the expansion of new use cases over the next 6-12 months given its large partner ecosystem and extensive product capabilities, by servicing the rapidly increasing demand for enterprise-scale generative artificial intelligence,” Ives wrote in the note. On Monday, investors will be watching for metrics such as customer additions, billings value as well as segment financials to assess whether Palantir’s near-term stock value.
Plug Power (PLUG) - Reports after the close, Wednesday, Aug. 9
Wall Street expects Plug Power to report a per-share loss of 25 cents on revenue of $237.4 million. This compares to the year-ago quarter loss of 30 cents per share on revenue of $151.27 million.
What to watch: There’s an argument to be made that Plug Power stock has gotten into oversold territory. The stock has plunged more than 80% of its value from its all-time highs reached in early 2021. Currently trading at around $12 per share, PLUG stock is down 35% over the past six months, while the S&P 500 index has risen 8% during that span. The shares have lost 50% in one year, while the S&P 500 has gained more than 10%. Known for its hydrogen-based technologies including fuel cells and electrolyzers that split water into hydrogen, the company sees itself as the "leading provider of comprehensive hydrogen fuel cell turnkey solutions." Among its many customers are Amazon (AMZN), BMW, and Walmart (WMT). And while the company has struggled recently with execution, the management has brought Plug much closer to profitability which is something that has irked investors for some time. Last month, the management not only boosted its revenue guidance to $1.3 billion, which is now higher than consensus estimates, they also reiterated their annual revenue target of $20 billion by FY2030. For some context, full year 2023 revenue is projected to be $1.28 billion. This means they expect average annual revenue growth of 208% in the next seven years. This includes forecasting annual sales of $5 billion and 30% gross margin for 2026. These are ambitious targets, suggesting more than 600% growth above 2022. Whether the company can reach this goal remains to be seen, but in the near term, the company must show more progress in gross margin improvement for the stock to rebound.
Disney (DIS) - Reports after the close, Wednesday, Aug. 9
Wall Street expects Disney to earn $1.00 per share on revenue of $22.54 billion. This compares to the year-ago quarter when earnings came to $1.09 per share on revenue of $21.50 billion.
What to watch: Has the Walt Disney magic disappeared for good? The stock is down some 25% over the past five years, while the S&P 500 ideas has risen 60% during that span. And when factoring the declines of 18% and 26% in the respective one year and three years, Disney has been a colossal under-performer in many portfolios. The stock is cheap, trading at ten-year lows and at just 17 times forward EPS estimates, compared to a 22 forward P/E for the S&P 500 index. But to be sure, while there may be a temptation to load up on shares, they are cheap for a reason. Investors continue to worry about the fate of linear TV advertising as well as the company’s direct-to-consumer subscriber growth. While the company has enjoyed some success thanks to its streaming platform Disney+, subscriber growth estimates are being lowered. Atlantic Equities analyst Hamilton Faber recently downgraded the stock from Underweight to Neutral, while cutting his per-share price target to $76 from $113. In doing so, Fabe cut Disney+ subscriber growth estimates to 4 million, down from 8 to 10 million. He now expects the service to reach break even in 2026, longer than the 2024 the company had forecasted. Disney management had also targeted Disney+ global subscriber gains to be between 230 million and 260 million by the end of 2024. However, in Q2 total subscribers to Disney+ declined for the second straight quarter, falling about 2% sequentially to 157.8 million from the prior quarter's 161.8 million. The market now wants to know if the subscriber growth targets are still attainable. While that subscriber goal would be impressive, if achieved, it will require significant investments which may impact profits. The company's advertising-supported tier on Disney+, borrowing a strategy from Netflix, will be a key focus on Wednesday conference call.
Alibaba (BABA) - Reports before the open, Thursday, Aug. 10
Wall Street expects Alibaba to earn $2.02 per share on revenue of $31.48 billion. This compares to the year-ago quarter when earnings came to $1.74 per share on revenue of $30.46 billion.
What to watch: Alibaba might not be completely back in the market’s good graces, but the Chinese tech giant has begun to gain favor where it matters. Currently trading at around $97, BABA stock has risen close to 70% from its low of $58, including gains of 15% in the past thirty days. This has been fueled by what is believed to be a softer regulatory and macroeconomic environment in China that can improve the company's growth trajectory. The stock is up 8% year to date, still trailing the 18% rise in the S&P 500 index. Also with the stock falling 60% in three year, compared to a 40% rise in the S&P 500 index, BABA still has a lot of ground to make up. The company is poised to catch up with China's re-opening and relaxing its zero-COVID policy. Along with more subdued regulatory scrutiny of big tech platforms in China, the headwinds BABA has faced over the past two years could be fading. Another potential catalyst is the management recently touting new AI tools, putting BABA at the forefront the main providers of key AI technologies in China. The launch of AI tools is another way for BABA to leverage its market leadership position within the cloud segment. This highlights the company’s diversified revenue sources, along with its cloud potential. When factoring its treasure chest of $55 billion of cash, along with the company consistently producing strong cash flows, Alibaba still presents tons of value at current levels. On Thursday the stock can continue its climb if Alibaba can deliver a top- and bottom-line beat and provide confident outlook for the next quarter and full year, especially given that it is facing much more favorable year-over-year comparisons.
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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