Weekly Preview: Earnings to Watch This Week (CSCO, DIS, LYFT, PEP)
The stock market just experienced one of its best weeks since November with all three key benchmarks closing near record territory. The stock gains come despite downbeat jobs data that suggests the expected recovery has already peaked and has now stalled.
Investors seemed willing to instead focus on the bevy of strong corporate earnings results, along with positive guidance that continues to fuel the gains in equities. Meanwhile, last week’s concerns about the frenzy of short selling activity in stocks such as GameStop (GME) and AMC Entertainment (AMC) was seemingly no longer an issue for the markets. Investors who last week bet on these stocks at much higher prices have had to watch the horror of their investments vanishing. I will cover this topic in more detail at some point this week, so stay tuned.
On Friday stocks closed higher with the Dow Jones Industrial Average ending the session 92.38 points higher, or about 0.3% to close at 31,148. The gains were lead by Walmart (WMT), Johnson & Johnson (JNJ) and Coca-Cola (KO) which each gained more than 1%. The Blue Chip index missed a record close by 40 points. The S&P 500 index added 0.39%, or 15.09 points to closed at a record of 3,886.83, while the tech-heavy Nasdaq Composite Index gained 78.55 points, or 0.57% to notch another all-time close at 13,856.30.
For the week, the Dow gained 4% gain, thanks to five straight days of gains. That’s the first time it has logged this streak since August 2020. The S&P 500 logged a weekly gain of 4.7%, while the Nasdaq, which also logged five-session gains, ended the week 6% higher. The gains are stunning given that data from the Labor Department reported only 49,000 jobs were added in January, which was below estimates.
While the unemployment rate did decline to 6.3% from 6.7%, the numbers highlight the fact that of the 10 million jobs that vanished during the pandemic, the vast majority of them are never coming back. And this puts the $1.9 trillion coronavirus relief bill that President Joe Biden has proposed back into focus. In that regard, the the Senate on Friday approved a budget resolution with a majority vote of 51-to-50, meaning the proposal can now be fast tracked into action. But we will have to wait until next week to see how this unfolds and its impact stocks.
This week brings another slew of earnings. Here are the ones I will be watching.
Cisco (CSCO) - Reports after the close, Tuesday, Feb. 9
Wall Street expects Cisco to earn 75 cents per share on revenue of $11.92 billion. This compares to the year-ago quarter when earnings came to 77 cents per share on revenue of $12.01 billion.
What to watch: The coronavirus pandemic has had a significant adverse impact on Cisco’s business which has forced enterprise and commercial customers to either delay orders or suspend projects entirely. While Cisco has benefited from the shift of work-from-home with its Webex collaboration platform, the revenue generated in that business have not been enough to offset the declines in its breadwinner segments such as routing and switching. As such, Cisco suffered a 9% revenue decline in the fiscal first quarter reported in November. But the stock has moved positively to start the year, up 6% year to date, including 7.5% gains over the past three weeks. For the shares to keep rising, the market on Monday will want some assurances that Cisco can pivot quickly to new growth businesses to offset the revenue declines in the legacy segments.
Lyft (LYFT) - Reports after the close, Tuesday, Feb. 9
Wall Street expects Lyft to lose 72 cents per share on revenue of $462.49 million. This compares to the year-ago quarter when it reported a loss of $1.19 per share on revenue of $1.02 billion.
What to watch: Shares of Lyft have skyrocketed more than 100% ever since ride-hailing pioneer earned a victory in its battle with California over Proposition 22 which overturn a prior state law that required companies to classify gig workers as employees rather than contractors. The victory allows Lyft, rival Uber (UBER) and other delivery apps to operate their business models as intended which is to pay drivers for the services they provide on demand. In the case for Lyft, which has a higher market exposure to California (about 15% of pre-pandemic bookings) compared to Uber, investors have responded more enthusiastically. But there are still operational concerns the company must address, particularly as it relates to profitability. Quarterly operating losses has plagued the stock since the its 2019 IPO. For the shares to continue their march higher, Lyft on Tuesday must deliver a top- and bottom-line beat, upside guidance and lay out a path towards profitability.
PepsiCo (PEP) - Reports before the open, Thursday, Feb. 11
Wall Street expects PepsiCo to deliver EPS of $1.45 per share on revenue of $21.76 billion. This compares to the year-ago quarter when earnings came to $1.45 per share on $20.64 billion in revenue.
What to watch: The snack and beverage giant has taken a hit during the pandemic, in part due to the lockdown restrictions and the effect it has had on the restaurant industry - many to which Pepsi is a beverage supplier. This has been partially offset by the fact that more people working and learning from home has boosted Pepsi’s Frito-Lay brands snack business as shoppers stocked both their pantries and refrigerators with several Pepsi prepared food brands such as Quaker Food division. For the share price to remain bubbly, on Thursday the company will need to plant more optimism about the sustainability of its growth drivers, including its Frito-Lay North America business which has driven drove the company's total core gross margin rate over the past several quarters.
Disney (DIS) - Reports after the close, Thursday, Feb. 11
Wall Street expects Disney to lose 42 cents per share on revenue of $15.91 billion. This compares to the year-ago quarter when earnings came to $1.53 per share on revenue of $20.86 billion.
What to watch: Over the past several quarters, the main question among analysts when assessing Disney has been how much firepower the company will apply towards streaming. This is also a topic that has forced Dan Loeb, Third Point Capital activist investor, to demand that Disney permanently suspend its dividend in order to redirect that capital towards streaming. Loeb believes, as do several analysts, that foregoing the dividend would create several billions of additional capital that Disney can then use to spend on content to better compete with Netflix (NFLX), which has spent upwards of $17 billion on content in 2020. With theme parks and other businesses under pressure due to the pandemic, there’s a lot of merit to that arguments. But on Thursday the company will need to reveal its long-term strategy to keep Disney stock, which has surged 50% in three months, from cratering back to earth.
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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