Earnings Breakdown – $WMT, $CMR… and more

Earnings breakdown 5-18 ---- 5/22

 

 

Overview:

Wal-Mart Stores, Inc. (WMT) is slated to report 1Q 2016 (fiscal year) earnings before the bell on Tuesday, May 19^th. The earnings release is expected at approximately 7:00 a.m. EST with a pre-recorded call available at Wal-Mart Investor Relations. Results from the world’s largest retailer and constituent of the Dow Jones Industrial Average tend to heavily influence the direction of the equity index futures.

 

Outliers & Strategy

Key measures:

• Earnings Per Share (EPS) from Continuing Operations: The value for this measure is most often the figure that compares with consensus estimates. Last quarter, Adjusted Earnings Per Share (EPS) was available as the comparable value, however. Wal-Mart EPS guidance for the current quarter is $0.95 to $1.10. The Street estimate is $1.04 (range $1.00 to $1.12). Estimates have been reduced from $1.15 three months ago. (Source: Yahoo! Finance)

• Revenues: Analysts expect an increase of 1.2% y/y to $116.32 bln (range $115.01 bln to $117.74 bln).  The company expects 1-2% revenue growth in 2016 due to currency headwinds reducing roughly half their growth.

• Comparable Store Sales (ex-fuel): Last quarter’s stronger than expected 1.5% reading was assisted by favorable y/y comparisons and should prove helpful this quarter (and next), as well.

• Earnings Per Share (EPS) Guidance for 2Q2016: The current Street estimate is $1.17 (range $1.08 to $1.22).

• Earnings Per Share (EPS) Guidance for FY2016: Current guidance is $4.70 – $5.05. The Street estimate is $4.87 (range $4.69 to $5.03). Estimates have been reduced from $5.56 one year ago and $5.24 three months ago.

• Price multiples for revenue, book value, and cash flow are now at or below their respective 5-year averages, so only earnings are being priced at a premium. Dividend yield of 2.5% compares to a 5-year average of 2.3%.

• Analysts view Wal-Mart with 6 (down from 8) Buy, 16 Hold, and 4 Sell ratings. (source: Analystratings.net)

• Insiders have sold 387,727,299 shares the last three months and only slightly more at 387,931,262 shares sold in the past year. (source: NASDAQ.com) Insider selling has been the norm for several years but such size despite the stock having corrected suggests anything above $76 is fair game. Continuing another norm is the annual $15 billion stock buybacks.

• Wal-Mart results could also impact retailers, such as Target (TGT) –which reports the following day– and Costco (COST).

• Wal-Mart shares have a 1-day average price change on earnings of 2.16%. Options are pricing in an implied move of 3.58% off earnings.

Recent News

• 05/14: Wal-Mart will give online customers unlimited free shipping for $50 a year, half the cost of Amazon (AMZN) Prime. What it lacks is Amazon’s speed of delivery, according to a post on Bloomberg.com.

• 05/08: Wal-Mart Canada will buy a distribution center, 12 store leases and one owned property for $136.48 million following Target’s failed attempt to expand into Canada. Target struggled with replenishing items, according to a post onInvestorsDaily.com.

• 04/30: Wal-Mart abruptly closed five stores and laid off more than 2,200 employees due to plumbing problems. Critics cite retaliation against worker protests for higher pay, according to a post on BusinessInsider.com.

• 04/29: Wal-Mart to open 115 stores, create 30,000 jobs in China, according to a post on MarketWatch.com.

Technical Review

Wal-Mart has fluctuated mostly around $76 since February 2013. The stock tested $90 earlier this year before pulling back amid insider selling. WMT shares spent the previous decade in a trading range and then moved higher, so again appear to be searching for another area to build long-term consolidation. Target’s recent relative strength has made up for multiple years of under-performance. Now we’re seeing seasonal rallies for the overall market being led by the commodity sectors. The VIX and interest rates are starting to show strength at the same time. Retail and other cyclical industries tend to struggle amid these typical late-cycle pressures. (Chart courtesy of StockCharts.com)

Summary

Wal-Mart’s ability to limit downside price action is supported by $15 billion per year of stock repurchasing power.  Over the past four quarters, the company has beaten consensus by as much as 4c and missed by 5c. Analysts have reduced their consensus estimate from $1.15 over the last three months. The company probably needs to report earnings near the top of their guidance range of $1.09 on revenue of $117.0 bln to be much of an upside surprise before the focus turns to guidance.

 

 

Overview:

Deere & Company (DE) is slated to report 2Q 2015 earnings before the opening bell on Friday, May 22^nd. The earnings release is expected at approximately 7:00 a.m. EST with a 10:00 a.m. webcast available through John Deere Investor Relations. The company represents farm and construction machinery on the S&P 500 Index and results can affect futures trading. Late in the business cycle, the size and cyclical nature of the company increases in importance to the overall market and as an economic indicator.

Outliers & Strategy

Key measures:

• Earnings Per Share (EPS): The Street estimate is $1.55 with a range of $1.30-$1.84. (Source: Yahoo! Finance). The estimate was $1.71 three months ago.

• Revenues: Analysts expect a decline of 18.5% y/y to $7.53 bln (range $7.26 bln to $8.18 bln).

• Equipment Sales: Company guidance is down 19% YoY which equates to $7.489 bln.

• Net Income Guidance (FY2015): Net income guidance for FY2015 was lowered to $1.8 bln from $1.9 bln.

• Equipment Sales Guidance (FY2015): Current guidance was lowered last quarter to down 17% from down 15% YoY.

• Deere’s valuation shows value relative to earnings, book value, revenue, cash flow, and dividend yield when compared to five-year averages. The three business segments are very cyclical: agriculture/ turf, construction/forestry, and financial services.  The outlooks for golf courses and new home construction, along with lower grain prices, weigh on valuations.

• Analyst ratings for Deere are 5 Buy, 6 Hold, and 6 (up from 4) Sell Ratings, according to AnalystRatings.net.

• Insider selling picked up recently with 69,678 shares sold over the last three months. Over the past year, insider sales now outnumber purchases by 1,297 shares. (source: NASDAQ.com) Buybacks totaled closer to $1.5 billion for 2011 through 2013 but that’s nearly doubled now. Warren Buffett established a new position of 24.6 million shares for a 5% ownership in Q1 2015.

• Corn prices tend to correlate somewhat with Deere. Looking at the Teucrium Corn Fund ETF  (CORN), prices have weakened since the summer of 2012 to levels last seen in 2010. Deere’s stock has been relatively flat during this period despite the headwind.

• Deere is compared to other farm and construction machinery companies with quarterly results possibly impacting Caterpillar (CAT), Ingersoll-Rand (IR), and CNH Industrial (CNHI). Other sympathy plays include Joy Global (JOY), Monsanto (MON), Titan International (TWI), and Stoneridge Inc. (SRI).

• Deere shares have a 1-day average price change on earnings over the past eight quarters of 3.46%. Options are pricing in an implied move of 3.40% on earnings.

Recent News

• 05/15: JP Morgan downgraded Deere to Underweight from Neutral and lowered its price target from $90 to $84 citing an upcoming “liquidity crunch” for farmers that will put a crimp in equipment sales, according to a post on Benzinga.com.

• 05/05: The corn market is continuing its steady grind lower, falling to new seven-month lows on news of near record planting speed last week, according to the weekly corn review on FarmFutures.com.

• 04/09: Deere draws put purchases before earnings, according to a post on OptionMonster.com.

• 03/31: Deere sold their crop insurance business.

• 02/23: Barclays remained positive on Deere, despite that fact that it lowered its 2015 forecast. Currency headwinds affected the forecast but the strong execution is encouraging, according to a post on Barron’s.com.

Technical Review

Deere’s stock has found resistance above $90 since approaching $100 in 2011. Insider selling suggests they expect more of the same. Potential for a large move is increased after being flat for multiple years. Seasonality tends to be positive through spring, so that may be why the stock has held up so well despite a relatively weak spring for grain prices. Below $87.50 has a large support area just below $82.50. (Chart courtesy of StockCharts.com)

 

Summary

John Deere sees a negative currency translation reducing equipment sales by 4% in the second quarter and 3% for the full year. The company has beaten estimates the last four quarters by as little as 13c and as much as 54c. The company probably needs to produce earnings closer to expectations of three months ago to push above this two-year balance area. If the company can report earnings of above $1.68 on revenue of at least 7.8 billion, the report would be viewed positively by market participants. Equipment sales are expected to be terrible again, so anything better than that would be a plus. Previous Deere earnings that have beaten estimates tend to see the stock trade higher before the conference call, and then management talks down prospects.

 

Overview:

Hewlett-Packard (HPQ) is slated to report 2Q 2015 earnings after the close of trading on Thursday, May 21^st. Results are typically released a few minutes after 4:00 p.m. EST and will be followed with a conference call at 5:00 p.m. available through Hewlett-Packard Investor Relations.  Hewlett-Packard is a component of the Standard and Poor’s 500 Index, with results potentially impacting index futures. HP expects to complete the split in to two companies by the end of its fiscal year, Oct. 31. Hewlett-Packard Enterprise will sell commercial tech products. The personal computer and printer business will become HP Inc.

Outliers & Strategy

• Non-GAAP Earnings Per Share (EPS): Company guidance is for $0.84 to $0.88. The Street estimate is $0.86 with a range of $0.82-$0.89 (Source: Yahoo! Finance). Consensus was $0.96 three months ago.

• Revenues: Analysts expect a decline of 6.0% y/y to $25.68 bln (range $24.99 bln to $26.31 bln).

• Non-GAAP Earnings Per Share (EPS) Guidance for 3Q2015: The current Street estimate is $0.87 with a range of $0.81-$0.90.

• Non-GAAP Earnings Per Share (EPS) Guidance for FY2015: Current company guidance is for $3.53 to $3.73. The Street estimate is $3.64 with a range of $3.52-$3.73.

• Hewlett-Packard’s Price/Earnings of 12.9 compares to a 5-year average of 11.0, Price/Book of 2.3 compares to a 5-year average of 1.9, Price/Sales of 0.6 compares to 0.6, and Dividend Yield of 2.0% compares to a 5-year average of 1.9%.

• Analysts view HP with 13 (was 11) Buy, 11 Hold, and 1 (was 0) Sell ratings (source: Analystratings.net).

• Insiders have sold 8,943 shares over the last three months and 4,579,427 shares in the past year (source: NASDAQ.com). After spending $18 billion on stock buybacks in the 2010/11 period, the stock continued lower, and the company got stuck with shares at an average price of $40. The company plans to return 50% of the free cash flow through share repurchases and dividends in fiscal 2014 and 2015, so 2015 is running closer to $4Bln or more than double the 2012/2013 rate.

• Hewlett-Packard results could impact other computer hardware and software enterprises, such as IBM (IBM), EMC Corp.(EMC), Seagate (STX), and Accenture (ACN).

• Hewlett-Packard shares have a 1-day average price change on earnings of 5.40%. Options are pricing in an implied move of 5.87% off earnings.

Recent News

• 05/14: Citi said H-P stock is “oversold,” pointing to market cap having fallen $10 billion “on the news that FCF will be negatively impacted” by $3 billion in separation costs, according to a post on Benzinga.com.

• 05/06: H-P sued Autonomy’s CEO and CFO for $5.1 billion in damages after purchasing the company and finding fraud. New details were made available through court documents, according to a post at MarketWatch.com.

• 04/21: HP to sell Snapfish online photo business ahead of split, according to a post on MercuryNews.com.

• 04/09: Worldwide personal-computer shipments fell 5.2% in Q1 as corporate spending that helped slow declines last year tailed off. IDC see PC growth for HP in the U.S. at 9.8%. Gartner sees 3.5% growth for HP, according to a post by Barron’s.com.

• 04/04: Zacks Investment Research downgraded Hewlett-Packard to Strong Sell. The company generates approximately 30% of revenues from its personal system segment which is contracting, according to a post on MercuryNews.com.

Technical Review

Hewlett-Packard shares pulled back after finding resistance above $40 but a positive earnings report could see a return to the $37 to $39 balance area.  Current balance is just below $34. April support was $31, so a move below that would be a confirmation for technicians’ “double bottom breakdown” at the end of January with a $22 target. (Chart courtesy of StockCharts.com)

 

Summary

Hewlett-Packard insider selling has eased after a pullback in the stock. HP stock responded favorably when the company met earnings estimates the three quarters before the weak guidance. Given guidance and reduced consensus, the company probably would need to report earnings at the top of the guidance range for an upside surprise. Non-GAAP earnings of $0.89 on revenue of $26.1 bln would allow a positive focus to shift to 3Q 2015 guidance that will compare to the $0.85-$0.89 that is around consensus.

Overview:

Best Buy Company, Inc. (BBY) is slated to report 1Q FY2016 earnings before the bell on Thursday, May 21^st. The earnings release is expected at approximately 7:00 a.m. EST followed by an 8:00 a.m. conference call available atBest Buy Investor Relations. The consumer electronics giant is widely seen as a key barometer on the health of the consumer and the economy. Its results therefore have a historic tendency to impact the broader market, including the CME index futures contracts and other broader market gauges.

 

Outliers & Strategy

Key measures:

• Adjusted or Non-GAAP Earnings Per Share (EPS): Company guidance is for down 30-50 basis points for the first two quarters “from a non-GAAP operating income rate perspective.” The Street estimate is $0.29 (range $0.25 to $0.34) (source: Yahoo! Finance). Consensus was $0.31 three months ago.

• Earnings Per Share (EPS): If an Adjusted EPS figure is not available, this value would compare with forecasts.

• Revenues: Analysts expect a decline of 6.1% y/y to $8.49 bln (range $8.20 bln to $8.74 bln).

• Comparable Store Sales: Analysts expect y/y at -0.9%. This quarter tends to show some weakness but last quarter increased 2.0%.

• Earnings Per Share (EPS) Guidance for FY2016: Best Buy suspended guidance and stock buybacks in August 2012 while transitioning to a new CEO but hasn’t reinstated guidance so far. The current Street estimate is $2.47 (range $2.30 to $2.65).

• Wal-Mart (WMT) reports on May 19th. Target (TGT) reports earnings the day before Best Buy.

• Price/Earnings of 10.5 compares to a 5-year average 11.1; Price/Book of 2.6 compares to a 5-year average 2.3; and Price/Sales of 0.3 compares to 0.2; Price/Cash Flow of 6.8 compares to 4.3; Dividend Yield of 2.1 compares to 2.7, so valuations are relatively rich when compared to recent history.

• Analysts are bullish on Best Buy with 21 Buy, 2 Hold, and 0 Sell ratings. (source: Analystratings.net)

• Best Buy insiders sold 1,274,020 shares over the last three months and 14,916,734 shares in the past year. (source:NASDAQ.com)

• Best Buy results could impact other consumer electronics retailers, such as hhgregg (HGG). Amazon (AMZN) and Wal-Mart(WMT) have a growing presence in this area, as well.

• Best Buy shares have a 1-day average price change on earnings of 6.71%. Options are pricing in an implied move of 6.85% off earnings.

Recent News

• 05/14: Stifel noted its channel survey showed “declines in spending intentions” for Best Buy customers and, critically, for consumer electronics. In Q1, the analysts modeled 0.9 percent declines in comp sales, but expect results to show declines of 1 to 3.5 percent, according to a post on Benzinga.com.

• 05/14: Best Buy and Sprint (S) are offering a $1,300 discount on iPhone 6 in an effort to gain customers and a larger market share, according to a post on 247wallst.com.

• 04/28: Best Buy Co. said it would join the growing list of retailers accepting Apple Pay this year, undercutting a merchant-led group that had hoped to beat Apple with its own mobile-payment system, according to a post on WSJ.com.

• 04/28: Best Buy ditches advertising agency Crispin Porter and will do its creative work in-house or with a roster of agencies on a per-project basis, according to a post on bizjournals.com.

• 04/24 JPMorgan downgraded Best Buy to Neutral from Overweight citing a slow start to the year for sales is likely to raise uncertainty on lapping stronger sales in the back half, according to a post on TheStreet.com.

• 04/13: Best Buy says Chairman Tyabji will retire June 9th and President and CEO Hubert Joly will become its chairman.

• 03/28: Best Buy Closes 66 Canadian Stores, Fires 1,500 Workers, according to a post on 247wallst.com.

Technical Review

Best Buy found resistance at $42.50 in late 2013 and before that in 2009 and 2010, so it’s not surprising that the stock pulled back this year after approaching that level yet again. Support is the 200-day moving average at $35. The next support area is in the low $20s if the company’s transition phase becomes problematic. (Chart courtesy of StockCharts.com)

Summary

Radio Shack’s bankruptcy should be a positive. Best Buy is in the late stages of their transition phase of cutting costs while expanding their private-label electronics business. The company has beaten estimates by 13c three out of the last four quarters and had one 7c beat. Given the relatively stable consensus figure, the company probably needs to report earnings above the $0.31 estimate of three months ago on revenue closer to $8.6 bln to be viewed as an upside surprise. Comparable store sales were very weak a year ago and are expected to be negative again, but more favorable annual comparisons could help.

 

Overview:

Salesforce.com (CRM) is slated to report 1Q 2016 (fiscal year) earnings after the bell on Wednesday, May 20^th. The earnings release is expected at approximately 4:05 p.m. EST followed by a 5:00 p.m. conference call available atSalesforce.com Investor Relations. The company’s broad software as a service (SaaS) CRM suite has steadily transitioned into cloud computing solutions for various businesses and industries worldwide, making the company a frequently discussed takeover target.

 

Outliers & Strategy

Key measures:

• Non-GAAP Earnings Per Share (EPS): Company guidance is $0.13 – $0.14. The Street estimate is $0.14 (range $0.12 to $0.15). (source: Yahoo! Finance)

• Revenues: Company guidance is $1.485 bln to $1.505 bln. Analysts expect an increase of 22.4% y/y to $1.50 bln (range $1.48 bln to $1.52 bln).

• Adjusted Earnings Per Share Guidance for Q2 2016: Salesforce earnings guidance for the upcoming quarter tends to have a direct impact on the direction of the share price. The consensus estimate is $0.17 (range $0.14 to $0.24).

• Revenues Guidance for Q2 2016: The Street estimate is at $1.59 bln (range $1.54 bln to $1.63 bln).

• Adjusted Earnings Per Share (EPS) Guidance for FY2016: Company is $0.67 to $0.69. The current Street estimate is $0.69.

• Revenues Guidance for FY2016:  Company guidance is $6.475 bln to $6.520 bln. The current Street estimate is $6.51 billion.

• Price/Book of 11.8 compares to a 5-year average of 11.4, Price/Sales of 8.4 compares to a 5-year average of 8.5, and Price/Cash Flow of 38.5 compares to a 5-year average of 32.3.

• Analysts view Salesforce.com with 25 (was 26) Buy, 11 Hold, and 2 (was 1) Sell ratings. (source: Analystratings.net)

• Insiders have sold 1,001,121 (up from 884,860) shares the last three months and 4,596,376 (up from 3,817,549) shares in the past year (source: NASDAQ.com). Executive compensation: 2014 $66.93 mln, 2012 $38.82 mln, 2010 $19.79 mln.

• Salesforce.com results could impact other software as a service platform companies, such as Workday (WDAY), Manhattan Associates (MANH), Paycom Software (PAYC), Oracle (ORCL), NetSuite (N), and Microsoft (MSFT).

• Salesforce.com shares have a 1-day average price change on earnings of 7.06%. Options are pricing in an implied move of 5.14% off earnings.

Recent News

• 05/13: Wedbush reiterated a Neutral rating on Salesforce.com and $66 price target ahead of the company reporting an expected “continued momentum” with Q1 results. Any deal would need to come in at a minimum 20 percent premium over current price levels, or about $85 per share, according to a post on Benzinga.com.

• 05/11: Morgan Stanley removed Salesforce.com from their “Best Ideas” list but maintained its “overweight” rating with an $80 price target despite that shares are seen trading at an acquisition premium, according to a post on TheStreet.com.

• 05/06: Merrill Lynch sees upside of as much as $92 for Salesforce.com should a bid emerge. Credit Suisse sees a potential take-out range of $81 to $88 and would add Amazon (AMZN) to the list of potential suitors, according to a post onBarrons.com.

• 04/30: Cloud software giant Salesforce.com makes a tempting target, but huge tech mergers often don’t hold huge benefits, according to a post on WSJ.com.

• 04/29:  Salesforce.com hired advisers to help evaluate takeover offers, according to a post on Bloomberg.com.

Technical Review

Salesforce.com recently made a new all-time high. $65 has become support and above $75 has found resistance. Larger support begins at the 200-day moving average. Similarities to 2007’s typical late-cycle observations could be a positive as the company did well in that environment. The stock price has increased 6x since 2007, so valuations must be considered. (Chart courtesy of StockCharts.com)

Summary

Microsoft, Oracle, SAP, and Amazon are mentioned as potential bidders for Salesforce.com due to only there being only a small list of companies that could afford such a deal. The company has beaten estimates by 1c four of the last five quarters, so the varied market reaction shows the importance of guidance contained in each earnings release. Guidance should be interesting given the strong dollar. The company probably needs to report earnings of at least $0.15 on revenue of above $1.51 bln before traders will focus on guidance for a possible retest of the recent all-time high.