Weekly overview: earnings to watch this week (COST, CRM, NVDA, ZS)
Wua valuation of recent movements and tumultuous swings in the stock market, it appears that there continues to be a persistent back-and-forth between price and value. The consecutive days of selling that followed earlier in the week, prompted by concerns about the Federal Reserve’s policy in the face of mounting inflationary pressures, have apparently given way to positive economic news. Will this trend continue?
Despite the mixed end of the session, stocks regained some lost ground on Friday, rebounding from earlier declines, with the Dow Jones Industrial Average rising 123.69 points, or 0.36% to close at 34,207.84. The S&P 500 Index finished 3.26 points lower, or 0.1%, to close at 4,155.86, while the highly technological Nasdaq Composite lost half of 1% to end the session at 13,470.99. Notably, despite strong earnings reports from notable S&P 500 companies across all industries.
On the bright side, the Nasdaq, which suffered tremendously in the middle of the tech road, broke a four-week losing streak, ending the week up less than 1%, while the S&P 500 and the Dow were both less than 1%. When you factor in Thursday’s strong rebound in which the Dow closed 188 points higher, it begins to appear as if a capitulation, or the feeling that the market had fallen too far, too fast, has subsided. already produced. I say this knowing full well that these “false heads” have happened before. But this time looks different. And it’s not just my innate optimism that speaks.
Of course, fears of rising inflation will not go away – not immediately. And last week’s reading of the Fed’s minutes that (for some) suggested the unwinding of accommodative asset purchases was imminent, fueled flames of concern over how long the Fed can hold rates. lower. At the same time, these concerns should be offset (as an example) by the better-than-expected reading of the initial weekly jobless claims, showing that the number of new filings has fallen to its lowest point since the start of the pandemic.
Data on jobless claims, which has been somewhat overlooked due to fears of rising inflation, supports optimism that there are tons of benefits ahead in the market over the two quarters, the company returning to normal. In this vein, it is starting to appear that cyclical stocks such as energy, financials and materials – the sectors which should benefit from the reopening of the economy – have finally started to rise, driven by their better than expected profits. . results. These are the names we’ve been talking about since the start of the results season.
Not only have these sectors beaten analyst estimates, but in many cases their outlook for the second quarter and beyond is better than expected, suggesting that the strong trend of revenue and earnings growth will continue well into the future. economic recovery. opening. And this is where the patience and discipline of investors for high quality stocks – despite the back and forth between price and value – must be shifted into high gear.
On the earnings front, here are the companies I’ll be watching over the next week.
Zscaler (ZS) – Reports after closing, Tuesday 25 May
Wall Street expects Zscaler to earn 7 cents a share on revenue of $ 163.71 million. This compares to the quarter last year, when earnings were 7 cents a share on revenue of $ 110.52 million.
Watch out for: Cybersecurity stocks like Zscaler, despite its status as the largest cloud-based web security gateway provider in the market, have not been immune to the recent tech rout. Zscaler has lost nearly 15% of its annual value to date, while the S&P 500 index has risen nearly 11%. But given the better-than-expected results that have just come out of Palo Alto Networks (PANW), Zscaler could be on the verge of a rebound. Besides its strong product portfolio, the strength of the company can be displayed in its exceptional gross margins and cash-generating capacity. The company’s cloud platform allows customers to route data traffic to external data centers where Zscaler hosts its software tools. And there is a growing demand for better security as businesses have adopted a work-from-home mindset to support a hybrid environment. This change has fueled a wave of virtual private networks – those that allow employees to connect to the office remotely. But can Zscaler profits on Tuesday push the stock higher?
Nvidia (NVDA) – Reports after closing, Wednesday May 26
Wall Street expects NVIDIA to earn $ 3.27 a share on revenue of $ 5.39 billion. This compares to the quarter of last year, when earnings were $ 1.80 per share on revenue of $ 3 billion.
A look out for: Nvidia shares rose more than 4% on Friday after the chip giant announced its board of directors approved a four-for-one stock split. The company says the split will make share ownership more accessible to investors and employees. Shareholder approval is always required. A vote will be taken at the company’s 2021 annual meeting on June 3. If approved, trading is expected to begin on a stock split-adjusted basis on July 20, the company said. Rumors are already suggesting that the split, which is just financial cosmetics, could be a prelude to Nvidia being included in the Dow Jones Industrial Average, which is a price-weighted index. But even with Friday’s rally, the stock, which was punished during the tech sale, is down 4% over the past month. Now may be the time to buy the dip, as the company has taken the lead in chip production for high growth areas such as network data centers, autonomous driving, artificial intelligence, among others. Nonetheless, Nvidia’s forecast on Wednesday will be the key factor in whether the stock continues to rise or succumb to profit taking.
Costco (COST) – Reports after closing, Thursday May 27
Wall Street expects Costco to earn $ 2.32 a share on revenue of $ 43.63 billion. This compares to the quarter last year, when earnings were $ 1.89 per share on revenue of $ 37.13 billion.
A look: Costco stock has traded flat over the past six months, while underperforming the S&P 500 in the past year, rising 26% to 40% of the S&P. Notably, even though the company has exceeded consensus revenue estimates in each of the past five quarters. But stocks could offer double-digit return potential, according to Christopher Graja, analyst at Argus. “We believe Costco’s financial strength and ability to deliver exceptional value to consumers are key differentiators for action in today’s market environment,” noted Graja. “Our analysis of the core activities suggests that the execution of the business plan remains excellent with historically strong traffic. and membership renewals. The company ended fiscal 2020 with 105 million members, up approximately 12% from 2018, reflecting annual growth of approximately 6%. And with consistently higher / around 90% membership renewal rates, Costco stocks won’t stay stagnant for very long. The company’s profit margin Thursday’s guidance should reflect that confidence.
Salesforce (CRM) – Reports after closing, Thursday May 27
Wall Street expects Salesforce to earn 88 cents a share on $ 5.89 billion in revenue. This compares to last year’s quarter profit of 70 cents a share on revenue of $ 4.85 billion.
Watch out for: Salesforce’s SaaS business model and CRM services have played a key role in Salesforce’s growth over the past five years, but there has been talk of market saturation. Additionally, Salesforce stock has declined recently since the company ad his purchase of Slack for $ 27.7 billion. But the company is on the verge of reclaiming its “mojo” and stocks, which have fallen 13% in six months, are expected to deliver more than 20%. Citing the growing demand for digital transformation, Morgan Stanley analyst Keith Weiss recently upgraded the stock from Equal-Weight to Overweight with a price target of $ 270. Among the various catalysts for meeting his price target, Weiss noted the company’s billing and reservation metrics, saying they reflect improving demand trends with the economic reopening and he believes Salesforce will achieve higher profit margins. On Thursday, Salesforce will have to convince the market of how it plans to execute in the direction suggested by the analyst.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.