Corporate profits have so far surpassed low expectations so far this winning season, but there are still a lot of wild cards left in the deck.
Consensus S&P 500 SPX,
income taxes rose only 3% for the third quarter and are not budgeted at all in the fourth quarter, according to Credit Suisse Chief US Equity Strategist Jonathan Golub, even though S&P 500 shares have so far estimated June-quarter estimates by 23% in total. With about 90% of the S&P 500 reports already in place, more than 80% of companies met profit expectations, he reported.
The last week of results helped slightly improve the S&P 500 earnings path for the second quarter, although revenue is still on pace for its worst decline since the second quarter of 2009. Analysts surveyed by FactSet expect gains for the index 33.8% during the period, taking into account already reported results and estimates for the rest. That is down from an estimated 35.8% drop as at the end of last week and a projection of 42.4% two weeks ago.
Profits could be in for another steep fall in the third quarter, as the ConsS consensus calls for a 22.9% drop. Fourth-quarter gains are expected to fall 12.7%, and analysts are looking for a decline of 18.8% for the full year.
The pace of the earnings season is slowing down, with only 13 members of the S&P 500 scheduled to report in the coming week and only one Dow Jones Industrial Average DJIA,
component, Cisco Systems Inc. CSCO,
on the docket. Instead of big companies, there are some young stocks that have received a lot of attention – recent IPOs Lemonade LMND,
and Vroom Inc. VRM,
, such as SPAC acquisition DraftKings Inc. DKNG,
– and some pot companies looking to bounce back from a tough patch.
Here’s what you need to see in the coming week.
The rooks ready to roll
Initial public offerings and SPAC acquisitions have received warm welcomes on Wall Street despite the COVID-19 pandemic in recent months, but these companies must now anticipate the gauntlet of quarterly expectations.
Lemonade, which has enjoyed the hottest stock debut in a year with many first-day pops, will make a profit as a public company for the first time on Wednesday morning. The online insurance company’s share is still comfortably more than 100% higher than its IPO price, as was another share that went public in the second quarter, online car seller Vroom, which will announce on Wednesday afternoon.
See also: Five things to know about the Lemonade IPO
Companies that do not take the traditional IPO route currently have many more options, amid a wave of specialty acquisition companies, than SPACs. These “blank check” companies earn money and use it to get a private company, as in the case of the daily fantasy and sports gambling site DraftKings. DraftKings went public in April through a merger with a SPAC, but captured just a quarter in which sports were barely played due to COVID-19; expect a lot of the talk to be about volume of activity amid the new start for the National Basketball Association and Major League Baseball in the current quarter.
Pot companies are looking to get out of the ashes
Pot companies will kick off the week on Monday, with Canopy Growth Corp. CGC,
advance reporting on the clock and Tilray Inc. TLRY,
results released after the day’s trading session. They are following disappointing results from another Canadian cannabis company, Cronos Group Inc. CRON,
, which reported large losses thanks to some writing Thursday.
Canadian pots have warmed up amid the legalization of recreation of marijuana sales in Canada, but have since ceased, and funding for pot companies has largely been raised. Canopy Growth has resumed the purchase deal with the American pot company Acreage Holdings Inc. ACRGF,
to make sure it had enough cash, while Tilray at the beginning of the pandemic assumed funding with somewhat complicated terms.
IT trends
Changing COVID-19 trends in July could weaken the optimization of business spending that Wolfe Research analyst Jeff Kvaal saw in June, but he thinks Cisco could finally emerge from the crisis in a strong position because of the pandemic demand to Cisco’s software offerings. The company’s security software and WebEx conferencing tools are in high demand in the pandemic, said Kvaal, who should help Cisco “easily” achieve its goal of generating 30% of software revenue by the end of the fiscal year.
“Cisco sales are now> 50% returning, which should isolate it from a recession,” Kvaal wrote prior to the company’s report Wednesday afternoon.
Need a lift?
Uber Technologies Inc. UBER,
saw its food supply business in the second quarter its ride-hail business, but rival Lyft Inc. LIFT,
did not have that pillow. The company focuses almost entirely on rides in the US, making it more susceptible to pandemic-related developments.
Driving bag turnover for Uber fell 67% in the second quarter, and the company said mobility trends in the US are lagging behind other markets such as Asia and Europe where demand for rides is recovering faster. Lift stock fell 6.7% Friday, according to the Uber report.
Uber’s U.S. comment “is a negative read-across for Lyft, who obviously does not work outside of North America or in verticals outside rideshare,” Bernstein’s Mark Shmulik wrote ahead of Lyft’s report Wednesday afternoon. He said driving in the pandemic does not take much share of public transport, perhaps because “several higher-income segments of the economy” are still able to work from home, while more price-sensitive customers are more likely to commute to their jobs .
Tourist stairs
Monday morning offers two views of the gloomy state of the leisure industry with Royal Caribbean Cruises Ltd.
and Marriott International Inc. MAR,
because of report. Of interest to Royal Caribbean will be the company’s cash-burn trends and its expectations for when cruising can resume. A command from the Centers for Disease Control and Prevention bans cruises in U.S. waters until Oct. 1, but Truist analyst C. Patrick Scholes wrote that he expects “sails not in quantity in North America to resume until at least 2Q21” given the potential for more government cautions.
Marriott’s story is not so dark and investors will be looking for the geographical differences in the trend of hotel rebound.
Loose threads
Coach parent Tapestry was sued investors Thursday morning for its first call for income since Chief Executive Jide Zeitlin fired the company for personal reasons, which The Wall Street Journal reported were related to a board investigation into a previous romantic relationship. When the company announced its dismissal in late July, it also revealed that the June-quarter results exceeded the internal projections.
“In general, key leadership changes just a few weeks before the discovery of an updated multi-year growth strategy is reason for caution,” wrote Telsey Advisory Group analyst Dana Telsey, citing expectations that Tapestry would provide a major strategic update along with its upcoming report income. She said the interim leadership team is well known to Tapestry investors, but that “the handbag category is in a relatively more difficult position in the new environment.”
Chipping in
Semiconductor equipment companies KLA Corp. KLA,
and Lam Research Corp. LRCX,
both offer some analysts encouraging signals for a memory recovery, and it will be AMAT of Applied Materials,
turn some perspective on Thursday afternoon. Also of interest in the company’s comments will be its recent announcement of a new etching tool for conductors. Wells Fargo analyst Joe Quatrochi is focusing on the possibility of Applied Materials acquiring shares of Lam in this part of the market.
.
