The lull in corporate earnings continues next week, with only a handful of companies reporting as the market looks to calendar third-quarter reports starting in mid-October.
Overall, the market feels like it’s in neutral, with investors playing a “wait and see” game on the Federal Reserve, geopolitical tensions and the strength of the U.S. economy. Volatility has returned to levels near record lows in the process.
Still, there are a few big earnings reports on the way next week, including three from stocks moving in wildly different directions. There’s probably not enough earnings news this week for investors to answer the larger economic and political questions facing the market.
With these three companies, however, earnings will be key, and will either put an end to, or maintain, their recent momentum.
Earnings Reports to Watch: Micron Technology
Micron Technology, Inc. (NASDAQ:MU) looks like it could be at risk of a post-earnings slump Tuesday afternoon. That’s not because the company isn’t performing well; in fact, the opposite is true.
Analysts are expecting a stunning reversal in profits: Street consensus per-share earnings for the quarter is $1.86, against a five-cent loss the year before. Continued strength in DRAM pricing, in particular, is expected to drive the impressive bottom-line growth. And as a result, MU stock has climbed steadily into the report, moving from $27 to $36 just in the last six weeks.
The concern, then, has to be just how high expectations are heading into the report. And recent history is instructive. Micron had a similarly bullish buying pattern heading into its fiscal Q3 result in June. But despite a big beat relative to Street estimates, Micron stock wound up pulling back.
From a trading standpoint, a repeat of that performance next week wouldn’t be surprising. Anything short of a huge bottom-line beat, and strong commentary on pricing, could be punished by the market. But with MU still trading at under 8x FY17 EPS, that in turn could create another buying opportunity for investors who believe the current pricing cycle will hold up for a few more quarters.
Earnings Reports to Watch: Nike (NKE)
On the other hand, expectations look pretty low for Nike Inc (NYSE:NKE) ahead of its fiscal first-quarter report, also due Tuesday afternoon.
Analysts are expecting a sharp decline in earnings, with Street consensus of 48 implying a stunning one-third decline in profits year-over-year. The news isn’t as bad on a full-year basis: Nike’s earnings are expected to decline, but only moderately, with growth starting in Q2.
There is a case here for post-earnings upside in Nike – a case that looks like the mirror image of Micron’s. Sentiment toward the sneaker space is abysmal, with rival Under Armour Inc (NYSE:UAA) and key retailer Foot Locker, Inc. (NYSE:FL) both near their lowest levels in four years. Earnings projections are low. Any good news from Nike, whether in terms of profits or futures orders, could bring buyers into the stock.
But from a mid- to long-term standpoint, questions remain for Nike, and Nike stock. Adidas AG (ADR) (OTCMKTS:ADDYY) is taking share. Struggling retailers are increasing discounting and cutting inventory. Nike stock may be set up well for a post-earnings bounce. But as we’ve seen over the last two years, with NKE down 20% from 2015 highs, that bounce may not last very long.
Earnings Reports to Watch: Pier 1 Imports
Pier 1 Imports Inc (NYSE:PIR) shares made a brief run earlier this month, only to again pull back. PIR now trades just above $4, a level that in the past has held at support. But breaking through that support would send PIR stock to its lowest levels since 2009 — just after the financial crisis.
Pier 1 has been hit by so many of the same issues facing brick-and-mortar retailers of late. But it has an opportunity with its fiscal second-quarter report on Wednesday after the close. Full-year guidance suggests positive same-store sales and a modest year-over-year increase in earnings. Investors aren’t convinced, however, with PIR trading at less than nine times the midpoint of that guidance.
A strong Q2 report, or even a ‘good enough’ quarter that allows the company to maintain that guidance, should be enough to drive PIR stock higher. The home furnishings space would seem to have some protection from the e-commerce competition led by Amazon.com, Inc. (NASDAQ:AMZN), and Pier 1 itself is growing its online sales sharply.
Investors who have sold the stock off since Q1 obviously are expecting another disappointment. But if PIR can regain the confidence of those investors, there’s big potential upside. PIR more than doubled from September to December 2016, as the market thought the business had stabilized. If it can show strong earnings on Wednesday, PIR once again could rocket higher.
Hilary Kramer is the editor of GameChangers, Breakout Stocks, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
