Earnings season largely has played out, and the pickings for traders are getting a bit slim. There are a number of retailers that still have yet to report — but most of those that are left are saving their results for after Thanksgiving.
Short weeks generally are relatively quiet for the broad market, and I don’t expect this week to be much different. But there will be some news worth watching, including a few intriguing reports to watch next week from three companies in very different positions.
One retailer will try to beat expectations and get its stock off a five-year low. Another will try and jump-start a rally after a recent pullback.
And a software giant will try to keep a 56% run this year going. The broad markets may be quiet — but these three stocks likely won’t be.
Earnings Reports to Watch Next Week: GameStop
Value investors might be tempted by GameStop Corp. (NYSE:GME), particularly ahead of the company’s fiscal third quarter on Tuesday morning. GME stock looks ridiculously cheap, trading at 5x forward per-share earnings estimates with a dividend yielding 9.4%.
But GME stock is at a five-year low, and it’s there for a reason. I wrote back in June that GameStop’s business model looked increasingly broken. Even with the stock down another 25% since then, I still haven’t changed my tune.
Earnings are declining with no end in sight. Street estimates for FY18 project a 12% decline in EPS — even with the benefit of aggressive share repurchases.
Higher sales of the Nintendo Co., Ltd (ADR) (OTCMKTS:NTDOY) Switch made results look better earlier this year, but the benefit is fading. And the shift to mobile phone reselling looks questionable as stocks like AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ) struggle.
GameStop stock does look cheap, but it’s a business in decline. That will make it very difficult for earnings — or anything else — to drive enough optimism for a rebound.
Earnings Reports to Watch Next Week: Lowe’s
I recommended Lowe’s Companies, Inc. (NYSE:LOW) to my subscribers this week. And I expect Q3 earnings on Tuesday morning will be a catalyst for the stock.
Lowe’s has lagged rival Home Depot Inc (NYSE:HD) over the past few years but it’s still posting solid growth. A sub-16x multiple to next year’s consensus EPS prices in little of that growth going forward and values LOW at a discount to the market as a whole.
That EPS growth (currently projected at 14% next year) gives LOW stock an attractive PEG ratio not far above 1.
Q3 expectations look reasonably difficult, with analysts expecting 5.2% sales growth and a 16% increase in EPS. But Q4 estimates are soft — a sales decline and a penny increase in EPS — so there’s room for Lowe’s to post optimistic guidance and drive the stock higher out of the release.
Barring a major miss on Tuesday, I still like LOW long term. It’s a buy under $80, with a target price of at least $90. Good news in Q3 should move the stock up and closer to that target.
Earnings Reports to Watch Next Week: Salesforce.com
Salesforce.com, Inc. (NYSE:CRM) has nothing to prove heading into its fiscal Q3 earnings report on Tuesday after the close. The stock has had a torrid year, gaining 56% YTD in a strong market for large-cap tech, and rising 15% just since the beginning of October. And it’s earned those gains, with impressive sales growth and operating leverage starting to show through.
The recent strength might set CRM up for a post-earnings move down, particularly if some of the recent broad market choppiness persists into next week. Salesforce.com already got a boost earlier this month when it initiated FY19 revenue guidance above Street estimates. Any further strength in Q3, at least on the revenue side, is unlikely to be rewarded.
Salesforce.com is a great company, but CRM stock also is trading at 63x FY19 EPS estimates. It’s a cloud leader, but in the space, I continue to prefer Veeva Systems Inc (NYSE:VEEV), whose Veeva CRM offering is built on the salesforce.com platform.
CRM isn’t a terrible cloud play itself, but with expectations rising and so much priced in, it could get tripped up by reporting earnings while many investors have their attention elsewhere. CRM looks like a buy at the right price, but growth investors should take a long look at Veeva instead.
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.