The peak of earnings season has ended — and it’s coincided with a huge jump in market volatility. But there are still a few earnings reports to watch that might reassure investors about the volatility.
Overall, external factors — notably rising yields on the 10-year Treasury — probably have more to do with that spike than corporate earnings season. After all, those earnings on the whole have been rather solid. Benefits from tax reform have given boosts to a number of stocks as well. But with concerns about inflation and additional Fed rate hikes coming later this year, higher volatility and choppier trading could continue.
But even though earnings season peaked already, there still are a few earnings reports to watch.
Next week, two retail bellwethers report. Their numbers will add another data point as investors try to pin down the health of that key sector. Meanwhile, fourth quarter results from one of 2017’s hottest IPOs will show how this newly volatile market will treat high-flying growth stocks. With the volatility seen of late, all three stocks could see big post-earnings moves — and even could move the market themselves.
Here are the 3 earnings reports to watch next week:
3 Earnings Reports to Watch: Walmart (WMT)
Earnings Report Date: Tuesday, February 20, before market open
Obviously, investors throughout the market are going to pay careful attention to the numbers from Walmart Inc (NYSE:WMT). Results from the world’s largest retailer reflect US consumer spending. And the fiscal Q4 numbers should provide a gauge on that spending over the key holiday period.
At the moment, expectations don’t look terribly high. The Street projects 3% sales growth and a 5.4% increase in EPS, to $1.37. Given the momentum of Walmart of late and a pullback that began in late January, Walmart probably has room for post-earnings gains.
But for WMT itself, the reaction to the quarter likely will go beyond the numbers. Walmart is clearly trying to adapt to the digital age. It’s acquired a number of online companies, including a rumored $10 billion investment in India’s Flipkart. It’s changed its strategy around the Sam’s Club unit, surprisingly closing stores last month and then offering free shipping in a clear shot at Costco Wholesale Corporation (NASDAQ:COST) and Amazon.com, Inc. (NASDAQ:AMZN). The company is even changing its name to highlight its ‘omnichannel’ offerings.
So the Q4 call, and the reaction to the Q4 release, won’t be just about the numbers. Walmart will have an opportunity to detail its strategy going forward. It will provide more color on what it will do with tax savings that aren’t going to employees. Combined with holiday numbers, it makes for an important quarter for Walmart. The company can either justify the recent big rally — or see that rally finally fizzle.
3 Earnings Reports to Watch: Home Depot
Earnings Report Date: Tuesday, February 20, before market open
Home Depot Inc (NYSE:HD) numbers — like those of Walmart — will be scrutinized even by investors who don’t own the stock. HD doesn’t have the same holiday seasonality as most retailers. Its sales actually peak in the second quarter, due to springtime renovation projects.
But Home Depot’s fiscal Q4 results and commentary will give preliminary answers to key questions for the market as a whole. Has U.S. tax reform unleashed more spending on big-ticket items like renovations or even new appliances? Is the housing market showing any signs of slowing?
HD stock pulled back nearly 10% amid the broad market weakness, based in part on the fear that higher interest rates later this year might cool HD’s already-mature market. That’s one reason I recommended subscribers lock in 30%+ gains made with Home Depot’s smaller (and cheaper) rival, Lowe’s Companies, Inc. (NYSE:LOW).
I see reason for similar caution with HD stock ahead of Tuesday’s report. Home Depot has a solid history of beating expectations. But the response to the quarter is more difficult to predict.
If investors bid up HD stock on an earnings beat, it’s a sign that the market is moving past the fears that unsettled it earlier this month. But if Home Depot puts up a big earnings number and investors don’t reward the stock, that means investors are still focused on the external risks that led to this month’s pullback. That in turn suggests a market that’s going to stay cautious for some time to come.
3 Earnings Reports to Watch: Roku
Earnings Report Date: Wednesday, February 21, after market close
One of 2017’s hottest IPOs, Roku Inc (NASDAQ:ROKU) has weakened in 2018, dropping 9% so far this year. Of course, ROKU still trades at more than triple its $14 IPO price — thanks in large part to the stunning gains it posted after Q3 earnings back in November.
ROKU gained a whopping 127% in just three sessions coming out of the Q3 report. Better-than-expected numbers combined with an epic short squeeze drove the gains. Street analysts scrambled to raise their targets to keep up, and ROKU kept gaining. Within six weeks, Roku stock had tripled.
There’s going to be more fireworks next week, most likely.
While some shorts were burned in November, 35% of Roku’s still-thin float is sold short at the moment. Meanwhile, Roku remains unprofitable even on an Adjusted EBITDA basis. And the stock trades at roughly nine times 2017 revenue. That’s a valuation that requires Roku to post very strong sales in the seasonally key fourth quarter — hopefully driven by a lot of Roku gift-giving.
The good news for ROKU stock is that Street expectations don’t look that high. Consensus estimates imply 24% year-over-year growth. In Q3, Roku crushed those estimates with a 40% increase. Another big top-line beat could send shorts scurrying once again, and send ROKU back toward its highs near $59. Anything less, however, in this market, could make Roku short sellers very happy on Thursday.
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.