3 Earnings Reports to Watch Next Week

These three stocks are at the top of the earnings calendar watch list

By Vince Martin, InvestorPlace Contributor

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Editor’s note: InvestorPlace’s Earnings to Watch is updated weekly. Please check back next week for our latest earnings calendar picks.

The earnings calendar is getting lighter as we approach the holidays, but there still are a few key earnings reports to watch next week. Whether that’s a good thing, in this market, remains to be seen.

Over the past few weeks, the reaction to earnings reports have seemed more interesting — and more useful — than the reports themselves. Clearly, the eyes of a nervous market are on the risk of a recession in 2019 and 2020, with a flattening yield curve signaling elevated risk on that front.

In that context, backward-looking earnings reports are close to irrelevant. And so any hint of bad news looking forward has been punished, as seen in the big decline at Nvidia (NASDAQ:NVDA) or what is now a 40%+ selloff in Activision Blizzard (NASDAQ:ATVI).

Meanwhile, investors have largely shrugged at good news. Per data from Factset, 78% of S&P 500 companies beat earnings estimates. The blended earnings growth rate of 25.9% (admittedly aided by tax reform) was the highest in eight years. Despite that strong earnings calendar, U.S. equities have sold off.

Three key reports next week in three important sectors will show whether that trend will hold. A major U.S. retailer will try and avoid the fate of many of its peers. A high-growth tech stock will test the market’s willingness to keep paying up for quality. And an under-the-radar networking company could move several stocks with its results. Investors are paying close attention to the external factors swirling around this volatile market. But these earnings reports next week might give some clues as to how comfortable, or uncomfortable, those investors are at the moment.

Ciena (CIEN)

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Earnings Report Date: Thursday, Dec. 13, before market open

Optical networking supplier Ciena (NASDAQ:CIEN) likely seems an odd stock on which to focus. CIEN stock has a market cap under $5 billion. It’s spent most of the past five years in a range around $20 until a recent breakout. Ciena isn’t a particularly fast-growing company: analysts expect Thursday’s Q4 report to complete a year in which sales rise about 9% year-over-year.

But CIEN earnings actually could have a reasonably wide ripple effect. The optical networking sector, CIEN stock aside, tends to be volatile. (Applied Optoelectronics (NASDAQ:AAOI), is perhaps the best example.) Ciena’s earnings likely will move other stocks in the sector, including AAOI and Infinera (NASDAQ:INFN). And as a key supplier to data centers and ‘cloud’ services, any sign of weakness from Ciena could echo throughout that huge industry.

CIEN stock also has held up reasonably well amid the tech carnage of the past few months — despite the Street beginning to turn negative back in September. (At least three analysts have downgraded the stock in the last three months.)

So if CIEN stock can survive earnings, there’s still hope that some high-performing stocks can succeed in this market. If it can’t, earnings may well bring optical peers down as well — and suggest a tougher road for the sector in the weeks and months to come.

Costco Wholesale (COST)

Earnings Report Date: Thursday, Dec. 13, after market close

Of late, the earnings calendar has not been kind to retailers like Costco (NASDAQ:COST). Amazon.com (NASDAQ:AMZN) fell after earnings. So did Walmart (NYSE:WMT). Target (NYSE:TGT) plunged.

Of course, Costco is different from those peers, as proven by the fact that investors still are willing to pay huge multiples for COST stock. That said, I noted in September that analysts were starting to question that valuation.

So the reaction to COST stock following fiscal Q1 earnings on Thursday will be interesting. Costco already has disclosed sales numbers, which included a sizzling 11% comp in U.S. stores. Margins, however, have not been disclosed and will be closely watched, given Costco is facing the same pricing and wage pressures as other retailers.

Numbers aside, here, too, the reaction will be interesting. If COST stock shows margin pressure, similar fears likely echo throughout retail. If it doesn’t, but falls because investors start modeling in that pressure, that could be even worse for the sector. The reaction to Costco earnings is going to be important for the entire industry. Anything but good news for COST stock likely is bad news for everyone else.

Adobe (ADBE)

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Earnings Report Date: Thursday, Dec. 13, before market open

Investors very quickly bought the November dip in Adobe (NASDAQ:ADBE) — and with good reason. This is one of the best growth stories in the entire market, as I detailed about a year ago.

After some volatile trading, ADBE sits about 10% below early October highs and in an interesting position ahead of the fiscal fourth quarter report Thursday afternoon. Like COST, ADBE isn’t cheap, at about 30x forward earnings backing out cash. Like Costco, Adobe’s business has been one of the best n the world in terms of creating long-term growth and shareholder value.

Will that, plus another likely earnings beat (Adobe hasn’t missed since 2014), be enough? That’s the most interesting question to be answered in trading Friday. Salesforce.com (NYSE:CRM) did rally after an earnings beat — but it had fallen much further. CRM stock was off about 18% from the highs heading into earnings — and it gained 10%, putting it about where ADBE is at the moment. If ADBE stock can do better, it would be another signal that the market is going to give leeway to the market’s best stocks.

As with COST, however, if there’s no rally, investors need to be nervous. Because if companies like Adobe and Costco can’t inspire confidence, it’s hard to imagine what else possibly can.

As of this writing, Vince Martin has no positions in any securities mentioned.


Article printed from InvestorPlace Media, https://investorplace.com/2018/12/earnings-reports-to-watch-next-week-earnings-calendar/.

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