We’re at the tail end of earnings season with only a few significant companies left to report results.
The takeaway from the first quarter of the year is that earnings are slowing considerably in the face of persistently high inflation and rising interest rates to counter it. According to data from FactSet, earnings are at their lowest growth rate since the pandemic hit in 2020.
The slowing earnings rate could portend bad things for stocks, which are already taking a drubbing in a down market. With the S&P 500 index already down 22% this year and the Nasdaq down 30%, things could get much worse if earnings come in below Wall Street expectations.
Analyst Enrique Abeyta with Empire Financial Research notes that downward earnings revisions led to a worsening of the dot-com crash that lasted from 2001 to 2003. Will it get that bad again? Earnings from the following four companies next week could offer some clues.
|BBBY||Bed Bath & Beyond||$7.03|
Earnings: Nike (NKE)
Weary shareholders of Nike could certainly use some good news. The sneaker and sports apparel giant’s stock has fallen 35% this year amid the market downturn and as many of its factories in Asia, notably Vietnam and China, continue to experience periodic shutdowns due to Covid-19 outbreaks.
At its recent price of $106 a share, NKE stock was 40% below its 52-week high of $179.10. While the lower share price presents a buying opportunity for investors with a long time horizon, it’s cold comfort to current shareholders who have held on as the share price has threatened to fall below 100 bucks.
Nike, which recently said that it is permanently exiting Russia after that country’s invasion of Ukraine, has proven to be adept at managing very difficult economic conditions.
In its previous earnings print, the Beaverton, Oregon-based company earned 87 cents per share, which was well ahead of Wall Street forecasts of 71 cents. Revenues increased 5% to $10.87 billion as Nike’s North American sales offset an 8% slump in China. Nike said its direct-to-consumer sales are thriving and that sports equipment sales rose 36% from last year. Still, analysts at Deutsche Bank (NYSE:DB), Cowen & Co. (NASDAQ:COWN) and Bank of America (NYSE:BAC) each revised lower their price targets on NKE stock in recent weeks, citing the potential impact from renewed Covid-19 lockdowns in China.
For its earnings report on June 27, analysts are calling for Nike to report earnings per share (EPS) of 83 cents on revenues of $12.11 billion.
General Mills (GIS)
Consumer food giant General Mills is the rarest of stocks whose share price is actually up this year. So far in 2022, GIS stock has gained 2.50% to recently trade at $68.95. While not spectacular, General Mills gain stands in stark contract to the 22% decline in the benchmark S&P 500 index, and is a testament to the resiliency of consumer staple stocks.
The year to date return from the company behind Cheerios cereal, Nature Valley granola bars, and Betty Crocker baking products is all the more impressive coming as it does in the face of inflation that is at a 40-year high in the U.S. Despite elevated prices, consumers continue to buy General Mills products and investors keep buying the stock.
Last month, General Mills revised up its outlook for all of this year, saying it now expects its adjusted earnings per share will grow between 0% and 2%, which is better than the decline of -2% to -1% it previously forecast. The Minneapolis, Minnesota-based company also continues to buy back its own stock at a decent rate. Through the first nine months of its current fiscal year, General Mills bought back $550 million worth of its own stock, reducing GIS stock by 1% to 614 million shares. The company also pays a quarterly dividend that recently yielded 3% or 51 cents per share.
Wall Street is looking for General Mills to report EPS of $1.01 on revenues of $4.80 billion when it announces earnings on June 29.
Earnings: Bed Bath & Beyond (BBBY)
Domestic merchandise retailer Bed Bath & Beyond hasn’t managed to completely escape its meme stock status. In March of this year, BBBY stock was pushed up as high as $27.23 a share. Since then, it has collapsed 74% to recently change hands at $6.90.
While the share price stabilized somewhat, it is still vulnerable to being squeezed higher by retail investors who continue to target it based on the short interest Wall Street has in the stock. Analysts ranging from Bank of America to Wells Fargo (NYSE:WFC) continue to downgrade Bed Bath & Beyond’s stock and remain pessimistic on the company’s outlook.
Some analysts, including at Loop Capital, are forecasting that Bed Bath & Beyond will file for Chapter 11 bankruptcy this year in the wake of high inflation, rising interest rates, a poor balance sheet, and huge debt levels.
It was revealed in March, when BBBY stock last vaulted higher, that activist investor Ryan Cohen has taken a 9.8% stake in Bed Bath & Beyond with plans to help turn the business around. However, it remains to be seen if Cohen can salvage the company’s business or if he would support a reorganization under bankruptcy protection from creditors, or an outright sale of Bed Bath & Beyond.
Analysts are forecasting that the Union, New Jersey-based company will report an EPS loss of -$1.37 on revenues of $1.52 billion.
Micron Technology (MU)
Like most technology stocks, computer data storage company Micron Technology has had a rough go of it this year. So far in 2022, MU stock is down 42% at $55.66 per share. While many tech stocks have fared worse and are down more than 70%, Micron Technology’s decline is no doubt worrisome to shareholders.
Yet many analysts see the current downturn as a buying opportunity, noting that the company operates in a specialized area of the chip sector and that its stock is attractively priced at current levels. Specifically, Micron manufactures memory (DRAM) and storage (NAND) chips that are in high demand in consumer technologies, industrial applications, and at data storage centers.
At an investor day held in May, Micron stressed a significant shift in its business. The company said that consumer-focused segments of its product portfolio would drop from 55% to 38% of its business by 2025, while the data center portion of its operations is expected to grow to 42% from 30% of Micron’s portfolio.
Analysts say the growing focus on data centers should help insulate the company from future cyclical market downturns and slowdowns in consumer spending. Next week, analysts expect that Micron Technology will report EPS of $2.46 on revenues of $8.67 billion.
Disclosure: On the date of publication, Joel Baglole held a long position in BAC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.