Editor’s note: InvestorPlace’s Earnings Reports to Watch is updated weekly. Please check back next week for our latest earnings picks.
Earnings season is getting closer at an interesting time for the markets. The S&P 500 still is down 3% from highs reached early last month. But in the context of a global pandemic, that modest pullback and a 4% year-to-date decline hardly seem disappointing.
Tech stocks, meanwhile, continue to roar. The Nasdaq Composite has gained over 13% year-to-date, and closed Wednesday at new highs. As a result, more than a few investors have argued that the U.S. somehow is in the middle of a recession and a stock bubble simultaneously.
Corporate earnings alone aren’t going to settle the broader bull/bear debate. But with second-quarter reports set to include the recovery that ostensibly began in June, we should get a better idea of where, exactly, the U.S. and global economies stand at the moment.
In the meantime, however, there’s a quiet week, albeit one with a few earnings reports to watch. Distributor MSC Industrial Direct (NYSE:MSM) on Wednesday morning should have insight into demand into the important construction industry. Levi Strauss (NYSE:LEVI) and Simply Good Foods (NASDAQ:SMPL) will detail consumer trends.
But the three biggest releases on the earnings calendar have a little more heft. And they could provide a preview of what’s to come when earnings season begins the following week. Investors should keep a close eye on earnings next week from:
Earnings Reports to Watch: Paychex (PAYX)
Earnings Report Date: Tuesday, July 7, before market open
Ahead of earnings season, an up-to-date view of U.S. employment certainly would be useful. Paychex should provide that view on Tuesday morning. Results from the payroll and human resources company are a direct reflection of broader trends — particularly in small businesses hit hard by the pandemic.
That alone makes Paychex earnings important for essentially any investor. But trading in PAYX stock is worth watching as well. PAYX still is down over 10% YTD. That’s a modest surprise in a market that, for the most part, has taken the long view outside of significantly challenged sectors like travel and casinos.
Investors shouldn’t necessarily expect that to change next week. Post-earnings moves throughout the market have been relatively muted since the novel coronavirus exploded in the U.S., in large part because individual quarterly results don’t have the meaning they do in a more normal environment. But if we do see a big move in Paychex stock next week, that could be a sign of changing investor sentiment ahead of a slew of reports from the world’s largest companies over the following few weeks.
Bed Bath & Beyond (BBBY)
Earnings Report Date: Wednesday, July 8, after market close
With a market capitalization of about $1.4 billion, Bed Bath & Beyond doesn’t seem like the kind of retailer that can move its sector. But its relatively low market value belies its import. Trailing 12-month revenue is over $11 billion. And secondary brands like Buy Buy BABY and World Market give the company a reasonably broad reach.
That combination of size and reach adds heft to the company’s commentary. We haven’t had much in the way of earnings news from retailers in the last few weeks as states have slowly reopened. Investors throughout the sector thus will be listening closely to Bed Bath & Beyond management to get a feel for how demand has (or hasn’t) rebounded.
Meanwhile, for BBBY stock, this is an important report. The company’s long-running and inconsistent turnaround had shown some signs of progress in the second half of 2019. A new chief executive officer, hired away from Target (NYSE:TGT), sparked optimism.
But shares have rallied as some investors see progress as only delayed, not stopped. On this site last week, InvestorPlace Markets Analyst Luke Lango argued that shares could double. With a whopping 59% of the float sold short, there’s no shortage of bears taking the other side of that argument.
A strong first-quarter release, and commentary that suggests further improvements in Q2, would keep the momentum going. Anything less, however, and it’s going to take a long time for Bed Bath & Beyond to re-inspire investor confidence.
Walgreens Boots Alliance (WBA)
Earnings Report Date: Thursday, July 9, before market open
This already was a huge report for Walgreens Boots Alliance. WBA stock touched a seven-year low in March. With a subsequent rally fading, shares now are only 11% above those lows.
Earnings were heading in the wrong direction even before the pandemic hit. Adjusted operating profit, through the first half of fiscal 2020 (ending February), declined nearly 14% year-over-year. Secular headwinds, including pressure on reimbursement rates paid by insurers, are a significant factor. But Walgreens’ execution has seemed lacking as well.
Walgreens is supposed to be a better operator than Rite Aid, which is why it looked to buy its rival a few years back. But the smaller Rite Aid just set a very high bar for Walgreens to clear.
Simply put, Walgreens has to at worst match Rite Aid’s performance. WBA stock admittedly is cheap. But with a leveraged balance sheet and earnings already heading in the right direction, market share losses will ensure that it’s not yet cheap enough.
After spending time at a retail brokerage, Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets. As of this writing, he has no positions in any securities mentioned.