Looking at the week ahead: June 16-20
Posted
Jun 13 2008, 06:29 PM
by
Andrew Horowitz
Rating:
There are only a few sectors that may be considered healthy in an otherwise sickly market these days. Energy is one sector that has investors smiling. While there is still a great deal of ongoing investigation being done into the potential manipulation of energy prices by speculators, shares of most companies within the oil sector have been continuing to climb as the higher level of oil prices will ultimately help their profits. Surely there will come a time when prices are high enough to push corrective legislation along with a hope for a fundamental change in America’s ideals concerning oil consumption.
Technology has also been somewhat immune from much of the horror that we have seen in many of the market sectors and this week ‘s earnings starts with a longtime industry leader, Adobe. (Listen to The Disciplined Investor Podcast #61 as we will be discussing technology with guests John C. Dvorak and Leo Laporte) Here's a look at upcoming earnings and economic factors that could drive the markets next week.
Monday, June 16
Adobe Systems is set to come out with some impressive earnings. As compared to the year ago period, First Call is expecting $.46 per share on $879 million of revenue. Adobe has done an amazing job at consolidating an industry that was somewhat fragmented. With the acquisition of Macromedia, Adobe’s product offerings meet the needs of an entire range of graphic and design related needs. EPS growth rate is remarkable and is expected to continue to be in the strong double digits approaching 60% for the next number of quarters. Sales have also been strong and technically the stock looks poised to bounce higher off of its 200-day moving average. Adobe has a complete product offering that appeals to both the professional and the amateur, and with no significant competition for its headline products, Adobe is uniquely positioned and could be considered a core portfolio holding.
Tuesday, June 17
Best Buy has shown remarkable resiliency in the face of a consumer that has all but shut down. Shares have been hobbling along in a range between $40 and $46 over last month as the uncertainty surrounding our economic condition continues. Even so, the Best Buy is expected to have quarterly earnings approaching $.36 per share that bodes well for them as compared to last year ago in the same period (or $.09 per share). First Call is also predicting that the company will show revenues of $8.5 billion. Fundamentally, the company looks relatively strong and technically, it looks solid. Shares have been making a series of higher lows since March and the consolidation range has tightened considerably.
Goldman Sachs will show us exactly what’s going on as they reveal whether they have been able to withstand a significant pressure and hardships that have shown to be so detrimental to other companies within this ravaged sector. Historically, Goldman has been able to pull a few rabbits out of their hats as they have gone against the grain by hedging a good amount of the problem areas within their portfolio. Even so, shares have been wilting from a high of $250 in November 2007 to the mid-$160s now. Investors have high expectations for Goldman as most see them as the “crown jewel” of the sector. We are watching the earning’s estimates come in at $3.42 per share on revenue expectations of $8.7 billion. If nothing else, it should be fun pre-market activity to watch.
Wednesday, June 18
The opening festivities begin with earnings from CarMax. CarMax shares are running out of gas as they have been falling precipitously over last few weeks from a high of about $22 per share from current level approaching $18. That is 20% in only a month! Shares have been beaten up pretty badly as this retail giant has short inconsistency in the inability to bandage the bleeding. But, don’t rush to point a finger only at management as consumers have eco-traumatized and now seem to be watching every penny. Unless there is a groundbreaking announcement by management that shows CarMax to have a plan to combat recession, shares should continue to fade after announcing earnings, which are expected to come in around $.22 per share. It will be no surprise if there is a significant revenue shortfall as compared to previous quarters as new car sales and high-ticket items have been slowing and credit tightening has been causing additional pain for car manufacturers and distributors. I don’t suppose that the economic stimulus checks are going to end up over here…
Surely, all eyes will be focused on Morgan Stanley today. Investors are hanging on every press release, every whisper and every rumor related to financial firms, especially those in the brokerage sector. Morgan Stanley, no different than the rest, has been hard hit by the implosion of the CDO market, not to mention a healthy dose of write-downs from other credit related disasters. Morgan Stanley has also been in focus as one of the significant traders within the natural gas market. It will be very interesting to see how their trading may have benefited their earnings and ultimately their balance sheet. Recently, legislation has passed that will effectively close the “Enron Loophole” that has afforded some commodity traders the opportunity to super-speculate within the energy markets outside the regulatory oversight of the U.S. Morgan Stanley could have cleaned up this quarter as commodities soared. If estimated earnings of $.92 per share on $7.05 billion of revenue are matched, it may be due to some of their extracurricular trading business. How long can that last?
Thursday, June 19
Newsflash: The travel industry has been hit hard by the recessionary environment, especially high-ticket vacations. Carnival Cruise Lines (NYSE:CCL) has not been exempt from problems. First Call shows revenue estimates of $3.3 billion and quarterly earnings of $.43 per share. As you’d expect, shares have been sinking to the bottom of the their range which is close the their support level of $36. The chart pattern looks unappetizing and unless they can show that there is a significant opportunity to profit from their 85 ships that have an unending appetite for fuel, investors will continue to punish without a second thought. Yet, there may be one consideration before throwing in the towel. Perhaps travelers are looking for alternatives to road trips and high cost vacations and loading up on budget cruises. Possible? Yes. Probably? No.
Interestingly, H&R Block has been doing quite well during this difficult market conditions. Earnings estimates are on the rise and are actually showing a nice increase as compared to the same period last year. The estimates call for earnings of $2.5 billion and quarterly earnings of $2.01 per share. How can a company that provides investment mortgage and accounting services be sporting such a pleasant chart and solid fundamentals? One important part of the answer is that in May of 2008, they sold off their mortgage loan servicing business. In a deal that brought in approximately $1.3 billion from WL Ross & Co., most analysts have been looking upon the transaction favorably. Most confirm that this will help to increase investor confidence and refocus the company on its core tax preparation business. Exciting? Maybe not, but this may actually be one company that survives the financial disaster of ’08, relatively unscathed.
Friday, June 20
Road trip! I always wanted to travel the country with my three kids and wife in a Winnebago. Don’t you? Somehow, the opportunity to drain my wallet on $4 per gallon gas while being in close proximity to three bored teenagers is something that is appealing to me. Perhaps it is the masochist in me or the fact that driving a horizontal-house-on-wheels over a long stretch of empty road is just part of the male genetics. Never the less, I will resist buying into shares of a company that is not only in the housing sector but also has significant ties to the automobile sector. Add to that the fact that they are negatively affected by the rising cost of fuel and it’s no wonder that First Call is estimating a significant drop in quarterly earnings to $.06 per share.
Related Reading:
Circuit City Gives up the fight
TDI Episode 52: SuperCapitalism
Wishing for a geek IPO
HDTV shoppers tune out Best Buy
Disclosure: Horowitz & Company clients do not hold positions in securities mentioned as of the publish date.
