By Laura Brodbeck for Benzinga
Markets will also be looking to the Group of Twenty summit, set to take place in Australia. The summit, though normally focused on the global economy, will likely center around the growing tension between Russia and the West. World leaders are also expected to discuss the global financial system and how to keep multi-national companies from utilizing tax loopholes to avoid paying taxes.
Key Earnings Reports
Next week investors will be waiting for several key earnings reports including The Home Depot, Inc. (NYSE: HD), Target Corporation (NYSE: TGT), Lowe’s Companies, Inc. (NYSE: LOW), Best Buy Co Inc (NYSE: BBY) and Staples, Inc. (NASDAQ: SPLS).
Home Depot is expected to report third quarter EPS of $1.13 on revenue of $20.47 billion, compared to last year’s EPS of $0.95 on revenue of $19.47 billion.
On November 10, Bank Of America gave Home Depot a Buy rating with a $100 price objective, cautioning that a harsh winter, among other things, could hinder the company’s forward progress.
“Our 12-month price objective of $100 is based on about 19x the midpoint of our 2015 EPS estimate. Over the past five years, Home Depot shares have traded between approximately 10x and 20x. We believe the shares should trade at the upper end of this range based on further upside to our estimates given consistent execution and strong industry fundamentals. Downside risks to our price objective are further weakening in the housing market, deterioration in the competitive landscape, unseasonable weather and poor execution in supply chain upgrades. Upside risks are a noticeable acceleration in the housing market or further acceleration in same-store sales trends.”
On August 19, Credit Suisse gave Home Depot an Outperform rating with a $95.00 target price, citing the company’s impressive cash flow as one reason for their optimism.
“Home Depot is on pace to deliver over 20% earnings growth, is generating more cash flow than it seems to be able to use in the short term (note that payables rose as a percent of inventory, another cash flow source), is clearly gaining share in its key categories and, in our opinion, has the best in front of it. Equally importantly, HD is doing this in an uncertain retail backdrop, as despite the company's traffic increase of 4.2%, overall retail traffic is down 5%+ year-to-date according to ShopperTrak.”
On November 8, S&P Capital IQ gave Home Depot a Hold rating with a $94.00 price target, saying that the improving housing market could help grow the business.
“We expect retail sales to increase 4.8% in FY 2015 (Jan.), following a 5.4% advance in FY 2014. We see this rise reflecting new retail store additions, including international store openings, and an approximately 4.5% increase in same-store sales. We continue to project a moderate housing recovery, but think that consumer caution could adversely impact remodeling activity related to home refinancing. We forecast revenues rising 4.4% in FY 2016.”
Target is expected to report third quarter EPS of $0.47 on revenue of $17.56 billion, compared to last year’s EPS of $0.56 on revenue of $17.26 billion
On November 3, Gilford Securities gave Target a Neutral rating, saying that the company’s decision to compete with online retailers like Amazon.com by offering free shipping isn't as much of risk as it appears.
“Instead of waiting for Black Friday, holiday pricing discount have already begun. This will pull forward holiday sales and cause a greater slackening of sales in early December than in recent years, and more tension. Elasticity for holiday spending appears unlikely to offset gross margins reductions caused by price competition and free shipping offers. Retail profits will probably be pressured —including Amazon’s. Marginal retailers without a plump profit cushion to absorb the impact will be hurt hardest. A slide toward shakeout of weak retailers is accelerating. Free shipping for digital orders, a form of price competition, will be costly unless it is met by sufficiently sizable incremental sales. Target’s offer of free shipping for all orders is a potentially costly gambit to obtain sales. But about two-thirds of its online orders have qualified for free shipping, so the move is not as radical as it appears.”
On November 11, Bank of America gave Target an Underperform rating with a $50.00 price objective, saying that the company is likely to be more aggressive during this year’s holiday shopping season.
“TGT’s November 10 Black Friday pre-sale suggests that the retailer will be more aggressive in its holiday promotions than in previous years and indicates a possible shift under new CEO Brian Cornell. TGT’s advertised Black Friday deals show items listed below WMT prices by as much as 40% and below TGT’s regular retail prices by more than 50% on some items (see Table 1). TGT is also offering free shipping on online orders through December 20th. However, TGT is not the only retailer to begin its Black Friday deals earlier. WMT also launched holiday rollbacks beginning in early November and is offering free shipping on 100 popular items. We maintain our Underperform rating on TGT.”
On November 8, S&P Capital IQ gave Target a Hold rating with a $60.00 price target, saying that the company’s data breach could impact sales.
“We think the impact of a recent data breach will be manageable, although we expect a modest related sales slowdown to persist in FY 2015. While results at new Canadian stores have been disappointing, we think diminishing Canadian losses in FY 2015, turning to profits thereafter, will drive above-average EPS growth versus peers over the next several years. We also think a more substantial economic recovery in the U.S. in 2015 could drive improved sales results.”
Lowe’s is expected to report third quarter EPS of $0.58 on revenue of $13.54 billion, compared to last year’s EPS of $0.47 on revenue of $12.96 billion.
On November 19, Bank of America gave Lowe’s a Buy rating with a $61.00 price objective, noting that the company could see benefits from the improving housing market in the US.
“Our PO of $61 is based on 19x 2015 EPS estimates. We believe a multiple towards the higher end of its historical range is warranted given an optimistic industry outlook and the potential for further upward earnings revisions, though this may take time. Upside risks to our PO are reacceleration in the housing environment, better-than-expected results from MyLowes.com and other online/IT initiatives, better-than-expected market share gains and better-than-expected results from SKU rationalization and vendor negotiations. Downside risks to our PO are further weakness in housing, friction in relationships with vendors, deterioration in the competitive landscape, unseasonable weather and poor execution in international expansion.”
On August 20, Credit Suisse gave Lowe’s an Outperform rating with a $58.00 target price, saying the stock has solid long and short-term potential.
“Lowe's remains a favored stock by us and many shorter and longer term funds. That reflects the oligopoly nature of the segment, the early stages of a recovering housing cycle, some significant execution improvement led by Mike Jones and the team, and of course, the opportunity to gain share from Sears. The valuation is also quite supportive, given the cash return policies in place. We are raising our target price to $58.”
On November 8, S&P Capital IQ gave Lowe’s a Hold rating with a $53.00 price target, saying that the housing market recovery has likely bottomed.
“With our view of LOW's strong balance sheet and impressive free cash flow generation, we think the shares are reasonably valued relative to expected near term growth. We think housing turnover has bottomed, but we do not anticipate a strong recovery over the next 12 months, particularly in single-family homes, as bank lending standards remain tight. In addition, with home refinancings and home equity loans likely to be somewhat sparse in the near term, we expect home remodeling activity, particularly on big projects, to be rather lackluster.”
Best Buy is expected to report third quarter EPS of $0.24 on revenue of $9.06 billion, compared to last year’s EPS of $0.18 on revenue of $9.36 billion.
On October 24, Bank of America gave Best Buy a Buy rating with a $40.00 price target, saying that the company has multiple catalysts for growth.
“We are turning more positive on BBY and raising ests and PO going into 3Q earnings in late November. We see a clear roadmap to $40 PO (14x 2015 P/E) based on a 3Q beat and cost savings target raise and a 4Q beat as multiple product cycles (iPhone 6, 4K TVs, gaming, and appliances) support enhanced comps and earnings leverage. From 2015 onwards, we expect FCF of $1.1-1.3bn (on growing net income and stable capex/WC) to generate additional EPS growth. We are raising ests for 2014-16E ests to $2.42/2.84/3.33 from 2.33/2.73/3.17. Our new ests are now 5/8/19% above the Street.”
On August 26, Credit Suisse gave Best Buy an Outperform rating with a $40.00 target price, saying that the firm expects to see Best Buy improve in the fourth quarter.
“BBY's stock is declining today over a combination of in-line, but negative comps, and lower profit projections for the rest of the year. We do not view either as a surprise and we continue to believe that the company is set to provide upside this fourth quarter as it has many differing elements that should come together in the fourth quarter. Given what we view as a skeptical valuation, we like the risk/reward on this stock and remain buyers. That said, investors should not be looking for the top-line in the near term to be positive as the industry itself has some significant pockets of weakness.”
On November 11, Morgan Stanley gave Best Buy an Outperform rating, saying that the company has managed to do a 180 to revive the brand.
“BBY is one of our top picks and the most compelling turn-around story among our coverage. For Q3, we see $0.01-0.02 of upside to consensus of $0.24. The stock has had a strong move intra-quarter (~+20%) given an expectation of tailwinds in consumer electronics (iPhone 6, 4kTV) perhaps paving the way to positive comps in Q4. We believe the market is now expecting to see some early signals of the Q4 trends to appear in Q3. We do not think buyside expectations for comp have turned positive (guidance is for negative low single digits), but perhaps less negative than the consensus expectation of -2.0%.”
On November 8, S&P Capital IQ gave Best Buy a Hold rating with a $32.00 target price, saying the company is likely to continue losing some business to online retailers.
“We project revenue in FY 15 (Jan.) down 2% to 3% from FY 14 revenue. We expect results in FY 15 to reflect negative comparable-store sales as more sales shift to online. Some categories such as mobile have been weak, as has the overall electronics industry, but the new iPhone release could help in-store traffic volume. We see average square footage decreasing about 1% from recent and anticipated store closures.”
Staples is expected to report third quarter EPS of $0.36 on revenue of $5.93 billion, compared to last year’s EPS of $0.42 on revenue of $6.11 billion.
On November 14, Bank of America gave Staples an Underperform rating, cautioning that the company will likely report weak sales.
“While Buy-rated ODP (ODP; $6.72; C-1-9) reported better than expected 3Q last week on a continuation of strong cost reduction and improvements in operations, we do not expect this to carry through to SPLS. Industry conditions remain tough and strong performance at ODP has been driven entirely by internal initiatives and strong execution by senior management. We reiterate our Underperform rating on SPLS, as we continue to believe that savings from cost reduction will be more than offset by weak results within retail, structural pressure within core categories and cost savings reinvestment.”
On September 2, Credit Suisse gave Staples an Outperform rating with a $15.00 target price, citing a possible merger between Staples and Office Depot (NYSE: ODP).
“We believe that a merger of the remaining office supply superstore chains, Staples and Office Depot, makes significant financial and operational sense, and in this note we detail why. We are upgrading Staples to go along with our Outperform rating on ODP (see page 21 for material changes), because we believe the math is so compelling and the current Staples valuation leaves limited downside, in our opinion, even if nothing happens.”
On November 8, S&P Capital IQ gave Staples a Hold rating with a $12.00 price target, saying that falling sales and downsizing could weigh on share performance.
“We see sales falling 2.5% in FY 2015 (Jan.), to $22.5 billion, from the $23.1 billion seen in FY 2014, itself a 1.1% decline from FY 2013. We expect declines in square footage as SPLS closes and downsizes underperforming stores to boost profitability, but see same-store sales turning positive later in the year on improved economic trends and market share gains. We expect some stabilization in the European business as the macro environment bottoms. We project additional strength in the contract business as growth in newer categories offsets pressure in core office supplies. We expect FY 2016 revenues to shrink 2.3%.”
Next week, investors will be focused on data from the US as the Federal Reserve is set to release the minutes from it’s October policy meeting. The minutes aren’t expected to reveal anything surprising, but nonetheless, investors will still be scouring the transcripts for any clues about the bank’s rate hike plans.
- Earnings Releases Expected: Agilent Technologies, Hanger, Tyson Foods, Urban Outfitters
- Economic Releases Expected: Italian trade balance, Spanish trade balance, US industrial production, US manufacturing production
- Earnings Expected: Home Depot, TJX Companies
- Economic Releases Expected: British CPI, British PPI, German ZEW economic sentiment, US PPI, US redbook
- Earnings Expected: Salesforce.com, Lowe’s Companies, Staples, Target Corporation
- Economic Releases Expected: US housing starts, Japanese trade balance, Japanese manufacturing PMI, Chinese manufacturing PMI, Federal Reserve Meeting Minutes
- Earnings Expected From: Autodesk, Best Buy, Buckle, Dollar Tree, The Gap, Ross Stores, Stein Mart
- Economic Releases Expected: Chinese trade balance, French manufacturing and service PMI, German manufacturing and service PMI, Eurozone manufacturing and service PMI, Eurozone composite PMI, British retail sales, US manufacturing PMI, US existing home sales
- Earnings Expected From: ANN, Hibbett Sports, Tsakos Energy Navication
- Economic Releases Expected: Canadian CPI, Mexican GDP
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