Upcoming Reports Are Make-or-Break for These Companies
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Earlier this morning, the U.S. Department of Commerce released disappointing fourth quarter GDP data. The news release indicates the U.S. economy contracted during the fourth quarter of 2012, the first time we’ve experienced GDP contraction since the second quarter of 2009.
Gross domestic product fell at a 0.1% annual rate for the October - December period, compared to 3.1% growth during the July - September third quarter. Overall, the U.S. economy grew at 2.2% for the 2012 calendar year, barely enough to sustain corporate profitability. The multi-year bull market we've experienced may be showing signs of exhaustion.
On the earnings front, all eyes will be on Facebook’s earnings call after the market close at 5pm ET today. Last night, Amazon Founder and CEO Jeff Bezos stole the show, reporting a fourth-quarter gross profit margin of 24 percent, much higher than Wall Street expected. Despite a lower-than-expected EPS and revenue shortfall, shares of Amazon rallied more than 10% in the after-hours session on January 29.
Here’s my take on upcoming pivotal reports for Facebook, Qualcomm, and Skyworks Solutions.
Facebook (NASDAQ: FB)
Wednesday, Jan. 30 after market close; EPS $0.14 / Revenue $1.53B
Shares of Facebook have risen a massive 60% since the company’s last earnings call on October 23, and investors will be looking to justify the stock’s recent gains with a strong fourth quarter report on Wednesday.
There has been a sea change of opinion on Facebook in recent weeks, as overall pessimism surrounding the stock has decreased significantly. Investor optimism was buoyed in late October when the company revealed that 14% of third quarter advertising revenue came from mobile. Total revenue for the third quarter was also 32% higher than the second quarter.
On an anecdotal basis, the Detroit News recently published an article stating that General Motors is considering a return to advertising on Facebook, after the company garnered significant publicity by withdrawing from the platform earlier in 2012. At the time, GM stated there was insufficient evidence of a return on investment.
Founder Mark Zuckerberg introduced the company’s new “Graph Search” at a special event in California on January 15. Analysts believe Facebook’s new search tool could pressure companies such as Yelp, which provides restaurant and venue reviews. Facebook’s new technology allows its user base to discuss local venues amongst friends, compared to Yelp where users obtain the opinion of unknown strangers. Graph Search is not a traditional web search tool.
On January 28, Raymond James upgraded Facebook to Outperform from Market Perform with $38 price target ahead of Wednesday’s earnings call. The St. Petersburg, Florida based firm is optimistic that Facebook’s fourth quarter will show an acceleration in mobile advertising growth. Raymond James also cites Facebook’s new ad formats, stabilizing usage trends, and potential for international growth.
Deutsche Bank is less optimistic, believing revenue expectations are too high for Q4 and that investors could see weakness following the report, offering a better entry point.
Shares of Facebook have risen approximately 10% I published Romney, Obama Elect Winner in Social Media on December 2. The reference to the Presidential election in my article title reflects the belief that campaign spending could boost Facebook’s fourth quarter results.
Qualcomm (NASDAQ: QCOM)
Wednesday, Jan. 30 after market close; EPS $1.13 / Revenue $5.90B
Back on November 6, Qualcomm reported better-than-expected fourth quarter 2012 earnings and raised guidance for the 2013 fiscal year. The company crushed Q4 estimates, earning 89 cents per share on $4.87 billion in revenue, causing the stock to rise better than 8% in the after hours session.
On January 7, Qualcomm introduced its new Snapdragon 800 and 600 processors at the Consumer Electronics Show in Las Vegas. Both technology industry gurus and Wall Street analysts agree that Qualcomm continues to upstage Intel Corporation with the latest in mobile processor technology. Qualcomm’s processors are used in a Who’s Who list of smartphones and tablets from all major manufacturers, including Apple and Samsung. LG is also launching its next generation smartphone, the Optimus G Pro, which includes a Snapdragon S4 quad-core CPU.
Intel introduced its new Atom processor line earlier this month at CES with little fanfare. In contrast, Qualcomm’s new product introductions at CES lead Credit Suisse to raise their price target on the stock to $85 from a previous $78.
In addition to being a consistent innovator, Qualcomm is poised to benefit from volume growth in China with the sale of higher-end smartphones and tablets. In December, JMP Securities raised their 2014 estimates for Qualcomm specifically due to perceived Chinese strength. The firm maintains a $75 price target.
For Wednesday’s upcoming first quarter 2013 release, management provided a guidance range of $1.08-$1.16 EPS on revenue of $5.6 billion-$6.1 billion. The company offered full year guidance of $4.12 - $4.32 back in November, giving the stock a 14.5x forward P/E multiple.
I continue to believe Qualcomm is the best investment vehicle to play the growing trend in mobile computing. Shares are unchanged since I published The Troll at the Gate: Why This Company is the Clear Winner in Smartphones on November 30.
Qualcomm will also be presenting at the Goldman Sachs Technology and Internet Conference on February 13.
Skyworks Solutions (NASDAQ: SWKS)
Wednesday, Jan. 30 after market close; EPS $0.54 / Revenue $450.65M
Shares of Skyworks Solutions fell more than 6% in the after-hours session on January 23 following weakness in Apple’s quarterly report. The company develops a variety of semiconductor components used in popular devices such as iPhone 4 / 5 and Samsung’s Galaxy S III.
Skyworks Solutions has received a host of positive analyst initiations in recent weeks. On January 3, Independence, OH based Longbow Research initiated coverage with a Buy rating and $27 price target. Topeka Capital Markets followed on January 9 with its own Buy rating and $26 price target.
If recent history serves as a reliable indicator, shares of Cirrus Logic zigged and zagged before ultimately bouncing higher when the company reported strong earnings and investor concerns were put to rest. Shares of Cirrus Logic fell hard following Apple’s quarterly report on January 23, only to subsequently rally back higher on January 25 when the company announced its own strong quarter. The company develops audio components for iPhone 4 / 5, among other devices.
Weak demand for Apple’s iPhone 5 at Skyworks Solutions could be offset by Samsung’s Galaxy IV in coming quarters, which may be unveiled by the South Korean consumer electronics maker as soon as March. Skyworks Solutions also won the contract to provide the RF Power Amplifier for the Nokia Lumia 920 smartphone to the China Mobile network.
Economic Data for Wednesday, Jan. 30
On the economic front, ADP released its private payroll employment report earlier this morning at 8:30 a.m. Incremental improvement was seen for January with a 192,000 monthly gain in jobs, higher than the consensus of 172,000. Inquiring readers can view the new report on ADP’s website.
The U.S. Department of Commerce also released fourth quarter 2012 GDP earlier this morning, which I alluded to in the introduction. The U.S. economy experienced its first contraction since spring 2009, a possible indication of market indices heading lower from here. GDP fell at 0.1% during the fourth quarter, compared to 3.1% growth during Q3.
The Federal Reserve also holds its FOMC Meeting at 2:15 p.m., where the federal funds rate is expected to be left unchanged at 0% to 0.25%. FOMC stands for Federal Open Market Committee, the policy-making arm of the Federal Reserve.
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johnmacris has no position in any stocks mentioned. The Motley Fool recommends Facebook. The Motley Fool owns shares of Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!