Upcoming Reports Are Make-or-Break for These Companies
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As of this writing on March 6, the Dow Jones Industrial Average continues to make record highs.
I am not a believer in timing the market as a long-term investor. However, over the last three weeks I have been selling my stocks and have hardly put any new money to work. I am universally in agreement with the market pessimists who believe that market strength is being driven by global economic easing, which is managing to temporarily mask the fundamental weakness.
Given the above disclosure, if you want to remain invested in the market, I recommend owning stocks on an individual basis. Here are three popular stocks that report earnings on Thursday, March 7 or Friday, March 8.
Foot Locker (NYSE: FL)
Friday, March 8 before market open; EPS $0.72 / Revenue $1.68 billion
Readers likely recognize Foot Locker as the mall-based retailer of athletic shoes and apparel. As of February 2013, the company operated 3,335 stores in 23 countries across North America, Europe, Australia, and New Zealand.
The $5.3 billion Foot Locker’s principal competitor is Finish Line, which is significantly smaller with a market capitalization of only $887 million.
On February 20, Foot Locker management announced their fiscal 2013 capital allocation plans, including a first quarter dividend of $0.20 (11% increase vs. 2012), a new $600 million share repurchase program, and capital expenditures of $220 million to capitalize on growth opportunities around the globe.
Wall Street is unanimously bullish on Foot Locker heading into the company’s fourth quarter results on Friday morning. Nearly all firms believe the company will outperform the broader market in 2013 and should be owned into Friday morning’s earnings release.
Pandora Media (NYSE: P)
Thursday, March 7 after market close; EPS ($0.05) / Revenue $122.8 million
Pandora Media is a $2 billion online-radio company which went public at $16 per share in June 2011. The company boasts over 125 million registered users for Internet radio, however ticker symbol P has struggled to gain profitability as a public company.
Shares fell to a 52-week low of $7.08 in November 2012 following a weak quarter and persistent rumors that Apple Inc. would launch its own streaming radio service.
The Wall Street Journal reported in December that Pandora continues to lose more money as listeners grow, simply based on mathematics. Advertisers are willing to pay less on mobile platforms such as Android and iPhone devices than traditional desktop and laptop mediums. Music royalties have consistently exceeded the cost that advertisers are able to pay.
Despite the negativity, Wall Street believes Pandora shares can go higher, although I am not a believer. Analysts at Wells Fargo set a valuation range for the stock between $15 and $17, while Canaccord Genuity recently set a $14 price target.
For the current quarter, analysts believe that Pandora could report strong revenue (listener metrics) but guidance could cause the stock to fall. I would advise readers to sell Pandora ahead of the quarter.
In my opinion, Pandora is the epitome of wasted dollars in social media advertising for large and medium-size businesses. The reason is simple: listeners give no attention to the radio advertisements. I use Pandora and often switch to a different station when an advertisement comes on. I would argue that traditional radio is more effective than Pandora’s Internet-based radio.
Sequenom (NASDAQ: SQNM)
Thursday, March 7 after market close; EPS ($0.23) / Revenue $32.0 million
This former biotechnology high-flier traded in the mid-teens during 2008 and 2009. Sequenom manufactures biomedical products for DNA detection and genetic sequencing. In other words, the company’s diagnostic products have applications in cancer research, agricultural genomics, and in vitro testing for prenatal and retinal disorders (i.e. baby inside the mother).
Sequenom currently has a market capitalization of $500 million. For Thursday’s earnings release, investors will be looking for traction in Sequenom’s MaterniT21 product as well as upside to 2013 guidance.
MaterniT21 is the brand name product for estimating a woman's risk for having trisomy-21, or a Down Syndrome’s pregnancy. Wall Street is bullish on Sequenom as insurance carriers are beginning to offer a reimbursement for the test.
UnitedHealth will begin coverage of the MaterniT21 prenatal test in April. Analysts at Piper Jaffray upgraded Sequenom to Overweight from Neutral with a $6.50 price target. In its note to clients, Piper cited upside to Sequenom’s 2013 guidance based on potential reimbursement from Aetna, Humana, and others.
In February, Aetna stated in a company document that it favored testing of cell-free fetal nucleic acids with at-risk women. Analysts on Wall Street are connecting Aetna’s comments with Sequenom indicating that the insurance carrier will likely pick up coverage of the MaterniT21 test.
Foolish Bottom Line
Among the three companies outlined above, I am bullish on Foot Locker and neutral on Sequenom. I recommend buying shares of Foot Locker ahead of Friday’s earnings call.
Unfortunately, I am bearish on Pandora as the company’s advertising model has no visible return-on-investment for corporate advertisers. Shareholders of Pandora could see significant upside if the company was acquired by an outside party (i.e. Apple or Google), however that reason alone isn’t sufficient enough to own the stock. I do not believe Apple or Google will acquire.
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