Earnings Watch: Valuable Insights on General Mills, Guess, and Oracle
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
After nine consecutive all-time highs were reached on the Dow Jones Industrial Average during the weeks of March 4 and March 11, it’s more likely than not that market participants will see downside or sideways action during the week of March 18.
The stock market simply doesn’t go up every single day, and pullbacks are healthy because they let the market digest gains before resuming the trend upwards. As of this writing, the Euro Zone has agreed to bailout Cyprus, which may put the brakes on the recent rally we’ve seen in U.S. and European equity markets.
As always, I’m focused on identifying specific opportunities that are more likely to earn a higher return than a broader market index. Here are three individual companies I’m following that report earnings on Wednesday, March 20.
General Mills (NYSE: GIS)
Wednesday, March 20 before market open; EPS $0.57 / Revenue $4.36 billion
I had the great opportunity to meet and speak with General Mills’ Director of Investor Relations, Penny LePorte, at a recent CFA Society of South Florida event on Feb. 20.
While the company’s brand portfolio of Cheerios cereal, Green Giant vegetables, and Pillsbury Bisquick may seem like nothing to write home about, General Mills has consistently outperformed the broader market over any time frame and with significantly less volatility.
In addition to the stable brands outlined above, General Mills owns a host of growing brand names, including Cascadian Farm Organic and Haagen-Dazs ice cream. According to data provided to me by Ms. LePorte, Cascadian Farm has grown at a compound annual growth rate (CAGR) of 17% since fiscal year 2008. Haagen-Dazs is also growing in Asia, where fiscal year 2012 sales grew a massive 30%.
For the current quarter, General Mills renewed its guidance for 2013 as recently as Feb. 19. Sales in China are expected to exceed $600 million during the full year. Analysts at Deutsche Bank advised their clients to purchase General Mills shares back on Feb. 20, on the basis of improving U.S. fundamentals and a growing international franchise. Shares have a Buy rating from Deutsche Bank.
Check back at johnmacris.com for a full-featured report on General Mills within the next week. Send an e-mail to firstname.lastname@example.org if you would like to be notified when the article is available.
Guess, Inc. (NYSE: GES)
Wednesday, March 20 after market close; EPS $0.87 / Revenue $785.6 million
The Los Angeles, CA headquartered clothing retailer is in the midst of a multi-year turnaround plan. Shares traded north of $50 in late 2010, but currently exchange hands much lower in the $26-$28 range.
Earnings per share at Guess have declined 24% in the last year, while revenue has declined 2%. On March 12, Wall Street learned that Nancy Shackman, Guess’ President of North America, left the company for undisclosed reasons. Prior to her executive role in N.A., Shackman was president of Guess’ Wholesale division and originally joined the company in 1986.
In my opinion, it’s not a positive sign to learn that a key executive has resigned, especially given the timing and the length of her career at Guess. Investors seem to agree with this assessment, as shares of Guess fell more than 4% on March 12 following the news.
For the current quarter, investors will be looking to learn more about Shackman’s departure and if management can provide any form of assurance. On a fundamental basis, Guess outlined their turnaround plan back in January at the ICR XChange Conference here in Miami.
Wall Street is bearish to neutral on Guess heading into Wednesday’s earnings release. If the retailer manages to beat expectations and give some reasoning for Shackman, shares will trade higher. Recent data indicates that Guess has short interest of approximately 17%. Any positive data will cause shorts to cover their position, thereby sending the stock higher.
Oracle Corporation (NYSE: ORCL)
Wednesday, March 20 after market close; EPS $0.66 / Revenue $9.38 billion
My friend Guy Adami of CNBC’s Fast Money always refers to Oracle as “the best M&A shop in town.” Oracle has made numerous acquisitions in the last decade that have consistently added to shareholder value, in contrast to other technology firms that make acquisitions that yield little to no fruit.
The company announced the acquisition of Acme Packet back on Feb. 4, so it’s likely that Larry Ellison, Oracle’s CEO, will dedicate a portion of Wednesday’s earnings call to this discussion. Oracle is one of the largest technology companies in the world with a market capitalization of $172 billion. The Acme deal was bite-size for Oracle, and it cost only $1.7 billion.
On March 13, investment firm Canaccord Genuity upgraded Oracle to Buy from Hold ahead of Wednesday’s earnings release. The analysts put a $42 price target on the stock, citing a discounted valuation and the potential for segment revenue ramp-up in the next two quarters.
Analysts generally believe that Oracle is still poised for strong growth despite it’s large market cap. The main reason for this is that customers have a high switching cost to other vendors if they decided to leave Oracle, as the firm has grown so large that it offers a full suite of both hardware and software. Revenue has grown only 2% at Oracle in the last 12 months, while earnings have grown 16.5%.
In addition to Acme Packet, Oracle acquired a cloud computing firm called Eloqua for less than $1 billion back in December.
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