Upcoming Reports Are Make-or-Break for Technology
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Are technology stocks headed for another bullish breakout?
On Thursday, July 11, the S&P 500 climbed above its all-time closing record of 1,669.16 reached back on May 21. Investor confidence was renewed in the market following a speech by Fed chairman Ben Bernanke on Wednesday evening, in which he asserted that monetary stimulus will continue until the unemployment rate falls to 6.5%.
The nascent rally comes as investors approach a critical earnings season. Corporate profits are expected to grow minimally, but the technology sector is hoping to assert itself as a new market leader.
Here are several tech companies I’m following that are running on high expectations:
Data storage company
Wednesday, July 17 after market close; EPS $0.92 / Revenue $1.39B
SanDisk Corporation (NASDAQ: SNDK) designs, develops, and manufactures data storage technologies in a variety of form factors. The company’s principal competitor is Intel Corporation, which also reports earnings on July 17. SanDisk has a market capitalization of $15 billion, while Intel is much larger at $118 billion.
Shares of SanDisk have outperformed the broader market with a 40% year-to-date return and a 78.6% return in the last 52 weeks. The company has benefitted from superior technology to its competitors in flash memory, which has allowed SanDisk’s gross margin to expand in recent quarters.
For Wednesday’s earnings report, investors will be looking for continued strength in NAND flash memory pricing. Industry research firm DigiTimes is reporting that supply of flash memory remains limited, due to continued strength in smartphones and tablets. I believe this will bode well for SanDisk’s June quarter on Wednesday, as well as the September quarter on a future date.
Analysts at Needham & Co. raised their price target to $75 from a previous $70 ahead of Wednesday’s report. I view SanDisk positively ahead of the quarter and for long-term investors.
Digital media company
Tuesday, July 16 after market close; EPS $0.30 / Revenue $1.08B
Yahoo! (NASDAQ: YHOO) is a media company which delivers digital content across its range of Internet properties, notably Yahoo.com. Chief executive Marissa Mayer is approaching her 1st year anniversary at the Yahoo! helm, coincidentally on July 16, the date of the Q2 earnings call.
On June 25, Yahoo! held its annual meeting of shareholders in Santa Clara, CA. CEO Mayer spoke at the shareholder meeting, highlighting a number of impressive user engagement statistics. The company is in the midst of a turnaround as it hopes to gain market share from larger competitor Google. Among other statistics, Mayer states that daily users of Yahoo! Mail for mobile devices have risen 70% since the redesign in December 2012.
Ahead of Tuesday’s earnings release, a number of Wall Street firms have spoken positively on Yahoo!. Analysts at Citigroup initiated coverage with a “buy” rating and $30 price target, while Needham & Co. raised its price target to $31 from a previous $26.
Yahoo! earnings may have slight upside based on a lower-than-expected tax rate for the quarter. The company appears well-positioned ahead of Q2 earnings, although long-term investors will need to see further evidence of a turnaround.
Information technology leader
Wednesday, July 17 after market close; EPS $3.78 / Revenue $25.35B
IBM (NYSE: IBM) is a $215 billion technology conglomerate which operates within global services, software, and systems and technology as its main lines of business.
Shares of IBM are unchanged on the year, in contrast to the S&P 500 which has posted an impressive 17% gain. IBM’s business prospects are heavily weighted towards the enterprise-level customer, or large corporations with millions of dollars in technology spending.
Management consulting firm and competitor Accenture provided a weak outlook for enterprise spending when it reported Q3 earnings on June 27. Shares of ACN fell more than 14% on the news, causing IBM to move lower in the wake of the report.
A number of Wall Street firms have spoken negatively on IBM ahead of Wednesday’s earnings report. Analysts at Goldman Sachs downgraded the stock to “neutral” from a previous “buy” rating, and lowered the price target to $200 from $220.
Swiss investment firm UBS believes that consensus estimates are too high for IBM’s upcoming Q2 earnings release, stating that revenue is likely to fall short of expectations due to weakness in emerging markets. In light of the near-term headwinds, UBS reiterated its “buy” rating and $235 price target.
IBM is likely to be a winner in cloud computing and big data in the long-term. Nevertheless, the patient investor seeking to buy IBM might find a more attractive price point after the company release its Q2 earnings report on Friday.
Earnings season is always full of surprises, and investor sentiment could change based on upcoming reports.
Readers might consider SanDisk Corporation ahead of Wednesday’s earnings release. The company is benefitting from strong demand and pricing power in NAND flash memory.
In contrast to SanDisk, I believe investors should wait until after IBM’s earnings release to initiate a long-term position. Wednesday’s quarter could be affected by the soft macro environment, similar to competitor Accenture.
Finally, the long-term picture at Yahoo! remains unclear, but management should meet expectations on Tuesday’s earnings call.
John Macris has no position in any stocks mentioned. The Motley Fool owns shares of International Business Machines.. 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!