The Key Earnings to Follow This Week
Lee is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
This week is quite an interesting one for earnings with a diverse set of companies reporting. As investors like to focus on stocks over earnings I thought it would be interesting to highlight a few and what to expect from them. I will try to cover some of them in due course.
Lennar, Paychex and Red Hat
On Monday house builder Lennar will report and investors must be hoping for good things after KB Home soared on Friday when it reported a surprise profit and reported a healthy backlog of orders. Red Hat will also report and give an update on how cloud computing spending is faring but I think the most interesting report will come from Paychex (NASDAQ: PAYX).
The two things to look out for here are whether margins are expanding and if its check per payroll metric can keep improving. The industry is competitive and there are fears that pricing is becoming difficult. As for check per payroll, it’s a good barometer of economic conditions within US small businesses. So far this year, Paychex has outperformed relative to the tone of its management. Perhaps we will see them start to issue a more positive outlook?
Copart, Neogen, Jabil Circuit and Fact Set Research
Tuesday sees car auction company Copart give results and I’m interested in the commentary. It has had a bit of an issue in obtaining stock thanks to the US drivers running their cars longer, but I think this issue could start to correct itself as new car sales have been very strong in the US this year. Popular animal food safety stock Neogen also gives results and tech investors will see how the sector is doing when electronics contract manufacturer Jabil Circuit gives results. I don’t think anyone is expecting great things here, but the tech sector has been a bit perky of late with companies not quite reporting the disasters that the market has priced in for them.
The most interesting company for me will be FactSet Research Systems (NYSE: FDS). I’ve discussed this stock at length in an article linked here. Investors will need to look out for its Annual Subscription Value growth and see if it can turn the tide of its recent declines. In addition client growth appears to be moderating. I’ve argued that the stock is relatively resistant to a slowdown because of its trading down characteristics. It tends to offer less sophisticated financial information to firms. Its results will give a good indication of what is going on with financial firms hiring and spending. It tends to be volatile over its results so keep an eye out. I still think it is expensive.
Nike, Discover Financial Services, McKormick and Global Payments
Nike is no doubt going to give some color on how strong discretionary emerging market consumer spending is at the moment. My main focus on Thursday will be on Discover Financial Services (NYSE: DFS). I’ve covered the stock in an article linked here. I like this company and its outlook. Interest rates are low, net charge offs are declining as the US household cleans up its balance sheet and the company is starting to lend again. These are all good signs for the US economy. However, in the last quarter it increased its loan loss provisions. Perhaps they are being too conservative? We shall see.
Another company I like is condiment and spice maker McCormick & Company (NYSE: MKC) of which I have written about in an article linked here. I like this company a lot and its share price has performed very well this year. However, it is hardly cheap and there are a couple of things to watch here. First, a lot of the growth on the higher margin consumer side has been coming from acquisitions. It will be interesting to see what organic growth (particularly in volumes) that it can report. Second, I think it could report some more good news on the industrial side. Food companies are increasingly being forced to innovate with flavors in order to keep market share and this could result in some upside surprise here.
Lastly Global Payments will update the market on the payment processing industry so Visa and Mastercard shareholders need take note.
This is the most interesting company to report on Friday and readers should expect Walgreen (NYSE: WAG) to start making some very positive noises about its plans to take back the customers it lost to CVS, Wal-Mart and co over the Express Scripts debacle. Frankly I am a skeptic because I think customer inertia nearly always turns out to be more powerful than people think. Indeed I made this point at length in an article linked here.
No matter, I like this sector a lot. Demographic and economics are very much in its favor. Increasing generics sales will help pharmacy margins and the consumer is actively looking to cut his bills via buying in store private label brands from the likes of CVS and Walgreen. They are both highly cash generative and I don’t think investors will go far wrong with either of them.
SaintGermain has a position in CVS. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend FactSet Research Systems, McCormick & Company, and Paychex. 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.If you have questions about this post or the Fool’s blog network, click here for information.