Key Earnings For The Week of March 4
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Earnings season is starting to quiet down this week but there are still some interesting stocks to look at. There isn’t a clear sector or theme or even anyof the major bellwethers reporting. But what we do have is a collection of companies that seem to be in a period of making changes to their business in response to market trends. I'll disuss some of these issues below.
As for the market, February has been a consolidating month where I have noticed a large amount of rotation going on. Staples and health care stocks appear to be fully valued but plenty of technology stocks appear cheap. This is causing some problems for those of us who like to stay balanced but not overpay for stocks. I’m not sure how this dichotomy will be resolved. Either earnings expectations are too high in technology as the economy starts slowing o,r the sector will outperform. I’ve also noted some weakness in retail as the market frets over rising taxes, fuel, the sequester and whatever else is ganging up on the US consumer.
Smith & Wesson give results and investors will be expecting a good set of numbers after its peer Sturm Ruger & Co saw revenues rise 50% last year. Demand has been pulled forward following speculation over increased hand gun regulation.
My pick of the day has to be Verifone (NYSE: PAY). It has already given preliminary results and reduced earnings estimates in eye-watering fashion. The stock has rapidly turned from a growth play to a value proposition and is now looking like a special situations candidate. Intuit’s payment solutions business is doing fine with mid teens growth so it’s not like the end market is particularly bad. However Verifone’s execution appears to be problematic and the European exposure is not helping matters much either. The challenge with these earnings is to re-establish credibility with the investment community because it does have growth opportunities, particularly within emerging markets.
A couple of interesting retail names report today when PetSmart and Williams-Sonoma (NYSE: WSM) give numbers. The animal health sector is on fire at the moment but it is not the easiest sector to find cheap stocks in. Petsmart looks like the best value but it will always have longer term concerns over Wal-Mart and others encroaching on its markets.
Williams-Sonoma is a tangential play on a recovery in US housing but the stock price hasn’t done too well recently as the market worries about consumer spending in 2013. The key to its growth strategy is its Pottery Barn and West Elm brands. Investors should look out for commentary regarding the West Elm expansion this year as well as its international plans. I think the West Elm Market concept is interesting and would hope to hear confident noises over expansion particularly as this sort of initiative helps to foster differentiation from the online entrants in to the home furnishings market. The stock is not expensively priced but there is a need to demonstrate that margins will not be eroded by its growth activities.
Thursday is the most interesting day of the week. I am a big of fan of Cooper Companies (NYSE: COO) and its defensive growth prospects. Eye care is a recession resistant market and Cooper has many growth prospects particularly from international expansion into the Far East and from convincing customers to trade up to silicone hydrogel based lenses. Another key thing to look out for will be its commentary on how it sees consumers migrating to once-a-day from bi-weekly or monthly usage. The former is much more profitable for Cooper and since the US is relatively under-penetrated with once-a-day (as compared to Japan and other countries) there is room to grow even in mature markets. Anything above say 5-6% topline growth indicates good conditions.
Telco and data center watches will keep a close eye on Finisar (NASDAQ: FNSR). The stock has been a little weak recently as the market worries about some of its competitive positioning even while its end markets appear to have perked up. Cisco Systems saw a nice rebound in data center spending in the quarter and this should also be seen in Finisar’s numbers but the key will be its telecom revenues and outlook. If the rest of the sector is a guide Finisar should point to things improving in the second half and I’m sure the stock will move around based on its telecom outlook.
H & R Block will give results and any commentary on the upcoming tax season will be useful to take in. And finally Kroger (NYSE: KR) will report eaernings. This is an extremely well run company that has managed the new retail reality very well. It appears to be encroaching on Whole Foods Market’s natural market at the high end, while it is never shy to sacrifice margin in order to keep volumes and footfall up. The strategy appears to be working and hopefully Kroger can start to see gross margins pick up in 2013 as the economy improves and commodity costs moderate. It’s hard to argue that the stock is cheap but that might change if gross margins start improving.
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