• February 22, 2024

Weekly Preview: Earnings to Watch This Week (COUP, GME, LULU, ORCL)

D.Despite ongoing valuation concerns, stocks closed near all-time highs on Friday, albeit mixed. It did so after the Labor Department’s August employment report came in much lower than expected. In the run-up to the report, and especially given the spread of the delta variant, analysts and economists had questioned the strength of the labor market’s recovery from the pandemic.

Friday’s report did little to allay these concerns. But judging by the market reaction, it was just good enough. On Friday, both the Dow Jones Industrial Average and the S&P 500 index ended modestly lower. The Dow gave up 74.73 points, or 0.2%, to end the session at 35,369.09. Declines at IBM (IBM), Intel (INTC) and Disney (DIS) compensate for profits at Apple (AAPL). The S&P 500 lost 1.52 points, or less than 0.1%, to 4,535.43, while the tech-heavy Nasdaq Composite Index added 32.34 points, or 0.2%, to close at an all-time high of 15,363.52.

Notable technology winners were DocuSign (DOCUMENTARY), which was up 5.26% on Friday after reporting earnings on Thursday that not only surpassed sales and earnings, but DocuSign released a bullish forecast. Cloud specialist MongoDB (MDB) also powered the Nasdaq, rising 26% on Friday after a sharp hit. This week, the Nasdaq was the biggest winner, up 1.6%. The Dow posted a modest 0.2% loss while the S&P 500 added 0.6%.

The fact that all three major averages are still trading near all-time highs underscores investor optimism about the strength of the economic recovery. Notably, the weaker-than-expected job report didn’t have the bearish impact it normally would. The US economy created 235,000 jobs in August, far fewer than forecast for an increase of 720,000, according to the Department of Labor.

Despite the dismal number, the unemployment rate hit a new pandemic low, falling from 5.4% to 5.2%. This is partly because the June and July employment data were collected versus the first readings. The June job date has been increased from 938,000 to 962,000, while the July value has been adjusted from 943,000 to 1.05 million. In addition, the average hourly wage rose 0.6% month on month. This figure was not only better than the expected 0.3%, it also outperformed the 0.4% increase in July.

It appears that wages rose 4.3% year over year, beating both the 3.9% and 4.0% expected for July. Those numbers, which confirm that inflation is still high, could force the Fed to postpone its long-awaited plan to reduce the throttling. This will continue to fuel the dip buying in stocks that we have repeatedly observed as investors rush to add stocks before the economic recovery on signs of weakness. In other words, there are still reasons to be bullish about stocks and confident about the market.

As for earnings, here are the stocks I’ll be watching this week.

Coupa software (COUP) – Reports after close of trading, Tuesday, September 7th

Wall Street expects Coupa to lose 6 cents per share on sales of $ 162.98 million. Compared to the same quarter last year, the company made 21 cents per share on sales of $ 125.92 million.

What to Watch for: Coupa, a provider of cloud-based business spend management software, is up more than 17% in the last month, including 13% in a week as investors returned to high-growth software stocks. Despite the Coupa’s recent popularity, stocks are down 25% in six months after the S&P 500 index rose 17%. And since the start of the year, the stock is down 24.4% while the S&P is up 21%. Aiming to become a leader in Business Spend Management (BSM), Coupa makes money analyzing large amounts of corporate transactional spend data and looking for spending patterns and areas of inefficiency. With a total addressable market of $ 56 billion and growing, Coupa’s platform provides customers with actionable insights that can lead to better inventory management, smarter purchasing decisions, while reducing spending. But worries about slower growth and Coupa’s valuation – currently at 40 times projected sales – have kept the stock in a tight range. The company may change that narrative on Tuesday by delivering a sales and bottom line hit along with confident leadership.

GameStop (GME) – Reports after close of trading, Wednesday, September 8th

Wall Street expects GameStop to lose 67 cents per share on sales of $ 1.12 billion. Compared to the same quarter last year, the company lost $ 1.40 per share on sales of $ 942 million.

What to see: is GameStop still worth playing? Excitement over the arrival of Ryan Cohen, Chewy (EVERYONE) Founder tasked with turning GameStop into an e-commerce powerhouse hasn’t let up. The stationary retailer has not yet shown any financial success in the digital sector. Even so, GameStop stocks are up more than 35% over the past month, including 5% gains this week. After investing more than 80% in six months and up more than 1000% since the start of the year, investors want to know how much better things can get. Equally important, the market wants GameStop to show that it’s more than just a “meme stock” fueled by Reddit-induced euphoria. From this point of view, the stock is still in the top 5 in daily discussions on WallStreetBets. On Tuesday, the company can steer the conversation towards fundamentals with a strong Q2 profit.

Lululemon (LULU) – Reports after close of trading, Wednesday, September 8th

Wall Street expects Lululemon to make $ 1.18 per share on sales of $ 1.33 billion. Compared to the same quarter last year, earnings were 74 cents per share on sales of $ 902.94 million.

What To Look For: Has Lululemon Stock Stretched Too Far? Since rising to an all-time high of $ 415, the stock has fallen about 7%, including 4% in the last month. And if you held the sock for the last year, you are down about 2.5% while the S&P 500 index is up 27%. While the yoga specialist continues to dominate the retail sector and position itself as the market leader in the secular health and wellness trend, appraisal fears have surfaced. Despite the recent decline, LULU has returned nearly 200% since the depths of the pandemic as it slipped its retail dominance. As it stands, stocks are currently trading at 56 times future earnings, with LULU trading at a massive premium over the retail sector, valued at around 14 times future earnings. In other words, the stock is valued for perfection. However, the company has proven it deserves that premium by consistently pushing margin expansion and realizing operational leverage for faster earnings growth. On Wednesday, LULU will have to orientate itself in a way that suggests its premium retail position is not derailing.

Oracle (ORCL) – Reports after close of trading on Thursday, Sept. 9

Wall Street expects Oracle to make 97 cents per share on sales of $ 9.78 billion. Compared to the same quarter last year, earnings were 93 cents per share on sales of 9.37 billion US dollars.

What to Watch for: Oracle stock is up 35% in the past six months, more than doubling both the S&P 500 index’s 17% gain and the Technology Select Sector SPDR ETF’s 15% gain (XLK) during this period. Oracle stock is trading a premium over its historical valuation, up 30% year-to-date and trading near its 52-week high. Viewed as a transformation game based on its business transition to a cloud subscription-based model, Oracle must continue to demonstrate that its fundamentals can sustain its recent growth rate – similar to Microsoft (MSFT) developed a decade ago. As such, Oracle’s growth strategy, which is heavily focused on customer retention and migrating existing on-premises customers to the cloud, remains a key factor in evaluating the stock’s ability to maintain its current levels. In other words, the market will want to see if Oracle works with incumbents like Salesforce (CRM), Working day (WDAY) and Amazon (AMZN) and are gaining a larger share of the cloud market.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.

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Jack

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