Investing

Earnings Previews: Alcoa, Ericsson, Kansas City Southern

Our Tuesday look at stocks reporting June quarter earnings included a big bank, the world’s largest semiconductor maker, a health care giant, and a top regional bank: Morgan Stanley, TSMC, UnitedHealth, US Bancorp.

After markets close Thursday, we’ll hear from one of the premier materials companies, while Friday morning offers reports from a Sweden-based networking giant and a major U.S. railroad.

Alcoa

Alcoa Corp. (NYSE: AA) has seen its share price increase by more than 200% in the past year. The growth spurt mostly occurred in 2020, but the stock is up more than 50% so far this year. Aluminum futures outpaced copper for a while earlier this year, but the situation has since reverted to normal. The company reports second-quarter results after markets close Thursday.

Analysts are mixed on Alcoa, with six of those surveyed rating the stock a Buy or Strong Buy and another six rating the shares at Hold. With a median price target of $45, the implied upside to a recent price of around $35.40 is 27%. At the high target of $56, the upside potential is 58%.

June-quarter revenue is forecast to rise by nearly 22% year over year to $2.62 billion. Revenue in the prior quarter totaled $2.87 billion. Adjusted earnings per share (EPS) is forecast at $1.28, up from $0.79 in the first quarter and a loss per share of two cents in the second quarter of last year. For the full year, analysts are forecasting EPS of $4.76, compared to a loss per share of $1.16 in 2020. Sales are forecast to rise by about 18% to $10.96 billion.

The stock currently trades at around 7.8 times expected 2021 EPS, 7.8 times estimated 2022 EPS and 7.3 times estimated 2023 earnings. Alcoa’s 52-week trading range is $10.98 to $44.42, and the company does not pay a dividend.

Ericsson

Stockholm-based network equipment maker Telefonaktiebolaget LM Ericsson (NASDAQ: ERIC) reports second-quarter results before markets open on Friday. Over the past 12 months, the company’s share price has risen by about 44% while the year-to-date increase has dipped to around 11.6%.

Of 24 analysts covering the stock, 17 rate Ericsson as a Buy or Strong Buy. There are four Hold ratings and three Sell ratings as well. Based on a median price target of $16.91 and a current price of around $13.30, the upside potential is nearly 25%. At the high price target of $21, the upside potential is around 58%.

Analysts are expecting the company to report revenue of $6.65 billion, up sequentially from $5.70 billion and year over year from $5.96 billion. EPS is forecast at $0.16, up from $0.12 in the first quarter and $0.10 a year ago. For the full year, analysts are looking for EPS of $0.76 (up 8.3%) and revenue of $27.81 billion (down about 1.6%).

The stock currently trades at around 17.6 times expected 2021 EPS, 15.3 times estimated 2022 EPS and 13.5 times estimated 2023 earnings. Ericsson’s 52-week range is $9.57 to $15.32. The company pays an annual dividend of $0.20 (yield of 1.52%).

Kansas City Southern

Since first announcing an agreement in March of 2020 to merge with Canadian Pacific, Kansas City Southern (NYSE: KSU) stock is up about 170%. In May, the railroad announced that it had a superior offer from Canadian National and agreed to accept that deal, which values the railroad at $33.6 billion, including debt (a premium of around 45% to the March 2020 valuation). The deal hasn’t made it through regulators yet and may have a difficult time doing so. The stock was up more than 200% before the deal with Canadian National was announced. Kansas City Southern reports June quarter earnings before first thing Friday morning.

The Canadian National offer sets the price per share of common stock at $325, well above a current price of around $267.50. The difference is down to the likelihood that regulators will approve the merger. Nine of 15 analysts rate the shares a Hold and five rate the stock a Buy or Strong Buy. The price targets are just different degrees of bad news.

Analysts expect the company to report second-quarter revenue of $748.86 million, up from $706.00 million in the first quarter and $547.9 million in the second quarter of last year. EPS is tabbed at $2.16, up sequentially from $1.91 and year over year from $1.15. For the full year, analysts are forecasting EPS of $8.94 (up 28.4%) and revenue of $3.02 billion (up nearly 15%).

The stock currently trades at around 30.3 times expected 2021 EPS, 25.7 times estimated 2022 EPS and 23.4 times estimated 2023 earnings. Kansas City Southern’s 52-week range is $52.18 to $315.39, and the company pays an annual dividend of $2.16 (yield of 0.80%).