Investing

Earnings Previews: Alcoa, Discover, Kinder Morgan, United Airlines

Discover’s fourth-quarter revenue is forecast to reach $3 billion, up 8% sequentially and 6.4% year over year. Adjusted EPS are forecast at $3.64, up about 2.8% sequentially and 23.8% year over year. For the full year, EPS are estimated to reach $17.31, up 339%, on revenue of $11.97 billion, up 7.9%.

Discover stock trades at 7.4 times expected 2021 EPS, 9.5 times estimated 2022 earnings of $13.52 and 9.2 times estimated 2023 earnings of $13.87. The stock’s 52-week range is $81.27 to $135.69. Discover pays an annual dividend of $2.00 (yield of 1.57%). Total shareholder return over the past year was 32.6%.

Kinder Morgan

Energy infrastructure company Kinder Morgan Inc. (NYSE: KMI) has added nearly 25% to its share price over the past 12 months The company generates just over two-thirds of its profits from moving natural gas through its pipelines. The pipelines are fully (or nearly so) committed, which is both good and not so good. It is good for obvious reasons; it is not so good because it means Kinder Morgan must expand in order to grow, and rising interest rates and significant opportunities for expansion militate against growth.

The growth issue probably contributes significantly to the lukewarm analyst outlook. Of 25 brokerages covering the company, 16 have Hold ratings on the stock, and just six have Buy or Strong Buy ratings. Wolfe Research raised its rating on the stock to Peer Perform Tuesday morning, while remaining leery of raising the price target by much. At a share price of around $17.80, the upside potential based on a median price target of $19 is 6.7%. At the high price target of $22, the implied upside is 23.4%.

Consensus estimates call for fourth-quarter revenue of $3.58 billion, down 6.4% sequentially but up 14.7% year over year, and EPS of $0.27, up 24% sequentially and flat year over year. For the full year, analysts currently forecast EPS of $1.31, up 49.4%, on sales of $15.81 billion, up 35.0%.

The stock trades at 13.5 times expected 2021 EPS, 17.0 times estimated 2022 earnings of $1.05 and 16.3 times estimated 2023 earnings of 1.31. The stock’s 52-week range is $13.75 to $19.29. Kinder Morgan pays an annual dividend of $1.08 (yield of 6.04%). Total shareholder return over the past 12 months was 22.5%.

United Airlines

All three major U.S. stock indexes were sinking Tuesday morning, and airline stocks were among the biggest losers. Rising oil prices, continuing worries about COVID-19 and rising bond yields are all especially tough on the airlines. Over the past 12 months, United Airlines Holdings Inc. (NASDAQ: UAL) stock has added about 5.8% to its share price while rival Delta’s stock remains essentially flat for the period.

Adding to air carriers’ woes is a scheduled Wednesday launch of a new 5G C-band service that threatens to ground their widebody aircraft. The telecom providers apparently have more lobbying pull than the airlines.

Analysts continue to be cautious on airline stocks. Of 22 brokerages covering United, eight have assigned the stock a Hold rating while 10 give it a Buy or Strong Buy rating. There are also three Strong Sell ratings. At a share price of around $46.70, the upside potential based on a median price target of $57 is 22%. At the high price target of $78, the upside potential rises to 67%.

The consensus fourth-quarter revenue forecast calls for sales of $7.96 billion, up about 2.8% sequentially and about 45% year over year. Analysts are forecasting an adjusted loss of $2.09 per share, worse than the $1.02 loss per share posted in the third quarter but much better than the $7.00 per share loss in the year-ago quarter. For the full year, analysts expect a loss per share of $14.36, just under half the $27.57 per share loss posted a year ago. Revenue is forecast to rise by 59.3% to $24.46 billion.

The stock trades at 26.1 times estimated 2022 earnings of $4.29 and 6.3 times estimated 2023 earnings of $7.48 per share. The stock’s 52-week range is $38.88 to $63.70, and United does not pay a dividend. Total shareholder return for the past 12 months was about 6.5%.

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