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Earnings Previews: Broadcom, Lululemon

Lululemon store
Kevork Djansezian / Getty Images News via Getty Images

The three major U.S. equity indexes closed lower for the third straight day on Tuesday. The Dow Jones industrials dipped by 0.96%, the S&P 500 dropped 1.1% and the Nasdaq retreated by 1.12%. All 11 sectors ended the day with losses, led by energy (3.4%) and materials (1.6%). Financials closed down 0.5%, the day’s smallest loss. All three major indexes were trading higher in Wednesday’s premarket.

Russia has shut off all natural gas supplies to Europe through the Nord Stream 1 pipeline for three days of maintenance. The pipeline was shut down for 10 days last month. The weekly U.S. oil inventory report out later in the morning is expected to reveal a small drawdown of 660,000 barrels last week. The federal government releases 8.1 million barrels from the Strategic Petroleum Reserve last week.

After markets closed Tuesday, ChargePoint reported a larger-than-expected loss per share but higher-than-expected revenue. Third-quarter guidance was in line with expectations, and the company reaffirmed full-year guidance. Shares traded up about 5% Wednesday morning.

Chewy posted unexpected earnings per share (EPS) of $0.05 but missed the consensus revenue estimate and issued downside guidance for the current quarter and for the fiscal year. The stock traded down about 11% in Wednesday’s premarket session.

CrowdStrike beat estimates on both the top and bottom lines and issued upside guidance for the current quarter and the full year. Shares traded up 1% Wednesday morning.

Hewlett Packard Enterprise met the consensus EPS estimate but missed the consensus revenue target. The company issued in-line guidance for the current quarter and reaffirmed full-year guidance. Shares traded up by less than 1%.

HP missed the revenue estimate and beat the EPS estimate by a penny. Then it issued downside guidance for the current quarter. The stock traded down 6.1% in Wednesday’s premarket session.

After U.S. markets close on Wednesday or before they open on Thursday, Campbell Soup, Okta, PureStorage and SentinelOne will be reporting quarterly results.

Here is a preview of two companies set to report results after U.S. markets close on Thursday.

Broadcom

Like most other chipmakers not named Intel, Broadcom Inc. (NASDAQ: AVGO) posted its 52-week high in late December and the shares have staggered lower ever since. The good news is that Broadcom’s loss is smaller than Intel’s, AMD’s or Nvidia’s over the same period. In late May, the company offered to pay $66 billion in cash and stock for an 88% stake in VMware. Including $8 billion in debt, the deal will cost Broadcom $74 billion. The deal is expected to close next year, but Broadcom may have to divest some other businesses in order to get regulatory approval.

Analysts remain strongly bullish on Broadcom stock, with 22 of 26 having a rating of Buy or Strong Buy. The other four rate the shares at Hold. At a recent price of around $506.40 a share, the potential upside based on a median price target of $675.00 is 33.3%. Based on a high price target of $780.00, the upside potential is nearly 133%.

For Broadcom’s third quarter of fiscal 2022, analysts are looking for revenue of $8.41 billion, which would be up 3.8% sequentially and 24.0% higher year over year. Adjusted EPS are forecast at $9.55, up 5.3% sequentially and by 37.2% year over year. For the full fiscal year, estimates call for EPS of $36.90, up 31.8%, on sales of $32.93 billion, up 20%.

Broadcom trades at 13.7 times expected 2022 EPS, 12.6 times estimated 2023 earnings of $40.11 and 12.0 times estimated 2024 earnings of $42.16 per share. The stock’s 52-week range is $463.91 to $677.76. Broadcom pays an annual dividend of $16.40 (yield of 3.24%). Total shareholder return for the past year was 4.5%.

Lululemon

Lululemon Athletica Inc. (NASDAQ: LULU) has posted a share price decline of about 26% over the past 12 months. Since posting a 52-week high in mid-November, the shares have declined by about 36%. Since posting a 52-week low in early July, the shares are up 16.6%, primarily due to macroeconomic factors. Like other consumer cyclicals, though, investors have been wary since Chair Jerome Powell’s remarks last week on how the Federal Reserve plans to battle inflation and a potential recession.

Of 30 brokerages covering the company, 19 have a Buy or Strong Buy rating and nine more have Hold ratings. At a share price of around $307.10, the upside potential based on a median price target of $376.50 is 22.6%. At the high price target of $512.00, the upside potential is 66.7%.

Second-quarter fiscal 2023 revenue is forecast at $1.77 billion, up 9.6% sequentially and by 22.1% year over year. Adjusted EPS are forecast at $1.85, up 25.3% sequentially and by 12.1% year over year. For the full fiscal year ending in January, analysts expect Lululemon to report EPS of $9.43, up 21.1%, on sales of $7.69 billion, up 22.9%.

Lululemon stock trades at 32.5 times expected 2023 EPS, 27.8 times estimated 2024 earnings of $11.05 and 23.7 times estimated 2025 earnings of $12.96 per share. The stock’s 52-week range is $251.51 to $485.82. The company does not pay a dividend. Total shareholder return for the past year is negative 25.9%.

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