Investing

Earnings Previews: Darden Restaurants, KB Home, Lennar, Trip.com

Paul Ausick

Published: September 20, 2022 9:43 am

The three major U.S. equity indexes closed higher Monday. The Dow Jones industrials ended the day up 0.6%, the S&P 500 closed up 0.69% and the Nasdaq added 0.76%. Seven of 11 sectors ended the day with gains, ranging from 1.2% (consumer cyclicals) to 0.4% (communications services). The consumer staples sector closed flat.

Government data on new housing starts rose month over month in August, but new building permits issued came in lower than expected and lower month over month. The Federal Reserve’s interest rate announcement due Wednesday afternoon is expected to push rates up by 0.75% to a new range of 3.00% to 3.25%. All three major indexes were down 1% or so early Tuesday.

There were no notable earnings reports released late Monday or before U.S. markets opened on Tuesday. Later Tuesday and early Wednesday, Aurora Cannabis, General Mills and Stitch Fix will post their quarterly results.

Here is a look at four companies reporting quarterly results late Wednesday or Thursday morning.

Darden Restaurants

Darden Restaurants Inc. (NYSE: DRI), the owner and operator of more than 1,800 restaurant locations, including Olive Garden and Longhorn Steakhouse, will report first-quarter fiscal 2023 results before markets open on Thursday. Over the past 12 months, Darden stock has dropped by about 11.3%. Since dipping to a 52-week low in mid-June, however, shares have added about 16%.

Darden has been trying to ease the impact of inflation on its customers by keeping price hikes down. Investors are likely to be most concerned about how Darden’s generosity to customers could affect the handsome dividend the firm pays.

Of 30 analysts covering the stock, 20 have a Buy or Strong Buy rating and the other 10 rate the shares at Hold. At a recent price of around $132.50 a share, the upside potential based on a median price target of $140.00 is 5.7%. At the high price target of $156.00, the upside potential is 17.7%.

First-quarter revenue is forecast at $2.47 billion, which would be down 5.2% sequentially and up 6.9% year over year. Adjusted earnings per share (EPS) are forecast at $1.57, down 30.8% sequentially and 10.8% lower year over year. For the full 2023 fiscal year that ends next May, current estimates call for EPS of $7.75, up 4.9%, on sales of $10.3 billion, up 7%.

Darden stock trades at 17.1 times expected 2023 EPS, 15.5 times estimated 2024 earnings of $8.57 and 13.9 times estimated 2025 earnings of $9.55 per share. The stock’s 52-week trading range is $110.96 to $164.28. Darden pays an annual dividend of $4.84 (yield of 3.73%). Total shareholder return for the past year was negative 8.3%.

KB Home

After markets close Wednesday, homebuilder KB Home (NYSE: KBH) will share its third-quarter 2022 results. Like Darden, the homebuilder posted its 52-week low in mid-June, and shares had added about 29% by mid-August, before losing more than half that gain by last week. Rising costs, continuing supply chain issues and rising mortgage rates are having a negative impact on all homebuilders, but everything is relative. KeyBanc analyst upgraded KB Home from Underweight to Sector Weight on Monday but did not assign a price target.

Of 17 analysts covering KB Home stock, 10 have Buy or Strong Buy rating and six more rate the shares at Hold. At a share price of around $29.30, the implied upside based on a median price target of $35.50 is 21.2%. At the high price target of $60.00, the upside potential is about 105%.

For the company’s third quarter of fiscal 2022, analysts are expecting sales of $1.9 billion, up 10.4% sequentially and by 29.3% year over year. EPS are forecast to rise by 15.2% sequentially to $2.67 and by nearly 67% year over year. The consensus estimate for the fiscal year ending in November calls for EPS of $10.13, up 66.6%, on sales of $7.33 billion, up 28.1%.

KB Home stock trades at 2.9 times expected 2022 EPS, 3.1 times estimated 2023 EPS of $9.48 and 3.2 times estimated 2024 EPS of $9.08. The stock’s 52-week range is $24.78 to $50.20. KB Home pays an annual dividend of $0.60 (yield of 2.11%). Total shareholder return for the past 12 months is negative 30%.

Lennar

Homebuilder Lennar Corp. (NYSE: LEN) has seen its share price decline by about 22.5% over the past 12 months. Since posting a 52-week high in mid-December, the share price has dropped by a third. KeyBanc on Monday upgraded its Sector Weight rating on the stock to Overweight and set a price target of $89 (about 13% above Monday’s closing price). In the first six months of 2022, Lennar replaced KB Home as the top volume builder in Las Vegas. Lennar closed 2021 as the second-largest, behind KB. The company reports quarterly results after Wednesday’s closing bell.

Of 21 analysts covering the stock, 13 have a Buy or Strong Buy rating and seven more rate the shares at Hold. At a share price of around $78.50, the upside potential to a median price target of $89.00 is 13.4%. At a high target of $133.00, the upside potential is 69.4%.

For its third quarter of fiscal 2022, Lennar is expected to report revenue of $9.09 billion, up 8.8% sequentially and 31.0% higher year over year. Adjusted EPS are pegged at $4.87, up 3.9% sequentially and almost 50% higher year over year. For the full fiscal year ending in November, EPS are forecast at $17.38, up 33.7%, on sales of $33.79 billion, up 24.5%.

Lennar stock trades at 4.4 times expected 2022 EPS, 5.1 times estimated 2023 earnings of $14.89 and 8.0 times estimated 2024 earnings of $15.14 per share. The stock’s 52-week range is $63.54 to $117.54, an all-time high posted in December. Lennar pays an annual dividend of $1.50 (yield of 1.91%). Total shareholder return for the past year is negative 21.3%.

Trip.com

Travel services giant Trip.com Group Ltd. (NASDAQ: TCOM) has posted a 12-month share price decline of about 10.7%. The stock touched a nine-year low of around $14.30 a share in mid-March, following government-imposed lockdowns in some of China’s major cities. Since that bottom, the stock has bounced up by more than 53%. In August, the company reported a surge of nearly 250% in U.S. travelers using its services for travel to Europe. The Chinese firm reports quarterly results after markets close Wednesday.

Of 11 brokerages covering the stock, eight have Buy or Strong Buy ratings on the shares. The rest have put Hold ratings. At a share price of around $25.70, the upside potential based on a median price target of $30.42 is 18.4%. At the high target of $35.80, the upside potential rises to 39.3%.

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Analysts expect Trip.com com to report second-quarter revenue of $511.02 million, down by 21.1% sequentially and by 44.0% year over year. The consensus forecast also calls for an EPS of $0.02, compared to a loss per share of $0.01 in the prior quarter and year-ago EPS of $0.18 per share. For the 2022 fiscal year, analysts are looking for EPS of $0.27, down nearly 18%, on sales of $2.64 billion, down 13.2% year over year.

Trip.com stock trades at 93.8 times expected 2022 EPS, 22.3 times estimated 2023 earnings of $1.15 and 16.7 times estimated 2024 earnings of $1.55 per share. The stock’s 52-week range is $14.29 to $333.27, and Trip.com does not pay a dividend. Total shareholder return for the past year was negative 10.7%.