The three major U.S. equity indexes closed solidly higher on Friday. The Dow Jones industrials ended the day up 2.59%, the S&P 500 closed 2.46% higher and the Nasdaq jumped by 2.87%. Ten of 11 sectors closed higher, led by tech (4.52%) and communication services (2.98%). Consumer cyclicals (−0.3%) posted the only loss.
This week’s economic highlight is the Federal Open Market Committee (FOMC) meeting, which begins Tuesday and concludes with a press announcement on Wednesday. The FOMC is expected to tack on another 0.75% interest rate hike, raising the federal funds rate from a range of 3.00% to 3.25% to a new range of 3.75% to 4.00%. On Friday, the monthly report on nonfarm payrolls is expected to show a gain of 220,000 jobs, down from the September total of 263,000 new jobs. The headline unemployment rate is forecast to tick higher, from 3.5% to 3.6%.
All three major indexes traded lower in Monday’s premarket session.
Before markets opened Monday morning, coal miner Alliance Resources missed the consensus revenue estimate and the consensus GAAP earnings per share (EPS) estimate. The stock traded down about 2.2% in the premarket.
ON Semiconductor beat consensus estimates on both the top and bottom lines and issued inline guidance for the fourth quarter. Shares traded down 1.85%.
After U.S. markets close Monday or before they open Tuesday, NXP Semiconductors, Sofi Technologies and Uber are on deck to report quarterly earnings. First thing on Tuesday, BP, Enterprise Products, Marathon Petroleum and Newmont are on deck to report quarterly results.
Here is a preview of four companies due to report quarterly results after Tuesday’s closing bell.
24/7 Wall St.Airbnb
Over the past 12 months, shares of vacation rental provider Airbnb Inc. (NASDAQ: ABNB) have declined by 32.9%. Since posting a 52-week high in mid-November, the shares are down about 42%.
There is anecdotal information that demand for vacation rentals has fallen off in the past few months. However, that is a problem that bedevils property owners more than it does Airbnb, which is currently sitting on a cash pile of nearly $10 billion. Cash flow from operations totaled almost $2.8 billion for the 12 months through the second quarter, and free cash flow for the period totaled nearly the same amount. Free cash flow per share for the 12 months is $4.34.
Of 41 brokerages covering the stock, 23 have a Hold rating while 16 have either a Buy or Strong Buy rating. At a recent price of around $115.20 a share, the upside potential based on a median price target of $140.00 is 21.5%. At the high price target of $201.90, the upside potential is 75.3%.
Third-quarter revenue is forecast at $2.85 billion, which would be up 35.4% sequentially and 27.2% higher year over year. Airbnb is expected to post EPS of $1.55, up 137.1% sequentially and by 26.0% year over year. For the full year, analysts are looking for EPS of $2.91, far better than the year-ago loss of $0.37, on revenue of $8.3 billion, up 38.6%.
Airbnb stock trades at about 39.6 times expected 2022 EPS, 38.4 times estimated 2023 earnings of $3.00 and 31.8 times estimated 2024 earnings of $3.63 per share. The stock’s 52-week trading range is $86.71 to $212.58. The company does not pay a dividend, and total shareholder return over the past year is negative 32.9%.
AMD
In the past 12 months, shares of chipmaker Advanced Micro Devices Inc. (NASDAQ: AMD) have slipped by about 49%. Since reaching a 52-week high in late November, the stock plummeted by nearly 70% to post a 52-week low just two weeks ago.
Citing weakness in the personal computer market, AMD warned early in October that revenue and gross margins would be much lower than previously forecast and that the company would take a charge of around $160 million related to inventory and other issues.
There are 42 analysts covering AMD, and 29 have a Buy or Strong Buy rating while the other 13 rate the shares at Hold. At a share price of around $62.00, the upside potential to a median price target of $90.00 is 45.2%. At the high price target of $200.00, the upside potential is more than 222%.
Consensus estimates call for third-quarter revenue of $5.69 billion, down 13.2% sequentially but up 32.0% year over year. Estimated adjusted EPS of $0.72 would be down almost 32% sequentially and a penny lower year over year. For the full 2022 fiscal year, analysts’ current consensus estimates call for EPS of $3.66, up 31.1%, on revenue of $23.81 billion, up 45%.
AMD stock trades at about 17.0 times expected 2022 EPS, 15.7 times estimated 2023 earnings of $3.96 and 9.9 times estimated 2024 earnings of $4.97 per share. The stock’s 52-week range is $54.57 to $164.46. AMD does not pay a dividend, and total shareholder return over the past year is negative 48.8%.
Devon Energy
Devon Energy Inc. (NYSE: DVN) is among the country’s 10 largest independent producers of oil and natural gas. Its stock has added nearly 88% to its share price over the past year, thanks largely to rising crude oil prices that began in September 2021.
At a conference in Dallas last week, Devon Energy said it plans to continue with its strategy of acquisition and disposition of assets. The firm believes it can allocate 60% of free cash flow to shareholder returns and 40% to investments in long-term growth. Over the past 12 months, Devon has reported free cash flow of about $5.52 billion. Of that total, $1.2 billion was returned to shareholders in share buybacks, $309 million in dividends on common and preferred stock and $2.07 billion in variable dividends. That is a return to shareholders of around 65% of free cash flow.
Analysts remain bullish on the stock, with 16 of 30 having a Buy or Strong Buy rating. Another 13 have Hold ratings. At a share price of around $76.00, the upside potential based on a median price target of $80.00 is 5.3%. At the high target of $109.00, the upside potential is 43.4%.
Consensus estimates call for third-quarter revenue of $4.79 billion, down 14.9% sequentially but 38.0% higher year over year. Adjusted EPS are forecast at $2.13, down 17.8% sequentially and up 97.2% year over year. For the full 2022 fiscal year, Devon is forecast to post EPS of $9.04, up 156.2%, on revenue of $20.06 billion, up 64.4%.
Devon’s stock trades at about 8.4 times expected 2022 EPS, 7.8 times estimated 2023 earnings of $9.75 and 9.2 times estimated 2024 earnings of $8.30 per share. The stock’s 52-week range is $35.55 to $79.40. Devon pays an annualized dividend of $6.08 (yield of 8.16%). Total shareholder return for the past year was 102.2%.
Energy Transfer
Natural gas pipeline and infrastructure company Energy Transfer L.P. (NYSE: ET) has added about 29.4% to its share price over the past 12 months. For the year to date, the common units are up more than 52%.
Like many pipeline operators, Energy Transfer is a master limited partnership (MLP) that pays a generous distribution to unitholders and is mostly shielded from price movements because the bulk of the company’s capacity is contracted. While the company is targeting a near tripling of cash distributions to investors, it is worth remembering that MLPs tend to grow revenue by expanding. That means more investment and borrowing.
Analysts are solidly bullish on Energy Transfer, with all 17 brokerages covering the company ratings of Buy or Strong Buy. At a share price of around $12.50, the upside potential based on a median price target of $16.00 is 28%. At the high price target of $21.00, the upside potential is 68%.
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