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 about 90 minutes into Monday’s regular trading 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 2.7% early Monday.
ON Semiconductor beat consensus estimates on both the top and bottom lines and issued inline guidance for the fourth quarter. Shares traded down 6.0%.
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. Then, later in the day, Airbnb, AMD, Devon Energy and Energy Transfer will share their results.
Here is a preview of four companies on deck to report quarterly results before markets open on Wednesday.
24/7 Wall St.Cenovus Energy
Cenovus Energy Inc. (NYSE: CVE) is sometimes referred to as a mini-major integrated oil company. Based in Calgary, the company owns 50% of a refinery near Salt Lake City and 50% of another near Amarillo, Texas, in addition to production assets in the oil sands region. Cenovus’s share price has risen by more than 69% over the past 12 months. Thanks primarily to its refining and marketing operations, the company’s gross margins are nearly 50%, better than Exxon, Chevron, BP and Petrobras. Only Norway’s Equinor, with a gross margin of more than 62%, tops Cenovus.
No surprise that analysts are unanimous in their bullish outlook for Cenovus Energy. All 18 of those surveyed rate the stock at Strong Buy or Buy. At a recent price of around $20.00 per share, the stock’s upside potential based on an average price target of $24.22 is 21.1%. At a high price target of $27.90, the upside potential is 39.5%.
For the third quarter, revenue is forecast at $10.94 billion, which would be down 32.1% sequentially but up 3.2% year over year. Adjusted EPS are forecast at $0.84, down 14.4% sequentially and up 180.6% year over year. For the full year, analysts expect EPS of $3.10, up 880% year over year, on sales of $50.31 billion, up more than 37%. Cenovus completed a merger with Husky in March 2021, and that has affected the comparison data.
The stock trades at about 6.5 times expected 2022 EPS, 6.5 times estimated 2023 earnings of $3.07 and 6.6 times estimated 2024 earnings of $3.02. The stock’s 52-week trading range is $10.72 to $24.91. Cenovus pays an annual dividend of $0.31 (yield of 1.54%). Total shareholder return for the past 12 months has been 71.2%.
CVS Health
The country’s third-largest provider of health care plans, CVS Health Corp. (NYSE: CVS) has seen its stock price rise by about 5% in the past 12 months. While the company, also the second-largest drugstore operator in the United States, has outperformed rival Walgreens over the past decade, its 10-year return of about 156% pales beside the 1,060% gain of health insurer United Health Group. That is probably the main reason the company is trying to break into the primary care market by beginning to establish clinics in its 1,100 retail stores and working to gain a piece of the insurance market through its acquisition of Aetna.
Analysts remain bullish on the stock, with 21 of 27 brokerages having a Buy or Strong Buy rating. The rest rate the shares at Hold. At a share price of around $93.80, the stock’s upside potential based on a median price target of $120.00 is about 28%. At the high price target of $130, the implied upside is 38.6%.
The consensus revenue estimate for the third quarter is $76.78 billion, down 4.8% sequentially but 4.1% higher year over year. Adjusted EPS are forecast at $1.99, down 16.9% sequentially and up two cents year over year. For the full 2022 fiscal year, analysts are looking for EPS of $8.55, up 1.77%, and revenue of $312.35 billion, up about 6.9% year over year.
CVS stock trades at about 11.0 times expected 2021 EPS, 10.4 times estimated 2023 earnings of $9.06 and 9.5 times estimated 2024 earnings of $9.88 per share. The stock’s 52-week range is $86.28 to $111.25. CVS Health pays an annual dividend of $2.20 (yield of 2.34%). Total shareholder return for the past 12 months was 7.7%.
24/7 Wall St.Norwegian Cruise Lines
Over the past 12 months, shares of Norwegian Cruise Line Holdings Ltd. (NYSE: NCLH) dropped by about 36%. That still is better than either of its main rivals, Carnival and Royal Caribbean. Cruise operators are seeing a sharp increase in revenue, but profits remain elusive. Demand for trips on Norwegian has reached record levels, and gross margin turned positive in the second quarter. The company, which sails primarily from U.S. ports, also faces less impact from a strong dollar.
Of 20 analysts covering Norwegian Cruise Lines stock, 12 have a rating of Buy or Strong Buy and the rest have Hold ratings. At a share price of around $16.70, the stock has outrun its median price target of $16.00. At the high target of $35.00, the implied gain is about 109.6%.
Third-quarter revenue is forecast to come in at $1.58 billion, up 33% sequentially and up from $153.08 million in the year-ago quarter. Analysts expect the company to post a per-share loss of $0.69, smaller than the prior quarter’s loss of $1.14 per share and lower than the year-ago quarterly loss of $2.17. For the full year, Norwegian is expected to post a loss per share of $4.40, compared to last year’s loss of $8.07 per share. Revenue is forecast to reach $4.73 billion, up more than 600% from $647.99 million in 2021.
Norwegian stock trades at about 12.1 times estimated 2023 earnings of $1.37 and 8.3 times estimated 2024 earnings of $2.01 per share. Norwegian is not expected to post a profit this year. The stock’s 52-week range is $10.31 to $29.45, and the company does not pay a dividend. Total shareholder return for the past year was negative 35%.
Paramount Global
Media giant Paramount Global (NASDAQ: PARA) has dropped more than 50% from its share price over the past 12 months. Three weeks ago, David Nivens, the head of the company’s scripted originals business (including Showtime), left the company and his role has not been filled. Exactly how the Paramount+ streaming business will look going forward has not been revealed, but some layoffs are expected. A persistent rumor has Showtime being absorbed by Paramount+.
Analysts have adopted a wait-and-see attitude on the stock. Of 28 brokerages covering the company, 13 have Hold ratings, eight have Sell or Strong Sell ratings and just seven have Buy or Strong Buy ratings. At a price of around $18.10 a share, the upside potential to the median price target of $24.00 is about 32.6%. At the high price target of $58.00, the upside potential is 220%.
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