The three major U.S. equity indexes closed lower on Tuesday. The Dow Jones industrials ended the day down 0.24%, the S&P 500 closed 0.41% lower and the Nasdaq retreated 0.89%. Six of 11 sectors closed lower, led by communication services (−1.81%) and consumer cyclicals (−1.35%). Energy (0.99%) posted the largest gain.
This week’s economic highlight is the Federal Open Market Committee (FOMC) meeting, which began Tuesday and concludes with a press announcement Wednesday afternoon. 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%.
The three major indexes traded lower at Wednesday’s opening bell.
After U.S. markets closed Tuesday, AMD missed consensus estimates for both adjusted earnings per share (EPS) and revenue. The good news is that the company still sees growth in its embedded and data center businesses that will more than offset the slowdown in PC and gaming sales. For fiscal 2023, the company expects to see continued growth in U.S. data centers. The stock traded up about 2.4% in the first hour of Wednesday’s regular trading session.
Airbnb beat estimates on both the top and bottom lines. The company’s outlook for bookings in the current quarter was disappointing. Shares traded down 8.7% Wednesday morning.
Devon Energy also beat on both the top and bottom lines but reduced its third-quarter dividend from $1.55 to $1.35. The stock traded down about 7.2% early Wednesday.
Energy Transfer beat the consensus EPS estimate but fell short on revenue. The company raised fiscal 2022 EPS guidance to a new range of $12.8 billion to $13.0 billion. Shares traded down 2% Wednesday morning.
Before markets opened Wednesday morning, CVS Health beat consensus estimates on both the top and bottom lines. The health care giant also boosted fiscal-year EPS guidance and raised cash flow from operations guidance by $1 billion at each end of the prior range. Shares traded up 4.4% in the first hour of trading Wednesday.
Cenovus Energy beat both top-line and bottom-line estimates. The stock traded down about 1.9%.
Paramount Global missed both top-line and bottom-line forecasts. Shares traded down about 9.6%.
After Wednesday’s closing bell, Albemarle, Marathon Oil, Qualcomm and Robinhood are set to report quarterly results. Before U.S. markets open on Thursday, Barrick Gold, ConocoPhillips, Exelon and Peloton will share their quarterly results. Look for Block, Carvana, Coinbase, PayPal and Starbucks to take their turns in the earnings spotlight later on Thursday.
Here is a preview of two companies set to report quarterly results before U.S. markets open Friday morning.
Cardinal Health
Medical and pharmaceutical distribution firm Cardinal Health Inc. (NYSE: CAH) is the third-largest health product distributor in the United States and one of the current Dividend Aristocrats, a group of 66 companies that have increased dividend payments for at least 25 consecutive years. Cardinal’s share price has jumped by nearly 55% over the past 12 months, and it posted a 52-week (and all-time) high just last week. The company’s projected free cash flow in 2022 is more than enough to pay its dividend.
Of 15 analysts covering Cardinal Health stock, 11 rate Cardinal as a Hold and three have a Buy or Strong Buy rating. At a recent price of around $76.20 a share, the stock has outrun its median price target of $72.00. At the high target of $78.00, the upside potential is 2.3%.
First-quarter revenue for fiscal 2023 is expected to come in at $48.16 billion, which would be up 2.2% sequentially and 9.5% higher year over year. Adjusted EPS are forecast at $0.97, down 7.3% sequentially and by 24.8% year over year. For the full fiscal year ending next September, estimates call for EPS of $5.25, up about 3.8%, on sales of $198.06 billion, up 9.2%.
Cardinal stock trades at about 14.5 times expected 2023 EPS, 12.4 times estimated 2024 earnings of $6.16 and 10.5 times estimated 2025 earnings of $7.23 per share. The stock’s 52-week trading range is $45.85 to $77.19. The company pays an annual dividend of $1.98 (yield of 2.57%), and the total shareholder return for the past 12 months was 61.65%.
DraftKings
Online sports betting and gambling company DraftKings Inc. (NASDAQ: DKNG) has seen its share price decline by 65% over the past 12 months. Shares put up their high exactly one year ago and dropped to their annual low in mid-May, down 95%. Since then, the stock is up about 45%. Spending on marketing has increased, and investors are hoping that a strong NFL betting handle will boost revenue and profits. Mobile betting is rising, as are parlay bets, which pay off significantly better for the house.
Analysts remain somewhat bullish on the stock, with 16 of 30 having a Buy or Strong Buy rating. Thirteen have a Hold rating on the shares. At a price of around $16.65 a share, the upside potential based on a median price target of $24.50 is 47.1%. At the high target of $52.00, the upside potential is about 212%.
Third-quarter revenue is forecast at $437.02 million, down 6.2% sequentially bug up about 105% year over year. Analysts are forecasting a loss per share of $0.94 in the quarter, compared to a prior-quarter loss of $0.49 and a year-ago loss of $1.35 per share. For the full 2022 fiscal year, DraftKings is expected to post a per-share loss of $2.51, better than the $3.69 loss per share in 2021. Sales are forecast to rise 65% year over year to $2.14 billion.
DraftKings is not expected to post a profit in 2022, 2023 or 2024. Its stock trades at a multiple of 3.4 times estimated 2022 enterprise value to sales, 2.6 times estimated 2023 EV to sales and 2.1 times estimated 2024 EV to sales. The stock’s 52-week range is $9.77 to $48.17. The company does not pay a dividend. The total shareholder return for the past year was negative 64.8%.
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