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Earnings Previews: Alibaba, Kohl's, Macy's, NetEase
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The three major U.S. equity indexes closed lower Monday. The Dow Jones industrials ended the day down 0.63%, the S&P 500 closed 0.89% lower, and the Nasdaq retreated 1.12%. Ten of 11 sectors closed lower, with real estate (−2.65%) and consumer cyclicals (−1.71%) posting the biggest drops. Health care (0.03%) stood alone with a tiny pickup.
The Bureau of Labor Statistics has released its producer price index (PPI) for October. Both PPI and core PPI rose by 0.2% month over month. That was a smaller increase than economists had expected. Core PPI came in at an annual rate of 5.4%, down from 5.6% in September and 6.2% in October of last year. The monthly report on retail sales is due Wednesday, while Thursday and Friday bring data related to new home construction and existing home sales in October. The weekly report on jobless claims is due Thursday.
The three major indexes traded higher Tuesday morning, pushed up by the report on PPI and the solid earnings reports from two Dow stocks.
Before U.S. markets opened Tuesday morning, Walmart beat estimates on the top and bottom lines. Adjusted earnings per share (EPS) exceeded the consensus estimate by 13.6%, and revenue was up nearly 9% year over year. Walmart expects year-over-year holiday quarter sales to decline by 3% to 5% while revenue will rise by 3%. The company also announced a new $20 billion share buyback program. Shares were up by more than 7% Tuesday morning.
Home Depot beat analysts’ consensus estimates on the top and bottom lines. The company reaffirmed previous guidance for the fiscal year ending in January. Home Depot expects adjusted EPS growth in the mid-single digits, in line with current estimates, same-store sales growth of around 3%, and operating margin of around 15.4%. Shares traded up 1.2%
Tencent Music posted better-than-expected profit and revenue totals. Shares traded higher by 22.1%.
Lowe’s, Target, TJX Companies and Zim Integrated Shipping will report quarterly results first thing Wednesday morning, while Cisco Systems and Nvidia are on deck to share results after Wednesday’s closing bell.
Here is a look at four companies on deck to report results before markets open on Thursday.
24/7 Wall St.Alibaba
Over the past 12 months, shares of Alibaba Group Holding Ltd. (NYSE: BABA) have lost about 57% of their value. The stock’s 52-week high rolls off on Wednesday, so the steady decline in Alibaba’s stock should slow down.
There are other bits of good news that could boost the stock’s value in the near term: China has begun relaxing its COVID-19 controls, putting some life back in consumer spending; the government crackdown on big tech firms appears to be at an end; U.S. audits of New York-listed stocks is now complete, and results are pending; and Ant Group has grown its capital base, giving it the ability to expand its consumer lending business.
Of the 44 analysts covering the stock, 39 have Buy or Strong Buy ratings. At a recent share price of around $71.30, the upside potential based on a median price target of $137.00 is about 92%. At the high price target of $218.00, the upside potential is 206%.
For Alibaba’s second quarter of fiscal 2023, analysts are expecting revenue of $29.63 billion, which would be down 3.4% sequentially and 5% lower year over year. Adjusted EPS are expected to come in at $1.64, down 6.3% sequentially and by 5.7% year over year. For the full fiscal year that ends in March, Alibaba is expected to report EPS of $7.26, down 12.6%, on sales of $127.99 billion, down 4.9%.
Alibaba’s stock trades at 9.8 times expected 2023 EPS, 8.4 times estimated 2024 earnings of $8.48 and 7.4 times estimated 2025 earnings of $9.66 per share. The stock’s 52-week trading range is $58.01 to $169.94. Alibaba does not pay a dividend, and total shareholder return for the past year was negative 57.2%.
Kohl’s
Department store operator Kohl’s Corp. (NYSE: KSS) has posted a 12-month share price decrease of about 44%. CEO Michelle Gass will leave the company on December 2 to take her place at the head of the line to become CEO of Levi Strauss. Gass had been looking to leave Kohl’s for months following a couple of earlier attempts by activist investors to replace her. Gass, who worked at Starbucks for 17 years, also was considered to lead the coffee brewer but lost out to Laxman Narasimhan in September. Kohl’s currently is searching for a new chief executive to replace Gass.
Of 17 analysts covering the stock, just three rate the shares at Buy, and 11 have Hold ratings. At a share price of around $32.30, the stock trades above its median price target of $30.00. At the high price target of $54.00, the upside potential is about 67.2%.
For the retailer’s third quarter of fiscal 2023, analysts are looking for revenue of $4.06 billion, up 5.1% sequentially but down 7.1% year over year. Adjusted EPS are forecast at $0.75, down 32.5% sequentially and by 54.4% year over year. For the full fiscal year ending in January, analysts currently forecast EPS of $3.07, down 58.1%, on sales of $17.6 billion, down 4.7%.
Kohl’s stock trades at 10.4 times expected 2023 EPS, 9.0 times estimated 2024 earnings of $3.54 and 8.1 times estimated 2025 earnings of $3.92 per share. The stock’s 52-week range is $24.61 to $64.38. Kohl’s pays an annual dividend of $2.00 (yield of 6.4%). Total shareholder return over the past year was negative 42.7%.
24/7 Wall St.Macy’s
Shares of Macy’s Inc. (NYSE: M) have tumbled by nearly 32% over the past 12 months, reaching a 52-week low in late September. Since then, the stock has added about 40%. Last month, the company opened a Toys R Us shop in all its stores, just in time for the holiday season. The company teamed up with WHP Global, which owns the rights to the Toys R Us name, to offer toys under the brand name last year. Macy’s reset expectations for this year after reporting second-quarter results and succeeded in setting the bar lower and easier to clear.
Six of 18 analysts rate Macy’s stock as a Buy or a Strong Buy. Another nine have Hold ratings. At a price of around $21.40 a share, the upside potential based on a median price target of $23.00 is about 7.5%. Based on a high price target of $30.00, the potential upside on the shares is 40.2%.
Analysts are forecasting fiscal second-quarter revenue of $5.2 billion, down 7.1% sequentially and by 4.4% year over year. Adjusted EPS are tabbed at $0.19, down 81.1% sequentially and 83.9% lower year over year. For the 2023 fiscal year ending in January, analysts are currently looking for EPS of $4.10, down 22.8%, on sales of $24.48 billion, up about 1%.
Macy’s stock trades at 5.2 times expected 2023 EPS, 5.4 times estimated 2024 earnings of $3.99 and 5.6 times estimated 2025 earnings of $3.84 per share. The stock’s 52-week range is $15.10 to $37.95. The company pays an annual dividend of $0.63 (yield of 3%). Total shareholder return for the past year was negative 28.9%.
NetEase
China-based NetEase Inc. (NASDAQ: NTES) operates online gaming, communications and commerce services in China and elsewhere. It also owns another U.S.-traded online services company, Youdao. Over the past 12 months, the stock has dropped about 37% from its share price.
The company reported last week that it had sold more than 300,000 copies of the nearly 625,000 copies sold in China of Taylor Swift’s “Midnights” album. Tencent Music said last week that it sold nearly 200,000 copies on the day of the album’s release in China. Swift’s album was the highest-priced album ever sold in the country. A recent analyst’s report noted that NetEase was gaining market share from Tencent Music by offering sharp discounts on its monthly music subscription.
Of 26 brokerage houses covering the stock, 25 have a Buy or Strong Buy rating. At a share price of around $70.00, the stock’s implied gain based on a median price target of $117.60 is 96.6%. At the high price target of $140.43, the upside potential is 200%.
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