Investing

Earnings Previews: Alcoa, Discover Financial, Kinder Morgan

Shortly after Tuesday’s opening bell, the Dow Jones industrials traded up 0.03%, but the S&P 500 was down 0.49% and the Nasdaq traded 0.08% lower.

On Monday, Taiwan-based United Microelectronics reported quarterly and year-end results that missed the earnings per share (EPS) estimate slightly and beat the revenue estimate. Shares traded flat early Tuesday.

Before the bell on Tuesday, Goldman Sachs reported misses on both EPS and revenue. Investment banking fees were down 48% year over year, and the bank’s provision for loan losses jumped from $344 million a year ago to $972 million. Shares traded down about 2.6%.

Morgan Stanley also missed the consensus EPS estimate but did top the revenue estimate. Investment banking fees were off 49% year over year, and equity net revenue fell 24% compared with the fourth quarter of last year. Shares traded up 1.9%.

Silvergate Capital missed on profits, reporting a loss of $1 billion, compared to a net profit of $18.4 million in the year-ago quarter. Shares traded up 4%, likely due to the fact that the bank did not fare much worse.

After markets close Tuesday, United Airlines will report quarterly results. Here is our preview. First thing Wednesday morning, Charles Schwab and Prologis are on deck to report quarterly earnings.

Here are our previews for three firms set to report results after Wednesday’s closing bell.

Alcoa

Following a huge share price runup that peaked in March after the Russian invasion of Ukraine, aluminum producer and refiner Alcoa Inc. (NYSE: AA) has lost about 40% from its share price. The share price decline tracks closely with the price of aluminum, and that is good news for Alcoa. In the first two weeks of 2023, aluminum prices have risen by more than 10%. Alcoa’s share price has improved by 20.1% over the same period. Global inventories are down 900,000 tons year over year, their lowest level since 2002.

Of 12 analysts covering the stock, only four have a Buy or Strong Buy rating. The others rate the shares a Hold. At a recent price of around $54.60 a share, the stock trades above its median price target of $46.50. At the high target of $60.00, the upside potential is 9.9%.

Fourth-quarter revenue is forecast to reach $2.68 billion, which would be down 6.2% sequentially and by 20.0% year over year. Alcoa is expected to post an adjusted loss per share of $0.58, compared to a loss of $0.33 in the prior quarter and EPS of $2.50 in the fourth quarter of 2021. For the full 2022 fiscal year, EPS are estimated to reach $4.82, down 29.4%, on revenue of $12.44 billion, up 2.3%.

Alcoa stock trades at 11.3 times expected 2022 EPS, 18.3 times estimated 2023 earnings of $2.98 and 10.3 times estimated 2024 earnings of $5.31. The stock’s 52-week trading range is $33.55 to $98.09. Alcoa pays an annual dividend of $0.40 (yield of 0.77%). Total shareholder return over the past year was negative 9.1%.

Discover Financial

Credit card issuer Discover Financial Services (NYSE: DFS) has seen its share price sink by about 17% over the past 12 months. The stock posted its 52-week low in mid-October, and the shares have added more than 14% since. About 85% of Discover’s stock is owned by institutional investors, happy to accept a 12% per year five-year dividend growth rate. With free cash flow of around $1.5 billion per quarter and free cash flow per share of $22.26 over the past 12 months, the dividend is safe and probably could be increased again to make the shares more attractive.

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