Investing

Earnings Previews: Alliance Resource Partners, GE Healthcare, Li-Cycle, SoFi Technologies

Paul Ausick

Published: January 26, 2023 10:38 am

In early trading Thursday, the Dow Jones industrials were up 0.35%, the S&P 500 was up 0.65% and the Nasdaq was up 1.16%.

The first reading of fourth-quarter gross domestic product came in better than expected, posting an annual rate of 2.9%, more than 10% better than the consensus estimate of 2.6% and closer to the 3.2% growth posted in the third quarter. The price deflator was up 3.5%, also more than expected. Overall, the report may indicate that Federal Reserve rate hikes will be smaller or may stop altogether for a while in order to give the economy a bit more room to grow. Real GDP increased by just 2.1% last year after booming to 5.9% growth in 2021. Getting closer to 3% for this year may be a Fed target, provided the central bankers can keep inflation in check. Interesting times.

After U.S. markets closed Wednesday, Tesla reported earnings per share (EPS) and revenue that beat consensus estimates. The company also forecasts production of 1.8 million vehicles in 2023, up nearly 40% year over year. New orders (following price cuts announced earlier this month) are running at nearly double year-ago totals. Shares traded up more than 10% shortly after Thursday’s opening bell.

IBM missed the consensus EPS estimate by a penny and met revenue expectations. Big Blue also said it planned to reduce its workforce by around 3,900. The stock traded down 3.8% Thursday morning.

CSX beat consensus estimates on both the top and bottom lines. The railroad expects both merchandise and coal shipments to rise this year. Shares traded down more than 2%.

Lam Research also beat top-line and bottom-line estimates but issued downside guidance for its wafer fabrication equipment. The company said it is taking steps to reduce costs, including job cuts of 1,300, about 7% of its global workforce. Shares traded down 0.4%.

Before markets opened on Thursday, Nokia beat both EPS and revenue estimates. The Finnish company issued in-line guidance, and shareholders will get a dividend increase of 50%. Shares traded up 2.8% in the first half-hour of trading.

American Airlines beat the consensus EPS estimate and narrowly missed on revenue. For the current quarter, guidance was in line with estimates, and full-year EPS guidance was well above estimates. Shares traded down by about 1%.

Comcast surpassed EPS and revenue estimates but reported the loss of 26,000 broadband subscribers. Shares traded up about 0.5% shortly after Thursday’s opening bell.

Four Dow companies are on deck to report results late Thursday or early Friday: American Express, Chevron, Intel and Visa.

Here is a preview of four companies scheduled to report results first thing Monday morning.

Alliance Resource Partners

Shares of coal producer Alliance Resource Partners L.P. (NASDAQ: ARLP) have increased by more than 50% in the past 12 months. According to the International Energy Agency (IEA), coal demand rose to more than 8 billion metric tons in 2022, and the agency believes demand will remain flat through 2025. Alliance is a master limited partnership (MLP) that pays a hefty pretax distribution to shareholders.

Alliance receives virtually no analyst coverage. Two analysts have a Buy rating with a median price target of $29.00. At a recent price near $21.00 a share, the implied upside is 38.1%.

For the fourth quarter, Alliance is expected to post sales of $688.27 million, which would be up 9.5% sequentially and by 45.3% year over year. Adjusted EPS are forecast at $1.42, up 13.6% sequentially and 255% higher year over year. Full-year EPS are forecast at $4.31, an increase of more than 217%, and revenue for the year is estimated to rise by about 52.5% to $2.39 billion.

Alliance common units trade at a sales-to-enterprise value multiple of 1.2 for 2022 and 1.0 for both 2023 and 2024. The stock’s 52-week trading range is $12.60 to $27.63. Alliance pays an annual dividend of $2.00 (yield of 9.5%). Total shareholder return for the past 12 months was 62.6%.

GE Healthcare

GE Healthcare Technologies Inc. (NASDAQ: GEHC) began trading on January 3 and joined the S&P 500 index on the same day. Since the spin-off from GE, shares have added nearly 18%. GE stock is down by about 3.6% over the same period.

The new health care technology company released preliminary results on January 10, announcing fourth-quarter revenue of around $4.9 billion and full-year revenue of about $18.3 billion. Adjusted EBIT margin is expected to come in at 15% to 15.5%, up a full percentage point above the company’s earlier estimate. Free cash flow is expected to come in near the low end of the estimated range of $1.8 to $2.0 billion.

Only two analysts cover the stock until the quiet period ends early next month. At a share price of around $68.70, the stock trades above the median (and high) price target of $67.00.

Fourth-quarter estimates track the company’s own preliminary numbers, and forward estimates will not be meaningful until more analysts jump on the bandwagon.

The stock’s post-IPO range is $53.00 to $70.63. GE Healthcare does not pay a dividend, and that is something shareholders might expect to hear more about on Monday morning.

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Li-Cycle

Lithium-ion battery recycler Li-Cycle Holdings Corp. (NYSE: LICY) has seen its share price decline by about 26% over the past year. Since posting a high above $15 in November 2021, the shares have dropped by more than 60%.

Lithium carbonate prices have dipped by about 20% since a high posted in November, due primarily to increased production (up 89% year over year) in China. Australian production is expected to rise by nearly a third year over year in 2023. Li-Cycle has begun operations at an Alabama plant and a facility in Rochester, New York, is under construction that is said to be capable of supplying enough batter-grade lithium to power 225,000 electric vehicles.

Of eight brokerages covering Li-Cycle stock, six have a Buy or Strong Buy rating and the other two rate it at Hold. At a share price of around $5.40, the upside potential based on a median price target of $9.50 is nearly 76%. Based on a high price target of $13.00, the upside potential on the stock is 140%.

Fiscal fourth-quarter revenue is forecast at $9.31 million, up from negative reported revenue of $1.97 million sequentially and up from $4.39 million in the year-ago quarter. Analysts are looking for an adjusted per-share loss of $0.13, less than the prior quarter’s loss of $0.21 per share but worse than last year’s fourth-quarter loss of $0.09 per share.  For the full 2022 fiscal year, the adjusted loss per share is forecast at $0.41, worse than last year’s loss of $0.28 per share, on sales of $18.79 million, up about 155%. Li-Cycle has issued pro forma results following a change to its fiscal year calendar. The company’s fiscal year now ends in December instead of October.

Li-Cycle is not expected to post a profit in 2022, 2023 or 2024. Its post-IPO trading range is $4.48 to $9.48. Li-Cycle does not pay a dividend, and the total shareholder return for the past year is negative 26.1%.

SoFi Technologies

Decentralized financial (DeFi) services firm SoFi Technologies Inc. (NASDAQ: SOFI) has posted a share price drop of almost 55% over the past 12 months. The good news for investors is that the stock has added more than 25% since the beginning of 2023.

What happens with student loan repayments will play a big role in the company’s performance this year. Refinancing student loans was SoFi’s initial business, but the pandemic and the postponement of student loan payments has killed the refinance business. More changes are in store, and investors will be watching carefully for how those changes will affect SoFi’s business.

Of 14 analysts covering the stock, eight have a Buy or Strong Buy rating and the other six have Hold ratings. At a share price of around $5.90, the upside potential based on a median price target of $7.50 is 27.1%. At the high target of $14.50, the upside potential is about 145%.

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Analysts expect the company to report fourth-quarter revenue of $425.53 million, up 1.5% sequentially and by 52.0% year over year. Sofi is expected to post a loss per share of $0.07, better than the prior quarter’s loss of $0.08 per share and the year-ago quarterly loss of $0.12. For the 2022 fiscal year, analysts expect an adjusted loss of $0.37 per share, compared with a loss per share of $0.66 last year. Revenue for the year is pegged at $1.53 billion, up 51.1%.

SoFi is not expected to post a profit in 2022, 2023 or 2024. The stock’s 52-week range is $4.24 to $13.86, and SoFi does not pay a dividend. Total shareholder return for the past year is negative 54.1%.