Investing

Earnings Previews: Applied Materials, Catalent, Deere, Foot Locker

Paul Ausick

Published: May 17, 2023 10:25 am

Shortly after Wednesday’s opening bell, the Dow Jones industrials were trading up 0.44%, the S&P 500 up 0.47% and the Nasdaq 0.34% higher.

After U.S. markets closed on Tuesday, Kyndryl reported a much wider-than-expected loss per share but beat the consensus revenue estimate by 2.5%. Though revenue fell 4% year over year, it was up 1% in constant currency. In its outlook for the 2024 fiscal year that began in April, the company said it expected revenue to decline by 6% to 8% year over year, while adjusted EBITDA and pretax margin are expected to improve somewhat. Shares were down 11.1% in morning trading.

Star Bulk Carriers missed the consensus revenue estimate but beat the earnings per share (EPS) forecast by nearly 26%. The company declared a quarterly dividend of $0.35, payable on June 7. That is $0.05 higher than the dividend paid in the year-ago quarter and will bring the total dividend payment for the trailing four quarters to $3.80, but the company’s variable dividend policy is likely to improve as the year plays out. Shares traded up about 5.8%

Before U.S. markets opened on Wednesday, Target reported EPS that was 16% higher than the consensus estimate, but it missed the revenue estimate by 0.9%. The big-box retailer also issued downside guidance for the current quarter’s EPS while maintaining prior guidance. Shares traded up 0.9%.

TJX also beat its expected EPS number (by 7%) and missed the revenue estimate (by 0.3%). Revenue was up 3.3% year over year. The company issued downside EPS guidance for the current quarter and for the fiscal year. Shares traded up 0.5%.

After U.S. markets close on Wednesday, Cisco and SQM will report earnings. Alibaba, Bath & Body Works and KE Holdings are on deck the following morning, along with Dow component Walmart.

Here is what to expect when the following four companies report quarterly results late Thursday or first thing Friday morning.

Applied Materials

Shares of semiconductor equipment maker Applied Materials Inc. (NASDAQ: AMAT) have added 9.5% over the past 12 months. So far in 2023, the stock is up more than 24%. The downside for the company is that chip demand is expected to soften considerably in the second half of the year, and both profits and revenue are expected to be lower year over year. Lower demand for chips means reduced demand for the machinery that is used to fabricate those chips, and that’s where Applied Materials is expected to feel the pain. The company reports results after markets close on Thursday.

Of 31 analysts covering Applied Materials, 21 have Buy or Strong Buy ratings and nine more have Hold ratings. At a recent price of around $121.00 a share, the implied upside based on a median price target of $135.00 is about 11.6%. At the high target of $150.00, the upside potential is almost 24%.

For the company’s second quarter of fiscal 2023, analysts anticipate revenue of $6.37 billion, which would be down 5.5% sequentially but up 7.5% year over year. Adjusted EPS are forecast at $1.83, down 10.0% sequentially and by 1.1% year over year. For the full fiscal year ending in October, analysts are forecasting EPS of $7.04, down 8.6%, on sales of $24.76 billion, down 4%.

The stock trades at 17.2 times expected 2023 EPS, 17.9 times estimated 2024 earnings of $6.75 and 14.5 times estimated 2025 earnings of $8.36 per share. Its 52-week trading range is $71.12 to $125.62. Applied Materials pays an annual dividend of $1.28 (yield of 1.06%). Total shareholder return over the past year was 10.52%.

Catalent

Contract drug maker Catalent Inc. (NYSE: CTLT) was originally scheduled to release quarterly results on May 9. That date was pushed out to May 15 and then pushed out again until early Friday morning. Catalent blames “certain accounting adjustments” related to its Indiana plant, an excuse that is almost always a red flag to investors.

Since early April, after the company first acknowledged issues at the Indiana plant, the share price has dropped by more than 50%. Over the past 12 months, the stock has dropped by about 67%. It is still possible that Catalent may have to restate earnings for fiscal 2022, something the company should want to avoid at all costs.

Of 16 analysts covering the stock, nine have Buy or Strong Buy ratings and six more rate it at Hold. At a share price of around $32.00, the implied upside based on a median price target of $55.00 is about 71.9%. At the high target of $90.00, the upside potential is 181%.

For the company’s most recent quarter, analysts expect revenue of $1.03 billion, down 10.5% sequentially and 18.9% lower year over year. Adjusted EPS are forecast at $0.32, down 51.7% sequentially and by 69.2% year over year. For the full 2023 fiscal year ending in June, analysts are looking for EPS of $2.29, down 40.3%, on sales of $4.35 billion, down 9.9%.

Catalent’s stock trades at 13.9 times expected 2023 EPS, 12.5 times estimated 2024 earnings of $2.54 and 10.0 times estimated 2025 earnings of $3.20 per share. The stock’s 52-week range is $31.25 to $115.33. The company does not pay a dividend, and total shareholder return over the past year was negative 67.38%.

Deere

Heavy equipment maker Deere & Co. (NYSE: DE) has seen its share price decline of 3.1% over the past 12 months. Since posting a 52-week low in early July, the stock has added nearly 28% more, although shares trade about 19% below their 52-week high. The consensus fiscal year EPS estimate shot up after Deere’s first-quarter report and has remained around $30.50 while the share price has declined by about 16%. The company reports quarterly results early Friday.

Last month, Colorado enacted the first state law that guarantees farmers the right to repair their own tractors and equipment, a bill Deere has opposed for years. If this becomes a trend, Deere’s captive service revenue is likely to fall.

Analysts continue to be bullish on the stock, with 18 of 28 having a rating of Buy or Strong Buy, while 10 more rate it at Hold. At a share price of around $363.00, the upside potential based on a median price target of $462.00 is 27.3%. At the high price target of $591.00, the upside potential is 62.8%.

For the company’s second quarter of fiscal 2023, analysts expect Deere to report revenue of $14.87 billion, up 30.4% sequentially and up 23.6% year over year. (Deere’s January quarter is historically its weakest.) Adjusted EPS are expected to come in at $8.47, up 29.3% sequentially and by 38.8% year over year. For the full fiscal year ending in October, EPS are forecast at $30.33, up 26.5%, on sales of $54.35 billion, up 13.4%.

Deere stock trades at 12.0 times expected 2023 EPS, 11.4 times estimated 2024 earnings of $31.93 and 11.1 times estimated 2025 earnings of $32.57 per share. Its 52-week range is $283.81 to $448.40. The company pays an annual dividend of $5.00 (yield of 1.35%). Total shareholder return over the past year was negative 1.89%.

Foot Locker

When mall-store operator Foot Locker Inc. (NYSE: FL) reported January-quarter results last March, the company issued downside guidance for fiscal 2024 EPS and revenue. The stock price tumbled initially but has come back nicely to post a decline of just 0.9% after that first plunge. Analysts got the message and have lowered the EPS estimates by a third since March, while the revenue estimate jumped on the report. Share prices have moved little since then. The bar has been safely lowered, and Foot Locker had better produce a solid beat when it reports results Friday morning.

Of 20 analysts covering the company, 13 are waiting on the sidelines with a Hold rating. Six have Buy ratings. At a share price of around $39.00, the upside potential based on a median price target of $42.50 is 6.4%. At the high price target of $60.00, the upside potential is 53.8%.

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First-quarter revenue is forecast at $1.99 billion, down 14.7% sequentially and by 8.7% year over year. Adjusted EPS are forecast at $0.78, down 19.6% sequentially and 51.3% lower year over year. For the full 2024 fiscal year ending next January, Foot Locker is expected to report EPS of $3.47, down 30%, on revenue of $8.35 billion, down 4.5%.

Shares trade at 11.3 times expected 2024 EPS, 9.5 times estimated 2025 earnings of $4.14 and 7.8 times estimated 2026 earnings of $5.03 per share. Foot Locker’s 52-week trading range is $23.85 to $47.22. The company pays an annual dividend of $1.60 (yield of 4.0%). Total shareholder return for the past year was 35.19%.