The September-quarter earnings season gets rolling this week, with earnings reports from several of the largest U.S. banks due Friday morning.
Equity markets had a tough quarter. The S&P 500 dipped by 3.3%, while the Nasdaq Composite index dropped 4.1% and the Dow Jones industrials lost 2.7%. Earlier worries over inflation gave way to concerns about interest rates. Bond yields are up, and the Federal Reserve’s higher-for-longer interest rate regime signals an uphill struggle for stocks in the fourth quarter.
Before U.S. markets opened on Tuesday, PepsiCo reported better-than-expected earnings per share (EPS) and revenue. CFO Hugh Johnson said the company is seeing little effect from the popularity of weight-loss drugs like Ozempic. The stock traded up by about 1.2% shortly after Tuesday’s opening bell.
We will get a better look at what the September quarter was like before markets open on Thursday when these three firms report their results.
Commercial Metals
Recycler and metals fabricator Commercial Metals Co. (NYSE: CMC) stock has added nearly 25% to its share price over the past 12 months. Since posting a 52-week high in early February, however, the stock is down by more than 17%. Steel prices have dropped by about the same amount in that time. The U.S. autoworkers strike has begun to weigh on steel prices. Automobile production has dropped by around 6,000 vehicles a day, cutting steel demand by nearly 6,000 tons. The price of coiled sheet steel is down 40% since April.
Just seven analysts cover the stock, and four have Hold ratings. The other three rate it at Buy or Strong Buy. At a recent price of around $48.00 a share, the implied gain based on a median price target of $60.00 is 20%. At the high price target of $74.00, the upside potential is 54.2%.
For the company’s fourth quarter of fiscal 2023, which ended in August, analysts expect revenue of $2.2 billion, which would be down 6.3% sequentially and by 8.7% year over year. Adjusted EPS are forecast at $1.82, down 9.9% sequentially and 25.7% lower year over year. For the full 2023 fiscal year, CMC is forecast to report EPS of $7.59, down 7.4%, on sales of $8.77 billion, down 1.6%.
Shares trade at 6.3 times expected 2023 EPS, 7.8 times estimated 2024 earnings of $6.17 and 8.3 times estimated 2025 earnings of $5.76 per share. The stock’s 52-week trading range is $38.09 to $58.09. CMC pays an annual dividend of $0.64 (yield of 1.34%). Total shareholder return for the past year was 26.48%.
Delta Air Lines
Since posting a 52-week high in mid-July, Delta Air Lines Inc. (NYSE: DAL) stock has dropped 14.5%. Over the past 12 months, however, shares have added 20%. The Hamas-Israeli war cast a chill over the travel industry on Monday. Flight schedules were disrupted, and rising fuel prices are never good news for airline stocks. On Sunday, Delta, United and American suspended flights to Israel. All three airlines saw share prices fall by at least 4% on Monday.
Delta stock remains a near-unanimous Buy, with 19 of 20 analysts’ ratings of Buy or Strong Buy. The lone holdout rates the shares at Hold. At a price of around $35.30 a share, the upside potential based on a median price target of $54.00 is almost 53%. At the high price target of $77.00, the upside potential is 118.1%. Analysts must be waiting to hear the quarterly earnings report before adjusting ratings or targets.
For the third quarter of fiscal 2023, the consensus revenue forecast is $15.13 billion, down 2.9% sequentially but 8.3% higher year over year. The airline is expected to post EPS of $1.96, down 26.7% sequentially and up 29.8% year over year. For the full fiscal year, analysts anticipate EPS of $6.08, up 89.9%, on sales of $57.55 billion, up 13.8%.
Delta’s stock trades at 5.8 times expected 2023 earnings, 5.2 times estimated 2024 earnings of $6.77 and 4.4 times estimated 2025 earnings of $8.07 per share. Its 52-week trading range is $28.21 to $49.81. The company pays an annual dividend of $0.40 (yield of 1.08%), and its total return for the past 12 months was 20.29%.
Walgreens
Walgreens Boots Alliance Inc. (NYSE: WBA) was one of 2023’s Dogs of the Dow, the 10 stocks that paid the best dividend yield at the end of December 2022. To make that list, a stock typically has to drop in value. At its current pace, Walgreens’ stock is a virtual lock to make the 2024 list. The share price is down 27% over the past 12 months and more than 40% for the year to date. The rich dividend softens the blow, but it can only do so much. Adding to its woes, employees at some 500 of the company’s 9,000 stores are expected to begin a three-day walkout Tuesday.
Of 16 analysts covering the stock, 11 have a Hold rating and just three have a Buy or Strong Buy rating. At a share price of around $22.00, the upside potential based on a median price target of $29.00 is 31.8%. At the high target of $41.00, the upside potential is 86.4%.
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