The expected positive impact from the federal tax overhaul, aimed at boosting corporate profits and stimulating growth, can’t come fast enough, given the inflationary indicators seen within some of the earning reports released this past week.
Margin compression and, in some cases, increased costs from materials and wages adversely impacted Q1 profits from the likes of Hershey (HSY), UPS (UPS), and PepsiCo (PEP). The latter, which reported Q1 results last Thursday, said each segment of its businesses — from Frito-Lay to Quaker Foods and beverages — suffered higher-cost inflation during the quarter. And CEO Hugh Johnston said he expects some level of inflation to continue throughout the year.
Will margin compression be the theme for companies reporting earnings this coming week? In that vein, here are a few stocks to keep an eye on.
Apple (AAPL) – Reports after the close, Tuesday, May 1.
Wall Street expects Apple to earn $2.69 per share on revenue of $60.98 billion. This compares to the year-ago quarter when earnings came to $2.10 per share on revenue of $52.9 billion.
What to Watch: A potential trade war with China, Apple’s second-largest market, has gotten investors spooked about Apple stock. This is because, out of the $229 billion in sales Apple reported for fiscal 2017, about $45 billion, or roughly 20% came from China. As such, not only Apple stock fallen into correction territory, the risk from China has prompted some analysts to lower their price targets and in some cases, reduce iPhone sales estimates for the quarter. How will Apple respond?
From my vantage point, now would be a good time to buy Apple. The stock is priced at just 14 times fiscal 2018 estimates of $11.44 per share, which is five points lower than the S&P 500 index. When adjusting out the cash, Apple’s P/E drops to single digits, making Apple one of the best bargains on the market.
Snap (SNAP) – Reports after the close, Tuesday, May 1.
Wall Street expects Snap to lose 17 cents per share on revenue of $243.55 million. This compares to the year-ago quarter when its lost came to 20 cents per share on revenue of $149.65 million.
What to Watch: If at first you don’t succeed, try again. That seems to be Snap’s operating model as the company has opted to give its Spectacles video sunglasses another try at winning the hearts of users. How will the market embrace the newer, slimmer design, which now comes in onyx black, ruby red and sapphire blue, remains the question.
Elsewhere, the company is also rolling out a redesign to the redesign of the app it rolled out last year. That’s right. Its highly-anticipated redesign, undertaken a year ago, is being redesigned again thanks to a flurry of critical attacks against the new look, more prominently from Kylie Jenner, which sent Snap stock plunging. Analysts will press management for clues about what this redesign will look like and the company’s user engagement metrics.
Spotify (SPOT) – Reports after the close, Wednesday, May 2.
Wall Street expects Spotify to lose 31 cents per share on revenue of $1.14 billion. This will be the company’s first earnings report as a public issue.
What to Watch: Some analysts, citing (among other things) competitive pressure from Apple Music, believe Spotify shares could fall following its earnings report. This is because, aside from Amazon’s (AMZN) Alexa-powered music service, there’s also Google’s (GOOG , GOOGL) YouTube, which boasts a subscriber base of 70 million. And to say nothing about Pandora (P), which has undertaken an organizational restructuring aimed at strengthening its finances and growth position.
Can Spotify overcome these threats? Working to its advantage, the company — fresh off its highly-anticipated IPO — is already cash flow positive, growing rapidly and has the ability to scale globally. Not to mention, the Swedish-based company, which boasts 159 million monthly active users, has some 71 million subscribers who are currently paying for its premium service package, giving it ample time to figure things out.
Tesla (TSLA) – Reports after the close, Wednesday, May 2.
Wall Street expects Tesla to lose $3.28 per share on revenue of $3.31 billion. This compares to the year-ago quarter when its loss came to $1.33 per share on revenue of $2.7 billion.
What to Watch: Prolonged worries about the company’s cash position and struggles with Model 3 production will be the main topics on the conference call. Citing an internal email, last week Bloomberg reported that the company is pushing for Model 3 production to ramp up to 6,000 cars per week by the end of June. That’s an aggressive target, given that Tesla was previously targeting 5,000 Model 3 units by the end of the second quarter. If Tesla is able to achieve its production goals without pushing back Model 3 target and deliveries again, the stock will take off.
