Stocks to Watch (04/27-05/01): Earnings Uncertainty and Dividend Cuts.

Next week, there will be a flurry of earnings activity and announcements: Tech giants are releasing their earnings, several companies are expected to announce whether dividends will be maintained or cut, and Nielsen data will publish its Q1 data, among other news.

Here’s what to look out for next week.

TECH GIANTS LEAD EARNINGS

Tech giants are carrying the S&P 500. In fact, the five giants make up 17.5% of the S&P 500 and their performances largely determine the direction of the markets. Their expected Q1 earnings are a tale of contrasts and there is plenty of uncertainty as to how the markets will react.

AMAZON (Nasdaq: AMZN) is expected to beat earnings due to massive sales during coronavirus crisis. It’s estimated that during confinement its customers spent on average $11,000 per second. While higher demand may result in higher costs, the long-term economic consequences of the shutdown (ie small business bankruptcies) will ultimately benefit AMZN. I expect quarterly earnings to be close to $90 billion and the share price to keep rising.

APPLE (Nasdaq: AAPL) will have a more contrasted Q1. It was forced to close its stores and factories in China for several weeks. Its supply chain was severely disrupted. Also, consumers are expected to reduce their spending due to economic uncertainty. This is expected to impact short term demand for premium-priced iPhones. Tim Cook has already warned investors AAPL will not meet or beat Q1 and Q2 earnings estimates. Any dips in price could be an opportunity to buy shares at a discount.

ALPHABET (Nasdaq: GOOG) will probably miss earnings estimates. While more people spent time online, ad revenue is probably way down. GOOG has slowed investments and hiring until the economic outlook improves. The potential consequences of the crisis may not be felt until Q3. GOOG remains a solid company going forward and dips in price could be interesting buying opportunities.

FACEBOOK (Nasdaq: FB) is in the same boat as GOOG. While I assume its traffic went way up during the confinements, I’m also assuming people spent less on advertising. Another stock to buy if it dips.

MICROSOFT (Nasdaq: MSFT) may beat earnings estimates as they definitely benefited from the rise of remote work from home. MSFT was very well positioned to benefit from this trend due to Office 365’s widespread use and its growing Azure cloud computing system. Earnings are expected to be good. If they manage to beat estimates, then the share price may continue its steady rise back to pre-crisis levels.

OTHER EARNINGS TO WATCH

The tech giants are not the only major companies releasing their earnings next week.

Plenty of other household names are announcing theirs as well: Advanced Micro Devices (Nasdaq: AMD), Caterpillar (NYSE: CAT), Denny’s (Nasdaq: DENN), Ford (NYSE: F), Pepsico (Nasdaq: PEP), Starbucks (Nasdaq: SBUX), T. Rowe Price (Nasdaq: TROWE), UPS (NYSE: UPS), Carnival Cruise Lines (NYSE: CCL), Royal Caribbean Cruise Lines (NYSE: RCL), General Electric (NYSE: GE), Valero Energy (NYSE: VLO), Hasbro (Nasdaq: HAS), Altria Group (NYSE: MO), ConocoPhillips (NYSE: COP), Dunkin’ Donuts (Nasdaq: DNKN), Monster Beverage (Nasdaq: MNST), Western Digital (Nasdaq: WDC), Tesla (Nasdaq: TSLA), Twitter (NYSE: TWTR) and Visa (NYSE: V).

Check out the full earnings calendar for the week on Earnings Whispers.

DIVIDEND CUTS & RAISES

Here are some the projected cuts: Core Laboratories (NYSE: CLB) to $0.01 from $0.25, Simon Property Group (NYSE: SPG) to $1.05 from $2.10.

Here are some of the expected dividend raises: Fresh Del Monte (NYSE: FDP) to $0.12 from $0.10, Ameriprise (NYSE: AMP) to $1.04 from $0.97, Tetra Tech (Nasdaq: TTEK) to $0.17 from $0.15, Apple to $0.82 from $0.77, IBM (NYSE: IBM) to $1.67 from $1.62, Cullen/Frost (NYSE: CFR) to $0.72 from $0.71 and Raytheon Technologies (NYSE: RTX) to $0.40.

NO BUYBACKS?

Corporate share buybacks are an American institution. Between 2009 and 2018, the 465 companies in the S&P 500 index spent$4.3 trillion on buybacks, equal to 52% of net income, and another $3.3 trillion on dividends, an additional 39% of net income“.

This year, companies are focused on preserving liquidity to survive the crisis. Others are forbidden from buying back stock due to federal restrictions enacted for bailout recipients.

Many companies will be unable to buyback stock, including: Hilton Worldwide (NYSE: HLT), Marriott International (Nasdaq: MAR), Ross Stores (Nasdaq: ROST), Waste Management (NYSE: WM), Citrix Systems (Nasdaq: CTXS), Water Co. (NYSE: WAT) and IHS Markit (NYSE: INFO).

OTHER NEWS

Nielsen data published on April 30th will reveal the extent to which panic buying has waned. Major retailers like Kroger (NYSE: KR), Costco (Nasdaq: COST), Walmart (NYSE: WMT) and Target (NYSE: TGT) are expected to have greatly benefited from this grocery shopping frenzy. I expect their upcoming Q1 earnings to be strong. Other companies are also expected to post strong growth, such as Campbell Soup (NYSE: CPB), General Mills (NYSE: GIS), Kraft Heinz (Nasdaq: KHC), Conagra (NYSE: CAG), Kelogg (NYSE: K), Molson Coors (NYSE: TAP), J.M. Smucker (NYSE: SJM) and Anheuseur-Busch InBev (NYSE: BUD), among others).

The U.S. casino industry could reopen progressively starting May 15th. The Nevada Governor is expected to announce this next week. Major operators who could benefit are Caesar’s Entertainment (Nasdaq: CZR), MGM Resorts (NYSE: MGM), Boyd Gaming (NYSE: BYD), Wynn Resorts (Nasdaq: WYNN), Las Vegas Sands (NYSE: LVS) and Eldorado Resorts (Nasdaq: ERI). Obviously, the rise in the stocks could be short lived due to expected negative Q1 earnings and a slow business environment. Customers are not expected to flock to gambling tables if the economy tanks.

Boeing (NYSE: BA) will hold its annual board meeting on April 27th in virtual format. Shareholders are expected to vote on the eviction of Chairman Larry Kelner over his handling of the 737 MAX debacle. Several executives have already stepped down and the bloodbath could continue. BA is due for a shakeup and replacing the disgraced board should reassure investors and perhaps cause a rally in the share price.

Some oil majors are expected to benefit from the current oil crisis. Indeed, plenty of mergers and bankruptcies are expected and long term investors should perhaps invest in the best of breed stocks and hold them. Against all odds, ExxonMobil (NYSE: XOM) is expected to maintain its dividend. Royal Dutch Shell (RDSA), BP (NYSE: BP) and Total (EPA: FP) are other names to keep an eye on in the coming weeks.

Year over year U.S. auto sales are down by 26.6%. Domestic automakers such as GM and Ford are believed to have weathered the storm better than their foreign counterparts. Nevertheless, all major companies are posting huge declines in sales. Stocks to watch include: Fiat Chrysler Automobiles (NYSE: FCAU), General Motors (NYSE: GM), Honda (NYSE: HMC) and Toyota (NYSE: TM).


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Disclaimer: This is not financial advice. Do your own research before investing in any asset.

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