Wall Street Week Ahead Earnings: Caesars Entertainment, Home Depot, Lowe’s and Moderna in Focus

Investors will focus on December quarter earnings for stocks that are economically sensitive, which should show better profits than technology stocks. Increasing Treasury yields and risk aversion could hit the stock market hard over the coming months. In addition, investors will closely monitor the latest news on the rapidly spread Omicron coronavirus variant to see how it impacts earnings in 2022.

Earnings Calendar For The Week Of February 21

Monday (February 21)

The New York Stock Exchange and NASDAQ will all be closed on Monday, February 21 for President’s Day.

Tuesday (February 22)

IN THE SPOTLIGHT: CAESARS ENTERTAINMENT, HOME DEPOT

CAESARS: The largest casino-entertainment Company in the U.S. company is expected to report its fourth-quarter loss of $-0.71 per share, up over 58%, better compared to a loss of $-1.7 per share seen in the same period a year ago. The Las Vegas-based company would post revenue growth of over 77% to $2.58 billion.

Caesars Entertainment (CZR) is currently trading at below its historical NTM multiple on 2023e EBITDAR, despite our expectation of >1,000bps higher core casino margins and faster growth. We believe regional casino markets (55% of mix) have structural tailwinds from customers acquired post-COVID and sports betting legalization,” noted Thomas Allen, equity analyst at Morgan Stanley.

“We expect CZR to improve its sports betting / iGaming market share in coming qtrs, a key driver to Gaming stocks in recent years. High leverage now (7.5x at YE21) but significant FCF and a planned Vegas asset should drive leverage to ~5x by YE22, opening up a broader investor base.”

HOME DEPOT: The largest home improvement retailer in the United States is expected to report its fourth-quarter earnings of $3.22 per share, which represents year-over-year growth of over 17% from $2.74 per share seen in the same period a year ago.

The home improvement retailer would post revenue growth of over 7% to $34.6 billion. The company has beaten consensus earnings estimates in most of the quarters in the last two years, at least.

“We are Overweight Home Depot (HD) given its best-in-class nature and structural housing tailwinds beyond N-T disruption from COVID-19. The stock seems attractively valued in the context of a potential 2021/2022 economic/housing boom,” noted Simeon Gutman, equity analyst at Morgan Stanley.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 22

TICKER COMPANY EPS FORECAST
CNP CenterPoint Energy $0.33
HR Healthcare Realty Trust $0.44
HD Home Depot $3.22
M Macy’s $1.91
MDT Medtronic $1.38
PANW Palo Alto Networks $-0.42
TOL Toll Brothers $1.26

 

Wednesday (February 23)

IN THE SPOTLIGHT: LOWE’S

Home improvement retailer Lowe’s is expected to report its fourth-quarter earnings of $1.69 per share, which represents year-over-year growth of over 27% from $1.33 per share seen in the same period a year ago. The company that distributes building materials and supplies through stores in the United States would post revenue growth of over 2% to $20.82 billion.

“We view Lowe’s (LOW) favourably given its longer-term transformation opportunity and structural industry tailwinds, with substantial near-term uplifts from COVID-19 spending shifts that likely translate to longer-term sales retention,” noted Simeon Gutman, equity analyst at Morgan Stanley.

“Assuming a healthy underlying housing backdrop, we think comps can accelerate longer-term from stronger sales/sq ft trends, driven by e-comm accelerating, better in-stocks, product refreshes/exclusive launches, greater traction with Pro initiatives, and removing friction from the customer shopping experience. Combined with productivity initiatives, this should enable EBIT margin expansion going forward.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 23

TICKER COMPANY EPS FORECAST
BBWI Bath & Body Works $2.25
BCS Barclays $0.29
EBAY eBay $0.82
HEI Heico $0.57
NTAP NetApp $1.07

 

Thursday (February 24)

IN THE SPOTLIGHT: MODERNA

Moderna, the biotech company focused on drug discovery, is expected to report its fourth-quarter earnings of $8.62 per share, which represents year-over-year growth of over 1,340% from a loss of -$0.69 per share seen in the same period a year ago.

The Massachusetts-based biotechnology company would post revenue growth of 1,075% to around $6.71 billion.

“We are Equal-weight Moderna. While we believe there is long-term upside for Moderna, we believe the significant valuation increase associated with the success of the COVID-19 vaccine limits the near-term upside,” noted Matthew Harrison, equity analyst at Morgan Stanley.

“The company has taken an industrialized approach to developing mRNA based therapeutics and has rapidly generated a broad pipeline of 21 programs, 11 of which have entered clinical development. We believe Moderna’s mRNA drug development platform is more diversified and scalable compared with competitors, and is validated through broad partnerships with Merck and AstraZeneca. We see vaccines and rare diseases as the key valuation drivers of the company.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 24

TICKER COMPANY EPS FORECAST
ADSK Autodesk $0.89
AXON Axon Enterprise $-0.07
SQ Block $-0.06
CVNA Carvana $-0.76
DELL Dell Technologies $1.94
DISCA Discovery $0.84
GCI Gannett $-0.03
NTES NetEase $0.82
NKLA Nikola $-0.46
VMW VMware $1.44
ZS Zscaler $-0.57

 

Friday (February 25)

TICKER COMPANY EPS FORECAST
AES AES Corp. $0.46
CNK Cinemark Holdings $-0.16
DSX Diana Shipping $0.30
SSP E.W. Scripps $0.46
FL Foot Locker $1.46

 

One Chart Reveals The Sector Rotation In The Stock Market

In case you are still wondering what’s happening in the stock market since November 2021, the chart below will give you a clear picture.

Based on the ratio chart IVW/IVE where IVW is S&P 500 Growth ETF and IVE is S&P 500 Value ETF, it can be observed that the price peaked in mid of November 2021 followed by a lower high and lower low and had a sharp selloff in the first week of January in 2022.

As shown the price action of the above chart, the growth stocks started to underperform the value stocks in December 2021 (since it formed a lower high and a lower low) and the scenario is getting worse as reflected in the selloff last week.

Another thing to pay attention to is the increasing of the volume during the correction as this suggested urgent selling by the institutional investors. Nuances of the price and volume are to be studied via volume spread analysis in order to detect the subtle difference between institutional selling versus a normal pullback.

Effect of Fed’s Tapering to the Stock Market

This is In line with the Federal Reserve’s announcement of reducing the monthly bond buying program back in November 2021 because lots of leading growth stocks like Sea (SE), Shopify (SHOP), Upstart (UPST), Zscaler (ZS), Bill.com (BILL) started a steep correction since mid of November 2021.

There are tell-tale signs behind the sharp decline of the growth stocks, which you can refer to the post on the deterioration of the stock market breadth to find out how to judge the overall health in the stock market.

As the growth stocks are very sensitive and vulnerable to credit tightening environment, it is not surprised to see them kick start the correction especially given their rich valuation in 2021.

Visit TradePrecise.com to get additional market insights in email for free.

Sector Rotation to Energy, Finance and Consumer Sectors

While the sector rotation is on-going with the growth stocks being abandoned, cyclical and defensive sectors like Energy (XLE), Finance (XLF) and Consumer (XLP) are breaking all-time high, as shown in the chart below:

Consumer staple (XLP) sector is traditionally a defensive sector. So, it is not surprised to have money flows in upon a market correction or a technology sector selloff. The cyclical sectors like the energy and finance are bucking the trend of the market thanks to the Santa Claus rally in crude oil and the expectation of rising interest rate macro environment, with at least 2-3 rate hikes coming in 2022 as guided by Fed.

S&P 500 Price Prediction

S&P 500 futures (ES) broke below the critical support at 4710 on 5 Jan 2022 and subsequently it failed to rally back above, which is a bearish sign for more weakness ahead. Should S&P 500 break below 4660, lower price targets at 4600 and 4500 could be expected. Refer to the chart below:

Since S&P 500 is vulnerable for a correction, if you are keen for a long trade, it is essential to carefully select the stocks within these outperforming sectors (XLP, XLE, XLF) with the best entry setup and high reward to risk ratio. Stop loss is essential for trading in case the trade setup fail due to the market weakness. Else shorting weak stocks like those in the ARKK ETF could be a better choice.