Why is “Bad News” is “Good News” for SP500?

Investors start this week still digesting the April Employment Report which delivered a big miss on Friday, showing a gain of just +266,000 jobs versus expectations for close to +1 million. The unemployment rate ticked up slightly to +6.1% while average wages and workweek saw unexpected increases.

Again, this was a moment on Wall Street when “bad news” was digested as “good news” as it keeps the Fed from raising rates.

Fundamental analysis

There is a lot of debate as to why the April jobs data was so sluggish with many blaming enhanced unemployment benefits. The report also showed leisure and hospitality added some +331,000 jobs while manufacturing payrolls actually fell, led by a decline in autoworkers. Economists believe those declines are probably related to the global chip shortage. ISM data last week indicated that some losses in April are related to other various supply chain constraints that are curbing manufacturing output and has forced companies to cut both hours and workers.

Employers also continue pointing to a skills mismatch, a problem many faced well before the pandemic. Bottom line, there are about -8 million fewer Americans in the workforce now versus February 2020. There seem to be a lot fewer women coming back and a lot fewer over the age of 55. Over the last five months total employment is only up by +1.5 million workers. So the Fed seems somewhat correct in their statement and forecast that it’s going to take time to get the U.S. workforce back to pre-pandemic levels and a big reason they are not going to rush to raise rates.

Despite the weaker than expected employment numbers, bears still believe inflationary price pressures are a mounting threat to the recovery, and signs of rising wages, particularly for low-skilled jobs, continue to fan the flames on inflation worries.

That will put a spotlight on inflation gauges due this week, with the Consumer Price Index on Wednesday followed by the Producer Price Index on Thursday. There is no major economic data today.

The height of earnings season is behind us with 88% and 86% topping estimates by an average of more than +22%.

The leading sectors have been Consumer Discretionary, Financials, Materials, and Communication Services, while Utilities and Industrials are the only two sectors reporting year-over-year declines.

Earnings this week include Tyson (TYSN) Roblox (RBLX), Palantir (PLTR), Electronic Arts (EA), Disney (DIS), Airbnb (ABNB). Other earnings results today are due from Affirm, Duke Energy, Marriott International, Novavax, Occidental Petroleum, Simon Properties, and Virgin Galactic. Other big names this week will include Compass, Sonos, Tencent, and Wendy’s on Wednesday; Alibaba, Applied Materials, Coinbase, DoorDash, Luminar, and Yeti on Thursday; and Siemens on Friday. Another area of increasing interest this week will be in the crypto space… Bitcoin, Ethereum, Doge, and Maker are all in my daily mix of things I track and trade. What a crazy ride!

Technical analysis

SP500 is close to weekly resistance at 4250. We talked about this number for a few weeks. On an intraday basis, the neutral zone is 4200 – 4265. Middle-strength level within this range – 4232.50, weak levels – 4248.75 and 4216.25.

Break up above 4265, will bring the price to 4281, 4298. If price sustains below 4200, look for 4184 and 4168. Note, mentioned levels should offer support/resistance before you consider entering the trade.

For a look at all of today’s economic events, check out our economic calendar.

Earnings to Watch Next Week: Marriott, Electronic Arts, Alibaba and Walt Disney in Focus

Earnings Calendar For The Week Of May 10

Monday (May 10)

IN THE SPOTLIGHT: MARRIOTT

Marriott International, an American multinational diversified hospitality company, is expected to report its first-quarter earnings of $0.03 per share, which represents a year-over-year decline of over 88% from $0.26 per share seen in the same quarter a year ago.

The U.S. hotel operator’s revenue would slump about 50% to $2.36 billion. However, in the last quarter, the company has delivered an earnings surprise of over 20%.

“Largest hotel brand company globally creates economies of scale, but the spread of COVID-19 will pressure unit growth. With the stock trading near its historical average multiple, we see too wide a risk-reward to justify recommending, with upside/downside driven by how severe and quick business trends return to normal post-COVID-19,” noted Thomas Allen, equity analyst at Morgan Stanley.

Tuesday (May 11)

IN THE SPOTLIGHT: ELECTRONIC ARTS

Electronic Arts, one of the world’s largest video game publishers, is expected to report its fiscal fourth-quarter earnings of $1.04 per share, which represents a year-over-year decline of over 3% from $1.08 per share seen in the same quarter a year ago.

The world’s largest video game publishers would post revenue growth of about 15% to around $1.39 billion. However, in the last four quarters, the company has delivered an earnings surprise of over 500%.

“For the fourth quarter of fiscal 2021, EA expects GAAP revenues of $1.317 billion, cost of revenues to be $302 million, and operating expenses of $837 million. EA anticipates a loss per share of 7 cents for the fourth quarter. Net bookings are expected to be $1.375 billion, which indicates an increase of $75 million over the prior guidance. For fiscal 2021, EA expects revenues of $5.6 billion, cost of revenues to be $1.477 billion, and earnings per share of $2.54,” noted analysts at ZACKS Research.

Wednesday (May 12)

Ticker Company EPS Forecast
WEN Wendy’s $0.15
WIX WIX -$0.68
DT Dynatrace Holdings $0.14
WWW Wolverine World Wide $0.40
LITE Lumentum Holdings Inc $1.42
DOX Amdocs $1.13
JACK Jack In The Box $1.29
GOCO Gocompare.Com $0.00
SONO Sonos Inc -$0.22
PAAS Pan American Silver USA $0.30
MAURY Marui ADR $0.15
TM Toyota Motor $3.67
AEG Aegon $0.17
BRFS BRF $0.02
EBR Centrais Eletricas Brasileiras $0.27
BAYRY Bayer AG PK $0.73
TCEHY Tencent $0.53
DM Dominion Midstream Partners -$0.13
FLO Flowers Foods $0.37

Thursday (May 13)

IN THE SPOTLIGHT: ALIBABA, WALT DISNEY

ALIBABA: China’s Alibaba Group Holding, the largest online and mobile e-commerce company in the world, is expected to report its fiscal fourth-quarter earnings of $1.82 per share, up over 40% from the same quarter a year ago. China’s biggest online commerce company’s revenue to surge more than 70% to $27.7 billion.

“Heightened investments in Taobao Deal and Grocery for user acquisition in less-affluent regions in China, should support long-term growth in core e-commerce business. Merchants’ marketing budgets will continue to shift online given rising reliance on e-commerce and better conversion. Alibaba’s ad resources remain under-monetized,” noted Gary Yu, equity analyst at Morgan Stanley.

“Digitalization trend in China will also sustain AliCloud’s growth potential. Gradual margin expansion will be a long-term profit driver. We see limited near-term catalysts but F22e P/E valuation remains attractive. We also see further downside support from additional disclosure to separate losses from new investments from profitable core e-commerce businesses.”

WALT DISNEY: The world’s leading producers and providers of entertainment and information is expected to report its fiscal second-quarter earnings of $0.27 per share, which represents a year-over-year decline of over 50%. The Chicago, Illinois-based family entertainment company’s revenue would slump over 10% to $ 16.1 billion.

Disney is building content assets that enable it to take advantage of the significant direct-to-consumer streaming opportunity ahead. Disney’s underlying IP remains best-in-class, supporting long-term content monetization opportunities,” noted Benjamin Swinburne, equity analyst at Morgan Stanley.

“During this period of FCF pressure from Parks closures, ESPN’s FCF generation is key to driving down leverage. Historical cycles suggest a potential return to above prior peak US Parks revenues in FY23.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE MAY 13

Ticker Company EPS Forecast
CELH Celsius $0.00
HAE Haemonetics $0.69
BABA Alibaba $11.80
BAM Brookfield Asset Management USA $0.87
TAC TransAlta USA $0.06
UTZ Utz Brands $0.15
VERX Vertex Inc. Cl A $0.05
FTCH Farfetch -$0.28
DIS Walt Disney $0.27
AMAT Applied Materials $1.50
DDS Dillards $1.20
VNET 21Vianet -$0.02
TEF Telefonica $0.16
PBR Petroleo Brasileiro Petrobras $0.12
NICE Nice Systems $1.50
TYOYY Taiyo Yuden ADR $2.09
IX Orix $1.97
SGAMY Sega Sammy ADR -$0.02
SOMLY Secom ADR $0.27
OJIPY Oji ADR $1.57
SBS Companhia De Saneamento Basico $0.15

Friday (May 14)

Ticker Company EPS Forecast
MFG Mizuho Financial $0.06
CIG Companhia Energetica Minas Gerais $0.08
HMC Honda Motor $0.41
SMFG Sumitomo Mitsui Financial $0.12
RDY Drreddys Laboratories $0.52

 

Disney Slumps to Support Ahead of Earnings

Dow component Walt Disney Co. (DIS) reports Q2 2021 earnings next week, with analysts looking for a profit of just $0.27 per-share on $16.0 billion in revenue. If met, earnings-per-share (EPS) will mark a 55% reduction in profit compared to the same quarter in 2020, when the pandemic forced shutdowns in most divisions. The stock sold off nearly 2% in February after beating Q1 top and bottom line estimates but posted an all-time high less than one month later.

California Disneyland Reopens

California Disneyland reopened this week after a 14-month closure, raising hopes that Parks revenue will return to pre-pandemic levels. However, persistent infections in other parts of the world could delay that recovery by months or longer, forcing the entertainment giant to rely more heavily on film production and streaming service income. There’s no doubt that Disney+ will continue to perform like gangbusters but no one knows what to expect with box office receipts, given the uneven recovery and continued fears of closed spaces.

Truist analyst Matthew Thornton raised his price target to $205 in April, marking one of the few Wall Street calls so far in 2021. He noted “We continue to view DIS as very well positioned in global Media and Entertainment (and the shift to DTC) on account of its franchises/brands/assets (Marvel, Star Wars, Pixar, National Geographic, Disney/Disney+, ESPN/ ESPN+, Hulu/HLTV, Hotstar, others) and competencies (merchandising, advertising, M&A)”.

Wall Street and Technical Outlook

Wall Street consensus has deteriorated after outsized 2020 returns, with an ‘Overweight’ rating based upon 18 ‘Buy’, 1 ‘Overweight’, 7 ‘Hold’, and 1 ‘Underweight’ recommendation. Price targets currently range from a low of $147 to a Street-high $230 while the stock is set to open Wednesday’s session more than $30 below the median $218 target. This placement suggests that Main Street investors are worried that Disney won’t resume its growth trajectory until more countries emerge from the pandemic.

Walt Disney failed a breakout above the 2015 high at 120 during 2020’s pandemic decline, ahead of a vertical recovery wave that reached new highs in November. It posted an all-time high at 203.02 in March 2021, ending a 124-point price swing off the March 2020 low. The stock carved just a single basing pattern during the torrid advance, exposing price action to an extended correction that could easily last into the fourth quarter.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

How Might NFLX Share Price React to Q1 Earnings?

Recall that the pandemic prompted a massive front-loading of Netflix subscriptions, as households starved for entertainment amid lockdowns drove the company’s global customer base past the 200 million mark by the end of last year.

For Q1 2021, Netflix has guided for an additional 6 million subscribers, while Wall Street expects that tally to be closer to 6.3 million. That’s still a pretty healthy figure, even though it pales in comparison to the 15.77 million new paying members who signed on during the same period a year ago.

Sauntering subscriber and share price growth

Looking ahead, shareholders appear cognizant that Netflix would find it tough to replicate the growth spurts it experienced last year. The same can be said for its share price.

After surging by 67.1% in 2020, Netflix has only managed a gain of 2.54% so far this year. That’s slower in comparison to the year-to-date performances of:

Netflix has clearly been a laggard within the famed FAANG group, with the streaming company now languishing 5.44% below its record high, set on 20 January 2021, which was also the day after its last quarterly earnings announcement.

From a technical perspective, Netflix’s share prices found support at its 200-day simple moving average (SMA) in March, using it as a platform to launch back above its 50-SMA this month. However, with the bullish momentum in the stock plateauing, while a close above the $555 mark having proved hard to come by since mid-February, Netflix could do with a positive catalyst to catch up with the rest of its peers.

Perhaps that catalyst may arrive at the company’s earnings release later today.

What are markets expecting for Netflix’s Q1 financial results?

Three words: record setting quarter.

Wall Street expects Netflix to post its highest-ever revenue and net profit for a single financial quarter. The top line is expected to breach the $7 billion mark for the first time in the company’s history, thanks to price hikes in the US, Germany, UK and Ireland. Meanwhile, the company’s adjusted net profit is slated to come in at $1.45 billion, and that should translate into an adjusted earnings per share of $3.18.

However, look beyond the historic numbers and the broader industry harbors troubling signs for Netflix.

Streaming wars eroding Netflix’s advantage

According to a report by Parrot Analytics, just over half (50.2%) of the original series that viewers worldwide wanted to watch online over the past three months were by Netflix. While that figure still dwarves second-placed Amazon Prime’s share of 12.2% for the same period (January-March 2021), Netflix’s market share has clearly dropped from the near-65% share it enjoyed some two years ago.

Within the US alone, the decline in Netflix’s market share is even more obvious. According to Bloomberg Intelligence data, Netflix’s share of the US streaming pie has gone from near-total dominance of 96.04% in Q1 2018 to just 44.43% as of Q4 2020.

As the competition for eyeballs intensifies, Netflix is set to find it harder to gain more subscribers.

Netflix not taking things lying down

That doesn’t spell the end of Netflix. This year alone, the world’s largest streaming platform aims to release over 70 movies. The streaming giant earlier this month also announced a deal with Sony, which is reportedly worth over $1 billion. The agreement gives Netflix the rights to exclusively show Sony movies released from 2022 onwards after they’ve completed their theatrical runs.

That should keep their 210 million subscribers (estimated as of end-March) and counting, entertained with popular franchises such as “Jumanji” and “Spider Man” over the coming years, even with the potential prices hikes looming.

Armed with customer loyalty while flexing its pricing power, Netflix still has a lot within its arsenal to withstand the heightened competition for viewers’ attention.

How might Netflix’s share price react after Tuesday’s earnings?

Markets are pricing in a 7.2% move for Netflix’s share price when markets reopen on Wednesday. Although NFLX could go either way, it’s notable that shareholders typically sought to use these announcements as selling opportunities. The stock declined the day after 8 of the past 11 earnings.

Still, a 7.2% move to the upside would set a new record high for Netflix’s share price, while a similar-sized move to the downside could see the stock looking for support around its 200-SMA once more.

How exactly will this NFLX stock react this week? We’ll just have to stay tuned and watch the drama unfold.

Written on 20/04/2021 02:00 GMT by Han Tan, Market Analyst at FXTM

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AMC Entertainment Projects Most Cinemas to Reopen by March 26 – Shares Pop

AMC Entertainment Holdings, Inc. (AMC) shares added to Wednesday’s gains in extended-hours trade after the movie theater operator said that most of its U.S. cinemas will reopen by March 26. The announcement comes just hours after the Walt Disney Company (DIS) said it plans to open its California theme parks to a limited capacity on April 30.

Throughout the pandemic, movie theater chains have not only had to contend with shutting cinemas but also with filmmakers moving releases to video on demand or streaming services. During the fourth quarter, Disney decided to move its highly anticipated film “Soul,” produced through its Pixar animation studio, to its streaming service, Disney+.

However, in a much-needed boost for cinemas, the reopening of AMC theaters coincides with the release of the latest James Bond movie “No Time To Die,” which hits the big screen on April 2. The maker of Bond films – EON Productions Limited – delayed the release date several times over the past year to allow the film to be seen by a worldwide theatrical audience.

Through Wednesday’s close, AMC stock has a market capitalization of $6.81 billion and trades 539% higher since the start of the year – in part, due to a social media-induced speculation rally. In the past five days alone, the shares have gained nearly 40%.

Wall Street View

Riley Securities analyst Eric Wold raised the firm’s price target on AMC Entertainment to $7 from $5.50 and kept his ‘Neutral’ rating on the stock. Wold told investors in a research note that the company’s fourth-quarter sales came in ahead of expectations thanks to a stronger than anticipated performance at theaters and ongoing expense controls. The analyst also believes the movie operator sits well positioned to benefit from a box office rebound in 2022.

Coverage elsewhere on Wall Street remains thin, given the stock’s recent volatility. It currently receives five ‘Hold’ ratings and four ‘Sell’ ratings. Price targets range from a high of $7 to a low of just $1, with the average target pegged at $3.44.

Technical Outlook and Trading Tactics

AMC shares broke above an extended downtrend line in late January, rocketing up to $20.36 on social media trading speculation. However, the rally was short-lived, with the price subsequently retracing back to the downtrend line. More recently, the stock flipped resistance into support at that level and has continued to trend sharply higher.

Active traders who want to play short-term momentum should target a move back to the all-time high (ATH) while managing risk with a stop-loss order placed under the March 15 low at $11.85. Longer-term investors should look to buy the stock near an uptrend line connecting the January and February swing lows.

For a look at today’s earnings schedule, check out our earnings calendar.

U.S. Market Wrap and Forecast for Tuesday

Major index benchmarks traded above Wednesday’s highs at the close of Friday’s U.S. session while market players waited for Congress to wrap up the second Trump impeachment trial and get back to handing Americans the greenbacks needed to bankroll struggling Robinhood accounts.  Crude oil futures posted another round of new highs while the WTI contract closed in on 60 and bonds rolled over, testing 11-month lows.

Disney Lower After Earnings Pop

Dow component Walt Disney Co. (DIS) reversed after spiking above 195 in Thursday’s post-market, drifting into the red when analysts struggled to understand why collapsed movie, theme park, resort, and cruise ship revenue hasn’t weighed more on results. Disney+ added over 20 million subscribers during the quarter but a sweet Indian deal lowered average income per user more than 20%, suggesting the mouse is using the majority of free capital to hire accountants.

Tesla Inc. (TSLA) sold off within five points of range resistance and bounced back over 800 but this support test may continue next week. Many analysts believe the stock is over-priced at current levels and weak performance so far in 2021 could signal an intermediate correction that drops into strong support near 500. Whatever happens in coming weeks, the first quarter’s risk-free market probably won’t define the ‘2021 market’ by the end of December.

Holiday Weekend

U.S. markets are closed on Monday for President’s Day. That means mid-quarter options expiration will evolve over four sessions, instead of five. Small cap short interest plays that went crazy during Gamestop’s ramp are finding some buying interest, suggesting higher volatility than usual into next Friday’s closing bell. Congress will interrogate Robinhood, Melvin, and Reddit executives on Feb 18, ensuring the topic will impact trading through end of the 1st quarter.

Beyond the democratization of world financial markets, traders are squarely focused on free money in the form of $1,400 stimulus checks. The bar has been set so high by Democrats that any disappointment could drop major benchmarks 5% to 10%, despite the complacency you’re feeling right now. Smart money is not only pressing momentum plays at the moment but they’re also hedging bets, waiting to capitalize on the sheer stupidity of the immature trading crowd.

For a look at next week’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Walt Disney Shares Move Lower As Traders Take Profits After Quarterly Report

Walt Disney Video 12.02.21.

Disney+ Continues To Grow At A Healthy Pace

Shares of Walt Disney moved lower after hitting all-time highs after the release of the quarterly earnings report.

Walt Disney reported revenue of $16.25 billion and GAAP earnings of $0.02 per share, beating analyst estimates on both earnings and revenue. The company’s Parks, Experiences and Products segment remained under significant pressure as Disney’s parks and resorts remained closed or operated at reduced capacity while cruises were suspended.

Meanwhile, the number of Disney+ subscribers increased to 94.9 million which was above analyst forecasts. ESPN+ and Hulu also showed strong growth as consumers spent more time at home due to pandemic and remote work.

The growth of streaming services has clearly supported the stock’s growth in recent months. While many of the company’s parks are not even opened, investors want to prepare for the time when virus-related restrictions are cancelled and people flood Disney’s parks after many months of waiting. In this light, the market is ready to ignore the company’s near-term performance and stays focused on the outlook for the future.

What’s Next For Walt Disney?

At this point, it is not clear when Disney parks will be opened and cruise ships will be allowed to sail, but it is clear that customers will quickly get back to Disney once restrictions are lifted, which will immediately boost Disney’s financial performance.

At the same time, the stock has become pricey after the recent rally and trades at about 40 forward P/E. However, rich valuations are often seen in today’s markets if the company has a strong growth story. In Disney’s case, investors are betting on the potential strength of Disney+ which is already showing strong results.

The stock’s rich valuation is likely serving as the main driver for today’s sell-off. Disney’s quarterly results exceeded expectations, and some traders decided that it was the time to “sell the news” and take profits near all-time high levels. Once this move is over, the stock will have decent chances to continue its upside trend.

For a look at all of today’s economic events, check out our economic calendar.

Walt Disney Shares Hit Fresh Record High on Surprise Profit; Target Price $210

Walt Disney, a family entertainment company, reported better-than-expected earnings in the first fiscal quarter, largely driven by a fast-growing streaming business with Disney Plus reaching roughly 95 million subscribers, helping its shares hit fresh all-time highs on Thursday.

The world’s leading producers and providers of entertainment and information said its diluted EPS for the quarter decreased by 79% to $0.32 from $1.53 in the prior-year quarter. However, that was way better than the Wall Street consensus estimates of a loss of -0.34 cents per share.

Although Disney’s revenue declined to $16.25 billion from $20.88 billion a year earlier, it was higher than the market expectations of $15.93 billion.

Results in the quarter ended January 2, 2021 were adversely impacted by the novel coronavirus. The most significant impact was at the Disney Parks, Experiences and Products segment where since late in the second quarter of fiscal 2020, our parks and resorts have been closed or operating at significantly reduced capacity and our cruise ship sailings have been suspended, the company said.

“In a little over a year after launching, the service has exceeded the top end of the company’s original fiscal 2024 guidance of 60-90 million subscribers. The pandemic once again hammered the parks and theatrical businesses as revenue collapsed by 73% and 98%, respectively, versus a year ago. We are maintaining our wide moat and plan to modestly increase our $140 fair value estimate,” Neil Macker, senior equity analyst at Morningstar.

“While we expect these hurdles to remain in place for the segment for at least the first half of calendar 2021, we are encouraged by relative demand from consumers and the continued growth in bookings. The cost reduction plans have largely worked as Florida, Shanghai, Hong Kong, and Paris all generated enough revenue to cover the variable costs of being open despite capacity constraints.”

Walt Disney shares, which surged over 25% in 2020, hit a fresh high by rising 1.2% to $193.2 in extended trading on Thursday.

Walt Disney Stock Price Forecast

Twenty-three analysts who offered stock ratings for Walt Disney in the last three months forecast the average price in 12 months of $190.95 with a high forecast of $210.00 and a low forecast of $160.00.

The average price target represents a 0.02% increase from the last price of $190.91. From those 23 analysts, 19 rated “Buy”, four rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $200 with a high of $145 under a bull scenario and $130 under the worst-case scenario. The firm currently has an “Overweight” rating on the family entertainment company’s stock.

Several other analysts have also recently commented on the stock. JP Morgan raised the target price to $220 from $210. Evercore ISI upped the target price to $210 from $200. Cowen and Company raised the price target to $147 from $115. Smith Barney Citigroup lifted their price target to $175 from $150.

Analyst Comments

Disney‘s Parks segment rebounded faster than expected. While the road to recovery remains long and uncertain, it appears the worst is behind it and underlying demand/operating leverage encouraging. Disney‘s DTC business also beat expectations, with Disney Plus likely to pass 100mm subs any day,” said Benjamin Swinburne, equity analyst at Morgan Stanley.

Disney is building content assets that enable it to take advantage of the significant direct-to-consumer streaming opportunity ahead. Disney’s underlying IP remains best-in-class, supporting long term content monetization opportunities. During this period of FCF pressure from Parks closures, ESPN’s FCF generation is key to driving down leverage. Historical cycles suggest a potential return to above prior peak U.S. Parks revenues in FY23.”

Upside and Downside Risks

Risks to Upside: Accelerated OTT adoption drives higher DTC revenues and faster profitability. Distribution renewals lead to favourable pricing acceleration. Film success drives strong franchise monetization – highlighted by Morgan Stanley.

Risks to Downside: Macro econ weakness. Acceleration in pay-TV cord-cutting remains a risk, given DIS exposure to pay-TV revenues. Franchise fatigue could pressure box office, lower Consumer Products monetization.

Check out FX Empire’s earnings calendar

U.S. Market Wrap and Forecast for Friday

The SP-500 and Nasdaq-100 indices gapped into tests of Wednesday’s highs at the start of Thursday’s U.S. session and sold off, grinding out narrow range congestion patterns. A slumping VIX matched mixed price action, with indecision a bigger market mover than buyers or sellers.  Commodities pulled back after crude oil’s assault on multi-month highs mid-week, marking one of the few highlights of an otherwise dull Thursday market.

Uber Does U-Turn

Uber Technologies Inc. (UBER) dropped like a rock and shook out short sellers after the delivery disruptor reported another quarterly loss on a steep revenue decline. Even so, a company spokesman reaffirmed guidance for positive EBITDA, better known as ‘profitability’, by the end of fiscal year 2021. Unfortunately for bulls, aggressive sellers returned midday and knocked the stock back into a 4% loss and a test of new support around 60.

The lazy but bullish tape continues while everyone knows that major benchmarks are glued to overbought levels in anticipation of a $1,400 stimulus bill passing into law. The impeachment trial is just a distraction in this scenario, forcing market players to bide their time until the theatrics draw to a close. Ominously, stocks at all capitalization levels are priced for perfection, setting up  ideal conditions for a shakeout of weak hands.

Looking Ahead to Friday

Dow component Walt Disney Co. (DIS) reports earnings after Thursday’s close. The stock trades at 71.7x forward earnings and is expected to report a Q1 2021 loss of $0.34 per-share on $15.9 billion in revenue. DIS reported a loss of $0.65 per-share in November’s Q4 report, along with a 26.2% y/y revenue decline. Despite those results, the new crowd obsessed over the 194% y/y Disney+ and ESPN+ sub bookings. That made no sense, with income dependent on sidelined movie franchises.

The consumer sentiment report on Friday morning is unlikely to be a market mover. Next week is mid-quarter options expiration, perhaps generating some volatility in the short interest small caps that were going to change the world less than two weeks ago. Somehow, I don’t think a Reddit fan’s boast that Gamestop will trade between 500 and 800 next week will find its way into the ticker tape.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

U.S. Market Wrap and Forecast for Tuesday

Major benchmarks popped up to new highs at the start of Monday’s U.S. session but conviction was low, yielding a slow motion downtick that got bought over the noon hour. SP-500 Volatility Index (VIX) gained about 2% despite higher equity prices, signaling nervousness about the endless uptick. Even so, the U.S. government is about to send citizens another barrel of greenbacks, just in time to reload slumping Robinhood accounts.

No Love For FAANG Stocks

Amazon.com Inc. (AMZN) failed a symmetrical triangle breakout last week and is consolidating near the February low, about to enter the eighth month of dead sideways action. There’s a lot of ‘dead’ money hanging around big tech stocks these days, with more aggressive capital rotating into fintech, EV plays, and SPACs. The GameStop ‘event’ hasn’t helped traditional buying interest, unnerving many risk-adverse bulls.

Other tech stocks gained ground on Monday, lifting shares of NVIDIA Corp. (NVDA), International Business Machines Corp. (IBM), and Advanced Micro Devices Inc. (AMD). However, PHLX Semiconductor Index (SOX) looks like its grinding through a corrective pattern that could roll over and test the January low at any time. Twitter Inc. (TWTR), General Motors Co. (GM), and Walt Disney Co. (DIS) posted strong upside as well, which is more bearish than bullish headed into their mid-week reports.

Looking Ahead to Mid-Week

Partisan politics could control price action through mid-week, with an impeachment trial and its foregone conclusion feeling like a waste of time during stimulus negotiations. In addition, the rally is getting ‘long in the tooth’, raising odds for a multiweek reversal that ‘sticks’. The Nasdaq-100 index tested or crossed the 200-day EMA five times in 2019 but just once in 2020 and it’s now been 10 months since that instrument shook out weak hands.

This week’s economic calendar is light as a feather, with the CPI report on Wednesday and UMich Sentiment on Friday. Neither is likely to move bond or equity markets, allowing macro influences to control the ticker tape. The upcoming holiday weekend in the United States could impact trading later in thes week, with a well-documented positive bias likely to support higher prices. Even so, a contrarian would say that clear blue skies foretell ominous dark clouds.

For a look at all of this week’s economic events, check out our economic calendar.

Earnings to Watch Next Week: Twitter, General Motors, Coca-Cola, PepsiCo and Walt Disney in Focus

Earnings Calendar For The Week Of February 8

Monday (February 8)

IN THE SPOTLIGHT: KKR & Co.

KKR & Co Inc, an American global investment company that manages multiple alternative asset classes, is expected to post earnings of $0.41 per share for last quarter of 2020 with revenue of around $983.08 million. The U.S. private equity firm reported EPS of $0.44 per shares with revenue of $962.07 million in the same period a year ago.

“While we see an attractive organic asset growth trajectory, we also see a recessionary backdrop that raises risk to KKR‘s fee-related earnings growth story if fundraising slows, transaction fees stall, and costs don’t flex as performance fees and investment income decline,” noted Michael Cyprys, equity analyst at Morgan Stanley.

“Recessionary backdrop raises risk of balance sheet marks and limited book value growth that could dampen prior ROE generation of mid-teens to 20%+. C-corp structure (as of July 1, 2018 ) with no K-1s should help expand the investor base over time.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 8

Ticker Company EPS Forecast
GPN Global Payments $1.77
RCL Royal Caribbean Cruises -$5.04
SAIA Saia $1.29
ENR Energizer $0.89
HAS Hasbro $1.14
L Loews $0.74
CNA CNA Financial $0.99
DNB Dun & Bradstreet $0.26
AMG Affiliated Managers $3.68
CUB Cubic -$0.01
RAMP Liveramp Holdings Inc $0.07
BECN Beacon Roofing Supply $0.60
JKHY Jack Henry Associates $0.87
KKR KKR & Co LP $0.41
RE Everest Re $0.46
ACM AECOM $0.57
RGA Reinsurance Of America $1.10
OMF OneMain Holdings $1.98
VRNS Varonis Systems $0.12
LEG Leggett & Platt $0.70
SSD Simpson Manufacturing $0.66
AMKR Amkor Technology $0.35
BLKB Blackbaud $0.71
ESE ESCO Technologies $0.49
TTWO Take Two Interactive Software $0.94
NUAN Nuance Communications $0.19
CHGG Chegg $0.49
BAP Credicorp USA $1.60
HQY Healthequity Inc $0.31
CDK Cdk Global $0.68
CORT Corcept Therapeutics $0.17
SPG Simon Property Group $0.90
YALA Yalla $0.12
IX Orix $1.97
RBC Regal Beloit Corporation $1.58
TYOYY Taiyo Yuden ADR $2.47
MAURY Marui ADR $0.98
MELI MercadoLibre $0.39
OSH Oak Street Health -$0.23

 

Tuesday (February 9)

IN THE SPOTLIGHT: TWITTER

Twitter, an online social networking service that enables users to send and read short 140-character messages called “tweets”, is expected to report a profit of $0.25 in the fourth quarter, which represents year-over-year growth of 16% from the same quarter last year when the company reported $0.25 per share.

The social media company will report revenue of $1.19 billion, up over 17% from the year-ago quarter.

“Lack of Negative Revisions and Relative Valuation: Valuation continues to be expensive, but we think investors are likely to continue to pay a premium for TWTR given 1) continued turnaround progress and 2) platform scarcity,” said Brian Nowak, equity analyst at Morgan Stanley.

“Execution Risk Remains Around Driving Advertiser ROI: Advertiser ROI has clearly improved on Twitter, but the company needs to improve ad targeting and measurability to compete with the larger players. To do that it will have to further personalize the content that users see and use its data more effectively, both of which remain key strategic challenges (and priorities) for management.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 9

Ticker Company EPS Forecast
GT Goodyear Tire & Rubber $0.22
HBI Hanesbrands $0.29
WCC Wesco International $1.37
HAIN Hain Celestial $0.30
ARMK Aramark -$0.41
CNC Centene $0.47
GRA W.R. Grace $0.86
MAS Masco $0.74
SEE Sealed Air $0.78
INCY YTE $0.53
SPGI S&P Global Inc $2.54
JLL Jones Lang LaSalle $3.93
FOXA Twenty-First Century Fox -$0.06
IIVI Ii Vi $0.90
J Jacobs Engineering Group Inc $1.27
MLM Martin Marietta Materials $2.28
FIS Fidelity National Information Services $1.57
WLTW Willis $5.03
NVT nVent Electric PLC $0.42
AVNT Avient Corp $0.45
VSH Vishay Intertechnology $0.28
TDG TransDigm $1.99
IT Gartner $0.82
DD DuPont $0.85
CARR Carrier Global Corp $0.36
NRZ New Residential Investment $0.32
CVE Cenovus Energy USA -$0.06
ENPH Enphase Energy $0.41
AKAM Akamai $1.31
CCK Crown $1.27
THC Tenet Healthcare $1.79
NCR NCR $0.59
OI Owens-Illinois $0.34
HIW Highwoods Properties $0.47
EGP EastGroup Properties $0.61
FISV Fiserv $1.29
WELL Welltower Inc $0.13
UDR UDR $0.09
ACGL Arch Capital $0.38
TWTR Twitter $0.29
FMC FMC $1.47
BKH Black Hills $1.15
CNO CNO Financial Group $0.59
AIZ Assurant $2.07
DEI Douglas Emmett $0.01
PEAK Healthpeak Properties Inc $0.05
G Genpact $0.49
PRI Primerica $2.50
VOYA Voya Financial $1.45
YELP Yelp $0.00
CDAY Ceridian HCM Holding Inc $0.07
LYFT Lyft Inc -$0.72
CSCO Cisco Systems $0.76
MAT Mattel $0.23
QGEN Qiagen $0.65
EXC Exelon $0.73
EXAS Exact Sciences -$0.19
OMC Omnicom $1.63
AMX America Movil Sab De Cv Amx $0.40
VERX Vertex Inc. Cl A $0.07
OJIPY Oji ADR $1.62
RANJY Randstad Holdings $0.49
FOX Twenty First Century Fox -$0.06
KT KT $0.18
SHCAY Sharp ADR $0.08
COTY Coty $0.07

 

Wednesday (February 10)

IN THE SPOTLIGHT: GENERAL MOTORS, COCA-COLA

GENERAL MOTORS: the world’s largest auto manufacturers which ranked number 18 on the Fortune 500 rankings of the largest United States corporations by total revenue is expected to report a profit of $1.64 in the fourth quarter of 2020, which represents year-over-year growth of over 3000% from the same quarter last year when the company reported $0.05 per share.

The auto manufacturer will report revenue of $36.9 billion, up about 20% from the year-ago quarter.

“We are Overweight based on General Motors’ (GM) diversified portfolio, with multiple ways for GM to enhance shareholder value, through: EVs, ICE and Autonomy. GM also has leading North American margins, generates strong cash flow, and has a robust balance sheet,” wrote Joseph Moore, equity analyst at Morgan Stanley.

“We believe that the market is underestimating the SOTP of the GM enterprise via: 1) Legacy ICE, 2) GM EV, 3) GM‘s Ultium Battery business, 4) China JVs, 5) GM Finco, 6) GM Cruise, 7) hidden franchise value in brands such as Corvette and 8) GM Connected Services. GM management has a proven track record to allocate capital away from structurally challenged areas towards re-positioning the business model.”

COCA-COLA: The largest manufacturer, distributor and marketer of soft drink concentrates and syrups in the world is expected to report a profit of $0.42 in the fourth quarter of 2020, which represents a year-over-year decline of over 4.5% from the same quarter last year when the company reported $0.44 per share.

The auto manufacturer will report revenue of $8.74 billion, up about 4% from the year-ago quarter.

“We are Overweight on Coca-Cola (KO) after significant stock underperformance given COVID-19 impacts on KO‘s on-premise eating / drinking out business (~40% of sales) and gas & convenience (~10%) with gov’t mandated restaurant closures and reduced foot traffic. COVID impacts drove a large -26% organic sales decline in 2Q20, but trends improved to -MSD% in July/August and -LSD% in September/October. We forecast a recovery to ~8% organic growth in 2021/2022 with a post-COVID recovery in away-from-home,” said Dara Mohsenian, equity analyst at Morgan Stanley.

“We believe Coke‘s LT top-line growth outlook is above peers, with strong pricing power, and favourable strategy tweaks under Coke’s CEO, including increased innovation and a cultural shift towards a total beverage company.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 10

Ticker Company EPS Forecast
BDC Belden $0.77
PAG Penske Automotive $2.13
TMHC Taylor Morrison Home $0.82
CDW CDW $1.50
IPG Interpublic Of Companies $0.80
UAA Under Armour Inc -$0.07
CIM Chimera Investment $0.31
TEVA Teva Pharmaceutical Industries $0.63
GM General Motors $1.64
IQV IQVIA Holdings Inc $2.00
KO Coca-Cola $0.42
EEFT Euronet Worldwide $0.73
BG Bunge $1.77
CME CME $1.37
BXMT Blackstone Mortgage $0.60
CCJ Cameco USA -$0.04
HCSG Healthcare Services $0.29
AEIS Advanced Energy Industries $1.34
EFX Equifax $1.82
TRMB Trimble Navigation $0.51
EQC Equity Commonwealth $0.02
IRBT Irobot $0.20
ELY Callaway Golf -$0.21
EQIX Equinix $1.49
PACB Pacific Biosciences Of California $0.42
UBER Uber -$0.53
HP Helmerich & Payne -$0.79
TYL Tyler Technologies $1.42
KGC Kinross Gold USA $0.22
PAYC Paycom Software $0.79
WTS Watts Water Technologies $1.01
HR Healthcare Realty $0.04
QLYS Qualys $0.70
TTGT TechTarget $0.41
SLF Sun Life Financial USA $1.08
XPO XPO Logistics $0.68
EXEL Exelixis $0.05
BHF Brighthouse Financial Inc $2.65
AVLR Avalara Inc -$0.06
STAG STAG Industrial $0.08
IFF International Flavors Fragrances $1.19
MFC Manulife Financial USA $0.56
CPA Copa -$2.09
SONO Sonos Inc $0.85
NGVT Ingevity Corp $0.78
REXR Rexford Industrial Realty $0.07
FR First Industrial Realty $0.18
RUSHA Rush Enterprises $0.54
MC Moelis & Company $1.29
CINF Cincinnati Financial $1.19
EQR Equity Residential $0.25
SSNC SS&C Technologies $1.05
CERN Cerner $0.78
NLY Annaly Capital Management $0.29
MOH Molina Healthcare $1.14
AIN Albany International $0.66
WU Western Union $0.42
PDM Piedmont Office Realty $0.05
BE Bloom Energy Corp $0.00
MGM MGM Resorts International -$0.95
ZNGA Zynga $0.09
ASGN On Assignment $1.15
ORLY O’Reilly Automotive $5.09
WH Wyndham Hotels & Resorts Inc $0.04
SAVE Spirit Airlines -$1.43
COHR Coherent $0.78
PVG Pretium Resources $0.08
PRSP Perspecta Inc $0.52
GOCO Gocompare.Com $0.46
PS Pluralsight Inc -$0.02
PTVE Pactiv Evergreen $0.26
AMAT Applied Materials $1.27
NTAP NetApp $1.01
CF CF Industries $0.08
SPWR SunPower $0.10
UA Under Armour C share -$0.07
Z Zillow $0.28

 

Thursday (February 11)

IN THE SPOTLIGHT: PEPSICO, WALT DISNEY

PEPSICO: The company which holds approximately a 32% share of the U.S. soft drink industry is expected to report a profit of $1.45 in the fourth quarter of 2020. According to Zacks Research, analysts expect that PepsiCo will report full-year 2022 earnings of $5.51 per share, with EPS estimates ranging from $5.50 to $5.55.

The company also recently announced a quarterly dividend, which was paid on Thursday, January 7th.

“We are Overweight on PepsiCo (PEP). We forecast Pepsi will post superior topline growth relative to peers driven by exposure to the higher growth/higher margin snacks category (2/3 of PEP‘s profit). Snacks is a higher growth category given: (1) shift to snacking vs. sit-down meals; (2) less pressure from health/wellness vs. beverages, and (3) PEP’s leading share in snacks vs. fragmented competition, driving share gains, and higher margins/ROIC,” said Dara Mohsenian, equity analyst at Morgan Stanley.

“We also see more structural Pepsi market share benefits post COVID-19, as PEP uses its DSD distribution advantage, to gain shelf space and share in snacks, and in beverages, where PEP is advantaged vs competition with much lower mix in away-from-home.”

Walt Disney, a family entertainment company will post EPS of -$0.33 per share in the fiscal quarter.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 11

Ticker Company EPS Forecast
NNN National Retail Properties $0.65
MT Arcelormittal -$0.02
HII Huntington Ingalls Industries $4.56
TSN Tyson Foods $1.52
IRDM Iridium Communications -$0.08
PPC Pilgrim’s Pride $0.32
BWA Borgwarner $0.89
ZBRA Zebra Technologies $3.81
AZN Astrazeneca $0.55
PEP PepsiCo $1.45
FAF First American Financial $1.66
TAP Molson Coors Brewing $0.77
DUK Duke Energy $1.03
BAM Brookfield Asset Management USA $0.60
K Kellogg $0.89
NUS Nu Skin Enterprises $1.19
MAC Macerich -$0.12
THS TreeHouse Foods $1.07
KIM Kimco Realty $0.10
SON Sonoco Products $0.77
POOL Pool $0.76
LH Laboratory Of America $7.83
SSTK Shutterstock $0.52
GNRC Generac $1.97
R Ryder System $0.94
TPX Tempur Sealy International $0.51
KHC Kraft Heinz $0.73
NSIT Insights $1.50
SAFE 3 Sixty Risk $0.29
ALNY Alnylam Pharmaceuticals -$1.93
WSO Watsco $1.01
ILMN Illumina $1.10
NSP Insperity $0.30
ENS Enersys $1.19
MHK Mohawk Industries $2.87
DXCM Dexcom $0.93
TEX Terex $0.02
SPSC SPS Commerce $0.34
AEM Agnico Eagle Mines USA $0.64
CGNX Cognex $0.29
CUZ Cousins Properties $0.19
BIO Bio-Rad Laboratories $3.30
DLR Digital Realty $0.18
FWRD Forward Air $0.72
SGEN Seattle Genetics $0.89
DVA DaVita Healthcare Partners $1.91
CC Chemours Co $0.42
EXPE Expedia -$1.95
BRX Brixmor Property $0.05
SHO Sunstone Hotel Investors -$0.37
FRT Federal Realty Investment $0.28
REG Regency Centers $0.20
DIS Walt Disney -$0.33
VRSN Verisign $1.35
JCOM J2 Global $2.80
TWOU 2U -$0.09
RARE Ultragenyx Pharmaceutical -$1.06
NWE Northwestern $1.35
FLO Flowers Foods $0.24
TU Telus USA $0.19
NCMGY Newcrest Mining Ltd PK $0.59
CX Cemex Sab De Cv $0.02
SBGSY Schneider Electric SA $0.63
AEG Aegon $0.13
NVDA Nvidia $2.80
BCS Barclays $0.20
NICE Nice Systems $1.54
BFAM Bright Horizons Family Solutions -$0.24
AGIO Agios Pharmaceuticals -$1.41
ALKS ALKERMES $0.07
WST West Pharmaceutical Services $1.13
HTA Healthcare Of America $0.43
LPSN LivePerson -$0.01
DAVA Endava Ltd $0.35
JAMF Jamf $0.01
ALXO Alx Oncology Holdings Inc. -$0.39
OMAB Grupo Aeroportuario Del Centro Nort $0.23

 

Friday (February 12)

Ticker Company EPS Forecast
D Dominion Resources $0.76
HUN Huntsman $0.45
SXT Sensient Technologies $0.62
AIMC Altra Industrial Motion $0.69
LECO Lincoln Electric $1.06
PRLB Proto Labs $0.51
MCO Moody’s $1.94
NWL Newell Rubbermaid $0.48
WPC W. P. Carey $0.49
ENB Enbridge USA $0.46
AUY Yamana Gold USA $0.10
YMZBY Yamazaki Baking ADR $0.40

 

Three Top Earnings Plays This Week

U.S. markets wrap up fourth quarter earnings season in style this week, with three trading favorites posting results and guidance. Twitter Inc. (TWTR) kicks things off after Tuesday’s closing bell, followed by General Motors Co. (GM) on Wednesday, and Walt Disney Co. (DIS) on Thursday. All these stocks are currently situated at or near new highs, sporting high valuations that add considerable downside risk.

Major benchmarks posted all-time highs heading into Friday’s close, highlighting broad optimism about the Biden administration’s massive stimulus bill, now working its way through Congress. Meanwhile, fourth and fifth COVID-19 vaccines are headed toward approval and distribution, keeping the economic world on track for a strong recovery in the second half of the year. Those catalysts could keep bulls in charge of the ticker tape into the second quarter.

Twitter

Twitter is expected to post a profit of $0.31 per-share on $1.19 billion in revenue. The stock broke out above the December high at 56.11 last week and is finally closing in on 2014’s all-time high at 74.73, posted less than two months after the 2013 IPO. The company is releasing a new advertising platform that should benefit from a cyclical ad recovery in coming months, encouraging analysts to factor in 20%+ annual revenue growth in coming years.

General Motors

General Motors should report a profit of $1.66 per-share, much higher than the $0.05 earned in the same quarter last year, while revenue rises to $36.34 billion.   The company has benefited from EV-driven revaluation of major auto manufacturers following rival Tesla Inc. (TSLA) historic uptrend. GM expects to have 30 fully-electric vehicles in production by 2025 and is seeking to establish the highest EV market share in North America.

Walt Disney

At first glance, there’s no reason for Walt Disney to be trading just below January’s all-time high heading into this week’s report. The entertainment giant is expected to lose $0.38 per-share on $15.85 billion as a result of empty movie theaters, cruise ships in dry dock, and socially-distanced theme parks. However, the Disney+ streaming service is growing at a phenomenal rate and should pass Netflix Inc. (NFLX) in worldwide subscribers in the next two years.

For a look at all of this week’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

U.S. Market Wrap and Forecast for Monday

January’s Non-Farm Payrolls report added 49,000 new jobs while the unemployment rate fell from 6.7% to 6.3%. December jobs were revised sharply lower, continuing a bleak employment scenario as the Western world works through the last stages of the winter’s second pandemic wave. The equity market yawned and bonds sold off after the news, squaring positions into the weekend so that short-term options market makers get paid.

Ford vs. Tesla

SP-500 Volatility Index (VIX) fell to the lowest low since early December. GameStop Inc. (GME) shareholders declared their loyalty in a widely read Reuters article, ready to become the bagholders of a new generation. Ford Motor Co. (F) CEO Jim Farley (no relation) declared the new Mustang Mach-E will compete successfully with Tesla Inc.’s (TSLA) Model Y, forgetting that brand is everything in the third decade of the new millennium.

Snap Inc. (SNAP) recovered after a 9% post-earnings decline, lifting to an all-time high. Fitness juggernaut Peloton Interactive Inc. (PTON) fell into the 140s despite beating top and bottom line estimates and raising first quarter guidance. The company has to compete with real fitness centers in coming quarters, lowering expectations about their vertical growth trajectory. Wynn Resorts Ltd. (WYNN) hit an 11-month high despite a 58.5% year-over-year revenue decline, offering shareholders an opportunity to get out with their capital still intact.

Heading into Monday

Fourth quarter earnings season draws to a close next week, with reports from Dow components Cisco Systems Inc. (CSCO) and Walt Disney Co. (DIS) as well as Twitter Inc. (TWTR), and General Motors Co. (GM). Disney is trading near an all-time high even though their wildly successful streaming service has done little to replace income lost from empty movie theaters, dry-docked cruise ships, and socially-distanced theme parks.

Sky’s the limit for U.S. equities, at least until the Biden administration hits a brick wall with their massive stimulus bull. At least to the point, left-leaning politicians have avoided most of the logistical mistakes made by the Obama administration in 2009.  The Republican Party is trying to rebrand itself after the departure of Donald Trump and their infighting has allowed the Democratic-controlled Congress to move aggressively on economic policy.

For a look at all of today’s economic events, check out our economic calendar.

ViacomCBS Set to Enter Streaming Wars

ViacomCBS Inc. (VIAC) is trading higher on Thursday after a tier one analyst upgrade. The company, formed by the 2019 merger of Viacom and CBS, has been a solid performer since October, gaining more than 54% as investors reprice the entertainment powerhouse as a streaming service, following in the footsteps of Walt Disney Co (DIS) and other distributors entering that space in the last two years.

Launching New Streaming Service

VIAC is launching the Paramount+ streaming service in the United States, Latin America, and international markets on Mar. 4.  CBS All-Access, in service since October 2014, will be folded into the new offering, which will also feature more than 6,000 movies and 1,400 episodes from owned channels that include Showtime, MTV, Comedy Central, and Nickelodeon. The company still hasn’t announced monthly subscription prices.

Needham analyst Laura Martin raised her target from $36 to $55, noting “VIAC will be revalued upward as a streaming company in 2021, after the launch of Paramount+. We project VIAC will report $2.2B of streaming revenue in FY20, $3.1B in FY21, and $4.3B in FY22. Based on an average of NFLX and ROKU’s current EV/22E revenue multiple, VIAC’s streaming businesses would be valued at approximately $58B, which is greater than VIAC’s total EV today.”

Wall Street and Technical Outlook

Wall Street consensus is less enthusiastic, with a ‘Hold’ rating based upon 5 ‘Buy’ and 7 ‘Hold’ recommendations. Three analysts recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of $26 to Needham’s Street-high $55 while the stock will open Thursday’s session about $6 above the median $37.50 target. The average target has dropped more than 13% in the last quarter, reflecting continued skepticism.

The stock broke down from a 7-year double top pattern in the fourth quarter of 2019 when it sold off through the upper 30s, hitting an 11-year low during the 2020 pandemic decline.  Steady upside remounted resistance at the start of January but price action has now lifted into 50-month EMA resistance and a major Fibonacci retracement level. Given those obstacles, sidelined investors may wish to wait for a test of new support in the 30s before jumping on board.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

Netflix Under Pressure Ahead of Tuesday Report

Netflix Inc. (NFLX) reports Q4 2020 earnings after Tuesday’s closing bell, with analysts looking for a profit of $1.41 per-share on $6.62 billion in revenue. If met, earnings-per-share (EPS) will mark a modest 8.4% profit increase, compared to the same quarter in 2020. Of course, all hell broke loose after that report, with a worldwide pandemic boosting subscriptions, especially in more resistant older demographics.

Netflix Growth Concerns

The stock posted an impressive 67% return in 2020 but hasn’t added a penny in the last six months and has lost 8% so far in 2021.  Rivals Walt Disney Co. (DIS) and Roku Inc. (ROKU) have ascended the leader board between then and now, with their rapidly-growing services attracting waves of Wall Street upgrades. On the flip side, growth concerns have plagued Netflix since July, with some analysts expecting 2021 to reveal all sorts of structural weaknesses.

That sentiment is far from universal, as evidenced by BMO Capital Market’s call to sell Disney. Analyst Daniel Salmon downgraded the stock to ‘Outperform’ in December, stating that Netflix “retakes the Top Pick mantle”. However, Needham’s Laura Martin is telling clients to sell NFLX and buy ROKU in a pairs trade that highlights a popular opposing view. She also expects DIS to have more subscribers within 18 to 24 months, given the service’s incredible ingrowth trajectory.

Wall Street and Technical Outlook

Wall Street consensus remains at a ‘Moderate Buy’ ahead of Tuesday’s confessional, based upon 19 ‘Buy’ and 7 ‘Hold’ recommendations. However, three analysts now recommend that subscribers close positions and move to the sidelines. Price targets currently range from a low of $235 to a Street-high $700 while the stock ended last week about $85 below the median $583 target. This humble placement raises the potential for a ‘buy-the-news’ reaction.

Netflix entered a broad rectangle pattern after posting the all-time high last summer and has now reversed at range resistance three times. However, it’s also held four tests at range support near 465, establishing a standoff that will end with one side getting trapped by an adverse trend. Monthly and weekly relative strength indicators are now entrenched in sell cycles, raising odds that committed sellers eventually take control of the tape.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

Morgan Stanley Raises Walt Disney’s Target Price to $175 Ahead of Investor Day 2020 Event

Morgan Stanley raised their stock price forecast on Walt Disney to $175 from $160, assigning an “Overweight” rating and said the entertainment company will lay out a vision for a more substantial streaming business, increasing investment spending and long-term targets in its Investor Day 2020 on December 10.

“Walt Disney (DIS) shares are up over 25% since November 1st, driven primarily by positive vaccine news and the implications for Parks, TV & Film production and distribution, and live sports. We now see our forecast for US Parks losses of -$2.9bn in F2021 and a return to prior peak OI in F2023 as potentially conservative. Recently disclosed reductions in headcount may further reduce losses even in the first half of fiscal 2021,” noted Benjamin Swinburne, equity analyst at Morgan Stanley.

“The reduced risk of Parks disruption beyond expectations is helpful to shares and helps support our $175 price target (8x our FY25 DTC revs discounted back + 16x calendar ’22E core EPS). We note the S&P is now trading at roughly 22x fwd. EPS,” Swinburne added.

Early last month, the entertainment giant reported its first annual loss in over 40 years, however, the quarterly result was better-than-expected. Disney reported fiscal fourth-quarter losses of $710 million, or 39 cents a share, its second consecutive quarterly loss on a GAAP basis. For the full fiscal year, Disney recorded a GAAP net loss of $2.83 billion.

Morgan Stanley gave a target price of $220 under a bull-case scenario and $115 under the worst-case scenario. Other equity analysts also recently updated their stock outlook. Credit Suisse raised the target price to $178 from $146. JP Morgan upped the price objective to $170 from $160. Citigroup increased the stock price forecast to $175 from $150 and UBS raised the target price to $155 from $126.

In addition, Walt Disney had its price objective lifted by Goldman Sachs to $156 from $142. The firm currently has a buy rating on the entertainment giant’s stock. Deutsche Bank raised shares to a buy rating from hold and boosted its target price to $163 from $128.

Twenty analysts forecast the average price in 12 months at $163.89 with a high forecast of $182.00 and a low forecast of $136.00. The average price target represents a 6.13% increase from the last price of $154.43. From those 20 analysts, 17 rated “Buy”, three rated “Hold” and none rated “Sell”, according to Tipranks.

Walt Disney’s shares closed 0.48% higher at $154.43 on Wednesday; the stock is up about 7% so far this year.

“Disney is building content assets that enable it to take advantage of the significant direct-to-consumer streaming opportunity ahead. Disney’s underlying IP remains best-in-class, supporting long term content monetization opportunities. During this period of FCF pressure from Parks closures, ESPN’s FCF generation is key to driving down leverage. Historical cycles suggest a potential return to above prior peak US Parks revenues in FY23,” Morgan Stanley’s Swinburne added.

“We now expect Disney Plus to end F25 with 145mm paid subscribers with revenues of nearly $11bn in FY25. Our Hulu, ESPN Plus, and Star assumptions are broadly unchanged leading to 250mm total streaming subscribers by 2025 generating over $33bn in revenues. Fiscal 2020 DTC losses came in at $3.3bn, below the original implied guidance for $3.5-4bn by our estimates, with much stronger customer growth partially offset by Disney leaning in on marketing. For fiscal 2021, we increase our estimate of DTC losses to $4-4.5bn and forecast profitability on DTC in 2024E.”

Walt Disney Breaks Out To All-Time High

Dow component Walt Disney Co. (DIS) is trading at an all-time high on Wednesday after Wells Fargo upgraded the stock to ‘Overweight’. The rally completes an historic 150 point round trip that started from the November 2019 high at 153.41. However, quarterly profits and revenue have crashed since that time due to the COVID-19 pandemic, which forced partial or total shutdowns of worldwide movie production, theme parks, and cruise ship lines.

Easing Pandemic Headwinds

Movie production has sprung back to life but no one knows if patrons will be ready to watch flicks in closed ventilation systems after the distribution of vaccines. Meanwhile, quarterly performance has relied on the huge success of the streaming service, which now boasts more than 70 million subscribers worldwide. Even so, Disney reported a 23.1% year-over-year revenue decline in the third quarter, highlighting dependence on blockbusters through the Star Wars, Pixar, and Marvel franchises.

Wells Fargo analyst Steven Cahall pounded the table on Wednesday, insisting that Disney “is set to complete its transformation into a global streaming content company including the deep Disney brands (Disney+), general entertainment (Star, Hulu, Disney18+) and eventually global sports (ESPN+). We expect global subscribers to go from 117 million today to conservatively 250-300 million in about 5 years. Global content spending would be greater than $22 billion (excluding sports) with DTC revenues of greater than $25 billion.”

Wall Street And Technical Outlook

Wall Street consensus has surged since the first quarter downdraft, with a ‘Strong Buy’ rating based upon 16 ‘Buy’ and 3 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $136 to a Street-high $182 while the stock has opened Wednesday’s U.S. session about $7 below the median $162 target. There should be plenty of upside with this humble configuration.

The stock has completed a V-shaped pattern off the deep March low and broken out to an all-time high. However, accumulation-distribution indicators have not kept up with bullish price action and are situated below both 2019 and September 2020 peaks. This establishes a strong bearish divergence that raises odds for a failed breakout and downside into the November gap between 128 and 134, with the lower end offering a potential low-risk buying opportunity.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

Disney Rallies To 10-Month High Ahead Of Earnings

Dow component Walt Disney Co. (DIS) reports Q4 2020 earnings after the U.S. closing bell on Nov. 12, with analysts expecting the entertainment giant to report a loss of $0.65 per-share on $14.14 billion in revenue. The stock rallied nearly 9% after beating Q3 profit estimates by a wide margin in August, even though revenue fell a staggering 41.7% year-over-year. It rallied to a 9-month high on Monday, in reaction to Pfizer’s (PFE) blockbuster vaccine announcement.

Disney Revenue Headwinds

Movie and television production have resumed at a snail’s pace, with California and other venues still under COVID-19 restrictions and reopened theaters bleeding capital. Disney has also reopened a number of theme parks, including Orlando’s Disney World, but visitation has been poor due to air travel fears and continued worries about infection. The second wave sweeping the planet could undermine diminished revenues this winter, reducing confidence in upside potential.

Loop Capital analyst Alan Gould recently upgraded the stock to ‘Buy’, noting “the future, or arguably the present, is all about streaming and sacrificing current profits to be better positioned for streaming. Hence, we anticipate that more resources will be allocated to streaming, Disney will keep its streaming subscription prices lower for longer to encourage subscriber growth and minimize churn. We also expect investors will give Disney a pass on both near-term Covid-19 related losses and increased DTC losses over the next few years”.

Wall Street And Technical Outlook

Wall Street consensus now stands at a marginally positive ‘Moderate Buy’ rating, based upon 10 ‘Buy’ and 4 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines, even though revenue may not fully recover for several years. Price targets currently range from a low of $124 to a Street-high $164 while the stock opened Tuesday’s U.S. session more than $4 below the $144 median target.

The vaccine news lifted Disney above tough resistance at 130 and into the .786 Fibonacci selloff retracement level for the second time since August. The stock now needs to hold the 135.00 to 137.50 price zone to set its sights on 2019’s all-time high at 153.41. That seems like a stretch, given continued headwinds and innumerable obstacles to long-term recovery. Even so, market players may ignore those headwinds if the Disney+ streaming service books strong Q4 growth.

For a look at all of today’s economic events, check out our economic calendar.

Disney Shares Surge After Entertainment Reshuffle

Dow competent Walt Disney Company (DIS) gained over 5% in extended-hours trading Monday after the media giant revealed its plans to reorganize its entertainment and media business, focusing on streaming content.

The company said it will accelerate its direct-to-consumer strategy to centralize its media businesses into a single organization that oversees content distribution, ad sales, and Disney+. The move comes as the global COVID-19 pandemic has crushed the company’s theatrical business and resulted in lackluster movie theater sales. Disney recently delayed its highly anticipated Pixar film “Soul,” which it now plans to screen on Disney+ later this year.

“I would not characterize it as a response to Covid. I would say Covid accelerated the rate at which we made this transition, but this transition was going to happen anyway,” Disney’s CEO Bob Chapek told CNBC’s “Closing Bell” program in relation to the restructuring.

As of Oct. 13, 2020, Disney stock has a market capitalization of over $200 billion and trades down 13.59% on the year. However, since mid-July, the shares have gained nearly 5%. From a valuation standpoint, the company trades at around 48 times projected earnings, substantially above its five-year average multiple of around 21 times.

Wall Street View

In late August, Citi analyst Jason Bazinet raised the bank’s price target on Disney to $150 from $135 and maintained a ‘Buy’ rating on the stock. Even before Disney’s announcement yesterday to accelerate its direct-to-consumer business, Bazinet saw “robust growth” in the segment. The analyst also expects a measured recovery within the company’s core businesses of Parks, Studio, and Media Networks.

Elsewhere on Wall Street, sentiment remains mostly bullish. The stock receives 14 ‘Buy’ ratings, 1 ‘Overweight’ rating, and 10 ‘Hold’ ratings. Price targets range from as high as $163 to as low as $103. The shares currently trade at a 10% discount to the 12 -month median consensus target of $138 as of yesterday’s close.

Technical Outlook and Trading Tactics

After rallying more than 70% between mid-March and early September, Disney shares have undergone a month-long retracement. They currently find support from the 200-day simple moving average (SMA) and a multiyear horizontal trendline.

Momentum appears to be once again turning bullish, with the moving average convergence divergence (MACD) indicator crossing above its trigger line to generate a buy signal. Furthermore, the 50-day SMA moved back above the 200-day SMA last week – a technical sign that often marks the start of a new uptrend. Those who buy the stock at these levels should look to book profits near significant overhead resistance at $146.50, with a stop placed beneath this month’s low at $120.61 to protect trading capital.

Walt Disney Could Trap Complacent Shareholders

Dow component Walt Disney Co. (DIS) announced the layoff of 28,000 employees on Tuesday, with terminations spread across the parks, experiences, and consumer products segments, which accounted for 37% of 2019 company revenues. The job action adds to thousands of previous furloughs in movie and television production, which came to a grinding halt in the first stages of the pandemic and is now challenged by the reluctance of consumers to sit in movie theaters.

Disney Failed Pandemic Initiatives

The entertainment giant has reopened Florida, Paris, Shanghai, and Hong Kong theme parks but California’s flagship operations remain closed due to continued high infection rates in Los Angeles and Orange Counties. Youtube.com is now overloaded with tourist videos showing empty but open parks around the world, questioning the wisdom of Disney reopening those facilities before the pandemic runs its course or an effective vaccine is manufactured.

The company has been burning capital all year, with a $1 billion second quarter loss, followed by a $3.5 billion loss in the third quarter. Even so, the stock traded up to lofty 2019 levels during the summer, with bottom fishers scooping up shares in hopes that various segments would reopen successfully. This month’s failure of the live-action “Mulan” film to perform well as a Disney+ $30 pay-per-view undermined already fragile sentiment that’s now taking another hit in reaction to the layoffs.

Wall Street And Technical Outlook

Wall Street consensus looks way too high given multiple headwinds, with a ‘Moderate Buy’ rating based upon 11 ‘Buy’ and 6 ‘Hold’ recommendations. Just one analyst recommends selling Disney even though revenues may not return to pre-pandemic levels for at least two years. Price targets currently range from a low of $97 to a street-high $164 while the stock is now trading about $8 below the median $133 target.

Disney eased into a massive symmetrical triangle pattern in 2015 and finally broke out in 2019 after announcing the release date for the highly-anticipated Disney+ streaming service. It posted an all-time high at 153.41 in December and dropped into a correction that failed the breakout and triangle support during the first quarter’s pandemic swoon. The stock bounced back above both barriers in the second quarter but recent weakness is taking its toll, raising odds for a renewed decline.

For a look at all of today’s economic events, check out our economic calendar.