A strong 2017 is coming to a close. Broad market indices trade at all-time highs. The nine largest stocks listed on U.S. markets have risen an average of 44% so far this year. In the past two months, even battered sectors like retail and oil & gas have shown some strength.
Investors would be forgiven for wishing that 2017 wasn’t ending. But it hasn’t quite yet — particularly on the earnings front. One more week of reports come before the market quiets down over Christmas. And it features a number of important releases that will give some clues as to whether 2018 will be a repeat performance for both the market as a whole, and in two key sectors.
Among the most notable reports, one dominant brand will try and keep a sharp rebound going. Numbers from a major chip stock could shape sentiment in that sector for 2018 after a sizzling 2017.
And an economic bellwether will report on the status of online retail as the key holiday season nears an end. Investors of all stripes should watch these three reports, as they will impact stocks across the market as we head into the new year.
Earnings Reports to Watch: FedEx
From a long-term standpoint, the historical lesson is pretty clear: do not bet against FedEx Corporation (NYSE:FDX) under any circumstances. It took an unprecedented historical crisis to interrupt FDX’s multi-decade bull run. Those losses were quickly made up: FDX has risen over 600% from its 2009 lows. There’s a reason the stock is a long-time investor and analyst favorite: it’s one of the best long-term performers in the market.
From a short-term standpoint, I’m not sure there’s much to expect from FedEx earnings on Tuesday morning, as far as it relates to FDX stock. The company obviously will give an update on the holiday season. With rival United Parcel Service, Inc. (NYSE:UPS) already dealing with delays from Cyber Monday shipments, FedEx will have a chance to reassure investors that its fiscal second quarter is on track.
The one concern for FDX stock might be a big run-up of late. FDX has gained 11% just since mid-November. It now trades above the average Street target price. There’s room for further gains, perhaps, with FDX trading at less than 16x FY19 consensus EPS estimates. But those gains might take some patience.
That said, FedEx earnings are important – important enough to likely move the entire market on Tuesday. The business is a gauge of economic activity, particularly in online retail. And it’s in that sector that I expect the release to have the biggest effect. If FedEx numbers and commentary show consumers in a buying mood this year, the recent rebound in retail should continue.
If there’s even modest weakness, however, investors could look to lock in short-term profits in those stocks and move to the sidelines. All told, I don’t expect FDX stock to move much on its news – but a number of other stocks might.
Earnings Reports to Watch: Micron
Clearly, investors are expecting some level of fireworks from the Micron Technology, Inc. (NASDAQ:MU) fiscal Q1 report on Tuesday after the close. The options market is pricing in roughly a 9% move next week. MU stock has traded all over the place of late, with a sharp recent pullback amid possible profit-taking in semiconductor stocks. And the Street has a wide range of EPS estimates for next quarter – a low of $1.55, and a high of $2.30 – meaning Q2 guidance will be closely watched.
Fireworks do seem likely, because this is an important report for Micron. MU stock has doubled over the last year, and more than quadrupled since early 2016. Strong prices for both DRAM and NAND memory have led to explosive growth this year, boosting profits and the stock price.
But those memory prices look like they’re stabilizing. And recent trading shows some fear that they will decline in 2018, leading earnings down and potentially bringing highly cyclical MU with it.
From here, MU does look like a buy ahead of earnings. The company has posted five straight blowout quarters. The Street remains behind the story. A 6.2x forward P/E multiple leaves some room for expansion if the report rebuilds investor confidence. Pricing remains a risk – but so far there’s nothing in industry reports to suggest the feared weakness is on the way.
Here, too, Micron results seem likely to affect other stocks. A strong report from Micron could help semiconductor stocks and ETFs, changing sentiment heading into 2018. But a miss could accelerate some of the recent pressure on stocks like Nvidia Corporation (NASDAQ:NVDA). I expect Micron, and the sector, to rise next week. If that’s not the case, however, the declines could be steep – and not just for MU.
Earnings Reports to Watch Next Week: Nike
What a difference a quarter makes for Nike Inc (NYSE:NKE). Three months ago, NKE stock was reeling after a mixed Q1 earnings release. Gross margins were disappointing, North America sales declined year-over-year, and the company looked at the significant risk of losing more market share to Adidas AG (ADR) (OTCMKTS:ADDYY). Nike stock had a real chance to dip below $50, and to hit its lowest levels in over two years.
Since then, NKE has bounced nearly 25%. Strong earnings from key retailer Foot Locker, Inc. (NYSE:FL) provided a boost. So did optimistic commentary from management at the company’s Investor Day in October.
That sets up an important Q2 release on Thursday afternoon. Fundamentally, analyst expectations look low. EPS is expected to decline 18% year-over-year, with consensus pulled down sharply after Q1 commentary. Revenue is projected to grow just 2.6% year-over-year. If recent results and holiday season optimism are any indication, Nike should have no problem posting an earnings beat.
The question is to what extent a beat is priced in by the recent gains. NKE stock is nearing an all-time high, and trading nearly 10% above the average Street target price. A simple beat isn’t going to be enough for more upside: Nike needs a quarter that changes the recent commentary surrounding the stock.
And it’s there that I’d be cautious. Numbers from retailers were better than expected, but hardly good. Foot Locker comps fell 3.7% year-over-year in its third quarter, for instance. Nike’s own long-term goals suggest much more muted growth than was expected just two years ago. Yet the stock is trading at nearly 28x FY18 consensus — a pricy multiple.
The combination makes NKE look rather dangerous heading into the report. Performance of late simply doesn’t seem good enough to support an all-time high. Barring a huge beat on Thursday, NKE stock could have some choppy trading going forward – at best.
Hilary Kramer is the editor of GameChangers, Breakout Stocks, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.