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7 Earnings Reports to Watch Next Week

Vince Martin

Editor’s note: InvestorPlace’s Earnings Reports to Watch is updated weekly. Please check back next week for our latest earnings picks.

So far, earnings season has been somewhat quiet. The earnings calendar has picked up in the last two weeks — but hasn’t yet had much impact on U.S. stocks.

The market has seen bank earnings as modestly negative, with solid reports from Bank of America (NYSE:BAC) and JPMorgan Chase (NYSE:JPM) offset by weakness from the likes of Wells Fargo (NYSE:WFC) and U.S. Bancorp (NYSE:USB). Furthermore, cannabis names got some help from Aphria (NYSE:APHA) and a strong quarter from small-cap OrganiGram Holdings (NASDAQ:OGI).

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Still, it’s not as if earnings so far have moved markets. That almost certainly will change next week, given a number of significant reports. Four of the five most valuable companies on U.S. listings will release earnings. Leaders in key sectors — Visa (NYSE:V) and Mastercard (NYSE:MA), McDonald’s (NYSE:MCD) and Starbucks (NASDAQ:SBUX) — have earnings next week as well.

And these reports will matter to the market as a whole, as recent history shows. The market’s last significant selloff began on Monday, July 29 — as most of these same companies began to report June quarter earnings. Three months later, a — mostly — strong batch of reports likely helped catalyze the steady uptrend that began in October.

That said, earnings reports next week could again determine the near-term direction of the market as a whole. So, let’s take a look at seven to keep an eye on.

Earnings Reports to Watch: Advanced Micro Devices (AMD)

Earnings Reports to Watch: Advanced Micro Devices (AMD)

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Earnings Report Date: Tuesday, January 28, after market close

In 2019, Advanced Micro Devices (NASDAQ:AMD) was the best-performing stock in the S&P 500 in 2019, gaining 148%. Also, its 80% rise in 2018 topped the index, as well.

A 13% gain year-to-date puts AMD stock once again in the top ten among S&P 500 components. To keep the momentum going, Advanced Micro Devices needs a strong report on Tuesday afternoon — and a solid outlook for 2020.

After torrid gains — AMD stock, incredibly, has gained a little more than of 2,000% in the past five years — Advanced Micro Devices now is big enough to move the sector as well. Earnings from Intel (NASDAQ:INTC) this week can have an impact, but that company continues to struggle with subpar execution. In contrast, AMD is firing on all cylinders, meaning its results will better reflect market dynamics — notably in the uneven data-center vertical.

Furthermore, investors should keep an eye on the reaction to earnings, as well. Both AMD and Nvidia (NASDAQ:NVDA) have rallied sharply from December 2018 lows. Both stocks have been assigned steep earnings multiples in a sector that historically traded at a discount to the market as a whole.

So, AMD earnings could be a sign of the health of the semiconductor industry. However, the reaction to earnings will be a sign of sentiment toward the sector — and what kind of valuations investors are willing to pay.

Apple (AAPL)

Earnings Reports to Watch: Apple (AAPL)

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Earnings Report Date: Tuesday, January 28, after market close

It’s fair to wonder what Apple (NASDAQ:AAPL) has to do on Tuesday afternoon to drive further upside in its stock. Expectations seemingly couldn’t be any higher.

After all, Apple stock has had a literally unprecedented run, which has continued into 2020. Shares have gained 8.7% thus far in 2020, adding over $100 billion in market capitalization in the process.

Since June 3, AAPL stock has nearly doubled. Its market value has risen by over $650 billion. There are just three — three! — companies on U.S. exchanges worth more. That said, the gains leave seemingly little room for error with fiscal first-quarter results.

The good news is that Apple is well-positioned for a beat on Tuesday afternoon. Analysts are expecting earnings per share to climb nearly 9% year-over-year, but share repurchases alone should drive most of that growth. The consensus revenue estimate implies a roughly 5% top-line increase against a soft comparison. Remember that lowered guidance for last year’s fiscal Q1 sent AAPL stock plunging.

Assuming Apple’s headline numbers do beat estimates, there are two more hurdles for the stock. First, it will matter not just if Apple outperforms, but how. Strong iPhone sales would help — but the focus here increasingly is turning to the higher-margin, higher-growth services business.

Second, investors need to keep buying AAPL stock the way they have for the past twelve-plus months. Given relatively low Street expectations, a “sell the news” reaction might be the biggest risk to Apple stock in regular trading on Wednesday.

General Electric (GE)

Earnings Reports to Watch: General Electric (GE)

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Earnings Report Date: Wednesday, January 29, before market open

To be fair, Q4 earnings from General Electric (NYSE:GE) probably won’t move the market. GE isn’t the company it once was, due both to asset divestitures over the past decade and struggles in some of the businesses it has kept.

Still, GE is one of the most widely-held large-cap stocks. And there may not be another company of its size for which earnings next week are so important. As I detailed this week, Wednesday morning’s release is absolutely critical for GE stock.

But, it’s not fourth-quarter numbers that are likely to move the stock, or change sentiment toward the company’s turnaround. It’s 2020 guidance that will matter.

Ahead of the release, Wall Street has a wide range of 2020 EPS forecasts. The most bearish analyst projects 49 cents in EPS; the most bullish 77 cents. GE stock looks notably different at the respective ends of those ranges. Above-consensus guidance makes General Electric look like a growing company with a reasonable, if not cheap, valuation; Whereas, a disappointing outlook suggests a business still in decline.

CEO Larry Culp has done a nice job in recent quarters re-inspiring confidence in his company. On Wednesday, however, GE needs to deliver not just hopeful commentary, but a strong forecast for 2020.

Facebook (FB)

Earnings Reports to Watch:Facebook (FB)

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Earnings Report Date: Wednesday, January 29, after market close

On its second quarter conference call back in July 2018, Facebook (NASDAQ:FB) guided for sharply higher spending going forward. FB stock plunged as a result, posting the largest one-day loss of market cap in the history of the stock market.

On Jan. 9, Facebook stock finally clawed back those losses and closed above its 2018 high. And so the mission for Facebook management on Wednesday afternoon is clear: avoid a repeat of that disastrous quarter 18 months ago.

After all, Facebook is almost guaranteed to beat Street estimates with its numbers. In the last five years, the company has missed consensus just three times, all in terms of revenue. Momentum has built in recent quarters, which seems to set Facebook up to top expectations for 23% revenue growth and just a 6% increase in EPS.

However, beating Q4 estimates won’t be enough to boost Facebook stock if the outlook for 2020 is disappointing. Facebook historically hasn’t given specific forward-looking guidance, but it’s likely to give at least some color on its spending plans for 2020.

Those plans will incorporate some kind of increase as Facebook continues to enhance user experience. But the question is how much. Analysts expect a moderate rise: 2020 consensus estimates imply significant operating margin expansion, with revenue up 22% while EPS grows 43%.

Hopes for that margin expansion need to be supported by commentary on Wednesday’s conference call, not dashed. If Facebook once again points to plans for higher-than-expected spending, a smaller version of the July 2018 selloff could result.

A nearly 25% rally in Facebook stock from June lows has come with increasing confidence that Facebook can restore some of the profit margin lost due to higher spending in 2019. On Wednesday, management needs to support that confidence looking to 2020.

Tesla (TSLA)

Earnings Reports to Watch: Tesla (TSLA)

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Earnings Report Date: Wednesday, January 29, after market close

Tesla (NASDAQ:TSLA) stock closed at $254.68 the day of the company’s Q3 earnings report on Oct. 23. After the bell, Tesla reported a surprise profit, and TSLA gained 17% the next day.

That was just the start. The Q3 report catalyzed a stunning rally: Tesla stock has more than doubled. That rally puts significant pressure on Wednesday afternoon’s fourth-quarter release. Wall Street is expecting a solid profitable quarter, with the consensus EPS estimate at $1.72.

But the range is wide, with analysts forecasting EPS ranging from 80 cents to $2.57. The same is true of price targets: among 29 analysts, fair value ranges from just $61.57 to $810.51. The average of $361.57 is sharply below Tesla’s Wednesday close of $569.56.

And so Tesla needs to deliver solid margins in Q4. A big quarter likely will lead to a wave of Wall Street upgrades, drive further short covering and keep the parabolic rally going. Anything less, and investors may wonder why an automotive manufacturer with still-minimal profitability is priced at nearly 100x the 2020 consensus EPS estimate.

The options market are pricing in a nearly 14% move in TSLA stock by next Friday. There’s some logic to that, as this is a big quarter for Tesla. The company can convince more of its skeptics — or embolden them.

Microsoft (MSFT)

Earnings Reports to Watch: Microsoft (MSFT)

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Earnings Report Date: Wednesday, January 29, after market close

Fiscal second-quarter earnings from Microsoft (NASDAQ:MSFT) will matter to the market simply because of the company’s sheer size. Microsoft’s $1.26 trillion market cap is second only to that of Apple.

That said, it’s difficult to see much in the way of significant news coming out of Microsoft earnings. The company’s results have handily beat estimates in each of the last three quarters, which suggests another quarter of impressive performance. The strength and wide adoption of core products like Office and Windows makes it easier for Wall Street to model expectations. The one wild card, though, is the company’s Azure platform, whose growth has helped drive much of the recent optimism toward MSFT stock.

Assuming, as is likely, that Microsoft again tops estimates, the question here as well is how investors react. At 27x forward earnings, MSFT stock might be the best example of the high valuations investors are assigning quality companies. And one of the core questions in this market is just how high those valuations can go.

If investors keep bidding MSFT higher, that suggests room for further multiple expansion elsewhere in the market as earnings season goes on. On the other hand, if valuation concerns arise for a company as successful as Microsoft, they’re destined to become a problem for the rest of the market.

Amazon (AMZN)

Earnings Reports to Watch: Amazon (AMZN)

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Earnings Report Date: Thursday, January 30, after market close

Amazon.com (NASDAQ:AMZN) is almost certain to report lower earnings next week. The consensus estimate suggests a nearly one-third reduction in profits on a YOY basis; even the highest of 43 estimates projects a nearly 8% decline.

The culprit is the company’s launch of one-day shipping. On the third quarter conference call, chief financial officer Brian Olsavsky projected “a nearly $1.5 billion” impact on earnings in the fourth quarter from increased shipping costs. After-tax, that’s a roughly $2.50 hit to EPS.

As a result, Thursday’s report looks potentially dangerous for AMZN stock, which has rallied into the release. Shares have struggled after each of the last two reports, though they admittedly recovered post-Q3 losses rather quickly. A compressed holiday shopping season appears to have led to soft sales at Target (NYSE:TGT), and may depress Amazon’s U.S. revenue, as well. Furthermore, Microsoft’s Azure is taking aim at Amazon Web Services.

I’ve long been a bull on AMZN, but I’ve argued the short-term outlook is much more concerning. Amazon’s earnings at the least will be a real test of investor patience. The market long has rewarded Amazon for its long-term focus over short-term earnings. Particularly after the recent bounce, it’s fair to wonder whether it will do so again next week.

As of this writing, Vince Martin has no positions in any securities mentioned.

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