Stocks mentioned in this article: ADBE, FDX, BBBY, AMZN
The dearth of earnings season will finally fade this week, and investors will have a few reasons to get re-engaged with company news thanks to a few major names that are slated to report quarterly results.
But you’ll have to excuse Wall Street if it seems a little distracted nonetheless.
Thursday marks the long-awaited U.K. referendum on the so-called “Brexit” — the exit of Britain from the European Union. The event has put a question mark-shaped target on the world’s fifth-largest economy, with many people predicting extremely negative outcomes should the U.K. vote to separate.
David Marcus, CEO of Evermore Global Advisors and portfolio manager of the Evermore Global Value Fund, sums up much of the bear case:
“A (Brexit) would take over two years to implement and would undermine existing trade and border arrangements, negatively impacting the U.K. in a much more significant way than it would the EU countries overall. It’s a lose-lose for the U.K.”
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Which way will it go? Well, never let it be said that European bookies aren’t enterprising, as gambling firms are making time during the UEFA European Championship to take wagers on the Brexit. London-based Betfair is reporting odds that reflect a 73 percent chance of Britain staying put. An Irish Times report says that while just a couple weeks ago, bookies’ offers indicated an 80 percent chance of a Brexit, that number has since dwindled to 60 percent.
And opinion polls put the results at just 4 percentage points apart.
Still, a few familiar-name earnings reports will hit the Street before Thursday’s vote, so if anything will draw attention away from the U.K., it’ll be these:
Adobe Systems (ADBE). Don’t let the meager 2 percent gains in 2016 fool you — Adobe is doing some serious work this year.
Like most companies, Adobe was pounded during early February’s quick market collapse, and similarly, ADBE has shot back out of it like a rocket. ADBE stock is up some 20 percent from the worst of it and is just 5 percent off all-time highs that it set back in June.
Helping Adobe’s cause was a first-quarter report that beat on the top and bottom lines alike, powered in large part by plentiful growth in digital media (up 33 percent from last year), creative cloud (up 44 percent) and marketing cloud (21 percent). ADBE also boosted its full-year guidance.
Now, analysts are expecting big things out of the second quarter.
Wall Street is looking for profits to explode 42 percent this quarter on 21 percent sales growth, and the name of the game will be those recurring-revenue segments like digital media and creative cloud, with the latter being driven by a number of efforts, from marketing to mobile apps.
Adobe’s only problem is that it might be a victim of its own success. The expectations for the second quarter are sky-high after a number of record quarters, so a beat might be hard to come by. But given the pullback ahead of Tuesday evening’s report, a beat or improved guidance could send shares back to new highs.
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FedEx Corp. (FDX). FedEx has been somewhat the opposite of Adobe, up pretty nicely overall in 2016 (9 percent), though the stock has been tightly rangebound since the start of March.
But one thing that FDX has in common with ADBE: lofty expectations. Analysts see FedEx growing earnings by 21 percent and revenues by more than 5 percent when it reports its fiscal fourth-quarter earnings on Tuesday evening. However, UBS thinks high fuel prices — jet fuel soared from $1.10 per gallon in March to $1.37 per gallon in May — could sour earnings a bit.
Investors also should hope to see continued explosion in FedEx’s higher-margin express service, which has enjoyed three straight quarters of growth.
Of course, investors might get the biggest fireworks from something that won’t even have a positive impact until fiscal 2018 — specifically, news on FedEx’s merger with Dutch parcel company TNT Express, according to a research note from analyst Helane Becker of Cowen & Co.
“We believe the TNT acquisition will help create a truly global delivery network at FedEx but is most likely dilutive in F2017 due to the added debt, heavy investments and purchase accounting,” Becker says in the note.
Bed, Bath & Beyond (BBBY). Bed, Bath needs some help, but it might not get it.
BBBY shares are off some 45 percent since early 2015, abetted in part by 9 percent losses so far this year. Earnings growth has stagnated. And for the current quarter, analysts see Bed, Bath & Beyond bringing in 6 percent less in profits than in the year-ago quarter, and revenues are expected to inch up just 1.4 percent.
Baird’s Peter Benedict recently joined the bearish chorus by lowering his estimates for quarterly earnings (from 88 cents per share to 85 cents) and comparable-store sales growth (from 1.5 percent to 0.8 percent). Benedict and other analysts also think margins will remain under pressure.
Bed, Bath & Beyond is trying to turn things around in a number of ways, the most recent of which is a buyout for online home furnishings retailer One Kings Lane. Both companies are struggling to stay competitive against Amazon.com (AMZN), which is increasingly pushing into the home decor space. That said, this acquisition won’t have any effect on this quarter’s numbers, leaving BBBY to live and die by whatever the spring months provided.
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All that said, Bed, Bath & Beyond could be a contrarian’s delight. Shares are battered, only two of 25 analysts have a “buy” rating on BBBY and 10 percent of the stock’s float is sold short. Throw in weak expectations, and any significant signs of optimism could pop the cork.
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