Ever since the short-lived post-Brexit shakeout, the stock market has been firmly in rally mode. All three major indices reached or flirted with all-time highs last week as earnings season trudged on and an unexpectedly strong July jobs report lifted markets Friday.
More than 250,000 American jobs were created last month, year-over-year wage increases rose by the most in seven years and the unemployment rate remains below 5 percent.
It’s in this rather cheery mood that Wall Street’s eyes will be turning to these five companies, which are the most prominent that are reporting quarterly earnings this week.
Walt Disney Co. (ticker: DIS). Disney’s fiscal third-quarter earnings report comes out after the bell on Wednesday, and you can bet your bottom dollar the results will be thoroughly deconstructed by investors in the entertainment, cable and media industries.
Analysts expect DIS to report adjusted earnings per share of $1.61, up 11 percent from the $1.45 it earned in the year-ago period. Wall Street’s also looking for revenue to increase 8 percent to $14.15 billion.
Expect all eyes to be on the media networks business segment. While Mickey, Elsa and Vader rake in plenty of dough, it’s still television programming that really drives the DIS stock price.
Media networks is broken up into two divisions: cable networks and broadcasting. The cable division is the cash cow here, driven largely by ESPN, which is famously the most expensive single channel in most cable packages.
Last quarter, Disney noted that a decline in subscribers contributed to the 2 percent revenue slump seen in its cable division — not a good sign for investors worried about the stubbornly consistent trend of cord-cutting in which consumers ditch cable in favor of services like Netflix (NFLX), Hulu, HBOGo and Amazon.com’s (AMZN) Prime Video.
Shake Shack (SHAK). Upstart burger joint Shake Shack, still a relative newcomer to the markets after its 2015 initial public offering, reports second-quarter earnings after the closing bell on Wednesday.
Considered by many to be one of the most overvalued stocks on the market, SHAK also has the dubious distinction of being one of the more heavily shorted stocks on Wall Street. About 5.5 million shares of Shake Shack, or over 17 percent of its float, are currently being shorted.
It’s easy to see why so many are pessimistic. Shake Shack may make a tasty burger, but its valuation is downright criminal, trading at 72 times projected 2017 earnings.
[See: 8 Stocks to Profit From America’s Love of Burgers.]
Speaking of earnings, the market expects SHAK to grow EPS by 44 percent to 13 cents in the second quarter, and it also expects revenue to jump 30.3 percent to $63.11 million. So Shake Shack is by all means a growth stock — the question is simply whether its growth is high enough to sustain its current valuation.
The shorts certainly don’t think so.
That said, being highly shorted doesn’t by any means doom Shake Shack shareholders come report time.
In fact, last week, Fitbit (FIT) ripped off a 13 percent one-day gain after Fitbit’s earnings and revenue both impressed investors and the heavily shorted stock benefited from a textbook “short squeeze.”
If Shake Shack reports a blowout quarter, SHAK stock could be in for a blowout quarter as well. Assuming average daily volume just below 1 million shares, it would take SHAK shorts 5.5 trading days to exit their positions and buy back the very stock they already sold.
Alibaba Group Holding (BABA). What might be considered China’s Amazon.com, Alibaba reports fiscal first-quarter results before the bell on Thursday, and investors are expecting some major growth, at least from the top line.
Wall Street expects revenue to jump to $4.51 billion from $3.26 billion in the year-ago quarter, a growth rate of 38.3 percent. GAAP earnings per share, however, are expected to fall from $1.92 a year ago to just 71 cents in the most recent quarter.
[See: 13 Stocks to Buy to Bet on China.]
Alibaba is doing many of the same things that its cross-globe rival Amazon is doing: investing heavily in cloud computing, building a leading platform for media and entertainment, and globalization in general.
Those efforts can be expensive, and with the Chinese renminbi continuing to weaken against the U.S. dollar, shareholders of the Alibaba ADR will naturally notice some pressure on earnings.
Nvidia Corp. (NVDA). Chip-maker Nvidia is going all-in on artificial intelligence, differentiating it from far larger competitors like Intel Corp. (INTC) and building a nice, profitable niche for itself in the process.
Those investments have come back to amply reward NVDA stock owners, who can proudly say that through the first week of August, Nvidia was the fifth-best performer in the entire Standard & Poor’s 500 index in 2016, with shares up more than 70 percent on the year.
More AI, please!
Nvidia co-founder and CEO Jen-Hsun Huang summed up his company’s strategy simply when announcing the record-breaking fiscal fourth-quarter results in February that sparked off the 2016 NVDA rally in earnest.
“NVIDIA is at the center of four exciting growth opportunities — PC gaming, VR, deep learning and self-driving cars,” Huang said. “We are especially excited about deep learning, a breakthrough in artificial intelligence algorithms that takes advantage of our GPU’s ability to process data simultaneously.”
Clearly, Wall Street is excited too. Analysts expect EPS of 37 in the second quarter, up more than sevenfold from the 5 cents per share it earned a year ago. Revenue is projected to advance 17.3 percent to $1.35 billion.
Investors will have to wait until Thursday afternoon to see if NVDA can keep up its winning streak.
JC Penney Co. (JCP). Last but not least, clothing and furnishings retailer JC Penney will report second-quarter earnings on Friday morning.
Just a few years ago, no one really knew if JC Penney was going to make it. It’s managed to stick around, and, slowly but steadily, pay down its long-term debt. At the end of 2014, long-term debt stood at $5.27 billion. By the first quarter of this year, long-term debt had shrunk to $4.4 billion.
JC Penney is in the middle of a long-term turnaround and is focused on reducing losses at the moment. Analysts expect JCP to lose 15 cents per share in the second quarter, which isn’t ideal but worlds better than the 41 cents it lost a year ago.
More importantly, Wall Street actually thinks JC Penney can return to non-GAAP profitability this fiscal year, earning 3 cents per share. That would be quite a feat since just a year ago it lost $1.03 per share.
[See: 7 Stocks That Will Ruin Your Portfolio.]
Still, JC Penney’s long-term trend is concerning — in the last five years, shares have lost about two-thirds of their value. But there’s always someone doing worse, and all one needs to do is look at Sears Holdings Corp. (SHLD), down 76 percent in the last half decade, to experience stock market schadenfreude.
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5 Big Stocks Reporting Earnings This Week: DIS, SHAK, BABA, NVDA, JCP originally appeared on usnews.com
