Last Friday’s promising jobs report seemed to cement the idea that the Federal Reserve will raise interest rates in their December meeting. That knowledge helped mute the broader U.S. stock market, which appears to be running out of Trump juice.
But perhaps earnings will provide the spark that stocks need to swing from November’s post-election ramp-up to a December Santa Claus rally.
[See: 7 Best Tech Stocks to Buy for 2017.]
This week, earnings will touch on several fronts, from retail to tech to the housing sector. A few stocks are hoping to hold onto substantial 2016 gains, while a couple companies are trying to stem the tide of a truly disappointing year.
Toll Brothers (ticker: TOL). What the heck is going on with homebuilders?
That’s exactly what investors will try to determine on Tuesday morning when luxury homebuilder Toll Brothers steps up to report its fiscal fourth-quarter earnings.
Homebuilders haven’t generated much buzz this year, for good reason. While the industry participated in the early-year dip and rebound, as well as the post-election “Trump bump,” they’ve largely underperformed, with the iShares U.S. Home Construction exchange-traded fund ( ITB) still flat compared to 8 percent gains for the Standard & Poor’s 500 index.
Heading into this quarter’s report, Wall Street is a little on edge. Mortgage rates have climbed from above 3.5 percent to above 4 percent since Trump’s election, and home prices touched all-time highs in September. Toll Brothers specifically enters its fourth-quarter report mired by concerns of a slowdown in luxury homebuilding.
Toll Brothers has a sizable bar to leap over, as the analyst community expects a 24 percent jump in earnings to 99 cents per share, on roughly 25 percent earnings growth to $1.79 billion. TOL has slid of late and is off 12 percent on the year. So expect a beat to resuscitate this stock — and set off a bull reaction across many of the industry’s names.
Costco Wholesale Corp. (COST). When we looked ahead to Costco’s fiscal fourth-quarter earnings back in September, the thought was that the market would reward a bottom-line beat. And it did.
Kind of.
COST earned a quick pop after reporting a surprise increase in quarterly earnings, but the momentum never held, and shares are trading around the same level they were at the end of September. In fact, Costco stock remain down 6 percent, unable to join in the market’s broader 2016 celebration.
[See: The 7 Best Bank Stocks to Buy for 2017.]
Costco’s story for most of the year has been one of tepid growth, and that’s expected to continue this quarter, if three straight months of ho-hum sales reports are to be believed. Overall, analysts see COST improving revenue by 4 percent to $28.29 billion.
If Costco is going to have any hope of launching its own Santa Claus rally, it’ll have to do so against much higher earnings standards. This time around, Wall Street expects a 10 percent profit bump to $1.20 per share. Considering the retailer’s lackluster comps, that kind of beat will need to come on the back of membership fees.
Lululemon Athletica (LULU). Sorry, yoga pants — denim apparently is back.
Last week, athletic apparel retailer Lululemon was dealt a blow entirely too close to its third-quarter earnings report. Canaccord Genuity downgraded LULU shares from “neutral” to “sell” on worries that what Lululemon does, is done.
Writes equity analyst Camilo Lyon: “After a strong eight-year cycle, we believe the athleisure apparel trend has peaked,” and core customers are “opting to make one less purchase of yoga pants per year in favor of a pair of jeans.” That has Lyon targeting a 20 percent-plus drop.
A secular decline in athletic wear would be the second crisis CEO Laurent Potdevin has had to navigate — the first was the precipitous drop in shares after his predecessor, Christine Day, stepped down from the chief role.
LULU was expected to report a 23 percent jump in earnings to 43 cents per share on a roughly 13 percent increase in revenues to $540.7 million. While shares only dipped a couple percent on Canaccord’s sell call, should Lululemon’s earnings show evidence of Lyon’s concerns, expect the selling to get aggressive.
Broadcom Ltd. (AVGO). Broadcom — the chipmaker that Avago swallowed for $37 billion in 2015 and whose name the combined entity operates as — has put together a solid 2016 with 20 percent gains through early December. Though that return is a bit shy of other semiconductor stocks … which, by the way, all stumbled late last week after DigiTimes reported that Apple ( AAPL) was cutting back on iPhone 7 production.
The iPhone 7 report threatens to curb what has been an outstanding display of growth this year. Broadcom has put up some gaudy figures, including 45 percent and 58 percent improvement in wired infrastructure revenues over the past two quarters. Meanwhile, wireless communications has rushed ahead by 27 percent and 22 percent in the third and second quarters, respectively. Enterprise storage has enjoyed more modest growth in the mid-teens, but AVGO just addressed that with a $5.9 billion acquisition of Brocade Communications Systems ( BRCD) — a leader in Fibre Channel storage area network switching and IP networking.
While revenues are expected to retreat by a little more than 2 percent, analysts see earnings shooting 30 percent higher. Even a surprise flat-line on the bottom line Thursday afternoon could get AVGO back into bull mode.
Sears Holdings Corp. (SHLD). Wall Street’s favorite blooper reel reports earnings Thursday before the bell.
Sears didn’t disappoint last quarter, reporting a fat net loss of $3.70 per share that more than doubled the year-ago bleeding, not to mention a 5.2 percent drop in same-store sales. The company also was forced to take another $300 million in debt financing from ESL Investments — the hedge fund of CEO and absentee turnaround maestro Eddie Lampert.
Lampert’s plan for years now has been shedding assets to keep Sears solvent, and even that has hit a hitch In the past couple of months. While SHLD enjoyed some optimism over Sears’ reported interest in selling its Kenmore, Craftsman and DieHard brands earlier this year, Stanley Black & Decker ( SWK) — considered a likely buyer for Craftsman — bought the tools business from Newell Brands ( NWL) instead.
Sears in September announced the closure of 64 more Kmart stores after saying it would close 68 Kmarts and 10 Sears stores back in April. Moody’s is (rightly) concerned about Sears’ $3.5 billion in long-term debt. What can go wrong, has.
This quarter is no different from the rest. Analysts expect a 14 percent decline in sales to just less than $5 billion, and the net loss should blimp up from $2.98 per share to $4.06.
[Read: A Pre-Emptive Autopsy of Sears Stock.]
Get a stick and some marshmallows, then sit down and enjoy the fire.
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Stocks to Watch This Week: Sears Holding Corp (SHLD) originally appeared on usnews.com
