In the upcoming week, all eyes will be on key economic data both domestically and around the world and markets will be especially sensitive to the effect of these data points on Fed policy. Concerns over Fed tapering its Quantitative Easing program sent markets whip-sawing in the previous week and these fears should continue for some time.
Key Earnings
This week, the earnings calendar is marked by few companies but still with some key reports. Discount retailer Dollar General (DG) is expected to report first quarter results alongside Ciena Corp. (CIEN) and Titan Machinery (TITN).
Dollar General
Discount retail chain Dollar General is expected to report its first quarter operations on Tuesday, June 4. Analysts expect the company to report earnings per share of $0.71 vs. $0.63 on revenue of $4.24 billion vs. $3.9 billion a year ago. Importantly, Dollar General could comment on the state of consumer spending in the economy as its sales are sensitive to tax refunds, which were issued late this year, as well as tax rates, which increased in the first quarter.
Analysts at Wedbush expect a largely positive report next week as they maintain an outperform rating on the stock. “There is no specific guidance for Q1, but the company expected 2013 EPS of $3.15-$3.30 with comps up 4%-6%. Management expected gross margins to contract at a rate higher than the rest of the year due to anticipated higher shrinkage, higher markdowns, and lower markups, which are mostly due to the impact of higher tobacco sales. However, gross margin erosion was expected to moderate during the rest of the year.”
“We forecast Q1 EPS of $0.70 vs. $0.63 with comps of +2.5% vs. +6.7%; consensus is at EPS of $0.71 with comps of +2.5%. When it reported Q4 results on 3/25, management noted that QTD weather had been unusually cold (and we saw little improvement by the end of the quarter). However, management expected some eventual benefit from what it estimated as $18 billion in delayed tax refunds.”
“Our $58 price target assumes DG should trade at approximately 15x our 2014 EPS estimate of $3.75. Our target multiple is in line with our projected L-T earnings growth rate of 15%, given quality of execution and longer-term organic growth potential.”
Bank of America Merrill Lynch also views the company positively ahead of its earnings release, having increased its price target on the stock to $60 from $55 earlier this month. The analysts at BAML have a buy rating on Dollar General.
“We are upgrading Dollar General to Buy from Neutral and raising our PO to $60 from $55, representing 18x 2013 P/E (16x 2013 prior), while maintaining our above- guidance 2014E EPS of $3.35. With DG's recent credit rating upgrade, debt refinancing and near lifting of the private equity overhang, we expect sentiment toward the name to continue to strengthen, particularly as DG outperforms Family Dollar on comps, margins and EPS growth over the coming quarters.”
“Despite near-term margin and comp headwinds (1Q13 faces a tough compare), we think DG's longer-term prospects remain compelling: 6-7% square footage growth, 3-5% comp, operating margin expansion and growing capital return. The initiation of a dividend in the future would also be a positive catalyst. Strategy and execution remain very solid, and we expect continued remodels, new services and cooler door expansion to increase relevancy and ticket.”
Ciena Corporation
Communications equipment maker Ciena Corporation is also expected to report earnings next week. On Thursday, Ciena is expected to report a second quarter loss per share of $0.01 vs. earnings per share of $0.04 a year ago. Revenue is expected to grow to $483.34 million from $477.62 million a year ago.
Morgan Stanley has an equal-weight rating on the stock heading into earnings. They have a base case target price of $18 on the stock but see the price target rising to $25 in the bull case should margins expansion accelerate and the corporate investment cycle picks up.
“We believe Ciena has increased visibility on revenue this year and next, as it is now feeling the full weight of the North America capex upgrade cycle. High margin products are beginning to grow; although mix remains volatile, product gross margin now has the potential of hitting the mid-40's vs our prior thesis that it remains at best 40-42% giving us more confidence in a higher normalized LT operating margin.”
“We are remaining Equal-weight as in the near-term, gross margin falls again next quarter, while opex goes back up creating continued margin volatility. In addition, we believe revenue and EPS growth remains lumpy, as new deals are large and the timing of revenue recognition is difficult to predict.”
Titan Machinery
Lastly, construction equipment retailer Titan Machinery is expected to report first quarter results on Thursday as well. The company is expected to report quarterly EPS of $0.19 vs. $0.36 a year ago on revenue of $479.98 million vs. $421.72 million a year ago.
Notably, the company lowered quarterly guidance in late May and analysts reacted to this change. The company attributed the weaker operations in the quarter to the colder than expected weather postponing purchases of equipment.
Analysts at M Partners commented on the preliminary operations and the full quarterly report. “For Q1/F14, Titan expects fully diluted EPS will be between a loss of $0.01 and a loss of $0.03. We were expecting fully diluted EPS of $0.22 in Q1/F14; consensus was $0.18. The consensus range of EPS estimates is $0.13 to $0.22.”
“Titan expects revenue in Q1/F14 to be $440.0 million. We were expecting revenue of $480.4 million in Q1/F14 (consensus was $478.3 million), up from $421.7 million in Q1/F13 with about half of the revenue increase stemming from acquisitions made in the 12 months ending April 30, 2013.” M Partners expects a loss of $0.03 per share for the quarter following the guidance.
Piper Jaffray also cut estimates after the guidance came out and commented on the stock ahead of earnings. “We are lowering our estimates following management's below consensus 1Q14 pre-release and downward revision to FY14 EPS guidance. As we expected, Titan's April ending quarter was negatively impacted by the late spring in both agriculture and construction. Management expects 1Q revenue of $440 mil and an EPS loss in the range of ($0.03) – ($0.01), both falling below our previous street low estimates.”
“Our FY14 EPS estimate of $1.82 is near the midpoint of management's revised guidance range of $1.70 - $2.00, which is down from the previous range of $2.00 - $2.30. We are also lowering our FY15 EPS estimate to $2.09 on continued difficulties in the construction segment and a shift in mix of lower margin sales.”
“Price target drops to $21; Neutral. We are applying a lower valuation multiple of 10x CY14 (11x prior) as we believe shares of TITN will trade more in-line with the peer group multiple. With expectations that 97+ mil acres of corn will get planted in time and minimal visibility into improvements in construction we do not see any catalysts in the near-term that will expand valuation multiples.”
Key Economics Releases
Next week, the real focus of markets will be on the economics calendar and how the various reports will affect Fed policy. Monday begins with U.S. vehicle sales and Manufacturing PMI for major Eurozone economies as well as the U.K. Later, the U.S. Manufacturing PMI and the ISM Manufacturing Index are expected to be released.
Tuesday, the RBA is set to release its latest rate decision and the British Construction PMI is due out pre-market. During the U.S. session, the U.S. trade balance is expected to be released as well as the New York NAPM Index and the IBD/TIPP Economic Optimism Index. Overnight, Australian GDP is set to be released.
Wednesday brings more data pre-market including the Services PMIs for major Eurozone economies and the U.K. as well as the latest revision to GDP for the Eurozone. Later, the ADP Employment report is set to be released followed by non-farm productivity, factory orders, and the ISM Non-Manufacturing Index.
On Thursday, the Bank of England's interest rate decision is due out and German factory order data is set to be released pre-market. Later, the Challenger Job Cut report is due out followed by the ECB interest rate decision.
Friday is the big day on the calendar as the Non-Farm Payrolls report is due out in the U.S. alongside the Canadian employment change report. Economists expect that Non-Farm payrolls rose 165 thousand in May, the same as in April, and that the unemployment rate stayed flat at 7.5 percent.
Daily Schedule
Monday>
- Earnings Expected From: ABM Industries (ABM), Cracker Barrel (CBRL), SAIC (SAI), and Verint Systems (VRNT).
- Economic Releases Expected: Total Vehicle Sales, Eurozone, French, Italian, German, U.K., and the U.S. Manufacturing PMIs, Construction Spending, and the ISM Manufacturing Index.
- Earnings Expected From: Air T Inc. (AIRT), Analogic Corporation (ALOG), Ambarella (AMBA), Bob Evans Farms (BOBE), Dollar General (DG), and Shuffle Master (SHFL).
- Economic Releases Expected: RBA Rate Decision, U.S. Trade Balance, New York NAPM, IBD/TIPP Economic Optimism Index, Australian GDP, and HSBC China Non-Manufacturing PMI.
- Earnings Expected From: Cyberonix (CYBX), Nordion (NDZ), Verifone Systems (PAY), and Sigma Designs ( IGM).
- Economic Releases Expected: Spanish, Italian, French, German, Eurozone, U.K., and U.S. Services PMIs, ADP Employment Change, non-farm productivity, and the ISM Non-Manufacturing Index.
- Earnings Expected From: Ciena Corp. (CIEN), Conn's Inc. (CONN), Cooper Companies (COO), Vail Resorts (MTN), J.M. Smucker Co. (SJM), and Titan Machinery (TITN).
- Economic Releases Expected: French Unemployment Rate, German Factory Orders, Bank of England Interest Rate Decision, European Central Bank Interest Rate Decision, Challenger Job Cuts, and the Canadian Ivey PMI.
- Earnings Expected From: Christopher and Banks Corp. (CBK).
- Economic Releases Expected: British Trade Balance, German Industrial Production, Non-Farm Payrolls, Unemployment Rate, Canadian Employment Change, and the Chinese Trade Balance.
.
Editor's Note: Learn how to profit from the Non-Farm Payrolls Report, one of June's biggest market-moving announcements. Watch expert Steve Ruffley trade the NFP in real time on June 7, 2013 via our Special Live Event. Ruffley has an astounding record of 25 consecutive, profitable sessions during this event, so don't miss this chance to learn how to trade during volatile periods. To find out more, click here.