Wednesday, April 24, 2013

The Key Earnings of the Week

It’s another huge week for earnings. In this article I've suggested some of those companies that I find interesting and provide some ideas for further research. It’s also a good time to try and check the underlying trends in the economy versus what individual companies are saying about them.

Monday

BE Aerospace and Hexcel are two of the most interesting stocks in the aerospace sector. The latter is set to benefit from the increasing use of composites in aircraft, while BE Aerospace is one of the very few ways to get pure exposure to commercial aerospace.  Incidentally, its French rival Zodiac Aerospace reports on Wednesday.

However, my highlight of the day has to be Check Point Software (NASDAQ: CHKP). The Israeli IT security company disappointed in recent quarters with its negative products and license sales growth. This is obviously a bit of an issue because it operates a razor/blade model, even though it has been bundling its software and hardware together recently. No matter--the fact is that the company’s product growth is stalling, and I think it needs to do something about it.

Despite being highly cash generative, tech investors will not reward Check Point unless it gets back to growth. The good news is that given easier comparisons coming up and its potential to better market its leading technology, it may well start to do that in this quarter.



Tuesday

All eyes will be on Apple’s results. However, I am much more interested in what AT&T says about its spending plans. Tech is well represented today with Juniper Networks, Broadcom, Cree, Polycom and VMware all giving results. I like Idexx Labs as a company, but must confess that I can’t get anywhere near its evaluation. Discover Financial is one of the few lenders that has seen its loan book growing, but is it chasing business or responding to market demand?  Affordable luxury play Coach gives numbers as well, and it badly needs to demonstrate that it can execute on its growth plans.

The highlight of the day is actually Yum! Brands (NYSE: YUM). The company is very interesting because it is focusing its efforts on growth in China, so what it says about current consumer trends in that country will be fascinating. Moreover, it is trying to recover from chicken supply issues in China with KFC.  Don’t be fooled, though--its sales growth was slowing before the chicken issue. And finally, it is trying to fight for market share within a difficult market in the US. The stock offers some upside drivers, but it is hard to predict what it will report. China bulls need to follow it carefully.

Wednesday

A huge day for earnings.  Aerospace bellwether Boeing will give numbers and Procter & Gamble will try and demonstrate that it is back on track with its growth initiatives.  Whirlpool is a genuine play on housing, and I like its exposure to Brazil as well as its evaluation. Cigarette company Lorillard is a favorite stock to the bears who like its defensive characteristics. In similar vein, rail car part manufacturer Wabtec has long offered one of the few ways to get exposure to the rail industry.

Data center company Equinix gives results, and while F5 Networks has already pre-announced poor numbers, its investors will want to follow the commentary around the results very closely. The key question is what is happening to its telco customers? EMC and Coherent also give numbers, but my highlight is Citrix Systems (NASDAQ: CTXS). 

After two tough quarters Citrix got back on track in the last quarter. Citrix isn’t just about desktop virtualization anymore--it is a genuine play on the corporate need for mobility and for IT to be integrated across multi-platform devices. It also has two powerful partners in Microsoft (virtualization) and Cisco Systems (application delivery controllers) who are both actively helping it develop these relative markets. The problems at Fortinet and F5 Networks were largely a consequence of weakness with telco, but they reported decent numbers with enterprise customers--a good sign for Citrix.

Thursday

Tech continues reporting, with Informatica giving results. Look out for what Ametek says about aerospace, and 3M usually gives good color on the state of the economy. Within consumer products Colgate-Palmolive needs to keep demonstrating that it can innovate and stay ahead of the competition, and, like Mead Johnson, its growth prospects rely on emerging market growth.

Stanley Black & Decker (NYSE: SWK) is one of the most interesting housing and construction plays in the market. Not only does it have upside exposure to a stronger US housing market, but the company is engaging in a strategic growth initiative intended to ramp up revenues and take full advantage of the synergies from the merger. It involves expanding its emerging market operations and targeting new verticals. The company is highly cash generative, and the growth programs do not appear to be expensive. If it hits its targets then I think the stock will head higher because it looks like it has good value.  

Friday

Fridays are usually a bit quieter, but there are some interesting health care results with Abbvie (the Abbott Labs spinoff) giving numbers. Weyerhauser will update on end demand from housing.

My highlight is V.F. Corp (NYSE: VFC).  There are a lot of interesting things going on here. The weather got noticeably worse since the last set of results, and I think this may have caused an increase in demand for North Face and Timberland products. On the other hand Europe is its biggest sales center (and Southern Europe its biggest region within that), and the news hasn’t been great from the continent. Moreover, VF Corp is investing in China even while its last results in Asia were a bit disappointing. It is a mixed picture but the upcoming results might help to set some trends for potential investors to look into.