Will These Early Reports Set the Tone for Earnings Season?: BBBY, DAL, PSMT & HELE

 

The new earnings season is just around the corner. The last few weeks have seen few big name reports, but each week there are always a few names worth watching, and this week is no exception.

The summer months tend to be lackluster for the market. News dries up, traders go on vacation, and the market usually underperforms the rest of the year during the low volume summer months. This will change a little once the new earnings season kicks off later this month, but for now we are left with little news and a handful of quarterly reports to give the market direction.

Trade tensions and interest rates have been the primary focus on the market over the last two months. The Federal Reserve appears to be moving in the direction of cutting rates for the first time since it began lifting them from near-zero level after the financial crisis, and the U.S. and China have reached an apparent cease-fire in the trade war. This sets the stage for a summer rally if the upcoming earnings season is a strong one.

Earnings reports will drive the market over the slow summer months, and here are a few companies that will be releasing their quarterly numbers this week ahead of the official earnings season.

Bed Bath & Beyond (BBBY)

Home goods retailer Bed Bath & Beyond (BBBY) has struggled in recent years as the company as failed to keep pace in the digital commerce space. The company has endured 20% annual earnings drops over the last five years and looking ahead analysts expect earnings to fall at another 4% per annum over the next five years. With earnings on the decline, it is easy to understand why BBBY shares are trading near their 52-week low, and it will take a very strong quarterly fiscal first quarter report after the market close Wednesday to bring enthusiasm back into the stock. Analysts expect earnings of $0.08 per share versus $0.32 during the same period last year. Revenue is forecast at $2.58 billion versus $2.8 billion last year. The stock has a low valuation, with shares trading at just 5 times earnings, but the low value will not be enough to attract buyers unless the company is able to deliver a strong quarterly beat and show improvements in both in-store traffic and online sales. BBBY trades at $11.40 with an average price target of $16.81.

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Delta Air Lines (DAL)

U.S. airliner Delta Air Lines (DAL) reports its second-quarter numbers before the market opens Thursday. Ahead of the quarterly report analysts forecast earnings of $2.30 per share on revenue of $12.35 billion. During the same period last year the company earned $1.77 on sales of $11.6 billion. DAL is currently trading just shy of its all-time high, which it should hit and surpass on a strong quarterly report. The company has posted positive earnings surprises the last seven quarters, and the street expects another earnings beat this quarter with a whisper number of $2.33 for the quarter. Wall Street remains very bullish on the stock, and with a forward P/E of just 8.1 there remains a lot of value in the stock at this time. Analysts expect earnings growth of 12.7% per annum over the next five years which should keep shares moving higher as long as no negative earnings surprise occur. DAL trades at $59.44 with an average price target of $67.31.

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PriceSmart, Inc. (PSMT)

PriceSmart, Inc. (PSMT) is expected to post its fiscal third-quarter numbers after the market close Wednesday. Analysts expect to see the retailer post earnings $0.42 per share on sales of $803 million. During the same period last year PriceSmart earned $0.61 and reported revenue of $782 million. PriceSmart has a bad earnings track record, with negative earnings surprises the last 13 quarters. Earnings have fallen 1.2% per annum over the last five years, but analysts see improvement in the future with forecast annual profit growth of 15% for the next five years. The stock is bouncing off its 52-week low and if the company is able to break its streak of earnings misses there is a lot of upside. Even with the stock in the lower end of its 52-week range, there valuation is reasonable with shares trading at 18 times future earnings. Analysts are bullish on the stock given the robust growth estimates and have an average price target of $80.00. PSMT is currently trading at $54.96. If profits are able to outpace estimates you can expect a nice bounce in the stock, but there is definitely downside risk given the current valuation if PriceSmart is not able to break its streak of earnings misses.

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Helen of Troy (HELE)

Helen of Troy (HELE) makes household and consumer goods. Helen of Troy is not a household name, but it is the company behind popular brands such as Braun, Honeywell, Vicks and Revlon. The company will report its fiscal first-quarter numbers after the market close Tuesday with the consensus calling for earnings of $1.40 per share on revenue of $353.2 million. During the same period last year, the company earned $1.87 and recorded sales of $354.7 million. The stock gapped strongly higher in late-April after the company posted big positive surprises on both the top and bottom line. The stock has edged lower in the months since the last report but remain well above where shares were trading prior to the most recent quarterly report and analysts believe another strong move to the upside could occur on the back of another strong quarterly report. HELE trades at $133.16 with an average price target of $162.00. Earnings are expected to rise at an annual rate of 7% over the next five years, and the stock currently trades at 14.9 times future earnings, so there is good value in the stock as long as the quarterly numbers do not fall short of the consensus. The company has posted better than expected earnings each of the last 15 quarters.

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Symbols: BBBY DAL HELE PSMT
Michael Fowlkes

Michael Fowlkes

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.

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