As we move deeper into the current earnings season, all three major indexes are trading at record high levels. The earnings season has been upbeat so far, and increased expectations of a trade deal between the U.S. and China have boosted investor confidence and pushed markets higher.
Overall economic conditions remain favorable in the U.S., and with the Federal Reserve cutting interest rates three times so far during the year the market has additional upside potential as long as progress is made in trade negotiations between the U.S. and China.
U.S. officials have signaled optimism of a partial trade deal before the end of the year which has provided the latest boost to the market, but there have been multiple instances in the recent past where trade expectations increased only to be dashed shortly thereafter. This could easily occur again, which is why the current earnings season is very important for the health of the market as we near the all-important holiday season.
Here are some of the biggest names set to release their most recent quarterly numbers this week.
Walt Disney (DIS)
Entertainment giant Walt Disney (DIS) is expected to post its fiscal fourth-quarter numbers after the market close on Thursday. Analysts forecast the company to post earnings of $0.94 per share, but the street expects a small earnings beat with a whisper number of $0.97 for the quarter, down from $1.48 during the same period last year. Walt Disney posted disappointing numbers last quarter, missing on both the top and bottom line. The miss drove DIS stock lower for two months before finding support and moving sideways over the last month ahead of the upcoming report. Disney’s parks and movie segments have remained strong, but the company’s pay-tv segment has struggled as cord-cutting has put a big dent in the company’s ESPN subscriber numbers. The company’s pay-tv segment will be a primary focus for investors. The stock is trading at 17 times earnings, which is attractive, but earnings are expected to fall 3.3% per annum over the next five years which will prevent the stock from trading higher barring a string of positive surprises. The street expects a small earnings beat, and the market will be quick to drive shares lower on anything short of the earnings surprise the market expects. DIS trades at $132.69 with an average price target of $154.86.
CVS Health (CVS)
CVS Health (CVS) reports Q3 results Wednesday. The drug store chain will report before the market open with the consensus calling for earnings of $1.77 per share. The street is looking for a small earnings beat for the quarter with a whisper number of $1.80. During the same period last year the company earned $1.73 per share. CVS stock has trended higher since May as the company has posted better than expected earnings and sales in each of the last two quarters. CVS stock looks attractive at just 9.5 times future earnings, but with profits only expected to rise at an annual rate of 3.3% over the next five years, traders will struggle to push shares higher unless the company is able to consistently deliver estimate beating quarterly numbers. The street expects a small earnings beat, and that has already been priced into the stock ahead of the upcoming report. CVS has risen steadily since mid-summer, and the market will be quick to erase some of those recent gains on any sign of weakness in the quarterly report. CVS trades at $68.33 with an average price target of $73.70.
Symantec (SYMC) is expected to report its fiscal second-quarter earnings after the market close on Thursday. Analysts expect earnings of $0.33 for the quarter, versus $0.42 during the same period last year. The cyber security company posted better than expected top and bottom line numbers last quarter, which drove shares sharply higher following the report. Since the initial rally SYMC has traded sideways for the last two months as the overall market has risen to new highs. The company has struggled to grow earnings in recent years, with profits falling 0.1% per annum over the last five years. Looking ahead, analysts expect improvement with earnings forecast to rise at an annual rate of 9.5% over the next five years. The muted earnings growth has kept a ceiling on the stock, and traders will need to see a strong set of quarterly numbers for the stock to break out of its sideways trend as we enter the final months of the year. SYMC is currently trading at $23.77 with an average price target of $23.28.
Social media company Yelp Inc. (YELP) will report its third-quarter results after the market close Thursday with the consensus calling for earnings of $0.19 per share. The street expects the company to post a positive earnings surprise with a $0.21 whisper number. During the same period last year the company earned $0.17. YELP has been stuck in a sideways pattern in the lower end of its 52-week range over the last five months despite a string of positive earnings surprises. Last quarter the company posted better than expected earnings for the fourth-straight quarter, while sales were slightly weaker than expected after two straight sales beats. Even in the lower end of its 52-week range YELP remains a high-value stock, trading at 50 times earnings. Growth is slowing for the company. Over the last five years profits rose at an annual rate of 26% but looking ahead analysts expect earnings to rise at 10.5% per annum. The company’s slowing growth is weighing on the stock and will continue to keep a ceiling on the stock. YELP is priced for perfection, and if the company is able to hit its estimates on both the top and bottom line the stock could break out of its sideways trend, but with the stock’s valuation any sign of weakness could result in a big drop in share price. YELP trades at $35.15 with an average price target of $39.80.