Big Earnings Reports During Market Selloff: DIS, CVS, YELP & WEN

Tuesday, August 6, 2019 6:47 AM | Michael Fowlkes

The earnings season is starting to slow down, but there are still a lot of big-name companies left to report in the weeks ahead. The market is currently dealing with trade concerns that are pulling the major indexes sharply lower, which puts additional pressure on companies that are gearing up to report their recent quarterly numbers.

It has been a good earnings season thus far, but the weight of the U.S. / China trade war has hurt the markets, with the latest selloff occurring after China allowed its currency to devalue to levels not seen the last 10 years.

The trade war has the potential to lead to a global recession, and any negative developments in trade negotiations like we have seen over the last week with President Trump slapping new tarrifs on China leading to major market volatility.

With such a dark cloud hanging over the market, each and every earnings report takes on additional importance. The following companies are set to report this week amid the current volatility and really need to impress the market with the quarterly numbers.

Walt Disney Co. (DIS)

Entertainment giant Walt Disney Co. (DIS) will report its fiscal third-quarter numbers after the market close on Tuesday. Ahead of the quarterly report analysts forecast earnings of $1.76 per share with revenue of $21.68 billion. During the same period last year, the company earned $1.87 with sales of $15.23 billion. Disney continues to dominate the box office, with its Marvel Endgame recently becoming the top grossing box office movie of all time. Disney has struggled a bit with ESPN subscriber numbers, but most analysts believe the company has reached a point where subscriber losses will slow dramatically. Disney’s movie and amusement park segments continue to boost earnings and Disney has proven its ability to dominate the box office, and it will have another blockbuster later in the year with the next Star Wars movie, The Rise of Skywalker due for release in December. Disney has posted better than expected top and bottom line numbers the last three quarters, and analysts expect another earnings beat this quarter with a whisper number of $1.80. Another positive earnings surprise should push shares higher barring a huge drop in ESPN numbers which could hurt the stock moving forward. DIS trades at $138.99 with an average price target of $148.73.

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CVS Health (CVS)

Pharmacy chain CVS Health (CVS) is scheduled to report its second-quarter results before the market open on Wednesday. Analysts forecast earnings of $1.70 per share on sales of $62.61 billion, versus $1.69 on $46.7 billion during the same period last year. CVS has struggled since a February selloff after its Q4 report, and share have traded sideways since the February report despite a strong Q1 earnings report in May. CVS remains in the lower end of its 52-week range, and with shares trading at just 7 times future earnings there is a chance for a quick rally if the company is able to deliver top and bottom line beats. The street expects a positive earnings surprise with a whisper number of $1.74 for the quarter. Wall Street analysts remain upbeat on the stock and see a lot of upside with an average price target of $71.70 versus its current trading price of $54.66.

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Yelp (YELP)

Social review network Yelp (YELP) reports second-quarter numbers after the market close Thursday. Analysts expect the company to post earnings of $0.12 per share on revenue of $247.9 million. During the same period last year Yelp had a break-even quarter with sales of $235 million. YELP has been stuck in a sideways pattern in the lower end of its 52-week range since late 2018 and the company needs to show Wall Street strength in order to break out to the upside. Earnings have grown rapidly over the last five years at an annual rate of 23.5%, and looking ahead analysts expect earnings to rise 33% per annum for the next five years. The strong growth is bullish, but the stock is already priced for perfection at 50 times earnings. The high valuation will keep a cap on the stock unless the company delivers much better than expected numbers each quarter, and could lead to a major drop in shares on any signs of weakness. The street does expect a positive earnings surprise with a whisper number of $0.14 for the quarter, and if YELP is able to deliver a number higher than the whisper shares could finally break out of their trend and start to move higher. Wall Street sees upside with an average price target of $39.47, well above the stock’s current price of $33.57.

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Wendy’s (WEN)

Fast food chain Wendy’s (WEN) is expected to report Q2 earnings before the market opens Wednesday with a consensus for earnings of $0.17 per share on revenue of $441 million. The street is looking for a positive earnings surprise with a whisper number of $0.18 for the quarter. During the same period last year Wendy’s earned $0.14 per share. WEN has performed strongly in 2019, but the stock has corrected over the last week along with the overall market. Wendy’s has topped profit estimates the last three quarters, and the company has shown strong annual earnings of 14% over the last five years and is expected to continue to grow profits at an annual rate of 12% for the next five years. The stock trades at 23 times future earnings which is reasonable considering the forecast growth and should allow for additional upside as long as the company is able to keep delivering better than expected quarterly numbers. Analysts see additional upside with an average price target o $20.47. WEN is currently trading at $17.60.

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