This week was tough for emerging markets, but next week could bring trouble for more developed markets as new economic data coming out could take the shine off of the recent global economic recovery. Talk of the US Federal Reserve taper will continue to dominate the markets, while high unemployment levels are likely to come to the forefront in the eurozone.
Key Earnings
Several key earnings will be released in the coming week, most notably by Tiffany & Co. TIF, TiVo Inc. TIVO, Joy Global Inc. JOY, Campbell Soup Company CPB and Salesforce.com Inc CRM.
Tiffany & Co.
Tiffany & Co is set to report second quarter earnings ahead of market opening on Tuesday. The company is expected to report EPS of $0.74 on revenue of $941.21 million, compared to last year’s EPS of $0.72 on revenue of $886.57.
Deutsche Bank gave the stock a hold rating, with a price target of $68.50. Although
Tiffany & Co had a strong first quarter, Deutsch Bank advised that investors proceed with caution as management was disappointed with lackluster US performance, especially at moderate price points.
The analyst team at Deutsche Bank went on to say: “Also we believe that caution is a legacy of last year's misses, so management is setting expectations at a reasonable and possibly beatable level.”
The bank expects overall comps at 5.8 percent.
“We expect NA comps to remain below average at 3% in Q2—i.e., similar to Q1 despite 5pp easier comparative. This incorporates some positive drivers (US high end doing well, impact of Asian/Chinese travelers diamond-focused purchases in NA stores) offset by some negatives (entry level US consumer still choppy, Q1 benefitted from strong concentration of high end jewellery sales). Elsewhere we expect robust comps: 12% in Japan vs the exceptionally strong 21% in 1Q, 8% in Asia (in line with 9% of 1Q) and 5% in Europe.”
Goldman Sachs has taken a similar view of the stock, with a neutral rating and a $84.00 six month price target. Goldman sees long term potential in the company, but is cautious about near term earnings due to economic factors.
“Our enthusiasm for the long term is tempered by near-term earnings headwinds, including currency and an early-stage US turnaround effort, which we expect will limit upside to consensus estimates. Valuation looks appropriate to us at 20x forward P/E, generally in line with TIF’s long-term average and at parity with European luxury peers.”
TiVo Inc.
TiVo releases its second quarter earnings report on Tuesday, which is expected to show EPS of $1.12 on revenue of $73.62 million vs. last year’s $0.23 per share loss on revenue of $54.13 million.
The analyst team at Hudson Square Research maintained TiVo’s buy rating, but lowered their price target from $20 to $15.
“Following the conclusion of TiVo’s long standing patent litigation, the focus for TiVo ahead of 2Q earnings due after the close on 8/27 returns to fundamentals where we see as many challenges as we see opportunities. However, supported by a very strong balance sheet, we view TiVo’s enterprise value as low relative to recent growth in both MSO subscribers and margins.”
Joy Global Inc.
Joy Global is set to release its third quarter earnings on Wednesday with expected EPS of $1.35 on revenue of $1.18 billion, compared to last year’s EPS of $1.81 on revenue of $1.39 billion.
Goldman Sachs has maintained their neutral rating for the stock, but reduced their 12 month price target from $60 to $54: “We lower our 12-month price target to $54 from $60 prior based on 70% weighting to a fundamental value of $44 on unchanged 6.5x 2014E EV/EBITDA ($48 prior) and 30% weighting to our M&A value of $78 on unchanged 10.5x multiple ($85 prior).”
Goldman noted rising commodity prices and strong cost control as upside risks and capital deployment execution as a downside risk.
Campbell Soup Company
Campbell Soup will release its fourth quarter earnings on Thursday. The company is expected to report EPS of $0.41 on revenue of $1.84 billion, compared to last year’s EPS of $0.40 on revenue of $1.61 billion.
Jefferies gave the stock a hold rating with a price target of $44.00, noting that Cambell Soup Company is entering the final stages of negotiation to sell most of its European business to CVC Capital Partners.
“CPB announced today that it has entered into final negotiations to sell the majority of its European soup business ($530 million in revenue) to CVC Capital Partners after having been approached by the PE firm. The deal would include four manufacturing facilities and could close this quarter. Pepperidge Farm and Campbell’s U.K. business are excluded. It is the 4th major transaction for the company this year after the acquisitions of Bolthouse Farms, Plum Organics, and Kelsen Group. We see this deal as the next step in the co’s on-going transformation under CEO Denise Morrison to focus on millennial and int'l consumers, while protecting the core U.S. soup franchise.”
Meanwhile, Goldman Sachs took a more aggressive stance with a buy rating and a 12 month price target of $50.00, citing the company’s ability to diversify into higher growth areas once it has returned its core business to growth.
“CPB announced today that it has entered into final negotiations to sell the majority of its European soup business ($530 million in revenue) to CVC Capital Partners after having been approached by the PE firm. The deal would include four manufacturing facilities and could close this quarter. Pepperidge Farm and Campbell’s U.K. business are excluded. It is the 4th major transaction for the company this year after the acquisitions of Bolthouse Farms, Plum Organics, and Kelsen Group. We see this deal as the next step in the co’s on-going transformation under CEO Denise Morrison to focus on millennial and int'l consumers, while protecting the core U.S. soup franchise.”
Salesforce.com Inc.
Salesforce.com will also release its second quarter earnings report on Thursday, with expected an expected loss of $0.12 per share on $62.97 million worth of revenue. Last year the company reported a loss of $0.05 per share on revenue of $44.48 million.
Deutsch Bank gave the stock a Buy rating with a price target of $57.00, noting that the company’s guidance was conservative.
“Our PT is based on CY14E uFCF/share of $1.13 (unchanged), an EV/uFCF/G multiple of 1.2x (premium to peers), and a 38% post-dilution CF per-share growth from ‘14-’19. Primary risk factors include exposure to SMBs and their churn, slowing billings growth, challenges in managing rapid growth at scale, and execution risk from integrating acquisitions (ExactTarget, Buddy Media).”
Jefferies also issued a buy rating for the stock and increased their price target from $50.00 to $52.00 in order to reflect improvement in the software industry.
“We maintain our Buy on Salesforce.com. Our expectations are for an inline quarter, but we think a combination of better enterprise fundamentals, improved sales execution, new product launches and a positive impact from the ExactTarget acquisition set up for a positive F2H14. PT to $52.”
Key Economic Releases
Next week will be a big week for Europe as key economic data from the Eurozone and the UK hit the market. UK consumer credit, mortgage lending and mortgage approval relorts are all due out. In the eurozone, business climate data, industrial sentiment data, consumer confidence reports, and most notably, the unemployment rate are all set to be released. The US will provide consumer sentiment reports and personal spending and income reports. Japan will release Tokoyo CPI as well as National CPI.
Daily Schedule
Monday
- Earnings Expected From: Amira Nature Foods ANFI, Qihoo 360 Technology Co Ltd. QIHU
- Economic Releases Expected: Mexican Trade Balance, US Durable Goods Orders
Tuesday
- Earnings Reports Expected From: Bank Of Montreal BMO, Brown Shoe Company, Inc BWS, DSW Inc. DSW, Sanderson Farms, Inc. SAFM, Tiffany & Co. TIF
- Economic Releases Expected: US consumer confidence, German business climate index
Wednesday
- Earnings Reports Expected From: Joy Global Inc. JOY, Zale Corporation ZLC, Express Inc. EXPR, Williams-Sonoma, Inc. WSM
- Economic Releases Expected: US pending home sales, US crude oil inventories, New Zealand business confidence, German consumer climate
Thursday
- Earnings Reports Expected From: Campbell Soup Company CPB, 1-800 FLOWERS.COM, Inc. FLWS, Splunk, Inc. (NASDAQ, SPLK), Salesforce.com Inc CRM
- Economic Releases Expected: Japanese National CPI, Tokyo CPI, US GDP, Canadian current account, Spanish GDP, German unemployment rate
Friday
- Earnings Reports Expected From: Frontline Ltd FRO
- Economic Releases Expected: US consumer sentiment, US Personal Spending, US Personal Income, Canadian GDP, Spanish current account, Japanese housing starts, eurozone unemployment rate, eurozone consumer confidence, eurozone industrial sentiment
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