These Companies Just Slashed Their Earnings Guidance — Should You Buy?

The stock market triumphed in 2023, delivering a stellar rebound since hitting a low in 2022. The benchmark S&P 500 index crossed the 4,700 mark for the first time in nearly two years on Dec. 15 and has gained over 23% year to date. This is significantly higher than the index's average annual return rate of 10%. 

But Wall Street maintains a pessimistic earnings outlook for companies for the fourth quarter of fiscal 2023, as the hawkish interest rates and economic headwinds weigh down on their growth prospects. The estimated earnings per share for S&P 500 companies for the fourth quarter have declined by 5.8% since Sept. 30, according to FactSet Research Systems Inc. 

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Of the 111 companies in the index that have issued earnings per share (EPS) guidance for the fourth quarter, 72 have presented negative guidance, while 39 have offered positive guidance. The percentage of S&P 500 companies issuing negative EPS guidance for the fourth quarter stands at 65% (72 out of 111), surpassing both the five-year average of 59% and the 10-year average of 63%.

Take a look at some of the large-cap companies that recently slashed their earnings outlook. 

Boeing

Boeing Co. BA, one of the largest aircraft manufacturers in the world, slashed its total production outlook for the fiscal fourth quarter ending Dec. 31. However, shares of Boeing stock have gained momentum in the near term, surging over 36% year to date. 

The bullish outlook comes despite the company's slashed production guidance announced in late October, as it currently plans to deliver 375-400 workhorse airplanes this year, down from the previous guidance of 400-450. Boeing reported a loss of $678 million from operations for the fiscal third quarter ended Sept. 30. 

Boeing is enjoying strong market demand, as German airline Lufthansa ordered 40 airplanes, with an option to purchase an additional 60 in the future. This marks Lufthansa’s first purchase of Boeing aircraft in approximately three decades.

UBS Group, the largest bank in Switzerland, has a Buy rating on Boeing stock with a price target of $315, indicating a potential upside of nearly 21%. 

FedEx 

Shares of FedEx Corp. FDX, one of the world's largest logistics companies, have risen by over 43% this year. While the company benefitted from strong spending levels over the past year, macroeconomic headwinds are expected to impact FedEx's growth prospects in the near term. 

“We expect revenue will continue to be pressured by volatile macroeconomic conditions negatively affecting customer demand for our services across our transportation companies,” FedEx stated in a Dec. 19 regulatory filing. 

As a result, FedEx shares plummeted by over 11% over the past five days. 

However, as the Federal Reserve is expected to slash interest rates next year, consumer spending is expected to strengthen again in the near term, which could boost FedEx's revenue and bottom line. 

Stephens & Co. has an Overweight rating on FedEx, with a price target of $320, indicating a potential upside of nearly 30%. Barclays also has an Overweight rating on FedEx with a price target of $310, indicating a potential upside of over 25%.

Lululemon 

Lululemon Athletica Inc. LULU, one of the most popular athleisure brands in the U.S., has benefitted from the strong retail demand over the past few months. The company's revenue amounted to $2.2 billion in the third quarter ended Sept. 30, beating the consensus estimate of $2.19 billion. 

Black Friday was the "single biggest day" in Lululemon's history, according to CEO Calvin McDonald. However, the growth prospects for the fourth quarter are susceptible to market volatility, according to C-suite executives.

"We're pleased with the trends we've seen at the start of the holiday season. That being said, the majority of the quarter remains in front of us," Lululemon Chief Financial Officer Meghan Frank said on an earnings call. "We remain aware of the uncertainties in the macro environment, and we continue to plan a business for multiple scenarios."

Lululemon stated that it foresees fourth-quarter sales to range from $3.14 billion to $3.17 billion, falling slightly below Wall Street’s estimate of $3.18 billion. In addition, the company issued earnings per share guidance in the range of $4.85 to $4.93, lower than the consensus EPS estimate of $4.80 to $5.19. 

Despite the short-term fluctuations, analysts are bullish on Lululemon, as Stifel has a Buy rating on the stock with a price target of $596, indicating a potential upside of over 16%. 

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