Amazon is expected to announce plans for a new smartphone to compete against the likes of the iPhone and the Samsung Galaxy.
Amazon already has a successful line of hardware devices including the Kindle e-reader, the Kindle Fire tablet and a digital TV streaming box. Little is known about the new phone with the timing for production and sale yet to be determined.
Key Earnings Reports
Next week investors will be waiting for several key earnings reports including FedEx Corporation FDX, Jabil Circuit, Inc JBL, CarMax Inc KMX and BlackBerry BBRY.
FedEx Corporation
FedEx is expected to report fourth quarter EPS of $2.36 on revenue of $11.67 billion, compared to last year’s EPS of $2.13 on revenue of $11.44 billion.
On June 12, Merrill Lynch gave FedEx a Buy rating with a $160.00 price objective. The analysts at Merrill Lynch noted that the company has outperformed in the fourth quarter for five consecutive years, making it more likely that the company will deliver encouraging results.
“FedEx has topped Consensus EPS estimates in F4Q in each of the past five years, with its last miss in F4Q08 in the midst of the financial crisis. In contrast, FedEx has underperformed Consensus in three of the past five F3Q results. We believe any F4Q surprise is likely to be on the upside, given recent trends. Absent the severe weather impact in F3Q, which hit EPS by $0.27, our F4Q EPS target of $2.33 represents a 55% sequential gain, below historical trend. Alternatively, F4Q has historically represented ~32% of full-year EPS for FedEx. In the current year we estimate F4Q EPS will be 35%, given the weather impact earlier this year. We reiterate our Buy rating and $160 price objective, which is based on an 18.5x target multiple on our F2015 EPS estimate of $8.65. We believe FedEx can achieve a 30% annualized EPS growth over F2014 supported by its 32 million share (10%) buyback program and $1.7 billion profit improvement plan.”
On March 20, Credit Suisse gave FedEx a Neutral rating with a $136.00 price target, noting that the growth of commodity airfreight could hurt the company’s growth prospects.
“CEO Fred Smith noted that "the global express market continues to grow" and FDX continues to take share. But what has changed is commodity airfreight - which is squeezing door-to-door express. Indeed, to the extent that customers are willing to sacrifice a few extra days of transit, the packages "can be moved in [the] prolific underbellies" of passenger planes. However, the company remains bullish on global eCommerce, and has repositioned its network in order to move lighter weight deferred traffic into "the bellies of its partners," while "leaving very valuable, fast, and reliable 'purple tail fleet' available for higher yielding packages." In other words, FDX is being very selective with what it puts in its Express networks - taking on more IE, while pushing deferred shipments into FedEx Trade Networks.”
On May 27, Morgan Stanley gave FedEx an Equal-Weight rating saying that EPS estimates for the company are too high.
“Bearish call on disappointing guidance feels priced in. We’ve long argued that expectations for ~30%+ EPS growth in FY15 were too high (See Fast Track: The Question Investors Should Ask on FDX, 9/9/13 here). We still hold this view. But, with FDX range-bound for much of the past 6 months, valuation is at a point where we no longer find a tactical bearish call on earnings compelling. FDX’s forward P/E relative to S&P is inline with the 10-yr median, suggesting shares are currently fairly valued. Should shares overcorrect on disappointing guidance, our instinct would be to lean against the wind and increase positions in FDX shares in the low $130s.”
S&P Capital IQ gave FedEx a Buy rating with a $180.00 price target on June 7. The analyst team at S&P cited the company’s impressive profit improvement program as reason for their optimism.
“We are positive on FDX's profit improvement program, which seeks to add $1.7 billion to operating income by FY 16, with up to 75% of this target expected to be achieved by FY 15.We think the goal is realistic, using a combination of cost savings, efficiency improvements and incremental revenue-generating ideas. We also expect the company to benefit from improvement in the U.S. and global economies over the next year, which we believe will lead to increased volumes across FDX's entire network. We think the shares will benefit from increased investor interest in logistics stocks on concrete signs of economic improvement.”
Jabil Circuit, Inc.
Jabil Circuit is expected to report a third quarter loss of $0.09 on revenue of $3.60 billion, compared to last year’s EPS of $0.56 on revenue of $4.47 billion.
On March 19, Merrill Lynch gave Jabil a Buy rating with a $22.00 price objective, noting that Apple’s product cycle will likely drive growth as the company is expected to be a part of the new, larger iPhones.
“Management guided F15 EPS to $1.80 at the mid-point. While Blackberry, Aftermarket Services (AMS) and APPL mix issues are all large negative drivers for 2014, in our opinion, the large EPS reset has already baked in all of these, and we think there could be upside to 2015 guidance if Jabil executes well. We expect the AAPL business to get back up to prior levels, and ex-AMS and ex-Blackberry we see earnings power north of $2.00. See our detailed analysis (Figure 1) that gives us confidence into F15 earnings power. Reiterate Buy. Our checks suggest AAPL product ramps start as early as July; hence, in our opinion, the May quarter will be the trough quarter for Jabil in 2014. Once the ramp for the new iPhone is well underway (starts Aug qtr, full rate by Nov qtr), we expect DMS margins to substantially improve. We expect Jabil to participate in the 4.7” iPhone with potential upside if it participates in the 5.5” product speculated to launch later in the year. Over time, we see DMS margins back up to 6% range.”
On June 7, S&P Capital IQ gave Jabil a Hold rating with an $18.00 price target, saying the company has promising future growth prospects.
“Our hold opinion is based on our view of attractive valuation coupled with limited earnings visibility. We see increasing customer concentration, as Apple will account for a large portion of total sales after the BlackBerry loss and AMS sale. Over the long term, we believe that the company's success in new and less-cyclical markets will help support sales and margin growth.We are positive on the acquisition of Nypro Inc., which supplies the Healthcare, Packaging, and Consumer Electronics verticals. We expect JBL to use the $725 million ($675 million in cash) proceeds from the AMS sale for share repurchases and acquisitions.”
CarMax Inc.
Carmax is expected to report first quarter EPS of $0.67 on revenue of $3.60 billion, compared to last year’s EPS of $0.64 on revenue of $3.31 billion.
Merrill Lunch gave CarMax a Buy rating with a $67.00 price objective, cautioning that the outside factors like customer preferences and a lack of available credit could weigh on the company.
“Our price objective of $67 is based on about 25x our FY2016 EPS estimate. This is around the middle of the historical average for KMX during periods of growth, which is a stage that we believe CarMax should continue to experience over the next few years. Risks to our price objective are: 1) extreme fluctuations in used vehicle pricing, 2) an extensive trend of customers opting for entry-level new vehicles rather than late-model used, 3) deterioration in credit availability and decline in the ABS market.”
Credit Suisse gave CarMax an Outperform rating with a $58.00 price target on April 24, saying that new entrants into the used car space could create challenges for the company, but that the company remains a strong player in the market.
“In addition to Sonic Automotive’s previously announced intention to open multiple units, yesterday Asbury Automotive announced that they will open two units in Florida. While that may raise the competitive overstoring fear from investors, we view that as effectively a non-event for many reasons, with an overriding one being how fragmented the market currently is and the low market share KMX currently has. If there is a potential issue it will be if these two new chains focus on the 1-4 year old cars, which has been the sweet spot for KMX, with most dealers used segment more geared to older cars. However, with more cars coming off lease each year, we do not see any near-term bottleneck for supply. Putting the new entrants impact in context, combined the largest seven public auto dealers, including KMX, have a paltry 2.8% share of the U.S. used car market. There remains a significant percentage of cars sold in person-to-person transactions and at smaller used car dealers. We see this consolidating over time and while no one wants to see more capital coming into the sector, KMX sells more cars wholesale than any of the other six dealers sell to customers.”
Morgan Stanley was also optimistic about CarMax on June 6 and gave the company an Overweight rating. The analysts at Morgan Stanley see used car businesses benefiting from decreasing supply.
“The seasonally adjusted Manheim Index declined sequentially for the first time in five months in May to 124.7, although was up 4.7% y/y. The unadjusted off-rental index improved 5.3% y/y but was down 2.9% m/m (historically down ~1.6% m/m in May). Details: The average used vehicle price was $10,819, up 3.7% y/y. All segments with the exception of full-size cars (-16.7% y/y) gained y/y. Full size cars have now declined y/y for 33 straight months. Pickups gained for the 26th time in the last 29 months (+7.0% y/y), while vans posted the biggest y/y increase, up 8.4%.“
S&P Capital IQ gave CarMax a Hold rating with a $51.000 price target on June 7, saying that there is a possibility that the demand for used vehicles could be over estimated.
“Based on our calendar 2014 EPS, price to free cash flow and total enterprise value to EBITDA estimates, KMX recently traded at a premium to the average of publicly traded automobile retailers. We think a premium is warranted given KMX's better-than-peers net margins. Rising investment in new facilities will likely limit capital available for other purposes, but we still see ongoing share repurchases. Risks to our recommendation and target price include lower auto retailer valuation multiples. In addition, demand for and pricing of used vehicles could be weaker than we expect.”
Blackberry
Blackberry is expected to report a first quarter loss of $0.25 on revenue of $969.56 million, compared to last year’s loss of $0.13 on revenue of $3.07 billion.
Merrill Lynch gave Blackberry an Underperform rating with a $6.00 price target on March 28, saying that the company’s revenue is expected to continue eroding.
“Revenue of $976mn was below our $1.1bl and down 64% YoY. Device shipments of 1.3mn missed our 1.8mn and declined 78% YoY, driving hardware sales to $361mn, down 78% YoY. Service revenue of ~$547mn was down 42% YoY and 14% QoQ, in line with our forecast. Gross margin of 43.1% exceeded our 35.2% and was up 930bps QoQ due to cost reductions and mix while operating margins of (16%) were better vs. last quarter’ (35.1%) with opex down 30% QoQ owing to cost benefits, with EPS of ($0.08) vs. our ($0.54) and Street’s ($0.56) benefiting from one-time items. We are adjusting our forecasts accordingly. Maintain Underperform and $6 PO.”
On June 13, Credit Suisse had a similar opinion with an Underperform rating and a $6.00 price target. The analyst team at Credit Suisse noted that the company’s cash will likely continue to decline through FY15.
“For F1Q15, we are looking for revenue of $949mn (-69% yoy/-3% qoq) with GM of 37%, driving our EPS estimate of -$0.19, compared to the consensus estimates of $944mn of sales and EPS of -$0.17. FCF burn last quarter was at ~800mn. While the near term cash burn situation may improve with the recent $278mn sale of real estate holdings (lower than our $300mn estimate), the accelerating decline of services revenue (~-15% qoq) and the limited visibility of MDM remains a concern. As a result, we reiterate our underperform rating with TP of $6. Focusing on services and messaging, visibility remains low. While the company is trying to facilitate a transition to BES 12 by offering various promotional packages of its MDM platform, the declining subscriber base and ARPU trends coupled with secular hardware issues means the services stream will continue to see pressure. The market remains highly crowded and competitive making it challenging for the new MDM segment to make up the revenue loss from the traditional services business. We see services revenue of $468mn (-14.2% qoq) in F1Q15.”
On June 7, S&P Capital IQ gave BlackBerry a Hold rating with an $8.00 price objective, noting that the company is facing quite a few headwinds in the year to come despite the appointment of new CEO John Chen.
“Our hold recommendation on the shares reflects our concern regarding subscriber losses and difficulty in rebuilding enterprise relationships. BlackBerry recently agreed to sell $1.25 billion of convertible notes to a group of investors including Fairfax Financial. We believe the appointment of CEO John Chen is a positive for the company as BBRY transitions away from a hardware company to an enterprise mobile device management play. We expect the company to focus on physical keyboards, security, and monetizing software. However, we believe the company still has a long way to go to rebuild its relationships with enterprises, particularly those that have already left the platform.”
Economic Releases
With Stanley Fischer as the Federal Reserve’s new vice chairman and two new nominees confirmed to the Fed’s board, the US central bank’s meeting will be closely watched next week. After four weeks of $10 billion reductions to the bank’s monthly bond purchases, most expect the Fed to stay the course. However the new roster could shift estimates for the future of the bank’s interest rates.
Daily Schedule
Monday
- Earnings Releases Expected: No notable releases expected
- Economic Releases Expected: eurozone CPI, Swiss PPI
Tuesday
- Earnings Expected: Adobe Systems Incorporated ADBE, Bob Evans Farms, Inc. BOBE
- Economic Releases Expected: Chinese house prices, Japanese trade balance, US housing starts, US CPI, German ZEW economic sentiment, British RPI, British PPI, British CPI, Hong Kong’s unemployment rate, Italian trade balance
Wednesday
- Earnings Expected: Actuant Corporation ATU, FedEx Corporation FDX, Jabil Circuit, Inc. JBL
- Economic Releases Expected: New Zealand’s GDP, US current account
Thursday
- Earnings Expected From: Pier 1 Imports, Inc. PIR, IHS Inc. IHS, Blackberry BBRY, Kroger Company KR
- Economic Releases Expected: Russian unemployment rate, eurozone consumer confidence, US initial and continuing jobless claims, British retail sales, Spanish trade balance
Friday
- Earnings Expected From: CarMax Inc. KMX, Darden Restaurants, Inc. DRI
- Economic Releases Expected: German PPI, eurozone current account, Italian industrial sales
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