Benzinga Weekly Preview: OPEC, Iran On The Roster

Next week will bring about two very important deadlines for both OPEC and Iran.

On Monday, November 24, Iran and world powers have set a deadline to come to a conclusive agreement over Tehran’s nuclear capabilities. Comments from the negotiations have many betting that officials will extend the deadline to March as the two sides remain at odds over several critical issues. 

Also important will be OPEC’s meeting on November 27. The cartel is expected to decide whether to cut output after several weeks of division between its members. While some nations like Venezuela are calling for a supply cut to boost prices, others like Saudi Arabia would prefer to let the market correct prices. 

Key Earnings Reports

Next week investors will be waiting for several key earnings reports including Hewlett Packard Company HPQ, Gap, Inc. GPS, Hormel Foods Corporation HRL, Campbell Soup Company CPB and Tiffany & Co. TIF.

Hewlett Packard Company

Hewlett Packard is expected to report fourth-quarter EPS of $1.06 on revenue of $28.77 billion, compared to last year’s EPS of $1.01 on revenue of $29.13 billion.

On November 20, Credit Suisse gave Hewlett Packard an Outperform Rating with a $45.00 price target, saying that the company may suffer from depressed PC sales.

“We see PC's posting weak growth. According to Gartner C3Q14 data, PC unit growth was 1% y/y in the quarter, while HP units grew 4.5% y/y. We forecast F4Q14/F1Q15 PC revenue declines of 3.1%/4.3% with operating margins of 3.6%/3.0%, in line with the annual average. Our F4Q14E/F1Q15E Personal Systems revenues forecasts stand at $8.3bn/$8.2bn.”

On November 15, S&P Capital IQ gave Hewlett-Packard Co a Strong Buy rating with a $44.00 price target, saying that the company’s PC sales have begun to stabilize.

“Our Strong Buy recommendation reflects our view that fundamentals are stabilizing and valuation remains attractive. We believe that HPQ is seeing stabilization within its PC and printing markets, with a slow burn the most likely scenario, but will give HPQ ample time to execute on initiatives related to mobility, enterprise and software areas. Despite a still sluggish IT spending landscape, we expect improvement exiting calendar year 2014. We positively view free cash flow generation/balance sheet improvement and see further multiple expansion as HPQ executes on its turnaround strategy. We see new growth initiatives related to the cloud and big data.”

Gap, Inc.

Gap is expected to report third-quarter EPS of $0.76, compared to last year’s EPS of $0.72 on revenue of $3.98 billion.

On November 18, Mizuho Securities gave Gap an In-Line rating with a $47.00 price target, saying that more details about the company’s plans for Piperlime and Intermix are necessary in order to make a long term prediction.

“While GPS does not typically provide quarterly guidance, we believe updated FY14 guidance may imply 4Q EPS of $0.78 vs. $0.68 LY, in-line with our/consensus expectation. Our estimates embed comps of +1% vs. +1% LY as new product flow into Gap and BR supported by new marketing. Thus for FY14, we believe management will introduce guidance in the range of $2.75-2.80, roughly in-line with our $2.78 estimate and Street expectation of $2.82. We look for management to discuss longer term initiatives, including progress with omni-channel growth, improving the overall supply chain and speed to market and expansion of international growth. We also hope to glean additional details regarding the company’s 4th iconic brand, Athleta, as well as the growth of the newer brands Piperlime and Intermix.”

On November 6, Merrill Lynch gave Gap an Underperform rating with a $38.00 price objective, saying that the company’s margins are improving, but not enough to offset comps weakness.

“The company expects 3Q gross margin and operating expense for the quarter to be better compared to the guidance given in September. However, all brands posted a sequential deceleration from September’s comps. In particular, Gap brand decelerated the most to -7% from -3% last month. Old Navy held a flat comp profitably, which was the reason for a slightly stronger GM outlook. Management continues to cut costs wherever possible and this discipline was the primary reason for our estimate revision. We now expect SG&A to grow +3% versus prior guidance of +8%.”

On November 7, Credit Suisse gave Gap a Neutral rating with a $40.00 price target, saying that the company is suffering from weak demand as consumers are less and less likely to visit shopping centers.

“The Gap, Inc. remains under pressure from continued weak demand driven by traffic declines across mall environments and geographies. We are encouraged by GPS's announcement that gross margins are expected to be better than previously guided, but remain cautious given commentary across the specialty landscape of persistent, lagging demand. We reiterate our Neutral rating and lower our target price to $40 from $45. Our FY15 EPS estimates go to $2.73 from $2.95.”

On November 17, Morgan Stanley gave Gap an Equal-Weight rating, noting that the company’s holiday promotions look to be uninspiring.

“We question the efficacy of GPS's Gap brand Holiday marketing campaign. In addition, merchandise continues to appear lackluster, in our view.”

On November 15, S&P Capital IQ gave Gap a Buy rating with a $42.00 price target, saying that the company’s value chains are likely to attract cautiously spending consumers this holiday season.

“After a 3.2% increase in FY 14 (Jan.), we see net sales up 2.7% in FY 15, with flat to modestly higher same-store sales, and a planned 2.5% square footage growth with about 185 new company-owned stores (weighted toward China, Old Navy in Japan, Athleta and global outlets), and a closing of 70 underperforming locations (mostly Gap North America). We see GPS benefiting from cost-conscious consumers seeking out value at Old Navy, Gap Outlet and Banana Republic factory stores, and investment in core categories (e.g., denim at Gap). In FY 16, we see net sales up 4.7%.”

Hormel Foods Corporation

Hormel Foods is expected to report fourth-quarter EPS of $0.63 on revenue of $2.50 billion, compared to last year’s EPS of $0.58 on revenue of $2.32 billion.

On November 14, Credit Suisse gave Hormel a Neutral rating with a $57.00 price target, saying that the company likely has a strong year ahead.

“We expect the U.S. shift toward higher protein diets to continue to benefit Hormel's volume and margins. In Exhibit 1, we show the drivers behind our forecast for 15% operating income growth. This includes sticky pricing in pepperoni and lunchmeats, modest declines in hog costs as the PED virus subsides, skyrocketing commodity turkey prices, and a full year of lower grain costs. In addition, we expect $20M from the Cytosport acquisition and $20M in international growth.”

On November 15, S&P Capital IQ gave Hormel Foods a Hold rating with a $51.00 price target, saying that the company’s acquisition of CytoSport Holding Inc. could be a driver for growth in the future.

“In our view, expected broad-based improvement for HRL in FY 15 more than offsets our concern about possible near term pressure on pork costs from a virus that is affecting young pigs. We also have a favorable view of the company's July 2014 agreement to acquire CytoSport Holding Inc., producer of the largest brand in the ready-to-drink protein beverage category, for $450 million, pending customary closing conditions, including regulatory approval.”

Campbell Soup Company

Campbell Soup is expected to report first quarter EPS of $0.72 on revenue of $2.22 billion, compared to last year’s EPS of $0.66 on revenue of $2.16 billion.

On October 27, Merrill Lynch gave Campbell Soup a Neutral rating with a $45.00 price target following the company’s investor meetings.

“CPB is focusing its innovation behind maintaining a stable core business as well as driving new revenue growth streams, with products such as organic soups, expanding V8 vegetable base and Bolthouse items for kids. Key to achieving the balance between a stable core and new revenue opportunities, CPB will need efficiency in both COGS productivity and trade spend, which are critical elements for improved gross margin performance. Acquisitions are part of the long term mix, but we do not get the sense that anything is imminent.”

On November 17, Credit Suisse gave Campbell Soup an Under Perform rating with a $41.00 price target, saying that the company will likely get off to a rough start in 2015.

“While we expect a low quality start to the year for Campbell, we find ourselves no longer with a particularly differentiated view on the stock. Management has already lowered expectations considerably to only 0-2% EPS growth for FY 15 and the stock lacks high conviction backing by the Street. But we struggle to embrace Campbell as a contrarian call at a time when stagnant pricing and negative mix trends present such a challenge.”

On November 15, S&P Capital IQ gave Campbell Soup a Hold rating with a $43.00 price target, saying that recent acquisitions could help the company’s long term growth potential.

“We look for recent acquisitions to help bolster CPB's long term growth prospect. In 2013, the company acquired Plum Organics, a provider of premium, organic foods and snacks for babies and children, for $249 million. The company also expanded its international snack exposure with the acquisition of Kelsen Group for $325 million. We also expect CPB's overall future sales and profits to benefit from new or enhanced products, as well as restructuring activity including a program to improve its U.S. supply chain cost structure.”

Tiffany & Co.

Tiffany & Co is expected to report third-quarter EPS of $0.77 on revenue of $970.67 million, compared to last year’s EPS of $0.73 on revenue of $911.48 million.

On October 17, Merrill Lynch gave Tiffany & Co a Buy rating with a $115 price objective, saying that the improving economy in the U.S. has given the company’s sales a boost.

“Our Price Objective for Tiffany of $115 is based on a P/E multiple of 24x our F2015 EPS estimate. This represents a premium to the luxury peer group average. We think a premium is justified given reaccelerating U.S. trends, an immature business in key regions where other luxury companies are struggling to grow, and the outsized growth potential of watches and fashion jewelry versus peers. Risks to our PO: further deceleration in Asian and European comps, Yen headwinds, commodity cost increases, deteriorating health of the global luxury consumer.”

On September 10, Credit Suisse downgraded Tiffany & Co’s rating to Neutral with a $112.00 price target, saying that the firm sees slowing demand in 2015.

“We are downgrading TIF to Neutral and maintaining our Target Price of $112. Given increasing concerns of slowing demand trends out of APAC, we believe that opportunities for earnings upside are more limited in 2H and 2015. With multiples now above the historical median of 20x forward P/E, we believe share price appreciation from here will prove more limited as a result.”

On November 15, S&P Capital IQ gave Tiffany & Co a Hold rating with a $104.00 price target, saying that the company’s shares are fairly valued.

“We view the shares as reasonably valued at recent levels. In the six months ended July 31, 2014, worldwide same-store sales (on a constant-currency basis) increased 11%. By region, same-store sales rose 8% in the Americas, 9% in Japan, 10% in the U.A.E., and 9% in Asia-Pacific, but were down 5% in Europe. Through retail, product and marketing investments, we see TIF successfully growing its global high-end customer base, which is supporting strong sales of statement, fine and solitaire jewelry (i.e., higher priced jewelry with diamonds and/or other gemstones). We also believe TIF is attracting new customers through its lower priced fashion jewelry assortment.”

Economic Releases

Next week’s economic calendar will be packed with European data, including the highly anticipated CPI figures.

Daily Schedule

Monday

• Earnings Releases Expected: Workday WDAY

• Economic Releases Expected: Germany’s Ifo Business Climate survey, Italian trade balance, U.S. Services PMI

Tuesday

• Earnings Releases Expected: Analog Devices ADI, Brown Shoe Company BWS, Cracker Barrel Old Country Store CBRL , Campbell Soup Company CPB, DSW, Inc. DSW, Hewlett-Packard Company HPQ, Tiffany & Co TIF, TiVo Inc. TIVO, Valspar Corporation VAL

• Economic Releases Expected: German GDP, Italian retail sales, U.S. GDP, U.S. redbook, U.S. consumer confidence

Wednesday

• Earnings Releases Expected: Seadrill Limited SDRL, Renesola Ltd. SOL

• Economic Releases Expected: German consumer climate, Italian consumer confidence, British GDP, U.S. durable goods orders, U.S. consumer sentiment, U.S. new home sales, U.S. oil inventory data

Thursday

Markets Closed For Thanksgiving Holiday

Friday

• Earnings Releases Expected:: Abercrombie & Fitch ANF, ANN Inc. ANN, Buckle, Inc. BKE, Footlocker Inc. FL, Gap Inc. GAP, Sears Holdings Corporation SHLD

• Economic Releases Expected: Japanese housing starts, Eurozone consumer spending, Spanish current account, Eurozone unemployment rate, Eurozone CPI