Worries about military action in Syria eased this week after the UK voted against joining the US in launching a military strike in order to punish Syrian Prime Minister Bashar al-Assad for his alleged use of chemical weapons. Although the US has backed off a bit, the possibility of an attack is still very real. French officials warned that a military attack could come as soon as Wednesday next week.
The Federal Reserve’s tapering schedule will also come into focus next week. Bets are still on for September as revised GDP data and positive jobs data both indicated that the US economy could be ready to stand on its own. Since the decision to begin cutting back won’t be made until September 18th, speculation will continue to drive markets. Payrolls data due out next week will play a large role in investors’ assessment of the US economy’s strength.
Key Earnings Reports
Next week investors will be waiting for several key earnings reports including Finisar Corp. FNSR, Mattress Firm Holding Company MFRM, Dollar General Corporation DG and Verifone Systems, Inc. PAY.
Finisar Corp.
FInisar is expected to have EPS of $0.31 on revenue of $266.04 million, compared to last year’s EPS of $0.12 on revenue of $220.53 million.
Goldman Sachs has given the stock a neutral rating and raised their 12 month price target to $21.00. The increased price target reflects Goldman’s confidence in better gross margins and the recent expansion of its peers.
The analyst team at Goldman also noted that Finisar’s revenue has been primarily driven by growth in Datacom.
“Finisar’s 1Q revenue outperformance relative to our estimates was driven all by Datacom (69% of revenues; +12% qoq and +32% yoy) with Finisar citing particular strength in 10/40/100G Ethernet transceivers. While we do not believe that 30%+ yoy Datacom revenue growth is sustainable for an extended period of time, 10/40/100G Ethernet is still in the early stages of installed base penetration.”
Jefferies took a more cautious stance on Finisar with an underperform rating and increased their price target to $11.50.
“FNSR trades at 17x our CY14 EPS estimate, a slight premium to industry peer JDSU (15x).Our new PT is $11.50, up from $8.00, which reflects an 10x P/E multiple -- reasonable in our opinion given FNSR's relatively lower medium-term growth profile. Risks: 1) limited business visibility; 2) customer concentration 3) M&A risks; 4) technological risk.”
Mattress Firm Holding Company
Mattress Firm Holding Company is expected to report second quarter EPS of $0.51 on revenue of $322.6 million, compared to last year’s EPS of $0.42 on revenue of $262.02.
Piper Jaffray gave the stock an overweight rating with a $48 price target. The company noted that risks for Mattress Firm Holding Company include pricing, competition, store expansion, integration of new acquisitions and macroeconomic conditions.
Piper Jaffray noted how increased advertising spend in the industry could play into the company’s earnings:
“Importantly, increased national advertising from both TPX and SCSS should reinvigorate mattress industry traffic trends in 2H, which in turn would be a healthy positive for MFRM. MFRM appears to be turning a corner on its AUP trend, which has run negative y/y for the last 4 quarters. However, the decline in advertising from TPX over the last year appears to have weighed on traffic trends. The notable pick up in ad spend in 2H should drive traffic to MFRM and, if the AUP trend holds, drive an improving comp trend at MFRM for 2H.”
The analyst team at Wedbush took a similar position and gave Mattressfirm an outperform rating with a $45 12-month price target.
“Well-integrated acquisitions on track to contribute positively to 2013. With this accomplishment mostly completed, including higher sales productivity and profits, as well as fixed staffing issues, management is fully focused on driving total company sales and profits. The company’s relative market share growth strategy is unchanged, with growth plans in new and existing markets, as well as opportunistic acquisitions. Our longer-term growth rate forecast for the company is in the 20-25% range (10-15% square footage growth, midsingle-digit comps, and operating margin expansion) implying a discount to our revised earnings forecast for 2013 (21x) and 2014 (17x).”
Dollar General Corporation
Dollar General is expected to report EPS of $0.74 on revenue of$4.36 billion, compared to last year’s EPS of $0.69 on revenue of $3.95 billion.
JP Morgan has increased Dollar General’s rating from neutral to overweight with a price target of $64.00. The company cited stability in capital allocation as the reason for its upgrade.
“We are upgrading Dollar General to Overweight ($64 PT) given a sustainable mid-teens+ EPS compounding growth story unfolding today and shares flat over the past year (vs. SPX +18% since August 2012). Near term, our store work points to recent signs of stability (bucking the overall retail trend-rate) on both the topline and margin front (pricing/promotions) with easing 2H compares on tap (240bps below 1H), potential early inning trade-down, and successful tobacco launch (100bps+)”
Merrill Lynch took a more aggressive stance and gave Dollar General a buy rating even though the business’ exposure to low income customers and an increase in competition will pose risks to the company.
“We remain positive on DG (Buy; PO $65), despite nearer-term pressures from increased competition, exposure to lower income consumers and the expansion of lower margin consumables and tobacco. We believe DG can easily double its store footprint, and its Plus and Market store concepts expand its reach beyond core markets. We also believe the company will continue to successfully execute initiatives to improve margins including private label/direct sourcing and inventory localization.”
Verifone Systems, Inc.
Verifone is expected to announce third quarter EPS of $0.49 on revenue of $9.66 billion, compared to last year’s EPS of $0.73 on revenue of $9.35 billion.
Goldman Sachs gave the company a neutral rating with a 12 month price target of $18.00. Goldman underscored the company’s long-term potential, but expressed that several risk factors played into near-term caution.
“Although Neutral rated, we remain optimistic about PAY’s long-term positioning as it remains one of the few direct investments exposed to a multi-year terminal adoption and upgrade cycle resulting from the global growth of electronic payments and rapid changes in point-of-sale (POS) technology. In the near-term, however, our view is tempered by several factors including product certification, distribution challenges, and valuation, which we believe suggests limited near-term upside. Looking ahead, we expect the shares to take their cues from the following: 1) Improved product certification and distributor execution. 2) International revenue growth in key EM segments. 3) Traction on recent operating initiatives. 4) New CEO announcement.”
Deutsch Bank was less optimistic about the stock, giving it a sell rating with a $13.00 price target. The analyst team at Deutsch Bank cited product certifications, distribution issues and competition as obstacles keeping the company from increased growth.
“After reporting an estimated -10% organic rev growth in 2Q13, we believe PAY will likely report a further decline in organic growth in 3Q13 continuing to show a deterioration in the fundamentals. With two acquisitions closed in 2Q13 (EFTPOS New Zealand Ltd and Sektor), PAY should benefit an estimated $9M in new acquisition rev this qtr. PAY continues to be plagued by product certifications, distribution issues, and competitive pressures, forcing the company to cut price last qtr (impacted gross margins).”
Key Economic Releases
Central banks around the world will meet next week, including the European Central Bank, the Bank of England and the Bank of Japan. None of the three are expected to make any major policy changes, but investors will be focused on what the central bankers say about their direction in the future.
US non-farm payrolls data will likely have an impact on markets as investors will look to the figures to judge whether or not the Fed will begin tapering in September. Chinese PMI data will also be an anticipated release as investors look for further clues that the nation’s economy is stabilizing.
Daily Schedule
Monday
- No Notable Earnings Releases Expected
- Economic Releases Expected: Australian retail sales and current account data, Brazilian trade balance, Hong Kong’s retail sales, manufacturing PMI data from China, France, Germany, the UK, Spain and the eurozone as a whole.
Tuesday
- Earnings Expected From: H&R Block, Inc. HRB, AxoGen, Inc. AXGN, Intercontinental Hotels Group IHG
- Economic Releases Expected: US Construction Spending, US PMI data,
Wednesday:
- Earnings Expected From: Dollar General Corporation DG, Ciena Corporation CIEN, Overland Storage, Inc OVRL
- Economic Releases Expected: US ISM Non- Manufacturing Index, Services PMI data from China, Japan. Spain, Italy, France, Germany, the UK and the Eurozone as a whole.
Thursday:
- Earnings Expected From: Finisar Corporation FNSR, Verifone Systems, Inc. PAY,
- Economic Releases Expected: US factory orders, US jobless claims
Friday:
- Earnings Expected From: Mattress Firm Holding Corporation MFRM
- Economic Releases Expected: German construction PMI
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