Benzinga Weekly Preview: Senate Elections Begin

Services PMI will be on the radar next week with several countries set to report. US data is expected to show that the nation’s service providers grew at the same pace in July as they did in June, yet another reason for markets to believe that the nation’s economy is ready for an interest rate hike. 

Also in the US, the Senate elections will begin with six states set to hold primaries. The battle between Republicans and Democrats for control will likely be heated as Republicans recently launched a lawsuit against President Obama, alleging that the president has used his executive power in order to bypass congress and make unilateral decisions to move his agenda forward.

Key Earnings Reports

Next week investors will be waiting for several key earnings reports including CVS Corporation CVS, Walt Disney Company DIS, American International Group, Inc AIG and 21st Century Fox FOXA.

CVS Corporation

CVS is expected to report second quarter EPS of $1.10 on revenue of $33.47 billion, compared to last year’s EPS of $0.97 on revenue of $31.25 billion.

On July 31, Credit Suisse gave CVS an Outperform rating, cautioning that the industry could see some headwinds in the long-term.

“While we see long-term headwinds for drugstores, the outlook for the stocks remains relatively good over the next couple of years given the next generic wave, ACA, and drug purchasing consolidation.  We remain positive on CVS as we see room for this well positioned, differentiated model to continue to take share and create value.”

Walt Disney Company 

Walt Disney is expected to report third quarter EPS of $1.17 on revenue of $12.17 billion, compared to last year’s EPS of $1.03 on revenue of $11.58 billion.

On July 30, Morgan Stanley gave Disney an $85.00 price target, noting that macroeconomic conditions could have a significant effect on the company’s growth.

“Our $85 PT implies a ~17x forward P/E. Downside risks include macroeconomic weakness negatively impact DIS, particularly the Parks segment, pay-TV cord-cutting remains a risk and ESPN programming rights costs grow quicker than expected. Upside risks include improving consumer sentiment driving strength in advertising, theme parks, and consumer products.”

On July 25, Macquarie gave Disney an overweight rating with a $93.00 price target, noting that Disney’s newest movie, Planes, has been lagging at the box office.

“Fox’s Dawn of the Planet of the Apes defended at top with $36m domestic against a $170m budget. This is a ~50% drop from its debut week, which is on par with its predecessor’s drop but better vs. other summer sequels this year that saw a +60% decline on their second weekends. Universal’s The Purge sequel enjoyed a solid debut at $30m against a $9m budget, while Disney’s Planes sequel missed with $18m (vs. predecessor’s $22m), against a $50m budget.”

American International Group, Inc 

American International Group is expected to report second quarter EPS of $1.06 on revenue of $8.13 billion, compared to last year’s EPS of $1.12 on revenue of $8.35 billion.

On July 17th, Sterne Agee gave AIG a Neutral rating with a $57.00 price target noting that the industry has been lackluster recently.

“Despite a fairly benign operating environment and reasonably strong equity market performance, we find most of our 2Q estimates are modestly below consensus. That said, given somewhat lackluster YTD stock performance across the group (particularly relative to the market), we think it would take more than a modest EPS shortfall to result in meaningful downside risk to individual names.”

On July 18, Macquarie updated its second quarter EPS estimate to $0.83, and reduced its 2014 EPS estimate to $4.50 from $4.60. 

“Following ALL’s June monthly cat pre-announcement as well as PTP’s Q2 results,which included adverse reserve development stemming from Costa Concordia loss re-estimates,we are revisiting our loss assumptions for Q2 results.”

21st Century Fox 

21st Century Fox is expected to report fourth quarter EPS of $0.39 on revenue of $7.97 billion, compared to last year’s EPS of $0.31 on revenue of $7.21 billion.

On July 28, Jefferies gave Fox a Buy rating with a $43.00 price target, noting that although the industry’s market has contracted, Fox’s recent sale has boosted its cash reserves.

“Nearly 1/3 of the way through the third quarter, the market has tightened somewhat, but it seems like the current level of demand is consistent with a scenario where there is too much inventory in the market. BSkyB's purchase of Sky Italia and Sky Deutschland from 21st Century Fox for $9.3B should not come as a surprise, though it does provide certainty around FOX's cash position and should help increase the offer for TWX.”

On July 24, Maquarie gave Fox an Outperform rating with a $37.00 price target, noting that the company has been dominating the broadcast ratings recently.

“Broadcast week ending 7/20: FOX won Week 42 for live + same day ratings in the 18-49 demo (1.4, 0.0%YoY), helped by the MLB All-Star game delivering a 3.2 ratings average. CBS and NBC tied for second place with 1.1, both down 8.3%. ABC followed with 0.9, flat YoY, and the CW stayed in last place with 0.2, down 50.0%.”

On July 28, Nomura increased Fox’s price target from $39.00 to $41.00. The analysts at Nomura see the media sector as relatively stable as many of the drivers for growth remain in tact despite the macroeconomic weakness.

“On a longer-term basis, we believe the growth drivers in Media remain intact if not well-known, those being:1) visible affiliate fee and retransmission fee growth; 2) international growth for both Film/TV Studio and pay-TV content; and 3) steady capital returns (for most).”

Economic Releases

Next week the focus will shift to Europe where both the Bank of England and the European Central Bank will hold their policy meetings. After data showed that eurozone inflation dropped even lower in July, the ECB will be under even more pressure to ease further. However, most aren’t expecting the bank to make any policy moves just yet, and instead wait to see how June’s easing package will affect the region’s economy.

Daily Schedule

Monday

• Earnings Releases Expected: Cardinal Health, Inc. CAH, American International Group AIG, Marathon Oil Corporation MRO, Avis Budget Group, Inc. CAR, Pioneer Natural Resources Company PXD
• Economic Releases Expected: British construction PMI, Eurozone PPI, Australian trade balance

Tuesday

• Earnings Expected: CVS Corporation CVS, Walt Disney Company DIS, Emerson Electric Company EMR, MGM Resorts International MGM
• Economic Releases Expected: Reserve Bank of Australia interest rate decision, Spanish services PMI, Italian services PMI, French services PMI, German services PMI, eurozone services PMI, British services PMI, eurozone retail sales, US services PMI

Wednesday

• Earnings Expected: 21st Century Fox FOXA, Agrium Inc. AGU, Chesapeake Energy Corporation CHK, Viacom Inc. VIAB, DISH Network Corporation DISH
• Economic Releases Expected: German factory orders, Italian industrial production, British industrial and manufacturing production, Italian GDP, US oil inventory data
• Thursday
• Earnings Expected From: Duke Energy Corporation DUK, BCE, Inc BCE, Intercontinental Exchange Inc, ICE
• Economic Releases Expected: European Central Bank interest rate decision, Bank of England interest rate decision, German industrial production, Spanish industrial production, US consumer credit, Japanese current account

Friday

• Earnings Expected From: Magna International, Inc. MGA, Brookfield Asset Management Inc. BAM, Buckeye Partners L.P. BPL
• Economic Releases Expected: British trade balance, Chinese CPI