$BA Earnings

Boeing will report Q3 results before the bell tomorrow (released results last quarter at 7:30am ET). The co has a conference call scheduled to follow at 11:30am ET. 

Cap IQ Consensus estimates Q3 EPS of $2.62 (vs. $2.52 in 3Q15) w/revs of $23.60 bln ( -8.7% y/y).

In the Q2 earnings release, co lowers FY16 EPS to $6.10-6.30 from $8.15-8.35 vs. the $8.50 consensus; reaffirms FY16 revs of $93-95 bln vs. the $93.84 bln Consensus; reaffirms 740-745 commercial airplane deliveries but lowers operating margin to 4.5-5% from 9%.

BA was initiated with an Outperform at Robert W. Baird; tgt $161. Firm believes the FCF dynamic at BA continues to be underappreciated especially with $25 billion in FCF being generated during 2017-19 with ~$17 billion available for buybacks after dividends. Ramping build rates, seven-year backlog visibility with record low deferral rates, stable R&D costs, and productivity improvements lend to returning significant cash to shareholders. Their price target is $161 based on 11x their 2018 FCF estimate. Buying the pullback in BA shares as bear points priced in at current levels (October 6th).

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Boeing reports Q3 (Sep) results, beats on revs; reaffirms FY16 EP ex-tax benefit; raises rev on higher commercial deliveries  

• Reports Q3 (Sep) earnings of $3.51 per share, including $.98 in favorable tax items, may not be comparable to the Capital IQ Consensus of $2.62; revenues fell 7.5% year/year to $23.9 bln vs the $23.6 bln Capital IQ Consensus.
• Co issues reaffirms guidance for FY16, sees EPS of $6.10-6.30 ex-$0.70 favorable tax adjustment vs. $6.29 Capital IQ Consensus Estimate; raises FY16 revs $500 mln to $93.5-95.5 bln vs. $94.04 bln Capital IQ Consensus on higher commercial deliveries: to 745-750 from 740-745. 

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Call Notes

• Co anticipates modest U.S. Federal defense spending growth in the next five years.
• Regarding the 747 program, the co is encouraged by modest recovery in the air cargo market.
• Co delivered 188 commercial airplanes in the quarter. 
• Defense, space and security orders valued at $6 billion with a backlog of $53 billion
• 38% of business comes from customers outside of the United States.
• Co paid $700 mln in dividends, repurchased 51 million shares during the quarter for a total of $6.5 billion.
• So far in 2016 co has added 17 net new 777 orders, on track to transition to 7 per month.
• Encouraged by recent Qatar airways decision for 10 777s. 
• Co will provide FY17 guidance during the Q4 earnings call.

Slicing the Competition ($AAPL Earnings Preview)

Apple, will report Earnings after Tuesday's close.

• Investors are anxious to see what type of sell-through Apple has achieved with its new iPhone 7 and what the company says about demand expectations for the fiscal first quarter, which will encompass the holiday selling period
• Shares of AAPL have surged 21% since the company's better-than-feared fiscal third quarter report in July.  Investors will have higher expectations from AAPL's earnings which provides guidance. Failure on either front could lead to some material downside for the stock, which would act as a major drag on the broader market.

Expectations have ratcheted up in recent weeks on the back of Samsung's disclosure that it has stopped production, and sales, of its Galaxy Note 7

• International sales accounted for approximately 60% of revenues in fiscal 2015, so investors will be looking for remarks on global demand trends and the impact of foreign exchange
• Apple is the most heavily-weighted stock in the market-cap weighted S&P 500, the most heavily-weighted stock in the market-cap weighted Nasdaq 100, and the seventh highest-priced stock in the price-weighted Dow Jones Industrial Average, so it clearly has market-moving capability
• With a huge installed base of Apple products around the globe (iPhone, iPad, Mac, iTunes, iPod, and Apple Watch), the company's performance is watched closely as a gauge of consumer spending activity
   

Key Earnings Items

• Any color on the iPhone 7 release as a demand driver
• Average selling price and gross margin trends
• Apple's ability to monetize its installed base (viewed through revenue growth in the services businesses)
• The performance of its "Other Products" (Apple Watch, iPod, and Apple Pay)
• The performance, and outlook, for its three largest geographic regions
  • Americas segment accounted for 40.2% of net revenue last year
  • Greater China accounted for 25.1% of net revenue last year (China is seen as company's most important growth market)
  • Europe accounted for 21.5% of net revenue last year
     

Stocks Affected
 

Smartphones

• Samsung (SSNLF)
• Blackberry (BBRY)
   

Component suppliers

• Broadcom (AVGO; Apple more than 20% of fiscal 2015 net sales)
• Cirrus Logic (CRUS; Apple was 72% of fiscal 2015 sales)
• InvenSense (INVN; Apple 30% of fiscal 2015 net sales) 
• Qualcomm (QCOM) 
• NXP Semiconductors (NXPI)
• Micron Technology (MU)
• Analog Devices (ADI)
• Skyworks Solutions (SWKS)
• On Semiconductor (ON)
• Western Digital (WDC)
• Seagate Technology (STX)
   

Wearables 

• Fitbit (FIT)
• Garmin (GRMN)

Wireless carriers 

• AT&T (T)
• Verizon (VZ)
• T-Mobile (TMUS)
• Sprint (S)
• China Mobile (CHL)
   

Related ETFs

• PowerShares QQQ ETF (QQQ)
  • AAPL is top-weighted holding at 10.77% of assets
• SPDR S&P 500 ETF (SPY)
  • AAPL is top-weighted holding at 3.24% of assets
• SPDR Dow Jones Industrial Average ETF (DIA)
  • AAPL is tenth-weighted holding at 4.22% of assets
• Technology Select Sector SPDR ETF (XLK)
  • AAPL is top-weighted holding at 13.56% of assets

 

Uncharted Waters Week of 8/29/16

Many individuals like to make predictions and like to try their luck with where they think the market will head. I try to avoid that game and simply trade what I see. Though last week was the first week where it "felt" like we may be heading lower it certainly won't be the last. That said, there are still plenty of strong stocks out there and relinquishing gains will not come easy for the bears this go around. As far as indexes go, I'm focusing primarily on the IWM and the NASX as they've been the leaders of late. 

INDEXES

STRENGTH STILL REMAINS:

EARNINGS

Two names you want to keep your eye out for tomorrow are PANW and VEEV. PANW has seen UOA as of late and VEEV has been a serial performer as of late. 

WEAKNESS POTENTIAL

ULTA & SPLK have been strong until their earnings report last week. Look for signs of continued roll over or for a new base to form.

Click here to listen to my podcast and learn about my theory on the similarities between relationships and the stock market

Electric Overdrive ($TSLA Earnings)

Tesla (TSLA) will report Q2 results in shareholder letter on its website after the bell and host a call at 17:30.

Tesla is expected to report Q2 non-GAP EPS of ($0.65) vs. ($0.48) last year with non-GAAP rev up 38% to $1.65 bln.

• Tesla delivered 14,370 vehicles during Q2 vs. 17,000 guidance. Production came in 18,345 vehicles vs. 20,000 guidance.
• Tesla said it will produce and deliver 50,000 vehicles in the second half of the year, which effectively lowered 2016 delivery guidance to just under 80K (79.2K) from 80-90K previously.
  • Prior FY16 guidance also called for 30% non-GAAP Model S gross margin and 25% Model X non-GAAP gross margin by year end, cap-ex $2.25 bln and non-GAAP op-ex +20-25%.         

Tesla has consistently missed production and delivery targets.

• Still, Tesla investors look at the big picture as demand for its electric vehicles remains strong.
• There is a great deal of skepticism that Tesla will hit its increased (and seemingly impossible) production plan: 500K Model S, X & 3 vehicles by 2018.
• July 26: Mobileye (MBLY) announces its relationship with Tesla won't go beyond its current EyeQ3 chip. 

The stock has been very resilient despite added risks as investors give Elon Musk the benefit of the doubt.

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Nice Tan ($FSLR Earnings)

First Solar (FSLR) is set to report earnings tonight after the close with a conference call to follow at 4:30pm ET. FSLR reports at 4:05pm.

Current Capital IQ consensus stands at EPS of $0.55 on Revenues of $862 mln.

The FSLR revenue recognition model makes it extremely difficult for analysts to provide accurate quarterly estimates.  The company has been able to handily beat EPS expectations by an average of $1.03. Revenue has been a little less friendly with two big misses and three big beats over the past five quarters.

The annual projections remain the primary focus for the underlying health of the company and that is where we will be looking to judge the overall performance and outlook. Shares of FSLR have had a difficult 2016. The stock got out of the gates strong hitting a two year high of $74.29 on March 18. But the shares have tumbled 33% since that high water mark.

2016 Guidance

• Net Sales $3.8-4.0 bln was reaffirmed in Q1
• Gross Margin 18-19% (Prior 17-18%)
• Operating Expenses $380-400 mln (Reaffirmed)
• Operating Income $300-370 mln (Prior $260-330 mln)
• EPS $4.10-4.50 (Prior $4.00-4.50)
• Net Cash Balance $1.9-2.2 bln (Reaffirmed)
• Operating Cash Flow $500-700 mln (Prior $400-600 mln)
• CapEx $300-400 mln (Reaffirmed)
• Shipments 2.9-3.0 GW (Reaffirmed)

TECHS:

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CAR Accident ($CAR Earnings)

Avis Budget (CAR) is set to report Q2 earnings tonight after the close with a conference call to follow tomorrow morning at 8:30am ET. CAR reported Q1 results at 4:15pm. Current Capital IQ consensus stands at EPS of

Shares of CAR have had a solid run since reporting Q1 results in early May. The co missed its EPS by 22 cents but revenues were in line and, most importantly, it guided FY16 revenue above the consensus. The primary driver, and what attracted investors, was commentary from the company that it was starting to see a turn around in the pricing environment for the troubled car rental business.

This stock fell from the $50 area in October of 2015 all the way to $22. So the recent upward trend allowed the stock to recapture approx 55% of its losses. But we are seeing the stock under pressure today as it has given up nearly 5% ahead of today's report. Shares are down approx 12% over the past week. This suggests that investors remain cautious on the name and are taking profits after buying low.

CAR will need to show a continued improvement in pricing to entice more investors into the name. It does have some solid support below at the 200-sma ($31.90) and the $33-34 area which both linger just below. Also we would keep an eye on Hertz (HTZ) which will trade closely with CAR on the news.

Key Metrics

• Pricing- CAR expects it to decline 1% in FY16. Pricing in Q1 declined by 5% so investors are looking for a deceleration in the price decline.
• Rental Days- FY16 guidance is for this to increase 2-4%. Rental Days increased by a healthy 8% in Q1.
• Per Unit Fleet Costs- Expected to be $280-290 per month in 2016. This figure ran hot in Q1 as it came in at $312 per month, up 6% y/y.

Guidance

• Co expects FY16 EPS in the range of $2.70-3.30, excluding non-recurring items, vs. then-$2.97 Capital IQ Consensus Estimate. Revenue is expected to come in the range of $8.75-8.90 bln which was an upgrade from the prior outlook of $8.70-8.85 bln vs. then-$8.7 bln Capital IQ Consensus.
• Car reaffirmed its FY16 EBITDA expectations of $820-900 mln.
• The Company also expects that it will generate $450 to $500 million of free cash flow in 2016, and that it will repurchase $300 to $400 million of common stock in 2016.

Q1 Recap

• CAR reported Q1 (Mar) loss of $0.28 per share, excluding non-recurring items, $0.22 worse than the Capital IQ Consensus of ($0.06). Revenues rose 1.7% year/year to $1.88 bln vs the $1.88 bln Capital IQ Consensus, +3% in constant currency, primarily due to an 8% increase in rental days (5% excluding the acquisition of Maggiore).
• First quarter Adjusted EBITDA was $44 million.
• Results benefited from increased rental volumes, offset by reduced pricing, higher per-unit fleet costs and a $33 million negative impact from currency movements, including losses on currency hedges.

Click here to listen to my podcast and learn about my theory on the similarities between relationships and the stock market.

Daily Dose ($VSI Preview)

Vitamin Shoppe will report Q2 results tomorrow morning 

• Vitamin Shoppe (VSI) will report Q2 results tomorrow morning and host a call at 8:30.
• VSI is expected to report Q2 EPS of $0.59 vs. $0.57 last year with rev +2.6% to $330.7 mln on ~flat comps.
• Co previously guided for FY16 adj. EPS of $2.25-2.45 with comps flat to up in the low single digits.
• VSI was testing resistance near the $32 level when peer/competitor GNC (GNC) missed Q2 comp estimates and suspended earnings guidance last week.
• VSI has quickly fallen to support near the $8 level ahead of this report.

Click here to listen to my podcast and learn about my theory on the similarities between relationships and the stock market.

Just A Little Bit ($FIT Earnings)

Fitbit (FIT) is set to report Q2 results tonight after the close with a conference call to follow at 5pm ET. FIT reported Q1 results at 4:05 pm. 

Current Capital IQ consensus stands at EPS of $0.11 on Revenue of $577.9 mln.

Shares of FIT have been building a base in this $12-14 area since reporting Q1 results back in early May. The stock is attempting to press above its 50-sma (13.40) ahead of tonight's report.

Shares of FIT were able to rally to the $18 level ahead of Q1 results but weak Q2 guidance led to some profit taking and selling in the name. The Q2 EPS outlook of $0.08-0.11 was well below the $0.27 Capital IQ consensus at the time as higher investments in the company are taking its toll on the bottom line. FIT is expected to provide an update to its Q3 guidance on the call but expectations will be low as plans to launch new products in Q4 will have an impact on channel orders int he quarter. So an update to FY16 might be the more meaningful item to watch. If FIT were to see a negative response to a cautious Q3 outlook we would keep an eye on the FY16 guidance as that may provide more insight into the direction of FIT.

Key Metrics

• Revenue Growth- This has been declining over the past four quarters as economies of scale take its toll. But investors would like to see this steady ahead of the Q4 holiday season. Current Capital IQ consensus is calling for a 44% increase y/y. Revenue growth over the past four quarters has been Q1- 50.1%, 4Q15- 92.2%, 3Q15- 167.7%; 2Q15- 252.5%.
• Margins- Gross Margin is expected to rebound to 48.0% in Q2. Q1 saw it fall 320 bps to 46.6%; EBIT Margin fell to 7.3% from 27.5% as higher operating expenses weighed heavily on the bottom line.
• Inventory- Q1 saw inventory pick up 54% (compared to the 50% revenue increase). With churn to new products expected in Q3 investors will be closely watching how well this was managed.
• Devices Sold- FIT sold 4.8 mln devised in Q1.

Guidance

• Q2
  • FIT issued mixed guidance for Q2, seeing EPS in the range of $0.08-0.11 vs. then-$0.27 Capital IQ Consensus Estimate. For revenue FIT forecast Q2 revs of $565-585 mln vs. then-$535.17 mln Capital IQ Consensus Estimate.
  • Non-GAAP Gross Margin expected to be 48.0%.
• FY16
  • FIT revised its EPS expectations higher which might point to only a temporary increase in operating expense as it ramps up delivery of new products. For FY16 it raised its EPS outlook to $1.12-1.24 (Prior gudiance was $1.08-1.20), excluding non-recurring items, vs. then-$1.13 Capital IQ Consensus Estimate. FIT also raised its FY16 revenue outlook to the range of $2.5-2.6 bln (Prior $2.4-2.5 bln) vs. then-$2.45 bln Capital IQ Consensus Estimate.
  • Non-GAAP Gross Margin was reaffirmed to be in the range of 48.5-49.0% (Reaffirm).

Q1 Recap

• FIT reported Q1 (Mar) earnings of $0.10 per share, excluding non-recurring items,$0.07 better than the Capital IQ Consensus of $0.03. Revenues rose 50.1% year/year to $505.4 mln vs the $440.03 mln Capital IQ Consensus.
  • U.S. comprised 70% of 116 revenue; EMEA 15%, APAC 11%, and Other Americas 4%
  • U.S. revenue grew 33% year-over-year; EMEA 113%, APAC 142%, and Other Americas 74%
  • Fitbit Blaze and Alta, selling a million units each in the latter part of the quarterQ

Click here to listen to my podcast and learn about my theory on the similarities between relationships and the stock market.

Alphabetical Order ($GOOGL $GOOG Earnings Preview)

Alphabet (GOOG, GOOGL) is set to report Q2 results tonight after the close with a conference call to follow at 4:30pm ET. 

Current Capital IQ consensus stands at EPS of $8.04 on Revenue of $20.77 bln.

• Q1 GOOGL saw one of the top and bottom line misses (GOOGL does not guide) but the strength of its core business remained evident and a pick up in revenue at some of its 'Other' business units was encouraging for investors. Growth trends remain positive in mobile search, YouTube, and programmatic which should help drive results. Investors would like to see GOOGL produce a beat similar to FB.
• The stock has been trying to break out ahead of the report as expectations are high. GOOGL will need to meet these expectations in order to rally back to the $800 level for the first time since February.
• With regards to FB it should be noted that GOOGL's forward P/E stand at 19.3x compared to 25.2x for FB. As arguably the two best tech companies on the planet at the moment these valuations will be watched closely

Key Things to Watch

• Revenue Growth
• Operating Margins
• Aggregate Paid Clicks- Q1 was down 3% q/q and up 29% y/y; Q4 increased 22% on Google Sites.
• Q4 Aggregate Cost-Per-Click- 
• U.K. Exposure

TECHS:

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Click here to listen to my podcast and learn about my theory on the similarities between relationships and the stock market.

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Like Me ($FB)

Facebook (FB) is set to report Q2 results tonight after the close with a conference call to follow at 5pm ET. 

Current Capital IQ consensus stands at EPS of $0.82 on Revenue of $6.00 bln.

• Revenue Growth- Q1 revenue growth was 51.8%; Q4 saw revenue accelerate to 52% compared to 40% in Q3 and 39% in Q2.
• Advertising Revenue- Q1 increased 57% y/y to $5.2 bln; Q4 came in at $5.637 bln which was also up 57% y/y.
  • Mobile Advertising Revenue- Mobile advertising revenue represented approximately 82% of revenue in Q1 compared to 80% in Q4. This is expected to see a small uptick.

Q1 Recap

• FB reported Q1 (Mar) earnings of $0.77 per share, $0.15 better than the Capital IQ Consensus of $0.62; revenues rose 51.8% year/year to $5.38 bln vs the $5.26 bln Capital IQ Consensus.
  • See key metrics above.
• FB also announced its proposal of a new class of stock so look for some updates on this on the call.

• Why it's important
  • Ad spending drives Facebook's top line, accounting for 97% of the company's revenue in the first quarter.  Facebook, therefore, is watched closely as a barometer for how advertisers are spending and where they are allocating their advertising budgets.
  • Facebook is a leadership stock for the Nasdaq and Nasdaq 100
  • The company and its stock serve as guides for the enthusiasm surrounding the growth of social media
     
• What Facebook said after its first quarter earnings report in April
  • Daily active users (DAUs) were 1.09 billion on average for March 2016 (+16% year-over-year); mobile DAUs were 989 million on average for March 2016 (+24% year-over-year)
  • Monthly active users (MAUs) were 1.65 billion as of March 31, 2016 (+15% year-over-year); mobile MAUs were 1.51 billion (+21% year-over-year)
  • The average price per ad increased 5% in the first quarter while total ad impressions increased 50% (strong growth in mobile ad impressions)
  • Will face tougher comparisons in 2016 given the acceleration of ad growth in 2015
  • Guidance
    • Non-GAAP expense growth of ~45-55% year-over-year
    • Amortization will be $700 million to $800 million
    • Stock-based compensation to be $1.1 billion to $1.3 billion in 2016
    • Sees capex at the high end of $4.0 billion to $4.5 billion range previously provided
    • Second quarter and FY16 tax rates should be similar to first quarter
       
• Other Stocks to Watch
   
  • FB
  • Alphabet (GOOG/GOOGL)
  • LinkedIn (LNKD)
  • Yelp (YELP)
  • PowerShares QQQ Trust (QQQ)
  • Global X Social Media Index ETF (SOCL)
    • FB is third largest holding at 9.37% of assets
  • S&P futures

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Click here to listen to my podcast and learn about my theory on the similarities between relationships and the stock market.

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RESULTS:

Swipe Right on BAE ($MTCH Earnings Preview)

Match Group (MTCH) will report Q2 results after the bell and host a call at 8:30am tomorrow. 

• Analysts are looking for Q2 adj. EPS of $0.16 with adj. EBITDA +37% to $88.8 mln and sales +16.5% Y/Y to $296.8 mln.

• Match guided for Q2 dating rev +4-5% Q/Q to ~$270.8-273.4 mln with a dating EBITDA margin in the low to mid-30% range vs. 26% in Q1.

• MTCH flirted with all-time highs last week and is up almost 50% since reporting strong Q1 results after its first public quarter disappointed investors in early February.
• Match dominates the online dating market in the US (with Match, OK Cupid and Plentyoffish) but Tinder is the real gem.
• The total dating business (91% rev mix) generates sales through premium (paid) members (direct revenue) and advertising (indirect rev).
• Total direct Q1 rev was up 23% as total paid member rose 36% to 5.08 mln.
• Last quarter, Tinder added 219K paid members to hit 1.02 mln (+27% Q/Q) and said it was on pace to double paid member count (PMC) this year (to 1.6 mln).
• Tinder continues to add features to its matching app to drive engagement and monetization.
• Indirect (advertising) rev accounted for just $11.4 mln (4%) of dating revenue.
  • In March, Match hired an advertising veteran to run the nascent indirect revenue (advertising) business.
• Match will be careful to roll out an advertising product that does not disrupt engagement at Tinder.
• Roughly 27% of the float is sold short and IAC (IAC) still owns 84.7% of the company after floating it (IPO) in November of last year.

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