Earnings Week Ahead: Walgreens Boots Alliance, Constellation Brands and Acuity Brands in Focus
With the stock market ending 2021 on a strong footing, investors will carefully monitor the latest news on the rapidly spreading Omicron coronavirus to see how it affects the U.S. economy and earnings in 2022. The following is a list of earnings slated for release January 3-7, along with a few previews. Although next week’s earnings are unlikely to have much of an effect on major market movements, it is sufficient to gauge investors’ sentiment.
- Monday (January 3)
- Tuesday (January 4)
- Wednesday (January 5)
- Thursday (January 6)
- Friday (January 7)
Monday (January 3)
No major earnings are scheduled for release.
Tuesday (January 4)
|SGH||Smart Global Holdings||$1.74|
Wednesday (January 5)
Thursday (January 6)
IN THE SPOTLIGHT: WALGREENS BOOTS ALLIANCE, CONSTELLATION BRANDS
WALGREENS BOOTS ALLIANCE: The blue-chip pharmaceutical name is expected to report its fiscal first-quarter earnings of $1.22 per share, which is unchanged from the same period a year ago. The Deerfield, Illinois-based retail pharmacy provider’s revenue is predicted to slump more than 9% to around $32.9 billion.
The company has been able to beat earnings per share (EPS) estimates most of the time in the last two years. According to ZACKS Research, for the full-year earnings to be $4.91 per share and revenue of $131.5 billion.
“Walgreens Boots Alliance operates a top 2 retail pharmacy chain in the US as well as Boots Pharmacy in Europe. The new Health Segment, guided to contribute as much as 60% to LT EPS growth in FY25 and beyond, carries significant investment requirements and integration risk. Management’s inexperience in healthcare could cause growing pains,” noted Ricky Goldwasser, Equity Analyst at Morgan Stanley.
“Risk of core operations slipping as focus increasingly shifts to healthcare.”
CONSTELLATION BRANDS: Beer and wine seller is expected to report its fiscal third-quarter earnings of $2.82 per share, which represents year-over-year growth of nearly 9% from $3.09 per share seen in the same quarter a year ago.
The New York-based Fortune 500 international beverage alcohol company revenue is predicted to slump more than 6% to around $2.28 billion. The company has been able to beat earnings per share (EPS) estimates twice in the last four quarters and revenue in all four.
According to ZACKS Research, for the full-year earnings to be $10.01 per share and revenue $8.64 billion.
“While Constellation Brands historically made its bones as a winery and distillery, we now view the firm as one of the most stellar brewers across our global coverage. After parlaying AB InBev’s antitrust quandary (as it sought to acquire Mexican brewer Grupo Modelo) into exclusive U.S. ownership rights to brands like Corona and Modelo, we see the firm’s overall Mexican beer portfolio as auspiciously situated at the confluence of unwavering secular and demographic trends. With an enviable growth profile and best of breed margins, we have confidence that the beer business can thrive even amid an evolving industry landscape,” noted Jaime M. Katz, Senior Equity Analyst at Morningstar.
“The firm’s outlook is not completely rosy, particularly with its wine and spirits business in flux. It has divested lower-quality brands as it places more intentionality behind its “high growth, high margin “long-term strategy, but the remaining brands (such as Meiomi, Kim Crawford, Svedka vodka, and High West craft whiskey) will still face rife competition. Constellation’s foray into explosive-growth categories like hard seltzer are also demanding nontrivial investment, given the competitive intensity and brand equity already built up by the incumbents. Nevertheless, we believe the experience of the management team will allow the firm to navigate these risks.”
Friday (January 7)
IN THE SPOTLIGHT: ACUITY BRANDS
The lighting and building management firm is expected to report its fiscal first-quarter earnings of $2.2 per share, which represents year-over-year growth of over 17%, up from $1.87 per share seen in the same period a year ago.
The Atlanta, Georgia-based company would post year-over-year revenue growth of more than 11% to around $ 880.24 million. The company has been able to beat earnings per share (EPS) estimates most of the time in the last two years.
“We remain constructive on Acuity’s product breadth, top-notch agent channel, and leadership in control integration. This positioning should allow the company to outperform the market, even when macro challenges present themselves. The company boasts a 40%+ gross margin and has a strong cash flow generation profile,” said Jeffrey Osborne, equity analyst at Cowen in Oct 6 research note.
“As macro conditions improve we expect more large-scale higher-margin projects will begin to move off the sidelines. This should help to further support the company’s margin profile longer term. We believe that Acuity is differentiated relative to its peers and has an early lead in the intelligent building market thanks to its Distech and Atrius products. Longer-term, we see an opportunity in the UVC germicidal market and believe the company is well-positioned given its many partnerships in the space.”
What to Expect in the Markets in 2022
In 2021 the S&P 500 has returned more than 15% for the third straight year, investors have to wonder whether there will be any more upside in the stock market over the coming year. The S&P 500 have risen about 27% last year, and the index’s P/E ratio is above its long-term average, which raises concerns about overbought conditions. A forward price-to-earnings ratio of 21.3 significantly exceeds the long-term average of 15 for the S&P 500.
In addition, earnings are expected to slow down this year after a strong 2021. In light of the newly hawkish U.S. Federal Reserve and the ever-evolving virus, analysts and investors are having a difficult time gauging the future direction of the stock market.
With the high inflation rate, investors are facing more uncertainty as they attempt to justify record stock prices, and the fast-spreading new Omicron variant is putting an end to the optimistic hopes that the global economy would improve by 2022.
“We expect solid economic and earnings growth in 2022 to help U.S. stocks deliver additional gains (this) year. If we are approaching—or are already in—the middle of an economic cycle with at least a few more years left (our view), then we believe the chances of another good year for stocks in 2022 are quite high. We believe the S&P 500 could be fairly valued at 5,000–5,100 at the end of 2022, based on an EPS estimate of $235 for 2023 and an index P/E between 21 and 21.5,” noted Ryan Detrick, CMT, Chief Market Strategist, LPL Financial.
“Prospects for above-average economic growth and accompanying earnings gains in 2022 point to another potentially good year for stock investors. While the pandemic is not completely behind us as the COVID-19 Omicron variant spreads rapidly (though with a high proportion of mild cases), and there are several other risks to watch, particularly inflation, stocks have historically done well in mid-cycle economies. We do not expect 2022 to be an exception,” LPL Financial’s Detrick added.
Jurrien Timmer, Fidelity’s global macro director, believes that stocks are poised to deliver positive returns in 2022, but not as much as they did this year, due to a slowdown in earnings growth and a tightening of monetary policy by the U.S. Federal Reserve.
“Since the brief-but-sharp 35% decline almost 2 years ago, US stocks have risen to record highs, thanks in part to the timely and massive fiscal and monetary policy response to COVID-19 and the resulting lockdowns,” noted Jurrien Timmer, director of global macro in Fidelity’s Global Asset Allocation Division.
“Now as 2022 begins, I expect the markets to mean-revert back to trend-like growth, and for the Fed to take the first steps on the road back to a neutral monetary policy,” he added.
As stock market trends continue to change rapidly in the pandemic world, it is becoming increasingly difficult to predict future stock performance, especially with analysts and investors dealing with hawkish central banks, on the one hand, and the risk of a further economic shutdown on the other.
According to a stockmarket.com report, three FAANG stocks will be closely watched this year. In the context of the broader stock market’s recovery, tech stocks are once again in focus. Among the most successful stocks in the sector, the FAANG stocks shine brightest as S&P 500 companies with a tech component make up a large portion of the index. In case you’re not familiar, this group of stocks includes Meta Platforms (formerly known as Facebook), Amazon, Apple, Netflix, and Google’s parent company Alphabet will be in focus in 2022.