Article / 23 June 2017 at 9:31 GMT

Earnings Watch: Q2 earnings season just around the corner

Head of Equity Strategy / Saxo Bank
Denmark
  • Q2 earnings season is still a few weeks away
  • Reports already due from some companies that do not adhere to the calendar year
  • Results due in the coming week from 19 of the 2,000 companies that we track
  • Thursday, June 29, will bring results from H&M, Nike and Micron Technology 
  • Investors likely to focus on Q2 revenue growth as an excuse to bid up global equities

Nike and Adidas shoes
 The sports shoe business is a tough contest. Photo: Shutterstock

By Peter Garnry

Earnings reporting activity is still low as we enter the final week of June, but the second-quarter earnings season starts in only three weeks. In the meantime, earnings are arriving from companies that do follow the calendar year in their reporting. Next week, 19 companies, among the 2,000 that we track during earnings season, will report quarterly results, with Nike, Micron Technology and H&M being the most interesting names.

Earnings rebounded in Q1

The first-quarter earnings season is now complete, and the growth rate in operating income ended at 10% year-on-year as the drag from commodity prices and the US dollar ended. Revenue growth is still the lowest in more than two years, and, with operating income rebounding, investors will likely focus on revenue growth in Q2 as the excuse to bid up global equities even more.

S&P 500 EBITDA growth




















H&M in growth comeback?

Last year was the most disappointing year for Swedish clothing retailer Hennes & Mauritz (H&M) since 2011, with revenue growth falling to only 6.3% and falling even further in Q1. Operating margins have been under pressure since 2010, and the stock has only returned 18% over the past five years, compared with 101% for the OMX index. Our quant model scores H&M around zero, with the most positive factors being value and reversal factors. 

The company is scheduled to report Q2 results on Thursday at 0600 GMT. EPS is estimated to be SEK 3.39, up 5% y/y and revenue of SEK 51.7 billion, up 10.2% y/y.

Nike has lost its glow

Once one of the hottest stocks on Wall Street back in 2015, sports shoe and apparel group Nike has now underperformed its peers and the stock market for 18 months. Over the past five years, the stock has lagged the consumer discretionary sector and only outperformed the S&P 500 by 0.4% annualised.

The biggest drag on Nike's performance has come from top-line growth slowing down and, more critically, in its home market, whereas rival Adidas is gaining market share. Due to slowing growth, investors have grown increasingly worried about valuation. Our quant model scores Nike -0.15, which is rather poor, driven by very negative momentum relative to the industry and an above- industry valuation. 

The company reports Q4 earnings on Thursday after the close. EPS is expected to be $0.50, up 2% y/y, and revenue is seen at $8.6 billion, up 5% y/y.

Micron shares close to new highs

Since the massive collapse in its share price from its November 2014 peak to the lows in March 2016, Nasdaq-listed chipmaker Micron Technology's stock is up more than 300%, and in the past five years it has returned 427%, against 134% for the technology sector. Operating margins remain attractive and are expanding again, and demand is solid. Our quant model scores Micron Technology as low as -0.45 despite its attractive valuation and strong price momentum. 

The company is due to report Q3 results on Thursday after the close. EPS is estimated to be $1.15, up from $0.18 a year ago. Revenue is seen at $5.4 billion, up 87% y/y.

Below are the full overview of the most important earnings next week.

Earnings watch list
 Source: Bloomberg and Saxo Bank
 

H&M first store in Västerås, Sweden
 H&M's first store in Västerås, Sweden. Photo: H&M corporate website


— Edited by John Acher

Peter Garnry is head of equity strategy at Saxo Bank

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