We are now starting to get into the meat of the first-quarter earnings season. And as I have projected for weeks, this is starting to stabilize the markets. Equities had a good last week and earnings results have largely been more solid to this point. The positive impacts from tax reform and a much lower corporate tax rate are being felt, especially for firms that get the majority of their business domestically.
Homebuilders like Lennar (LEN) have seen their effective tax rates slashed, for instance. The big homebuilding name crushed earnings expectations last week thanks both to good growth and an effective tax rate that will move from 34% in 2017 to 24% in 2018.
Financial earnings largely were slightly above expectations while revenues were mostly in-line. BlackRock (BLK) had a nice earnings beat.
Here are some smaller names I have my eye on this earnings season.
Let's start with Synchrony Financial (SYF) which reports first-quarter earnings next Friday, April 20. I look for the financial lender to post its third straight quarter of positive earnings surprises. The corporate tax cut should deliver almost a $1.00 a share of additional earnings in 2018. This stock is still relatively cheap at just over 10 times forward earnings. The company should probably announce a solid dividend hike after second-quarter earnings as well. Last year their payout went up 15% after second-quarter results were announced.
I think Lennar gave a nice prelude to the earnings tailwind homebuilders will have behind their back in 2018. TRI Pointe Group (TPH) could make it four quarters in a row if it beats both top and bottom-line estimates when it reports around April 25. Their effective tax rate should drop to 25% to 26% in 2018 which should boost earnings throughout the year. Another relatively cheap stock at just over nine times forward earnings.
My favorite homebuilder, LGI Homes (LGIH) , does not report first-quarter earnings until May. This name has been crushing expectations even before the tax reform was signed and I expect it to continue to do so. Revenue rose over 70% year-over-year within fourth quarter results. Home closings in the first quarter were up over 60%, so it is hard to imagine the company doing much but delivering great first-quarter results. Despite this growth, the stock sells just north of 11 times forward earnings.
Finally, I expect FireEye (FEYE) to continue to post results showing a turnaround is progressing at the internet security company when it reports early in May. My "top stock" pick for the year here on Real Money has had a solid 2018 so far. The shares have started to break out recently and Morgan Stanley lifted its price target as it sees the company lifting free cash flow by 12% annually through 2022. FireEye still makes a logical buyout target should M&A remain strong in tech space as well.
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