Walmart (WMT) has a lot of prove. The retail king has had a tough time of it lately. In the process of trying to stave off competitors like Amazon (AMZN) , while increasing revenue growth, Walmart has taken a hit to net income. The juggernaut still makes billions, but on an annual basis those billions have been declining. The trend is also true on a diluted earnings per share basis, which declined 25% in fiscal 2018.
Excluding the December correction, the stock has remained strong. This is largely thanks to the long-term performance of the company, and the loyalty that comes with it. Coupled into that is also the stabilization of earnings in the third quarter.
Walmart has spent a lot in R&D lately as it tries to gain a competitive advantage on eCommerce. I'll be interested to see whether those efforts paid off in terms of online sales growth. Another area of interest to me is the performance of its "order/pickup" initiative involving ordering your groceries online and picking them up at the store. I think this service offers a very competitive approach to counter grocery threats from Amazon.
Walmart will report earnings on Tuesday, Feb. 19.
Boston Beer (SAM) , the king of the craft beer revolution, has largely been a victim of its own creation in recent years. The Boston-based brewer has struggled to create meaningful sales growth thanks to the sheer number of competitors now in the craft beer industry -- competitors inspired by SAM's success. The stock is not cheap at roughly 31x forward earnings estimates, and I fear it will need some pretty fantastic results to coax investors to run this thing back into the $300 range.
To the company's credit they've done a great job renewing sales growth this year. Unfortunately, it has come with a pretty steep bill. The company's spending on advertising and marketing expenses which have driven down pretax income; meaning the company has relied largely on lower taxes and share buybacks to deliver increased earnings per share.
The company has a great balance sheet and retains an inherently good business, but the cost of growth is becoming an unresolved headache. I'll be curious to see whether expenses can be overcome.
Boston Beer will report earnings on Wednesday, Feb. 20.
Domino's Pizza (DPZ) should definitely be benefitting from the struggles occurring at Papa John's (PZZA) . When you look at the pizza maker's financials, they read like a textbook example of financial growth. Revenues have increased by more than 10% for the last five full years in a row. Net income grew a whopping 29.45% in fiscal 2017 to $277.91 million. In their next earnings report, it's a question of whether they finished out 2018 on that same momentum. My bet is we're going to see another quarter of big gains that cap off a good year.
The Catch 22 here is the brutally unattractive balance sheet. Domino's has a terrible amount of debt relative to its size. With $3.44 billion in long term debt, the pizza maker's equity is running a deficit of $2.97 billion. You have to sell a lot of pizza to make up that difference. Because of that debt, and the volatility of cash flow, I think there needs to be continued good news on the income statement simply to maintain the stock's momentum, rather than drive it higher.
Domino's will report earnings on Thursday, Feb. 21.
Zillow (Z) has a lot to prove. Investors finally got tired of waiting for returns over the past year and the stock has shown it. Revenues have increased substantially year after year, but Zillow hasn't made profitability a major priority. I've always been a bit skeptical of this one. Their service is pretty easily replicable, and the barriers to entry aren't very steep. What's to stop any big real estate company like Keller Williams from offering the same online services that complement their already established businesses? The answer is nothing at all.
Nonetheless, Zillow has remained a largely followed stock as earnings get closer and closer to meaningful income. The stock trades at high valuations relative to earnings estimates for not only 2018, but fiscal 2019 as well. To that end, I think the company can't disappoint if it wants its share price to stay steady. Then again, this one is so volatile that who can say for sure? A big surprise here could send the stock soaring next week. The inverse could cause chaos. Be prepared for anything if you want to trade Zillow next week.
Zillow will report earnings on Thursday, Feb. 21.