There are a lot of earnings releases scheduled for this week from big names companies. Sifting through, these are the ones I'll be watching:
Charles Schwab (July 16th)
Charles Schwab (SCHW) stock has had a rough run of it this year. It's a fascinating turn of events, as the company actually has some of the best annual growth rates that you'll find in terms of revenue and earnings growth. The discount broker has a great balance sheet, and I can't help but feel there's some long term potential here that's getting clouded by short term concerns. Forecasts for the year have the company putting together about $2.68 in earnings per share. That would give the stock a forward P/E ratio of around 14.8x forward earnings. The catch there is concern over the effects that a cut in interest rates could have on brokerages like Schwab.
Domino's Pizza (July 16th)
Domino's (DPZ) has indeed created incredible returns for shareholders. In the last five years the stock has grown by nearly 286%. Revenue growth has been remarkable, and earnings are simply nothing short of consistently strong. Of course, there is a catch to everything. Domino's big hiccup is the balance sheet. To own DPZ stock is to essentially own shares in an income statement. That's all Domino's is. The company actually has an equity deficit on the balance sheet of over $2 billion. In contrast, the stock has a market capital of $11.6 billion. In summation, the pizza maker cannot stall in terms of sales and earnings, as they are essentially all this stock value is composed of. Every quarterly report is important.
Netflix (July 17th)
Netflix (NFLX) will likely continue to be judged by the balance between financial performance and user subscription growth. The streaming giant is beginning to face more and more competition. Disney (DIS) is getting more and more involved with its control of Hulu, and its pending streaming service "Disney Plus". Recently, NBC, or basically Comcast (CMCSA) , announced "The Office" was leaving Netflix in 2021, as there will be an NBCUniversal streaming, service of its own.
This rising plethora of competitors within streaming is definitely altering the timeline that Netflix has. The company is going to face higher scrutiny over both user growth, and financial performance, now that it isn't the only game in town. I have often been critical of Netflix for its poor cash flow situation. The company spends millions on its content creation, and with competitors now beginning to block access to their content, I suspect the problem will only worsen through time. Rather than simply earnings per share, I'll be watching cash flow and user growth in this week's earnings release.
UnitedHealth Group (July 17th)
I was naively bullish on UnitedHealth Group (UNH) at the beginning of the year. I failed to take into account how much attention health based companies will receive as the rhetoric over medical costs increases going into the presidential election. Stocks like UNH are going to be stuck on the roller coaster no matter what they do financially. The fear is warranted. If (and this is a big if) the far left were to somehow take control of both the executive and legislative branches, there could be a very real push to overhaul our healthcare system. Do I believe much would come of it? No, I do not. Based on how poorly the execution was when the Republican Party attempted to introduce large changes to healthcare back in 2016, I'm skeptical that any group within Congress has the organization to accomplish much on healthcare.
Nonetheless, health insurance companies face a very real threat. UnitedHealth Group has some of the most consistent quarterly reporting in terms of continued growth. Ironically, I don't think the stock's performance will coincide with those numbers of the next 18 months. I think they'll be weighed on by campaign polling, media rhetoric, political rhetoric, and everything in between. Because of this, I think the scrutiny on any earnings weakness will be even more critical. If you own UNH, you better pay close attention. While earnings continue to show strength, the stock is underperforming the S&P 500 by a large margin.
(Disney, Comcast and United Health are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells DIS, CMCSA or UNH? Learn more now.)
