After a few weeks of uneventful earnings releases, some big names are reporting this week.
Here's what I'll be watching.
FedEx (June 25)
FedEx Corp. (FDX) has a five-year track record of solid revenue growth, improved margins, and strong profitability. More recently, though, the stock is getting pulled into the ongoing trade war between the United States and China. FDX is searching for a bottom right now, and these earnings might be what is needed.
Earnings per share increased 51% in fiscal 2018 (May) to $16.79 per diluted share.
Forecasting for fiscal 2019 is not on a GAAP basis, as the company cannot gauge certain expenses and the inclusion of adjustments made for retirement plan accounting. Excluding these items, guidance put forth by the company at the end of the last quarter included full-year 2019 earnings of $15.10 to $15.90 per diluted share.
It will be interesting to see how those adjustments factor into actual GAAP earnings.
Micron Technology (June 25)
Micron Technology (MU) was recently hit with a price target cut from J.P. Morgan Securities. The firm lowered its year-end target to $50 a share from a previous $64. The move seems well founded, as Micron is likely to suffer from the United States ban on Huawei products. J.P. Morgan noted that Huawei represented 13% of Micron's sales in the first half of 2019. The company will have a hole to fill in the second half.
Both revenues and subsequently net income declined by large margins in the last quarter. Revenue declined 21% to $5.84 billion. Net income was cut in half to $1.62 billion.
The trade war is definitely taking a big toll on Micron. Chip prices are down (it could be debated as to whether the tariff game is entirely to blame for that), while inventory keeps going up. In short, semiconductor stocks are kind of in a tough spot right now. Micron's guidance suggests an earnings decline of over 70% year over year to adjusted earnings of $0.85 per share.
Trading very cheap, I'd say the market has already largely factored in much of the bad news. Nevertheless, it's tough to see this as a good play right now.
Constellation Brands (June 28)
Constellation Brands (STZ) has had a lot going on.
First there's the exposure to the ever-developing Canadian cannabis industry through its investment in Canopy Growth CGC. Canopy Growth has reported some pretty big losses lately as it spends on infrastructure and production scale. Constellation recently announced it would be recording $106 million in losses related to Canopy Growth.
The stock had a nice boost in April after reporting the sale of some weak performing wine assets for $1.7 billion. The company beat estimates in the fiscal fourth quarter, reporting comparable earnings of $1.84 per share. Still, that was a year-over-year decrease.
Fiscal year 2020 (February) guidance included expectations for growth from the beer division, while wine and spirits are expected to decline on weakness. If operating income for the spirits segment does indeed decrease 35%, there will be more and more pressure on beer sales.
In all, it's going to be a question of how Constellation Brands manages its resources. If they can indeed free up room to focus on their high-growth brands after the sale of those weak wine brands, perhaps there's continued potential here.
In the short term, I'm a little worried that investor sentiment might be focused on its big exposure to Canopy Growth in a time when Canadian cannabis is getting questioned about demand concerns.