Bulletin
Investor Alert
Jeff Reeves

Jeff Reeves's Strength in Numbers Archives | Email alerts

Oct. 19, 2019, 11:23 a.m. EDT

Three company earnings reports that are better than you thought — and three that are worse

A deeper look reveals a different story for six companies

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    S&P 500 Index (SPX)
  • X
    Netflix Inc. (NFLX)
  • X
    Walt Disney Co. (DIS)

or Cancel Already have a watchlist? Log In

By Jeff Reeves, MarketWatch

1 2

Nike

Longtime investors of Nike Inc. /zigman2/quotes/203439053/composite NKE +1.06% know that the company has a habit of topping earnings forecasts, but a beat in its most recent report was particularly good news after a rare miss on the bottom line in the prior quarter. That helped allay some fears, and has caused a nearly 10% rally for Nike stock over the past month or so.

But investors shouldn’t get complacent. It’s easy to write off Nike’s miss earlier this year — the first time since 2012 — as a blip on the radar thanks to currency challenges. However, volatility in foreign exchange markets and uncertainty regarding tariffs and trade wars are not going away. Throw in the recent spat between the NBA and China and you see even more risk for this athletics giant.

Furthermore, the prior miss followed two quarters of decelerating earnings growth. A trend of plateauing profits amid these big-picture risk factors should not be simply shrugged off, then, after the latest earnings beat.

Nike’s stock has a much better trend line than either Netflix’s or Domino’s stock, with the shares currently up against a new 52-week high. However, investors may want to be cautious as we enter an important holiday shopping season.

Three earnings reports that were better than you thought

Goldman Sachs

Goldman Sachs Group Inc. /zigman2/quotes/209237603/composite GS -0.09% has been in the news for all the wrong reasons lately after its lackluster earnings report. Beyond missing earnings forecasts and barely meeting the mark on revenue, weakness in its investing and lending division has hinted to some that this dealmaker is doomed to struggle, and that after one year on the job, CEO David Solomon still hasn’t provided a clear path to growth.

But naysayers may want to be more patient with Solomon. His key initiative of a massive internal review of the bank’s operations hasn’t happened quickly, but it is crucial to get this right instead of plot a hasty strategy. Furthermore, we’ve already seen signs of long-term vision as Goldman commits cash to new ventures in retail banking and corporate cash management in an effort to diversify operations. Managing the deposits of multinational mega-cap companies isn’t as sexy as underwriting a hot tech IPO, but it’s precisely the kind of measured strategy that will serve Goldman in the long run.

It’s hard to see the forest for the trees, though, amid headlines that Goldman struggled last quarter in part because its investments in sexy names like ride-sharing giant Uber Technologies /zigman2/quotes/211348248/composite UBER +0.82% or biotech supplier Avantor Inc. /zigman2/quotes/212247284/composite AVTR +3.18% . That hints at near-term trouble for both Goldman as well as for some of these newly minted stocks that have failed to live up to expectations.

But Goldman isn’t as bad as you think. The transformation away from reliance on deals like this will take time, and the massive brand power and global reach of this bank will see it through.

Levi

When you think about consumer brands on the upswing, Levi Strauss & Co. /zigman2/quotes/204763189/composite LEVI -2.55% probably isn’t on the list. There’s tough competition for high-end jeans, and ever since stock IPO’ed earlier this year it has been stuck in a steady downward spiral.

But don’t let the initial disappointment in Levi after its March IPO scare you out of this stock. The brand still matters, and the fact that Gen X icons like Beyonce and Justin Timberlake are rocking Levis are proof that it can still be “old-school cool.”

And perhaps most bullish of all, Levi is at the forefront of a push for sustainable and ethical clothing practices, something the industry has struggled with in recent years. For instance, Levi has developed specialized lasers to distress jeans instead of using the child labor and harsh chemicals its competitors rely on to create that stylishly disheveled look. There’s also a dual-class structure that favors family owners and allows them to take a long-term view instead of managing the company quarter to quarter.

Sure, there are short-term pressures because of a trade war and the possibility of waning retail sales in key markets. And Wall Street hasn’t had much reason to celebrate this stock right out of the gate after mixed second-quarter earnings in July and more recent challenges from in-line third-quarter earnings in early October.

But between a long-term focus on sustainability and the steady resurgence of 1980s and 1990s pop culture themes, a period that was the heyday of Levi’s and Dockers, there’s a lot to like about Levi stock. Earnings haven’t been nearly as bad as share prices indicate, and patient investors may want to give this stock a second look.

Micron Technology

Micron Technology’s /zigman2/quotes/205710729/composite MU +0.26% stock fell hard after earnings with a double-digit decline, owing to weaker-than-expected guidance. However, simply giving up on the chipmaker may be too hasty as there are also signs that a rebound is in the works in 2020 for the sector, and for Micron in particular, which is seeing “solid” demand growth, according to its CEO.

It’s no secret, after all, that things have been soft for chipmakers in the past year or so as a multi-year run has cooled off in a big way and short-term pops on acquisitions are now a thing of the past. But the supply-and-demand balance has improved after consolidation and cutbacks, and data-center demand is again showing signs of life after a recent Morgan Stanley report showed an uptick in expected server and storage sales .

Excess inventory and a general slowdown have weighed on Micron’s stock since its 2018 highs, but the shares have recently come back to life with a roughly 40% rally since summer lows. While disappointing guidance is not ideal, reasons remain to be optimistic about the longer-term trend for chip sales across 2020 since they bottomed out in the last year.

As proof, consider that in September a J.P. Morgan analyst raised his price target to $65 — 40% upside from here — based on an improving demand environment. This proves that, despite short-term volatility, you may not want to give up on Micron’s stock just yet despite the big move down after earnings.

Jeff Reeves is a MarketWatch columnist.

/zigman2/quotes/203439053/composite
US : U.S.: NYSE
$ 98.43
+1.03 +1.06%
Volume: 5.36M
July 2, 2020 4:00p
P/E Ratio
62.32
Dividend Yield
1.00%
Market Cap
$151.46 billion
Rev. per Employee
$529,466
loading...
/zigman2/quotes/209237603/composite
US : U.S.: NYSE
$ 197.40
-0.17 -0.09%
Volume: 2.70M
July 2, 2020 4:00p
P/E Ratio
10.72
Dividend Yield
2.53%
Market Cap
$67.94 billion
Rev. per Employee
$1.34M
loading...
/zigman2/quotes/211348248/composite
US : U.S.: NYSE
$ 30.68
+0.25 +0.82%
Volume: 14.98M
July 2, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$52.77 billion
Rev. per Employee
N/A
loading...
/zigman2/quotes/212247284/composite
US : U.S.: NYSE
$ 17.53
+0.54 +3.18%
Volume: 5.59M
July 2, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$9.77 billion
Rev. per Employee
N/A
loading...
/zigman2/quotes/204763189/composite
US : U.S.: NYSE
$ 13.35
-0.35 -2.55%
Volume: 1.47M
July 2, 2020 4:00p
P/E Ratio
13.71
Dividend Yield
3.09%
Market Cap
$5.43 billion
Rev. per Employee
$369,234
loading...
/zigman2/quotes/205710729/composite
US : U.S.: Nasdaq
$ 49.83
+0.13 +0.26%
Volume: 18.56M
July 2, 2020 4:00p
P/E Ratio
25.01
Dividend Yield
N/A
Market Cap
$55.22 billion
Rev. per Employee
$832,917
loading...

Jeff Reeves is a stock analyst who has been writing for MarketWatch since 2010.

1 2
This Story has 0 Comments
Be the first to comment
More News In
Investing

Story Conversation

Commenting FAQs »
Link to MarketWatch's Slice.