The quarterly earnings reporting season is wrapping up, and with the numbers are mostly in we can start to interpret the data. And the data shows that this earnings season wasn’t the bust that Wall Street had predicted. Instead of the 3% to 4% year-over-year decline that was forecast, the aggregate earnings showed a gain of 1.2%. Even better, that gain was powered by a wave of companies beating their earnings expectations – some 75% of S&P 500-listed companies reported earnings beats, well ahead of the 67% average.
Even with the upbeat earnings reports, the S&P 500 slipped some 2% last week after President Trump tweeted that he would set new tariffs on $200 billion worth of Chinese trade goods. The administration carried through on Friday, May 10.
We’ll know later this week just how big a factor tariffs turn out to be. In the meantime, there are still a few more major companies reporting earnings, so let’s check in with TipRanks’ database and see what Wall Street’s best analysts have to say.
Cisco Systems, Inc. (CSCO – Research Report)
We talk so much about the cloud, online services, e-commerce, and other web-based ventures as the future of tech that it’s easy to forget how all of it, from the phone in your hand to largest initiatives by Alibaba or Amazon, depends on hardware, too – hardware that we rarely, if ever, see. Cisco Systems is a world leader in networking hardware, selling the telecom equipment (routers, switches, cables, and the like) that the online world depends on.
Cisco will be reporting quarterly earnings the same day as Alibaba, May 15. Recent trends have been revising the consensus EPS forecast higher, a good sign for this company. Right now, CSCO is expected to report $0.77 EPS, a gain of 16% year-over-year. Revenues are expected to show a more modest 3.5% increase, to $12.9 billion.
Some stocks require a great deal of verbiage in the discussion, but not CSCO. Simply put, this is a company that positioned itself early on (in the 1980s) at the forefront of the emerging tech niche and has maintained that lead ever since. The stock performance reflects this. CSCO shares have been consistent gainers over the past five years, up 165% in that time. On a smaller scale, CSCO is up 26% year-to-date. In addition to its steady equity growth, CSCO pays out a regular 35-cent quarterly dividend, annualizing at $1.40 per share per year and a rate of 2.62%.
Blair Analyst Jason Ader (Track Record & Ratings) writes of Cisco: “Feedback remains positive, with VARs highlighting positive spending trends, new product momentum, security strength, and customers upgrading to newer Cisco products. VARs further highlighted Cisco’s steady transition to recurring revenue deals.”
Ader did not set a specific price target for CSCO, but the stock’s average target is $57, which gives an 11% upside when compared to the $51 share price. The analyst consensus rating is a ‘Strong Buy,’ based on 15 buy ratings and 4 holds set in the past three months.
Walmart, Inc. (WMT – Research Report)
We normally focus on the more bullish stocks, but Walmart is too important a player to ignore. After all, with annual revenues exceeding $510 billion, it is the world’s largest single company, and with 2.2 million employees, it is also the world’s largest private employer.
While size may insulate Walmart from some of the market’s vicissitudes, it does not shield it from everything. Walmart remains vulnerable to the US-Chinese trade difficulties, as increased tariffs would have a negative impact on the company’s supply chain and famous low-price guarantee.
Trade was aren’t the only headwinds facing Walmart. The increasing shift of American retail from brick-and-mortar to online is increasing competition from the likes of Amazon.com (AMZN). Walmart is responding by expanding its own online initiatives, including the implementation of ‘site-to-store,’ allowing US customers to order products online for pick-up at the nearest Walmart store. Since it is estimated that everyone in America lives within 10 miles of a Walmart, this is a viable model.
So, Walmart brings a combination of strengths and vulnerabilities to its May 16 quarterly earnings report, and this is reflected in the forecast. The company is expected to show a 2.1% increase in quarterly revenues from one year ago, to $125.24 billion, while EPS is expected to slip 10% relative to the year-ago quarter, to $1.02 per share. One important point to remember: Walmart has a history of outperforming forecasts. The company has beaten earnings expectations in the last four quarters, with a 6% EPS beat in its last report.
Turning to the analysts, we find mixed reviews for WMT over the past few weeks, starting with five-star Guggenheim analyst Robert Drbul (Track Record & Ratings), who reiterated his ‘buy’ rating on WMT and set a $115 price target, indicating his confidence in a 15% upside to the stock. Oppenheimer’s Rupesh Parikh (Track Record & Ratings) followed, putting a ‘hold’ on WMT at the end of April. And last week, Scott Mushkin (Track Record & Ratings) of Wolfe Research placed a ‘sell’ on Walmart.
So, this company has the full range of possible ratings, in just a short time. We’ll see on Thursday how the earnings report stacks up. In the meantime, the analyst consensus on Walmart’s stock remains a ‘Moderate Buy,’ based on 17 ratings given in the last three months: 10 buys, 6 holds, and 1 sell. WMT sells for $99, and has an average price target of $112, giving the stock a potential upside of 12%.
Remember – WMT has a history of beating expectations. This is a company that put American retail on a whole new scale and has enormous resources available as it adapts itself to the expanding digital retail space and the conditions imposed by a US/China trade dispute.
Alibaba Group (BABA – Research Report)
Alibaba has done well so far this year. In fact, BABA shares are up 30% year to date, more than double the S&P 500’s own 14% gains over the same period. The stock has taken a hit in the past week, however, losing some 12% as the trade tensions heated up. But with the earnings report looming, will BABA stock get a boost?
Alibaba will be reporting Q4 earnings on May 15, along with full-year results for fiscal 2019. Quarterly unadjusted EPS is expected at $1.05, with full-year earnings at $5.46. The company is expected to show $13.49 billion in quarterly revenue, which would translate to a 36.6% gain over the year-ago quarter. While these are objectively good numbers, they come in the context of slowing revenue growth. BABA’s Q3 showed 41% year-over-year growth, and Q2 showed 54% growth. As some pundits have noted, when a company hits Alibaba’s size, it gets harder to maintain the breakneck pace of revenue increases.
This past year has seen Alibaba’s slowest growth since 2016. The company has been hurt by a visibly slowing Chinese economy along with simmering trade tensions between China and the US. Last week, BABA shares slumped almost 9% on the heels of President Trump’s tariff tweet. And despite the slowdown and the share price hit, it’s important to remember that BABA still has strong support: US and Chinese negotiators are still talking, Alibaba controls China’s two largest e-commerce platforms which generate 82% of company revenues, and it’s main customer base is China’s 1.4 billion-strong domestic market. BABA has a firm foundation to rest on.
That firm foundation gives Wall Street’s analysts cause for cautious optimism BABA. Jason Helfstein (Track Record & Ratings), of Oppenheimer, recently said, “We are encouraged as the rate of slowdown is stabilizing and BABA delivered solid core commerce results under tough macro environment this past quarter. In addition, sentiment is more positive now vs. a quarter ago due to Chinese government’s stimulating policies… we think there is potential upside in the outlook.”
Helfstein gives BABA a price target of $215, suggesting that the ‘potential upside’ he sees could reach as high as 26%.
Overall, BABA gets a ‘Strong Buy’ rating on the analyst consensus, based on a unanimous 12 buy ratings given over the past three months by Wall Street’s analysts. The average price target is $216, indicating a 27% upside potential from the current share price of $170.
Enjoy Research Reports on the Stocks in this Article:
Cisco Systems, Inc. (CSCO) Research Report
