Earnings Previews: Comcast, Merck, Southwest Airlines, Tilray, Valero Energy

The three major U.S. equity indexes closed mixed on Monday. The Dow Jones Industrial Average added 0.28%, the S&P 500 closed up 0.13%, and the Nasdaq Composite fell 0.43%. Eight of 11 sectors, led by energy (up 3.7%) and utilities (up 1.3%) closed higher while consumer cyclicals (down 0.9%) led the losers. After markets closed, Walmart sharply cut guidance for the rest of this year, and the shares traded down more than 9% early Tuesday morning. In mid-morning trading Tuesday morning, all three major indexes traded lower.

After markets closed Monday, Range Resources reported better-than-expected earnings per share (EPS) and sharply higher revenue. The stock traded up more than 4% on Tuesday.

NXP Semiconductors all beat top and bottom line estimates and issued upside guidance for the third quarter. Shares traded up about 0.8% in Tuesday’s premarket.

Before markets opened Tuesday morning, General Electric also beat top and bottom line estimates and orders for the company’s aircraft engines rose 26% year over year. Other news was not so good. The company expects supply chain issues to lower free cash flow by about $1 billion. The stock traded up about 6.8%.

Albertsons beat both revenue and profit estimates and raised fiscal year 2022 EPS and same-store sales guidance. Shares traded up about 0.1%.

3M Company also beat top and bottom line estimates but issued EPS guidance that was below the consensus estimate. Shares traded up about 7%.

Coca-Cola also reported earnings and revenue above expectations. Shares traded up about 1%.

General Motors missed EPS estimates but beat on revenue. The company also announced multi-year agreements with lithium miner Livent and cathode provider LG Chem and reaffirmed prior guidance. The stock traded down about 2.5%.

McDonald’s reported better-than-expected EPS but missed on revenue. Shares traded up by about 1.8%.

UPS beat estimates on both the top and bottom lines and raised its share buyback forecast for this year to $3 billion. Shares traded down about 3.3%.

After markets close Tuesday afternoon, Alphabet, Microsoft, Texas Instruments, and Visa will be reporting quarterly results. On Wednesday morning, we’ll hear from Boeing, Cameco, Kraft-Heinz, and T-Mobile.

We’ve also previewed earnings reports due Wednesday afternoon from Antero Resources, Ford, Meta Platforms, and Qualcomm.

Here’s a look at five companies set to report results before markets open Thursday morning.

Comcast

Since early September, shares of Comcast Corp. (NASDAQ: CMCSA) have dropped by about 27%. The cable company has beaten profit estimates in every quarter since missing in February 2016 and revenue estimates in the past eight consecutive quarters. One could argue that the stock is undervalued and that Disney’s required January 2024 purchase of Comcast’s 33% stake in Hulu adds even more future value to the shares. Comcast stands to fetch at least $9 billion for its stake in Hulu.

Analysts remain bullish on Comcast stock, however, with 24 of 37 brokerages giving the shares a Buy or Strong Buy rating and another dozen have given the stock a Hold rating. At a current price of around $42.60, the upside potential based on a median price target of $55.00 is 29.4%. At the high price target of $70.00, the upside potential is nearly 64.7%.

Second-quarter revenue is forecast to come in at $29.73 billion, down about 4% sequentially and up 4.1% year over year. Adjusted EPS is forecast at $0.92, up about 6.6% sequentially and an increase of 9.5% year over year. For the full 2022 fiscal year, analysts are expecting Comcast to report EPS of $3.58, up 11%, on sales of $122.24 billion, up 5%.

Comcast stock trades at a multiple of 11.9 times expected 2022 EPS, 10.6 times estimated 2023 earnings of $4.01, and 9.3 times estimated 2024 earnings of $4.58 per share. The stock’s 52-week range is $37.56 to $61.80. Comcast pays an annual dividend of $1.08 (yield of 2.54%). Total shareholder return over the past year is negative 25.8%.

Merck

Dow 30 component Merck & Co. Inc. (NYSE: MRK) has added about 17.l5% to its stock price over the past 12 months. The pharmaceutical giant has reportedly been in negotiations to acquire Seagen for around $40 billion. According to a report in the Wall Street Journal last week, an agreement is unlikely by the time of Merck’s earnings report, but the talks remain on track according to WSJ sources.

Analysts have gotten more bullish on Merck stock in the past few months. Of the 25 brokerages covering the company, 15 have a Buy or Strong Buy rating on the shares, and the rest have given the stock a Hold rating. At a current price of around $91.00, the implied upside on the stock is nearly 10% at a consensus 12-month price target of $100.00. At the high target of $115.00, the upside potential rises to 26.4%.

For the second quarter, Merck is expected to report sales of $13.83 billion, down 13% sequentially and up 21.3% year over year. Adjusted EPS is expected to reach $1.70, down 20.8% sequentially and up 29.8% year over year. For the 2022 fiscal year, EPS is forecast at $7.37, an increase of 22.4% year over year, on sales of $58.04 billion, a jump of 19.2%.

Merck stock trades at 12.4 times expected 2022 EPS, 12.3 times estimated 2023 earnings of $7.43, and 10.7 times estimated 2024 earnings of $8.53 per share. The stock’s 52-week range is $70.89 to $95.72, and the company pays an annual dividend of $2.75 (yield of 3.05%). Total return over the past 12 months was 22.05%.

Southwest Airlines

Shares of Southwest Airlines Co. (NYSE: LUV) have dropped by about 23% over the past 12 months, with the stock putting up a new 52-week low in mid-June. While that’s hardly going to win stock-of-the-year honors, that’s better performance than any other major U.S. airline. Credit goes to Southwest’s fuel-hedging strategy which is expected to add between $0.30 and about $0.70 per gallon to the airline’s net income. Southwest’s fuel consumption for the quarter is expected to be around 483 million barrels.

Analysts are mostly bullish on the stock, however, with 16 of 20 giving the shares Buy or Strong Buy ratings and the other four assigning a Hold rating to the stock. At a current price of around $40.30, the upside potential based on a median price target of $57.50 is 42.7%. At the high price target of $72.00, the upside potential is 78.6%.

Second-quarter revenue is forecast at $6.71 billion, up 42.9% sequentially and up 67.3% year over year. Analysts expect Southwest to post EPS of $1.19, compared with losses of $0.32 in the prior quarter and $0.35 in the year-ago quarter. For the full 2022 fiscal year, analysts are expecting the company to report EPS of $2.73 compared to last year’s per-share loss of $2.15. Revenue is forecast to rise 55.2% to $24.51 billion.

Southwest stock trades at a multiple of 14.7 times expected 2022 EPS, 10.7 times estimated 2023 earnings of $3.77, and 8.5 times estimated 2024 earnings of $4.73 per share. The stock’s 52-week range is $34.36 to $56.33, and Southwest does not pay a dividend. Total shareholder return over the past 12 months is negative 22.1%.

Tilray

Shares of cannabis grower Tilray Inc. (NASDAQ: TLRY) have dropped by about 75% over the past year. The story for Tilray and the other Canada-based pot growers hasn’t changed for some time: wait until the U.S. federal government lifts its classification of cannabis as a dangerous drug. The better news for the company is that Germany seems on a course to legalize marijuana in the next year or two. Tilray is already Germany’s largest supplier of medical marijuana. Tilray is probably the best house in a bad neighborhood.

Of 20 analysts covering the stock, 14 have a Hold rating on the stock, and four have Buy ratings on the shares. At a current price of around $3.40, the upside potential to the median price target of $5.50 is 61.8%. At the high price target of $23.00, the upside potential approaches 600%.

For Tilray’s fourth fiscal quarter of 2022, analysts are looking for revenue of $152.6 million, up 0.5% sequentially and up 7.3% year over year. Analysts expect the company to post a loss per share of $0.08, compared with the prior quarter’s EPS of $0.07 and EPS of $0.44 in the year-ago period. For the full 2022 fiscal year ended in May, analysts currently forecast a loss per share of $0.30 compared with last year’s loss per share of $0.93. Full-year sales are expected to rise by 23% to $630.98 million.

Tilray is not expected to post a profit in 2022, 2023, or 2024. The multiple of the company’s sales to enterprise value is 3.5 times in 2022, 3.1 times in 2023, and 2.7 times in 2024. The stock’s 52-week range is $3.00 to $16.67. Tilray does not pay a dividend and the total return to shareholders last year was negative 75.2%.

Valero Energy

Oil refiner and product marketer Valero Energy Corp. (NYSE: VLO) has seen its share price increase by more than 65% over the past year. Between June 1 and July 14, the shares dropped by more than 30%. Free cash flow is expected to rise by more than 1,500% year over year, far more than any other refiner or exploration and production company. The company could easily pay a higher dividend or boost its share buybacks. Investors have a lot to look forward to.

Of the 20 analysts covering the stock, 15 have rated the shares as a Buy or Strong Buy, and four have a Hold rating on the stock. At a current price of around $108.80, the upside potential based on a median price target of $141.00 is 29.6%. At the high price target of $166.00, the upside potential is around 52.6%.

Analysts are forecasting second-quarter revenue of $47.92 billion, up 24.3% sequentially and up 72.7% year over year. Adjusted EPS is pegged at $9.39, up more than 300% sequentially and up more than 1,800%. For the full 2022 fiscal year, current estimates call for EPS of $22.26, up 690%, on revenue of $170.99 billion, up 50%.

Valero stock trades at a multiple of 4.8 times expected 2022 EPS, 8.1 times estimated 2023 earnings of $13.24, and 10.6 times estimated 2024 earnings of $10.18 per share. The stock’s 52-week range is $58.85 to $146.81. The company pays an annual dividend of $3.92 (yield of 3.77%). Total shareholder return for the past 12 months was about 72.4%.

By Paul Ausick