Earnings Previews: Chewy, KB Home

In the first half-hour of Tuesday’s trading, the Dow Jones industrials were up 0.964%, the S&P 500 up 1.08% and the Nasdaq up 1.13%.

Before U.S. markets opened on Tuesday, Tencent Music reported that it beat earnings per share (EPS) and revenue estimates in its fourth quarter. The beats were narrow, however, and the company’s outlook emphasized its “repositioning,” a word that investors interpret to mean spending now with the expectation of more revenue and profit in the future. Shares traded down about 8.5% early Tuesday.

After U.S. markets close Tuesday, Array Technologies, GameStop and Nike are set to report quarterly results.

Here is a preview of what to expect when the following two companies report results after markets close on Wednesday.

Chewy

Chewy Inc. (NYSE: CHWY) is a pure-play e-commerce provider of pet supplies and a one-time subsidiary of privately held PetSmart. Over the past 12 months, the stock has slipped by about 14%. Shares have staged a comeback in the past six months, rising by 17%, to cut their loss in half since October.

Earlier this month, a workers’ rights group, United for Respect, filed a complaint with the U.S. Department of Justice over three Chewy directors who also sit on the boards of PetSmart and the private equity firm, BC Partners, that owns PetSmart.

Analysts remain bullish on Chewy stock. Of 28 brokerages covering it, 15 have a Buy or Strong Buy rating, while 12 more have Hold ratings. At a recent share price of $38.00, the upside potential to a median price target of $50.00 is 31.6%. At the high price target of $57.00, the upside potential is 50%.

Revenue in the third quarter of fiscal 2023 is forecast to come in at $2.65 billion, which would be up 4.6% sequentially and by 10.9% year over year. Analysts expect an adjusted loss per share of $0.10, compared to the prior quarter’s EPS of $0.01 and the year-ago loss of $0.15 per share. For the full fiscal year that ended in January, analysts forecast EPS of $0.01, compared to last year’s loss per share of $0.17, on sales of $10.03 billion, up 12.8%.

Chewy stock trades at 298.4 times estimated 2024 earnings of $0.13 and 77.6 times estimated 2025 earnings of $0.49 per share. The stock’s 52-week trading range is $22.22 to $52.88. Chewy does not pay a dividend. Total shareholder return for the past year is negative 14.05%.

KB Home

Homebuilder KB Home (NYSE: KBH) posted its 52-week low in mid-June, and shares have added more than 41% since then. For the year to date, the shares are up 12%, though still down 7% for the past 12 months. Two weeks ago, J.P. Morgan analysts downgraded the stock by two notches, from Overweight to Underweight, citing moderating demand due to higher mortgage rates and “below average margins and returns.” Interestingly, the shares have added 2% since that double downgrade.

Of 15 analysts covering the stock, six have a Buy or Strong Buy rating and seven more rate it at Hold. At a share price of around $35.70, the implied upside based on a median price target of $41.50 is 16.2%. At the high price target of $55.00, the upside potential is 54.1%.

For the company’s first quarter of fiscal 2023, analysts expect sales of $1.3 billion, down 32.8% sequentially and 7.1% lower year over year. EPS are forecast to tumble by 54.6% sequentially to $1.12 and decrease by 23.8% year over year. The consensus estimate for the fiscal year ending in November calls for EPS of $4.78, down 47.9%, on sales of $5.27 billion, down 23.7%.

KB Home stock trades at 7.5 times expected 2023 EPS, 7.6 times estimated 2024 earnings of $4.68 and 5.6 times estimated 2025 earnings of $6.35 per share. The stock’s 52-week range is $24.78 to $40.92. KB Home pays an annual dividend of $0.60 (yield of 1.7%). Total shareholder return for the past 12 months is negative 5.32%.

Originally published at 24/7 Wall St.

By Paul Ausick