Wall Street is about to enter the thick of earnings season with Bank of America Corp (NYSE:BAC), Netflix, Inc.(NASDAQ:NFLX) and Qualcomm Inc (NASDAQ:QCOM) all scheduled to report earnings this week. Here’s what investors need to know before earnings are posted:
Bank of America Corp
Bank of America will release second quarter earnings on Tuesday, July 18, before market open. Analysts expect the company to post earnings per share of $0.43 on quarterly revenue of $22.17 billion. This marks a potential year-over-year EPS increase from ($0.36) though a year-over-year increase in revenue from $20.6 billion.
BAC shares have seen a volatile quarter with shares finishing the quarter marginally up at just over $24. But in the last two weeks, shares have rallied further and some are saying that the stock is now ready for a breakout. The rally has been driven by BAC passing stress tests that monitor the financial health of banks. Following the successful outcome, BAC announced a 60% hike in its annual dividend to 48 cents-a-share (12 cents per quarter) and commenced a share buyback program worth $12 billion.
As for the earnings out on Tuesday, analysts are predicting a fall in trading revenues due to the less-volatile, quieter trading environment in the second quarter. This is because client flows are generally higher when there is a lot of activity in the market. On the other hand, BAC has been cutting costs in line with its plan to cut $3 billion by 2018, starting from this time last year. At the same time, interest rate rises should result in a higher interest rate margin for the bank, especially as RBC Capital recently calculated that BAC is one of the most asset-sensitive banks.
Eight of the 10 analysts polled by TipRanks in the last three months are bullish on Bank of America while two stay on the sidelines. As a result the stock has a ‘Strong Buy’ analyst consensus rating. The average price target is $26.30, marking a nearly 8.6% upside from current levels.
The internet streaming giant is due to release its Q2 results on Monday after the close. The Street is predicting EPS of $0.16 per share, up almost double from the $0.09 seen in the same period last year. In terms of quarterly revenue, analysts are forecasting total revenue of $2.755 billion (a figure which includes Netflix’s DVD business).
Canaccord Genuity analyst Kip Paulson echoes the general market view when he says he is expecting “solid results” driven by two main catalysts: international expansion; and the creation of successful original content including House of Cards and Orange is the New Black. His predictions are basically in-line with management guidance of 2.6 million international net additions and 600,000 domestic additions.
At the same time, free cash flow will be in the negative due to Netflix’s decision to substantially up its content investments. Netflix previously told investors it is modelling for a free cash flow loss of $2 billion for the full year 2017. However, the long-term growth opportunity means many investors are willing to take this negative free cash flow as the price to pay for Netflix to produce its own original content.
Out of the 18 analysts polled by TipRanks in the last 3 months, 18 are bullish on Netflix and 8 are neutral. Only one analyst has a sell rating on the stock. The average 12-month price target on the stock is $167.38, marking a 3.9% increase from where shares last closed.
Mobile tech company Qualcomm is due to report its fiscal third quarter 2017 results on July 2019. The Street is forecasting EPS of $0.7 on revenue of $5.26 billion. This is down from the same period last year, when QCOM reported EPS of $1 and revenue of $6 billion.
Qualcomm has been suffering from its ongoing patent dispute with tech giant Apple (AAPL). As a result of the legal battle, Qualcomm was forced to shave its third-quarter revenue guidance by $500 million at the end of April after Apple refused to pay royalties while the dispute is continuing. Qualcomm had not previously considered that Apple suppliers would not pay any of the sum owed.
Investors are worried that the dispute could last for years- a more optimistic outcome would be if legal stalemate ended in an out-of-court settlement. The latest move- at the beginning of this month- comes from QCOM which filed a patent infringement complaint with the U.S. International Trade Commission (ITC), requesting a ban of certain iPhones from imported domestic entry.
According to the 17 analysts polled by TipRanks in the last 3 months, 7 are bullish on Qualcomm while 10 remain sidelined. The average 12-month price target for the company is $62.32, marking a 9.7% upside from current levels.