- U.S. Q1 earnings season, housing data in focus this week.
- Netflix stock is a buy with upbeat earnings on deck.
- Tesla shares set to underperform amid disappointing Q1 results.
Stocks on Wall Street ended lower on Friday as underwhelming retail sales data added to recession fears, overshadowing a stronger-than-expected start to corporate earnings season following a big beat from JPMorgan Chase (NYSE:JPM).
Despite Friday’s declines, all three major U.S. stock indexes notched weekly gains. The blue-chip Dow Jones Industrial Average rose 1.2% to mark its fourth-straight positive week.
The benchmark S&P 500 and the tech-heavy Nasdaq, meanwhile, tacked on 0.8% and 0.3% respectively. Small caps also shone, with the Russell 2000 advancing 1.5% for the week.
The week ahead is expected to be another busy one as Q1 earnings shift into high gear, with reports expected from several high-profile financial companies, including Bank of America (NYSE:BAC), Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), and Charles Schwab (NYSE:SCHW).
Aside from the closely watched financial earnings, results are also due from IBM (NYSE:IBM), Taiwan Semi (NYSE:TSM), AT&T (NYSE:T), Johnson & Johnson (NYSE:JNJ), Procter & Gamble (NYSE:PG), Lockheed Martin (NYSE:LMT), United Airlines (NASDAQ:UAL), American Express (NYSE:AXP), and Philip Morris (NYSE:PM).
In addition to earnings, housing data, including housing starts, and existing home sales, will be the main focal point of the economic calendar after inflation and retail sales took center stage last week.
The data will be key in determining the Fed’s next move at its May meeting. As of Sunday morning, financial markets are pricing in a 78% chance of a 25-basis point rate hike at the Fed’s May 2-3 FOMC meeting and a 22% chance of no action, according to Investing.com’s Fed Rate Monitor Tool.
Regardless of which direction the market goes, below I highlight one stock likely to be in demand and another which could see further downside.
Remember though, my timeframe is just for the week ahead, April 17-21.
Stock To Buy: Netflix
I believe Netflix's (NASDAQ:NFLX) stock will outperform in the week ahead as the streaming giant’s first-quarter earnings report will surprise to the upside in my view, thanks to improving consumer demand trends and a favorable fundamental outlook despite a tough operating environment.
As per moves in the options market, traders expect a sizable swing in NFLX shares following the results, with a possible implied move of 8.8% in either direction.
Consensus estimates call for the Los Gatos, California-based company to deliver earnings per share of $2.86 when it releases Q1 numbers after the U.S. market closes on Tuesday, April 18, declining 19% from EPS of $3.53 in the year-ago period. Meanwhile, revenue is forecast to rise by about 4% year-over-year to $8.17 billion.
Perhaps of greater importance, all eyes will be on Netflix’s Q1 subscriber tally, with Wall Street analysts expecting the streaming video pioneer to add roughly 2.5 million new subscribers during the March quarter.
In my opinion, Netflix’s Q1 profit, sales, and subscriber growth will all top expectations as it continues to benefit from the launch of a lower-cost, ad-supported basic service tier and amid efforts to crack down on illegal password-sharing, which the company has said could be happening with up to 100 million accounts.
As such, I believe Netflix’s management will provide strong guidance for the months ahead to reflect improving operating margins as it continues to execute well thanks to its new ad-supported streaming video service, as well as ongoing initiatives to curtail account-sharing and cut costs.
NFLX stock closed at $338.63 on Friday, earning the company a valuation of around $151 billion. Shares of the streaming leader are up 14.8% year-to-date, nearly doubling the S&P 500’s 7.8% increase over the same timeframe.
InvestingPro currently has a 12-month price target of about $454, implying 34.2% upside ahead.
Stock To Sell: Tesla
I expect shares of Tesla (NASDAQ:TSLA) will underperform in the coming week, as the Elon Musk-led electric vehicle maker gets set to deliver disappointing earnings in my opinion due to the negative impact of various headwinds on its business amid the current economic climate.
Not surprisingly, an InvestingPro survey of analyst earnings revisions points to mounting pessimism ahead of the release, with analysts cutting their EPS estimates 14 times over the last 90 days, compared to just one upgrade.
Source: InvestingPro
Tesla is anticipated to release first quarter financial results on Wednesday, April 19 after the closing bell in what will likely be the most closely watched report of the week. A call with analysts is set for 17:30 ET (21:30 GMT).
Consensus expectations call for the Austin, Texas-based EV giant to post Q1 earnings per share of $0.85, slowing sharply from a profit of $1.19 in Q4 and dropping 20.5% from EPS of $1.07 in the year-ago period.
Revenue is seen rising 24.6% year-over-year to $23.4 billion, however, that would mark a slowdown from the $24.3 billion sales total recorded in the previous quarter.
Tesla’s Q1 automotive gross margin is forecast to fall to around 21% from 29% a year ago due to the negative impact of its price-slashing strategy. The ongoing price cuts have fueled concerns that it is having to offer discounts on its vehicles to retain market share in the face of weakening demand and growing competition from traditional legacy automakers as well as Chinese EV startups.
The average Q1 Tesla vehicle selling price is around $47,250, according to Wall Street estimates. That is down from $51,400 in the fourth quarter and $52,100 in Q1 last year.
Tesla is still the market leader in North America with about 65% of the EV industry in 2022, but that is down from 70% in 2021 and 79% in 2020.
Meanwhile, in what could be another negative development, Tesla will not attend this week's Shanghai Auto Show, even as its top global competitors plan to roll out new EV models.
TSLA stock - which is down around 11% so far in April - ended Friday’s session at $185. At current valuations, Tesla has a market cap of $586.3 billion, compared to $1.23 trillion at its peak in November 2021.
Shares of the EV pioneer have bounced back sharply thus far in 2023 after losing nearly two-thirds of their value last year, surging 50% year-to-date. Notwithstanding the recent turnaround, the stock remains well below its all-time high of $414.50.
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Disclosure: At the time of writing, I am long on the S&P 500, and the Nasdaq 100 via the SPDR S&P 500 ETF (SPY), and the Invesco QQQ Trust ETF (QQQ). I am also long on the Technology Select Sector SPDR ETF (XLK). I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and companies' financials. The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.
