- Retail sales, Fed speakers, Q3 earnings will be in focus this week.
- Netflix is a buy with upbeat profit and subscriber growth expected.
- Walgreens Boots Alliance is a sell with disappointing earnings, guidance on deck.
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U.S. stocks ended higher on Friday to cap off their fifth winning week in a row, as investors digested the first batch of third-quarter earnings and continued to assess the Federal Reserve’s rate plans for the months ahead.
For the week, the benchmark S&P 500 and the blue-chip Dow Jones Industrial Average climbed 1.1% and 1.2%, respectively. Both averages hit fresh all-time highs and closed at records. The tech-heavy Nasdaq Composite added 1.1%.
Source: Investing.com
The holiday-shortened week ahead - which will see the U.S. stock market closed on Monday in observance of Colombus Day - is expected to be another busy one as investors assess the outlook for the economy, interest rates and corporate earnings.
Most important on the economic calendar will be Thursday’s U.S. retail sales report for September, with economists estimating a headline increase of 0.3% after sales rose 0.1% during the prior month.
Source: Investing.com
That will be accompanied by a heavy slate of Fed speakers, with the likes of district governors Neel Kashkari, Christopher Waller, Mary Daly, and Adriana Kugler all set to make public appearances.
As of Sunday morning, investors see an 86% chance of the Fed cutting rates by 25 basis points at its November 7 policy meeting, and a 14% chance of no action, according to Investing.com’s Fed Monitor Tool.
Meanwhile, third-quarter earnings season shifts into high gear, with Netflix (NASDAQ:NFLX) leading the charge. Other high-profile companies reporting include Bank of America (NYSE:BAC), Citigroup (NYSE:C), Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), American Express (NYSE:AXP), Johnson & Johnson (NYSE:JNJ), UnitedHealth (NYSE:UNH), Procter & Gamble (NYSE:PG), Walgreens Boots Alliance (NASDAQ:WBA), United Airlines (NASDAQ:UAL), ASML (AS:ASML), and Taiwan Semiconductor (NYSE:TSM).
Regardless of which direction the market goes, below I highlight one stock likely to be in demand and another which could see fresh downside. Remember though, my timeframe is just for the week ahead, Monday, October 14 - Friday, October 18.
Stock To Buy: Netflix
I foresee another strong performance for Netflix’s stock this week, as the streaming giant’s third quarter earnings report will easily beat estimates thanks to favorable consumer demand trends and an improving fundamental outlook.
The Los Gatos, California-based Internet television network is scheduled to release its Q3 update after the U.S. market closes on Thursday at 4:00PM ET. A call with co-CEO’s Ted Sarandos and Greg Peters is set for 5:00PM ET.
Market participants expect a sizable swing in NFLX stock after the print drops, according to the options market, with a possible implied move of 7.9% in either direction.
Profit estimates have been revised upward 29 times in the last 90 days, reflecting growing confidence among analysts. Only two downward revisions have been noted, underscoring Wall Street’s bullish sentiment toward Netflix.
The company’s recent cost-cutting measures, along with its ability to drive subscriber growth, have positioned it as a dominant player in the streaming space.
Source: InvestingPro
Netflix is seen earning $4.53 per share, jumping 37% from EPS of $3.11 in the year-ago period. Meanwhile, revenue is forecast to increase 14.3% year-over-year to $9.76 billion.
If confirmed, this would represent the highest quarterly sales in Netflix’s 27-year history, driven by strong demand for its lower-cost, ad-supported tier and the company's ongoing crackdown on password sharing, a move that has pushed more users to sign up for their own accounts.
As such, I reckon Netflix will maintain its solid pace of net streaming subscriber additions and easily top Wall Street estimates of about 4.2 million new global subscribers added during the third quarter.
NFLX stock hit a new all-time high of $736 on Friday before ending at $722.79. At current levels, Netflix has a market cap of $310.2 billion.
Source: Investing.com
Shares are up 48.4% in the year to date.
InvestingPro highlights Netflix’s promising outlook, emphasizing its favorable positioning in the streaming industry, which has allowed it to leverage a resilient business model and strong profit growth.
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Stock to Sell: Walgreens Boots Alliance
In contrast, Walgreens Boots Alliance is set to deliver a disappointing earnings report when it updates investors on its fiscal fourth quarter before the market opens on Tuesday at 7:00AM ET.
The retail pharmacy giant has been struggling to navigate a challenging macroeconomic environment, and the outlook for the stock remains bleak.
According to the options market, traders are pricing in a swing of about 7.5% in either direction for Walgreens stock following the print.
Earnings have been catalysts for outsized swings in shares this year, as per data from InvestingPro, with WBA gapping down a massive 22.7% when the company last reported quarterly numbers in late June.
Analysts expect a sharp decline in earnings, with forecasts calling for a drop of roughly 53% compared to initial estimates from 90 days ago. This significant downward revision reflects the numerous challenges facing Walgreens, including weaker consumer demand, rising labor costs, and persistent inflationary pressures.
Source: InvestingPro
Wall Street sees Walgreens earning $0.36 per share, compared to EPS of $0.67 in the year-ago period, amid higher cost pressures and declining operating margins.
Meanwhile, revenue is forecast to inch up 0.4% year-over-year to $35.55 billion, as it deals with low consumer spending due to the challenging retail environment.
Adding to its woes, Walgreens is expected to provide soft guidance for the upcoming fiscal year as it struggles to adapt to the rise in popularity of online pharmacy and direct to consumer platforms, which are both seen as posing a threat to Walgreens’ business.
WBA stock ended at $9.21 on Friday, not far from a recent low of $8.22, which was the weakest level since September 1996. At its current valuation, the Deerfield, Illinois-based retail drugstore chain operator and pharmacy services provider has a market cap of $7.9 billion.
Source: Investing.com
Shares - which were removed from the Dow Jones Industrial Average earlier this year - are down 64.7% in 2024.
Not surprisingly, Walgreens has a below-average InvestingPro ‘Financial Health’ score of 1.8 out of 5.0 due to worries over its weak profitability outlook and significant debt load.
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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, and the Invesco QQQ Trust ETF. I am also long on the Technology Select Sector SPDR ETF (NYSE: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.
Follow Jesse Cohen on X/Twitter @JesseCohenInv for more stock market analysis and insight.