MW With second-quarter results around the corner, here are the stocks that analysts like the most
By Bill Peters
Earnings Watch: Nike, FedEx report, as both try to cut billions in costs amid weaker demand
It's no secret that lots of analysts like tech behemoths like Amazon.com Inc., Microsoft Corp. and Nvidia Corp. amid the AI gold rush. But as of Friday, they liked one just a bit more, at least based on the percentage of 'buy' recommendations: Delta Air Lines Inc.
Granted, the three tech companies each have far more analysts who follow them than for Delta $(DAL)$. But according to a FactSet analysis published on Friday, 96% of the analysts who cover Delta had a buy rating on the stock, compared with 95% for both Amazon $(AMZN)$ and Microsoft $(MSFT)$ and 90% for Nvidia $(NVDA)$.
Other companies in that Top 10 list that had scored 90% or higher were Targa Resources Corp. (TRGP), oilfield services giant Schlumberger $(SLB)$, French-fry maker Lamb Weston Holdings $(LW)$, Alexandria Real Estate Equities Inc. $(ARE)$, NiSource Inc. $(NI)$ and Uber Technologies Inc. $(UBER)$.
Delta will be among the first companies to report second-quarter earnings next month. Its shares are up 27.8% over the past twelve months, better than its major legacy rivals American Airlines Group Inc. $(AAL)$ and United Airlines Holdings Inc. $(UAL)$. And while air travel is miserable for many people and airline stocks often make for a bumpy ride, analysts generally like Delta's efforts to bring in revenue from more places outside of the main cabin.
"While Delta is keeping a close eye on the health of the consumer, overall demand remains strong particularly post the Jan/Feb off-peak period," Raymond James analyst Savanthi Syth, who has a "strong buy" rating on Delta shares, said in a research note this month.
"Corporate travel is slightly improved as expected, notably driven by a step-up in the tech sector," she continued.
While Delta tempered its full-year financial outlook in January - amid a "testy" geopolitical backdrop, volatile energy prices and limits on aircraft availability - TD Cowen analyst Helane Becker also said at the time that the resulting sell-off made for a buying opportunity.
She noted increases in corporate-travel sales, after a pandemic-era cratering, and sales gains for flights across the Atlantic and Pacific. Moreover, sales for the airline's premium seat classes, which are better for profits, and its loyalty program continued to outpace the sales it gets from the main cabin, Becker noted.
Analysts, overall, are reluctant to hit sell on stocks. Of the 11,557 ratings on stocks in the S&P 500 Index, 53.8% are buy ratings, according to the FactSet report. 40.5% are hold ratings, while only 5.7% are sell ratings.
This week in earnings
For the week ahead, food prices will be in focus when General Mills Inc. $(GIS)$ reports. Results are also due from online pet-supplies retailer Chewy Inc. $(CHWY)$, as higher costs of pet care strain pet owners. RV maker Winnebago Industries Inc. $(WGO)$ will release results, after rival Thor Industries Ind. $(THO)$ warned of "challenging seasonal market conditions" and higher interest rates that have crimped demand.
Lululemon Athletica Inc. $(LULU)$ reports earnings, as it tries to jumpstart enthusiasm among male customers with a new footwear line, amid stiff competition and lumpier demand trends for clothing. Micron Technology Inc. $(MU)$ and KB Home (KBH) also report.
The call to put on your calendar
FedEx: When people buy things, they often need to get them shipped, and package deliverer FedEx Corp., to some degree, is a proxy for all of that demand. For the past several quarters, that demand hasn't been great. In response, the company, which reports results on Thursday, has tried to cut billions in costs.
As executives detailed in December, FedEx's $(FDX)$ big air-and-ground Express business is struggling, amid what executives have said is a slowdown in global production and Asia specifically, and consumers are seeking out cheaper shipping services. Among other things, Becker, the TD Cowen analyst, said in a research note on FedEx (FDX) on Friday that she would be focused on where that cost-cutting campaign stands now, and trends in package volumes e-commerce demand.
"FDX has been growing this business, and we expect them to discuss how things are changing as people return to office and retailers offer deals to shoppers to go to brick and mortar stores," she said. "Also, we have seen several retailers recently file for bankruptcy and wonder at the impact on their business, if at all."
The number to watch
Nike sales, margins: Like FedEx, Nike is also cutting costs, as consumers remain reluctant to take the plunge on a new pair of sneakers. The athletic-gear giant's quarterly results, set for Thursday, will likely offer more detail on what has already been cut and might still be cut up ahead, as it tries to do more to draw women customers, expand its Jordan brand offerings and simplify assortments elsewhere.
Ahead of the results, UBS analyst Jay Sole said he was "not expecting a big catalyst" from Nike's results. And as Nike tries to work through what it called "complexity and inefficiencies" that arose following efforts to sell more gear directly, through its own stores and e-commerce platform, he said the company could resort to selling through Foot Locker a bit more in the months ahead to hit Wall Street's profit and sales targets.
"We also expect sentiment to stay near current levels," Sole said. "The market is looking for an inflection in Nike's sales growth trend, but probably won't get one."
-Bill Peters
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March 17, 2024 10:01 ET (14:01 GMT)
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