Investing

Earnings Previews: Taiwan Semiconductor, United Healthcare, Walgreens

Paul Ausick

Published: October 12, 2021 10:42 am

U.S. equity markets got off to a slow start this week with the S&P 500 and the Dow Jones industrials both closing essentially flat Monday and the Nasdaq up by about 0.2%. Tuesday’s premarket trading was somewhat better, probably thanks to a retreat in the price of crude oil.

While big U.S. banks take center stage in this first week of September-quarter earnings results, there are several others worth noting. Two Dow stocks and the world’s largest chipmaker report quarterly earnings before markets open Thursday.

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Taiwan Semiconductor

Last Friday, Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE: TSM) reported strong September sales that pushed quarterly revenue above analysts’ estimates. Meeting demand for Apple’s new iPhone 13 models gets much of the credit for the boost. The concern among investors is that TSMC, as it’s known, also has to keep automakers supplied with lower-priced silicon, and that eats into margins for high-priced components such as those the company makes for Apple.

Last week, TSMC and Sony announced a joint venture to build a new chip plant in Japan at a cost of around $7 billion. That investment is part of a $100 billion commitment to build six new foundries over the next three years, including one in Arizona. Massive capital spending always gives investors the jitters, and TSMC’s plans are no different.

Of just 10 analysts covering the firm, eight have Buy or Strong Buy ratings on the stock and the other two rate the shares at Hold. At a recent price of around $111.30, the upside potential based on a median price target of $135 is 21.3%. At the high price target of $204, the upside potential is more than 83%.

For TSMC’s third quarter, analysts are looking for revenue of $14.73 billion, which would be up 10.6% sequentially and 19.5% higher year over year. Adjusted earnings per share are expected to come in at $1.04, up 11.8% sequentially and up 83% year over year. For the full fiscal year, EPS is forecast at $4.01, down 44%, on revenue of $56.25 billion, up 18%.

TSMC stock trades at 5.1 times expected 2021 EPS, 4.3 times estimated 2022 earnings and 3.6 times estimated 2023 earnings. The stock’s 52-week trading range is $83.16 to $142.20, and the company pays an annual dividend of $1.83 (yield of 1.66%).

United Healthcare

The country’s largest health insurer, UnitedHealth Group Inc. (NYSE: UNH) has posted a share price increase of nearly 27% over the past 12 months. That’s good enough to rank 11th among the 30 Dow stocks for the period.

In September, the inspector general for the U.S. Department of Health and Human Services reported $9.2 billion in federal Medicare payments were made to insurers that used questionable billing practices. The report did not name the companies, but the Wall Street Journal reported that BMO Capital Markets determined, based on enrollment data, that UnitedHealth was the best match for the company that received 40% ($3.7 billion) of the payments while enrolling only 22% of all Medicare Advantage customers. Shares dropped about 8% on the report but have since recovered most of it.

Analysts remain bullish on the stock, with 23 of 27 assigning a rating of Buy or Strong Buy to the stock and three more rating the shares at Hold. At a price of around $405, the upside potential based on a median price target of $465 is 14.8%. At the high target of $522, the upside potential is nearly 29%.

The consensus estimate for third-quarter revenue is $71.24 billion, down by less than 1% sequentially and up by 9.4% years over year. Adjusted EPS are tabbed at $4.42, down about 6% sequentially and up 26% year over year. For fiscal 2021, analysts are forecasting EPS of $18.76, up 11.1%, on revenue of $283.85, up 10.4%.

UnitedHealth stock trades at 21.8 times expected 2021 EPS, 18.8 times estimated 2022 earnings and 16.6 times estimated 2023 earnings. The stock’s 52-week range is $299.60 to $431.36. The Dow Jones industrials component pays an annual dividend of $5.80 (yield of 1.42%).

Walgreens

Drugstore giant Walgreens Boots Alliance Inc. (NYSE: WBA) saw its share price drop by 40% for the year to date. While the stock bounced back to a gain of less than 2% in early April of this year, since January of last year, the stock is down nearly 14%.

Surging coronavirus infections this past summer once again cut into the foot traffic that drives the company’s business. The Dow component has a multipronged turnaround plan, but those typically add to costs. How Walgreens balances its revenues against rising costs is key for shareholders.

Of 22 analysts covering the stock, 19 have a Hold rating on the shares, and two rate the stock at Buy. At a price of around $47.40, the implied upside based on a median price target of $52 is 9.7%. At the high target of $70, the upside potential is nearly 48%.

For the company’s fourth quarter of fiscal 2021, analysts are expecting revenue of $33.39 billion, down nearly 2% sequentially and 3.9% year over year. EPS are forecast to come in at $1.03, down 25% sequentially and up a penny year over year. For the full fiscal year, consensus estimates call for EPS of $4.81, up 1.4%, on revenue of $131.9 billion, down about 5.5%.

Walgreens stock trades at 9.9 times expected 2021 EPS, 9.5 times estimated 2022 earnings and 9.1 times estimated 2023 earnings. The stock’s 52-week range is $33.36 to $57.05, and Walgreens pays an annual dividend of $1.91 (yield of 4.03%).