At Friday’s opening bell, stocks were trading higher, following the December report on nonfarm payrolls. In the first 30 minutes of trading, the Nasdaq was up 0.38%, the S&P 500 by 0.66% and the Dow by 0.75%.
The job gains in the December report were higher than expected (223,000 versus 210,000), and the headline unemployment rate fell from 3.6% to 3.5% instead of rising to 3.7%. All of that would indicate further Federal Reserve tightening and falling equity prices.
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But wait, there’s more. Hourly earnings rose less than expected (0.3% vs 0.4%), and the average workweek declined from 34.4 hours to 34.3 hours. These numbers imply that productivity is rising, a good thing, and a reason to expect Fed rate increases to moderate, perhaps as soon as the January 31 meeting.
No notable earnings reports were released Friday morning. They will be scarce until Friday, January 13, when several of the largest U.S. banks and financial services firms, one airline, and one Dow Jones industrial average health care company report quarterly results.
Here is a preview of what to expect when the following two companies report quarterly results before markets open on Tuesday.
Albertsons
In mid-October, Albertsons Companies Inc. (NYSE: ACI) and Kroger announced that they would merge after Kroger acquired all the outstanding shares of Albertsons stock and Albertson’s paid a special dividend of some $4 billion to shareholders.
The special dividend, originally expected to be paid on November 7, remains an open question. The state of Washington Supreme Court has blocked the payment but earlier this week set a January 17 date to hear the company’s request to lift the temporary restraining order so that Albertsons can meet its rescheduled special dividend payment on February 9. Nearly 40% of the payout would go to two asset management firms, Cerberus, which owns about 28.4% of Albertsons stock, and Lubert-Adler, owner of nearly 11% of the stock.
Meanwhile, life goes on. Over the past three months, Albertsons share price has fallen by more than 18%, and over the past year, the shares are down more than 30%. The number of analysts covering the company has dropped from 20 to 17 since October, and 13 of those have a Hold rating. The other four have Buy or Strong Buy ratings, perhaps hopeful of a competing bid. At a recent share price of $21.00, the stock trades about 35 cents below its closing price on the day the deal with Kroger was announced.
Fiscal 2023 third-quarter revenue is forecast at $17.58 billion, which would be down 1.9% sequentially but up 5.0% year over year. Adjusted earnings per share (EPS) are tabbed at $0.67, down 7.6% sequentially and by 15.2% year over year. For the full fiscal year ending in February, Albertsons is expected to post EPS of $3.00, down 2.1%, on sales of $76.68 billion, up by about 6.7%.
Albertsons stock trades at 6.9 times expected 2023 EPS, 7.1 times estimated 2024 earnings of $2.96 and 7.2 times estimated 2025 earnings of $2.89 per share. The stock’s 52-week range is $20.05 to $37.99. Albertson’s pays an annual dividend of $0.48 (yield of 2.31%). Total shareholder return for the past year was negative 9.3%.
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Bed Bath & Beyond
Since spiking to a 52-week high in March, shares of Bed Bath & Beyond Inc. (NASDAQ: BBBY) have plunged by more than 70%. Over the past 12 months, the stock is down by about 90%, and the company warned on Thursday that there is “substantial doubt” that it can continue as a going concern. Some people expect a bankruptcy filing as early as this weekend.
The writing has been on the wall for a while now. None of the 15 analysts covering the stock has a Buy or better rating, while 12 have a Sell or Strong Sell rating. The stock trades about 65 cents below its median price target of $2.00 and light years from its high target of $7.50.
As for its third-quarter performance, the consensus revenue estimate is $1.35 billion, down 5.9% sequentially and 39.3% lower year over year. Bed Bath & Beyond is expected to post a per-share loss of $2.65, better than the prior quarter’s loss of $3.22 but much worse than the year-ago quarterly loss of $0.25 per share.
Before GameStop board chair and activist investor Ryan Cohen sold his nearly 12% stake in mid-August, shares of Bed Bath & Beyond had soared by a factor of nearly six since the beginning of the month. Retail investors (read: Apes) had piled into the stock and, just as quickly, exited on news that Cohen had sold. Before his sale, Cohen did get the company’s board to replace the CEO and add three new members. The new management quickly announced a turnaround plan that included closing 150 stores and firing 20% of its staff. The stock price has continued to sink, however. Investors are not convinced that those steps will shake things up much.
Analysts are skeptical too. Of 17 brokerages covering the firm, 12 have a Sell or Strong Sell rating, while five rate the stock at Hold. At a price of around $6.40, the shares trade at nearly double their median price target. At the high price target of $9.00, the upside potential is 40.6%. For the full year ending in February, the company is expected to post a loss of $9.29 on sales of $5.77 billion, down more than $2 billion from last year’s total.
Shares plunged to a new low of $1.27 Friday morning, and there is nothing to indicate that a white knight will arrive in time to save the day.
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