Yahoo Finance 5 Stocks to Watch This Week -- NFLX C IBM UAL GE
Well-rested investors will return to Wall Street for a holiday-shortened week that's anything but short on fireworks potential.
Investors and traders alike can expect more volatility courtesy of President-elect Donald Trump in the lead-up to his Friday inauguration. Trump didn't even wait for the holiday weekend to end, lashing out at vehicle imports from Germany and Canada that sent a few automakers' shares for a loop.
Moreover, the fourth-quarter earnings slate this week includes several reports from hot-running stocks, including Netflix, IBM and United Continental Holdings. Here's a look at what's in store from these and a couple other companies this week:
Netflix (ticker: NFLX): Netflix has an exceedingly high bar to clear on several fronts when the streaming content provider reports fourth-quarter earnings on Wednesday afternoon.
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For one, Q4 expectations are lofty, with Wall Street expecting 30 percent income growth to 13 cents per share and 35 percent revenue growth to $2.47 billion. But NFLX also must follow up a third-quarter report that blew the doors off Wall Street's expectations, while convincing investors to bid up shares that sit at all-time highs and trade at 140 times next year's earnings estimates.
Whether it can do so will be up to a weighing game.
On the one hand will be Netflix's still-robust growth. A continued push toward original content such as "Stranger Things" and "Narcos" has the company expecting even more impressive subscriber growth than in Netflix's blockbuster Q3. Netflix says it will add 1.45 million U.S. streaming subscribers and 3.75 million internationals in Q4, versus 370,000 and 3.2 million, respectively, last quarter.
On the other hand will be Wall Street's stomach for increased costs. Netflix said it plans to ramp up original content from 600 hours in 2016 to more than 1,000 in 2017 -- and while that original content is getting credit for reeling in viewers, it's also an expensive and riskier endeavor that could weigh on Netflix's margins.
IBM (IBM): IBM has already surged some 40 percent in 12 months' time, and when it reports earnings after Tuesday's bell, there's an outside chance it could spark yet another leg higher.
Analysts expect IBM's profits for the fourth quarter to inch ahead by about 1 percent. But the real number to watch is revenues, which are pegged to come in 1.7 percent lower at $21.69 billion. That's a small enough margin of error that if IBM can put up a small beat -- posting breakeven or just a tiny improvement to the top line -- it will finally end an 18-quarter streak of declining revenues that stretches back to 2011.
IBM came close last quarter, with revenues dipping just fractionally as the IT company continued to make gains in cloud and security, helping to offset weakness in its legacy businesses. Societe Generale's Richard Nguyen, who has a "hold" on IBM shares, is hopeful that digital services could continue to grow by double digits to help drive that bottom line. He also expects gross margins to expand 70 basis points in the quarter.
IBM doesn't need to break the streak to demonstrate the improvements in its business that investors have long been thirsty for, but the headline value of changing the tide could generate plenty of bullish sentiment and excitement in this old-guard tech titan.
Citigroup (C): Given the reaction among big bank stocks after Bank of America Corp. ( BAC), JPMorgan Chase & Co. ( JPM) and Wells Fargo & Co. ( WFC) reported last Friday, well, it's difficult to tell exactly what Wall Street is going to do with Citigroup's earnings on Wednesday morning. Banks started the day with a huge move at the open before settling for more modest gains.
But at the very least, Citigroup appears to be set up for success.
For one, C shares have underperformed JPM and BAC for some time, including following the postelection run in bank stocks. And it has merely kept pace with Wells Fargo, which isn't saying much considering that financial stock's struggles in the wake of a massive fraud scandal. Moreover, Citigroup trades at just 80 percent of book, and at 11 times future earnings -- so they appear to have some value to spare.
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Guggenheim Securities sees net interest margins improving significantly in 2017, thanks in large part to the Federal Reserve's interest rate hike in December, but it also believes margins will improve "modestly" for the fourth quarter.
The bar is modest, anyway. Profits are expected to move ahead by less than 6 percent to $1.12 per share on a 7 percent revenue decline to $17.3 billion.
United Continental (UAL): United Continental has a profitability problem. Specifically, it's the least profitable U.S. based-carrier, according to a study by Airline Weekly.
That's the driver behind a few recent UAL headlines.
At this point, most everyone has heard that United is planning on offering a new low-fare class that, based on other airlines' offerings, is likely to offer few (if any) frills and not allow for reserved seats. The strategy would help United better compete against the likes of Allegiant Travel Co. ( ALGT), which ranked as the most profitable.
Also, Executive Vice President Mike Bonds wrote a memo earlier this month to United employees saying that the company would be trimming management to help prop up margins.
Expectations for United's Q4 results are low, with Wall Street projecting breakeven revenues at $9.03 billion and profits off 33 percent to $1.69 per share. Still, investors might want to be worried heading into Thursday afternoon's report. UAL shares are overheating after 60 percent gains in the past six months, and analysts including Cowen and Morgan Stanley have already downgraded the stock in January.
General Electric Co . (GE): Wall Street isn't expecting much out of GE, either, including an 11 percent decline in profits to 46 cents per share and a 0.5 percent slide in revenues to $33.66 billion. Worse, the January/February put-call open interest ratio of 1.36 isn't telegraphing much optimism.
But the highlight of Friday morning's report likely won't be earnings -- it will be the future of Baker Hughes ( BHI) within the industrial conglomerate. GE's oil and gas businesses, which will be spun off as its own entity as part of the merger with BHI, will become the world's second biggest oil field services provider.
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Given the unreliable nature of the oil and gas unit, any positive developments on the merger front (namely, a quick timetable) should excite shareholders. That in turn could get GE over the hump; shares currently sit around $32 -- a multiyear high that rejected GE a couple times in 2016.
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