As we enter the heart of earnings season, bigger moves in both directions are likely to define the stock market in the near term. Some companies will impress while other will disappoint.
Here we highlight three of the stocks that are likely to fall into the impress category based on their favorable industry dynamics and analyst opinions. Traders looking for a compelling earnings playshould keep these January earnings reports on the radar.
Will Navient Top Earnings Expectations Again?
Navient (NASDAQ:NAVI) is a mid cap financial company that is a leader in consumer lending and private and government education loan servicing. It also provides lending and business processing solutions for a range of other healthcare and government customers.
This may not sound like a particularly exciting business, but Navient has put together some strong results in recent quarters. It is coming off two straight earnings beats including last quarter's 27% bottom line surprise.
Aided by a surge in demand for consumer loans during the pandemic, earnings are expected to have risen 23% in 2020 on the heels of 26% EPS growth in 2019. Last quarter consumer lending revenues surged 39% and likely remained strong in Q4 amid a weak unemployment landscape.
This stock has nearly doubled off its March 2020 bottom but may have a way to go. It is still dirt cheap at 0.5x sales and 4x forward earnings.
Analysts are looking for Navient to turn in another solid quarter when it reports after the close on January 26th. The most recent opinions issued on the Navient shares (which are trading around $11) gave it price targets ranging from $12 to $14.
What is Driving Growth at Hologic?
Another company with good momentum heading in its earnings report this week is Hologic (NASDAQ:HOLX). The maker of diagnostic and medical imaging equipment caters mostly to women—and historically, that has suited its financial performance just fine.
More recently, increased demand for Hologic products from hospitals, imaging centers, pharmaceutical companies, and other healthcare organizations is driving some nice results—and a higher stock price.
Last quarter Hologic recorded some phenomenal results. Led by high demand for molecular diagnostic systems and COVID-19 assays, adjusted EPS more than tripled to $2.07 crushing the Street's forecast of $1.19.
Management plans to capitalize on the strong earnings and the current environment by investing in new products and seeking acquisition opportunities. Together, these initiatives stand to produce robust growth over the next couple of years.
Perhaps the most attractive aspect of the Hologic's business is its razor-razor blade type revenue model. More than half of its sales are derived from consumable and disposable products that its customers purchase after they buy the more expensive medical devices and systems.
When Hologic reports December quarter results on January 27th it is likely to be déjà vu. Analysts are anticipating 45% earnings growth, but after last quarter's blowout numbers and elevated COVID-19 product demand during the worsened winter months, even this growth forecast may be conservative.
Is Weyerhaeuser Stock a Buy Before Earnings?
Weyerhaeuser (NYSE:WY) reports on January 29th and if surging lumber prices are any indication the stock is likely to pop. Now a REIT, the company is the country's largest private owner of timberlands with more than 12 million acres across the U.S. and Canada.
Thanks to a jump in new home building activity, lumber has been one of the hottest commodities of late. Chicago lumber futures rose to an all-time high this past summer and are trading around $800 per 1,000 board feet. And with many smaller lumber mills being forced to shut down during COVID-19 and winter weather cooperating with homebuilders, Weyerhaeuser should reap the rewards of near-record lumber pricing for some time.
Meanwhile, the company's reinstatement of its dividend should be amenable to investors. With a 4.8% forward dividend yield and a clear growth catalyst in its pocket, Weyerhauser may be the S&P 500's most attractive REIT investment.
After posting a slight loss in the same period last year, the market will be looking for EPS of around $0.40. Leading analysts at Citigroup and RBC Capital both call Weyerhaeuser a 'Buy' and have $37 and $40 price targets, respectively. It wouldn't be surprising to see these targets get bumped higher later this week.
The thesis is straightforward on this one. Rapidly increasing lumber prices should drive strong results for the recent quarter and give management the confidence to offer a bullish outlook for 2021. Weyerhaeuser stock has already climbed back above its pre-pandemic level but isn't going 'timber' anytime soon.
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