Lululemon (LULU): All signs are pointing to a beat heading into this afternoon’s report. Lululemon’s position in the rapidly growing athleisure market has been driven by superior product designs and premium pricing. Initiatives to improve online sales and expanding its men’s line also bodes favorably. The stock is up nearly 47% year to date and historically jumps between 2-3% in the 30 days following a report. Currency headwinds have been an ongoing problem for the apparel retailer and could have an adverse impact on top line growth.
Ambarella (AMBA): Ambarella has delivered strong earnings since its IPO in 2014 but that hasn’t always been enough to please investors. The stock is making a comeback though, up 24% year-to-date. Unfortunately, some Ambarella’s success is contingent on GoPro which has posted negative revenue growth in each of the past 3 quarters.
The GoPro chipmaker has had a great run since IPOing in 2014, beating the Estimize EPS consensus in all 8 quarters despite the struggles of its biggest client. However, those results started to crack last quarter, with the expectation that negative earnings growth will continue in FQ2 2017. GoPro reported earlier in the season and although they beat on the top and bottom-line for the first time in 3 quarters, growth was deeply negative for both.
Some predict that the release of GoPro’s Hero 5 camera ahead of the holiday season could be a saving grace for AMBA. Even if that doesn’t turn out to be the case, the semiconductor is attempting to diversify its top line away from action cameras and drones and into less volatile products.
Broadcom Limited (AVGO): The company is over a year removed from the deal that merged Avago Technologies and Broadcom Corp. It is now an industry leader in the semiconductor space. Broadcom’s extensive product portfolio and focus on multiple markets and geographies has helped drive earnings in recent months. The company’s position in the market is only expanding moving forward. A three-year agreement with Apple to supply the iPhone with RF components and modules could be a huge win if the iPhone 7 lives up to its lofty expectations. Overall though, Broadcom can count on its wireless segment to deliver over 20% growth due in large part to the smartphone market.
Smith & Wesson (SWHC): After every mass shooting the discussion of gun control starts to inundate mainstream news. Just the threat of more stringent restrictions leads gun enthusiasts sprinting to buy new guns and ammunition. This has been seen in shares of both SWHC and RGR which despite a rollercoaster year, are up 30% and 3%, respectively.
While earnings appear promising on the surface, growth has decelerated over the past 2 quarters, from triple digits in FQ2 and Q3 2016, to 47% last quarter. Reported earnings have surpassed the Estimize EPS consensus in each of the last 7 quarters, and investors will want to see that trend continue on Thursday to justify any continued rally in the stock. The firearm manufacturers trade at a high price to sales ratio which is not supported by its current share prices.
VeriFone (PAY): Last quarter’s dismal earnings spurred a sell off that dropped the stock nearly 26% in the past 3 months. Since then the company has faced a number of challenges in Asian and Latin markets. Even North American markets have shown signs of slowing down. Its new restructuring plan should help stimulate long term growth but in the short term we should still expect to see some headwinds. They are continuing to benefit from the adoption of new solutions from Apple, Google and Samsung as payment industry turns digital. Any surprise would likely be enough to reconcile some of its losses from the past quarter.
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