5 Stocks to Watch This Week 9/28: COST, DMND, PAYX, MU, MKC

Tuesday, September 29

Wednesday, September 30

Thursday, October 1

Costco Wholesale (COST)

Consumer Staples – Food & Staples Retailing | Reports September 29, before the open

The Estimize consensus calls for EPS of $1.67, a penny higher than Wall Street. The Estimize community is also expecting higher revenues of $36.64B vs. the Street’s expectation for $36.28B.

What to watch: Same store sales (SSS), while initially immune to the stronger dollar, has taken a dip in the last couple of months. During the Costco’s second fiscal quarter (December – February) SSS came in at 2%, then falling to -1% for Q3 and Q4, with August numbers reported last week coming in at -2%. The negative impact of the stronger dollar has caught up to Costco, and declining oil prices has affected their gasoline sales. Despite these weak spots, there are still a few positives for the company. Costco announced earlier in the year that they were ending their exclusive credit card partnership with American Express in favor of a new deal with Visa. Credit card fees will now decline to nearly 0% from 0.6% under the Amex agreement. It’s also likely the company will increase membership fees in the near future, as the last raise was in 2011 and they tend to up prices by $5 on a 5 year cycle. The rate of expansion has also kept its pace, with Costco opening approximately 30 new warehouses a year. The company has recently come under fire for selling counterfeit Tiffany & Co. rings and was ruled by a federal judge to pay damages which will certainly impact next quarter’s bottom-line.

Diamond Foods (DMND)

Consumer Staples – Food Products| Reports September 29, after the close

The Estimize consensus calls for EPS of $0.23, a penny higher than Wall Street. In contrast, the Estimize community is expecting revenues of $204.88M, slightly lower than the Street’s prediction of $205.40M.

What to watch: Diamond Foods has been growing at an incredible rate, with YoY EPS increasing by triple digits in fiscal Q3 and Q4 2014, and again in Q2 and Q3 in 2015. Revenues on the other hand have been lagging in the low single digits, and even turning negative last quarter. On the brightside, the food manufacturer has benefitted from offering healthy snacking options such as its Emerald and Diamond of California brand nuts at a time when consumer tastes are shifting towards these items. The company also bought a majority stake in Yellow Chips last  month, a Netherlands-based company that makes vegetable and organic chips. Investors will be looking for comments on tomorrow’s call regarding the effect the California drought has had on nut production. Add to that that the company is still trying to mend relations with nut growers after being accused of making irregular payments to them in 2011. The company has a good partner in Wal-Mart, however, which remains its largest customer with 10% of sales.

Paychex Inc. (PAYX)

Information Technology – IT Services | Reports September 30, before the open

Both Estimize and Wall Street are looking for PAYX to report EPS of $0.51. The revenue consensus is slightly higher at $719.7M vs. the Street’s $717.2M.

What to watch: Paychex is a provider of payroll and human resource solutions and is often seen as a proxy for the health of small and mid-sized businesses as those are their biggest customers. Small businesses make up 95% of all US businesses, and the road back from the great recession has been rough, with growth trends still slow but gradually improving. A stronger labor market has no doubt helped the company as has their move into cloud-based solutions. The success of their services that help clients understand the Patient Protection and Affordable Care Act should also give a boost to quarterly earnings. However, massive competition still remains from smaller, cloud-based applications such as those offered by Trinet and Zenefits. Another headwind could be the impending interest rate increase, which many Fed watchers believe will happen this year. The impact rate tightening has on small businesses could negatively affect Paychex’s sales.

Micron Technology (MU)

Information Technology – Semiconductors | Reports October 1, after the close

The Estimize consensus calls for EPS of $0.45, much higher than Wall Street’s estimate of $0.37. Revenues are expected to come in at $3.65B above the Street’s estimate of $3.60B and guidance of $3.57B.

What to watch: Semiconductors have struggled this year with the strength of the US dollar and the freefall of the PC market eating into the bottom-line. However, Micron was surprisingly able to persevere in the first and second quarters, a trend that all came crashing down in Q3 when YoY EPS growth fell 32% and revenues declined 3%. Competitors such as Intel and SanDisk also posted big misses in the latest quarter. Micron has done a monstrously poor job in the past with its Japanese yen hedging, and after lacking an official CFO in the beginning of the year, appointed Ernie Maddock to the position in May to lead the charge on protecting foreign sales from currency swings. While the strength of the US dollar remains a concern, as does the decline in PC sales. Micron remains very exposed to PCs as DRAM is its largest business with about 70% of the consolidated revenue, and PC is about 35% of that. Micron’s largest market on the NAND side is also PC centric, it supplies 20-30% of those bits to its consumer solid state drives. Thus far, the company’s stock is down 56% this year.

McCormick & Co. (MKC)

Consumer Staples – Food Products | Reports October 1, before the open

The Estimize consensus calls for EPS of $0.88, one cent above Wall Street and company guidance. Revenue estimates are roughly in-line at $1.05B.

What to watch: Like others in the space, McCormick is aggressively taking on the natural foods space as the demand for healthy products reaches a fever pitch. The company is beginning to offer several organic and non-GMO products as a result, mainly in their herbs and spices portfolio as it is a leader in that category. Demand for these herbs and spices is quickly replacing demand for unhealthier flavorings such as salt, sugar and fat. McCormick has committed to making 70% of its herbs, spices and extracts non-GMO by 2016. The company has also been investing heavily in brand marketing, and is banking on several of its recent acquisitions to boost sales in the second half of the year. The company has acquired three companies this year including Drogheria & Alimentari, One World Foods and Brand Aromatics. McCormick has also amped up its innovation around new products including slow cooker sauces that will be released in time for the fall, as well as gluten free recipes. Higher pricing may soon come into effect as the company battles higher material costs.

 (Photo Credit: stu_spivack)

Source: 5 Stocks to Watch This Week 9/28: COST, DMND, PAYX, MU, MKC


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