Head of Saxo Strats
Summary: Three big earnings releases from Walmart, Home Depot, and Sea Ltd are out ahead of the US equity market open with Walmart showing a positive surprise on its operating margin and an upward revision to the FY result pushing Walmart shares up 7% in pre-market trading. Home Depot is delivering a decent Q3 result, but investors are worried over the lower transaction volume indicating that the positive surprise against estimates is purely an inflation phenomenon and not due to operations. Sea Ltd is up 17% in pre-market trading as the gaming and e-commerce company is losing less on its operations than feared.
Walmart: Raises outlook, shares rising 7% in pre-market
The largest US retailer reported FY23 Q3 (ending 31 October) revenue of $152.8bn up 9% y/y beating estimates and adj. EPS of $1.50 vs est. $1.32 while announcing a $20bn buyback programme. The third quarter result is so strong that Walmart is increasing its FY outlook on adj. EPS to -6% to -7% y/y from previously -9% to -11%. The 12-month trailing revenue figure eclipsed $600bn for the first time in its history. As we have seen throughout this Q3 earnings season, retailers and consumer industries have been able to either preserve or expand operating margin. Walmart is valued at 12-month forward EV/EBITDA of 11.6x compared to 12x for the S&P 500 Index. Other US retailers such as Target, Costco, and Dollar Tree are responding positively in pre-market trading.
Home Depot: Q3 beats estimates while transactions decline
The largest US home improvement retailer Home Depot reports FY23 Q3 (ending 31 October) revenue of $38.9bn vs est. $37.9bn up 6% y/y and EPS of $4.24 vs est. $4.13 as the US consumer remains in good shape despite inflation and higher cost of living. Home Depot is confirming its fiscal year guidance. Shares are down 1% in pre-market trading after an initial reaction of +2-3%. The reason is likely comments from management that transactions declined indicating that revenue growth is driven by inflation and not higher activity.
Sea Ltd: Narrower Q3 loss kickstarts rally in pre-market trading
The Southeast Asian gaming and e-commerce company reports Q3 revenue of $3.16bn up 17% y/y beating estimates and Q3 adj. EBITDA is $-357.7mn vs est. $-457.4mn as the company struggles to become profitable. Sea Ltd is not issuing any FY23 guidance suggesting too volatile an operating environment. The fiscal year bookings in its gaming business is now $2.6-2.8bn down from previous guidance of $2.9-3.1bn. Despite no clear cut rosy Q3 earnings release investors are pleased with the beat on EBITDA despite gaming activity is slowing down sending shares 17% higher in pre-market trading.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
