Head of Equity Strategy
Summary: In today's equity update we take a quick look at earnings from Home Depot, Walmart, and Sea which overall are good. Home Depot results were mostly in line with a small disappointment on same-store revenue growth. Walmart is raising its outlook for the current fiscal year but reported surprisingly low revenue growth of only 6% in its online segment. Sea is still a growth engine in the Southeast Asia region with insanely high growth rates in both its e-commerce and gaming segments although costs were running higher in the quarter than what analysts had expected.
The earnings season is alive this and in US pre-market session we have got earnings from Home Depot, Walmart, and Sea. While these earnings releases are drowning a bit in today’s news around a worse than expected US July retail sales and generally weak sentiment in equities driven by Asia, they are still worth interpreting and what they mean for the respective industries.
Pandemic tailwind wanes for Home Depot
Revenue in Q2 came in at $41.1bn vs est. $40.7bn up 8% y/y, but same-store revenue was a 1%-point below estimates showing top line was driven by new outlets. EPS in Q2 was $4.53 vs est. $4.42 up 13% y/y. Sell-side analysts expect both revenue and earnings growth to grind to a halt in the current quarter as the reopening of the economy is curbing demand for do-it-yourself home improvement, while the professional wholesale market is still performing well due to rising housing starts in the US. Sell-side analysts are still mostly positive on the stock with a consensus price target of $344.
Walmart lifts forecast and warns of supply disruptions
The US consumer is still in a healthy mode with Walmart reporting Q2 revenue of $141.1bn vs est. $137.1bn and adjusted EPS of $1.78 vs est. $1.57 and lifting guidance for the FY to $6.20-6.35 compared to estimates of $6.03. Sam’s Club same-store revenue excluding gasoline was up 7.7% vs est. 3%. The largest US retailer says on the conference call that supply disruptions are still an issue that will persist into 2022. The retailer’s online revenue growth was only 6% y/y which is the lowest growth rate in four years highlighting that consumers are changing their behaviour.
Sea raises outlook on demand for e-commerce and gaming
Sea, one of the fastest growing companies in the Southeast Asia region, reported stronger than expected Q2 figures raising its revenue outlook for its e-commerce and gaming segments. Its Q2 adjusted EBITDA was $-24mn vs est. $117.7mn causing a bit more mixed result than what the top line figures would indicate. Competition is becoming fierce in key markets in South America against MercadoLibre and local players in the Southeast Asia region causing Sea to heavily subsidize its e-commerce business from its profits in gaming.
AI: The good, the bad, and the bubble
While a deep recession may not be iminent thanks to central bank policy, interest rates will have to stay high for longer, and this will be accompanied by volatility risk from the unwinding of bubbles, especially within AI.
Steen Jakobsen,
Chief Investment Officer
The emergence of advanced AI systems is by far the most surprising event this year, turning everything upside down, while risks and benefits are debated. AI will also become an arms race between the US and China.
Peter Garnry,
Head of Equity Strategy
As China navigates global fragmentation, its cycle of technology application, productivity enhancement, and growth is threatened by US breakthroughs in generative AI, limited computing power, and geopolitical tensions.
Redmond Wong,
Market Strategist
Japan’s expertise in semiconductors and robotic integration could be the foundation of AI dominance. Combining two of this year's themes, Japanese equities and artificial intelligence, brings a wave of opportunities.
Charu Chanana,
Market Strategist
The AI fever has turned the technology into a darling, pushing crypto further into no-man’s-land. There are striking similarities between AI and crypto, and if these are to come full circle, AI won't be spared for bubbles.
Mads Eberhardt,
Cryptocurrency Analyst
Stocks related to artificial intelligence (AI) have appeared on investors' radars. Expectations are high, but it may be necessary to consider how to get exposure to AI in a diversified way.
Hans Oudshoorn,
Trainer Academy
The USD is on its back foot as markets celebrate an eventual Fed rate peak and steady long US yields. The stakes are even higher for the Japanese yen if longer major sovereign yield curves have to price in economic acceleration.
John J. Hardy,
Head of FX Strategy
While commodities, broadly speaking, have faced some tough months, a partial reversal during June could signal that the asset class is getting back on its feet with energy holding up and precious metals with upside potential.
Ole S. Hansen,
Head of Commodity Strategy
As inflation remains high central banks face hard decisions about whether they should keep hiking interest rates or stop. Meanwhile, the rise of AI creates bubble-like conditions that only make the decision harder.
Althea Spinozzi,
Senior Fixed Income Strategist
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