Head of Saxo Strats
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.
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.
