Morning Market Feed, May 28th

The markets will re-open after a long weekend so it’s time to start looking at the week ahead of us. But first let’s look at what happened last week because due to the long weekend, it feels like ages ago. Let’s dive straight into it!

- INTU The Deep

During Friday’s trading session, Intuit shares closed the day down 8.35%. This happened after the company released earnings in which they reported lower-than-expected guidance. Not only was the EPS guide below expectations, but also the projected users of TurboTax were guided to be down from a year ago, which is never a very well-received thing by Wall Street. So what was the exact problem? As this article states by Barron’s, analysts expected guidance of $1.92, but Intuit guided for “only” $1.80 to $1.85 of EPS. So now that we know that the company will go out of business by WallStreet standards, let’s quickly glance over the actual numbers really quick, because maybe this one small-ish number disappoints in one way, the revenues it produced grew 17% YoY, and the $1.4 billion for FY’24 Turbo Tax is expected to bring in, is only about 8% of the total company. Quite the overreaction. Even more so as they upped guidance across the board.

- The Most Troubled Company In The Markets, According To Analysts

Last week I made the joke about needing to put everything in from an incredibly bearish take on this company, as this is how everybody writes about it. Even as the company is facing many struggles, for a large part due to the macro environment, it is the only stance the media seems to be able to take about the company. You can probably guess the stock already, but it’s Tesla. And just to be clear, I’m not defending the stock because I own it (I don’t), or because I’m an Elon fan boy (I’m not). But there was more bad news about the company over the weekend. Tesla slashed Model Y output by 20% from the Shanghai factory. Not really ideal as Musks said they will beat last year's 1.8 million deliveries, but this seems more, and more unlikely as the FED is also more unlikely to lower interest rates this year with every passing CPI report so far this year.
Musk also seems to be more distracted than ever as his newest start-up xAI has done a new funding round, at a valuation of $24 billion. And no, it doesn’t produce any revenues yet. We are at that level of sustainability again… But as Elon Musk says he doesn’t feel comfortable pushing AI at Tesla if he doesn’t have 25% of voting rights, he already set up another company to chase AI.

Model Y Output Cut
xAI Funding Round

- So What Will We See This Week?

Earnings. Not an incredible amount of them, but a few big ones. We will see Costco, Salesforce, and Dell. So on what day are they expected, and what do analysts want to see from these companies?

Costco - Costco will report on Thursday. Analysts expect EPS of $3.71 on revenues of $58.13 billion. As the retailer is now trading at a 53PE, and 46F/PE, the expectations are extremely high. These levels are extremely overvalued in my opinion, as this is quite a bit higher than Nvidia for example. Costco is seen as way more predictable due to the membership. Those memberships will need to keep growing at about 7% YoY, at a retention rate in the high 92%.

Salesforce - After last week’s earnings report from Workday, investors will be looking at how Salesforce is doing this quarter. Analysts will be looking for at least $2.37 of EPS, on $9.151 billion of revenues. Shares in the company are down about 15% from the highs after the company was rumored to acquire Informatica which wasn’t very well received by investors, but then didn’t go through. The buy-out was poorly received as the company was supposed to be more capital-efficient with more organic growth, so investors probably want comments on that situation. Eyes will also be on the performance obligations.

Dell - After receiving a shout-out from Nvidia, Dell is basically an AI company. They are not, but since Nvidia said their name, they are. Shares are also up 115% YTD because of it. Is this supported by revenue growth or earnings growth? No, not really, but that doesn’t seem to matter. Analysts are looking for $1.27 of EPS, on $21.71 billion of revenues. Matching this EPS number would mean growth of….. -3%. I do need to say, in order to say fair, that in the past 8 quarters I have in front of me, Dell has smashed EPS expectations on all of them. Revenues seem to be more susceptible to misses of expectations, as they did so twice in the past 8 quarters with the other 6 having slight beats.

- What About The FED This Week?

There are no real big releases this week except for Thursday and Friday. On Thursday we will see the PCE numbers, the FED’s preferred inflation gauge. We will also see Q2 GDP Growth estimates and Q2 corporate profit estimates. On Friday we will see the personal income and personal spending numbers MoM.

Now let’s see what the markets will bring today and I will talk to you again tomorrow!