What to Watch This Week: Yoga Pants, Contagious Viruses, Netflix, and More
There's never a dull moment on Wall Street -- now more than ever! Let's go over some of the items that will help shape the week ahead.
1. Bummer for builders: I've made my case for why home prices are heading lower in the coming years, but now let's give an actual developer a say.
Hovnanian Enterprises (HOV) checks in with its quarterly report on Wednesday.
The good news is that analysts feel that the troubled homebuilder will only post a quarterly deficit that is roughly half as bad as last year's quarterly loss. The bad news is that Hovnanian is still losing money.
No one expects Hovnanian to be profitable anytime soon, and that has to be problematic. Hovnanian has to sell more homes -- at higher price points -- to change that, but that seems unlikely. What will happen to home prices as mortgage rates climb out of generational lows? How long will it take for banks to clear the glut of foreclosed properties?
There are some real estate developers with stronger financial footing than Hovnanian that will be able to weather the storm, but now it's up to Hovnanian to prove that it has what it takes to get to the eventual recovery.
2. Making the multiplex go viral: This is a seasonally sleepy time for theatrical releases. If studios had potential blockbusters they would have put them out earlier in the summer. However, the star-studded Contagion -- Time Warner's (TWX) thriller about a fast-spreading fatal virus -- will go into wide release next Friday. It looks promising, especially for a mid-September release.
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The year got off to a slow start for exhibitors, until the final installment in the Harry Potter series -- another Time Warner release -- came through with a monster showing in July. Movie studios will still need a strong showing over the final four months of the year to beat 2010's box office performance.
If this movie about a deadly virus proves infectious, exhibitors will be in good shape.
3. Yoga a Go-Go: Retail stocks come and go, but lululemon athletica (LULU) has delivered several quarters of market-thumping results as it heads toward its fiscal second-quarter report next week.
Its most recent quarter was another winner. Revenue grew by 35%, sparked by a 16% increase in same-store sales on a constant dollar basis. The Vancouver-based chain's earnings grew even faster. The real trend worth watching, though, is the upscale retailer's streak of blowing past Wall Street's profit targets. Check out how the past year has panned out when comparing analysts' expectations with what Lululemon ultimately reported on the bottom line:
EPS | Est. | Diff. | |
Q2 2010 | $0.30 | $0.24 | 25% |
Q3 2010 | $0.36 | $0.25 | 44% |
Q42010 | $0.64 | $0.57 | 12% |
Q12011 | $0.46 | $0.38 | 21% |
Source: Thomson Reuters
The pros are banking on net income of $0.22 a share out of Lululemon, well ahead of the $0.15 a share it earned a year earlier. If the trend is our friend, holding out for more than that is the way to go.
4. Food fight: Grocery shopping will also be in the spotlight next week, as supermarket giant Kroger (KR) reports its quarterly financials on Friday.
It's not just the grocer feeding investors next week. A pair of supermarket shelf stockers -- pork products giant Smithfield Foods (SFD) and organic foodstuffs distributor United Natural Foods (UNFI) -- will also be stepping up with their quarterly reports.
Despite fluctuating food costs and consumers adapting their shopping habits to the economic mood swings, all three companies should post bottom-line improvement.
5. Watch this: Shares of Netflix (NFLX) took its lumps Friday after the revelation that Starz (LSTZA) would let its multi-year content streaming deal lapse when it expires in February.
Netflix CEO Reed Hastings told Business Insider that Starz content was only accounting for 8% of the content being viewed through Netflix, and that it will simply earmark the money it intended to spend on renewing its Starz contract for other new content.
Well? The clock starts now, since Starz strategically announced its rebuffing on the same day that Netflix began charging disc-based subscribers for streaming access. Netflix will have to act quickly, and it would be a shock if the company doesn't at least come through with one major deal to announce next week.
Longtime Motley Fool contributor Rick Munarriz does not owns shares in any of the stocks in this article, except for Netflix. The Motley Fool owns shares of lululemon athletica. Motley Fool newsletter services have recommended buying shares of Netflix and lululemon athletica, as well as buying puts on Netflix.
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