Week of October 12: COVID-19 Corporate Event Impact Report
- COVID-19 trend data is a key high-frequency economic indicator.
- Earnings season is on the doorstep with the new normal of work-from-home still in place.
- Key analyst day events will shed some light on the business environment as we approach the key holiday shopping season.
COVID-19 - Mobility Trend Data
The new US hot spots are parts of the Midwest. Will this portend a tough late autumn and wintertime second wave for the US? That’s the big question. Cases and hospitalizations continue to mount in Europe, too. Interestingly, mobility trend data suggests Europeans are still traveling as if everything is not far from normal, but recent restriction measures in the UK and France could lead to fewer people going out and about. Mobility is a key high-frequency economic indicator, so if we see more people staying at home that will have negative consequences for the economy and financial markets. Money managers need to continue to track the situation closely as we approach the all-important holiday shopping season.
Ready or Not, Here Come Earnings
It seems like earnings season just wrapped up, but the Q3 reporting period begins shortly. A few announcements will trickle in through mid-month, but the bulk of companies start to report next week. The major earnings stretch will be from Tuesday, October 27 to Thursday, November 12. The quarter will feature GDP growth that stalled across the developed world. Real-time economic data indicates that the global economy expanded sharply from mid-April through June, but then flat-lined through September. Nevertheless, the US is expected to report Q3 annualized GDP at 30%+ from the prior quarter. Mega cap technology and online retail will dominate the S&P 500’s earnings figure for the quarter as the ‘quarantine’ trade was in full swing. On a more sour note, it will be a dismal reporting period for oil & gas companies as the sector struggles to stay solvent with low energy prices and a push to renewables. Just recently, NextEra, a leader in green energy, overtook ExxonMobil and Chevron to become the biggest energy/utility firm in America.
Suspended & Resumed Dividends
A key metric we track at Wall Street Horizon is the number of firms suspending and resuming dividends. A company’s dividend is a signaling mechanism – executives prefer to raise it whenever possible to show the investing world that business operations are stable and future cash flow will be strong. A dividend cut is an ominous sign, often a last-ditch effort by management to shore-up capital to pay debts.
2020 has been a tough year for many industries including restaurants, real estate firms, and oil & gas producers. COVID-19 has created the “K-shaped” recovery in which some industries are thriving while others are seemingly left for dead (barring an unexpected sharp return to pre-COVID activities). The good news this week is that more firms are resuming dividends versus slashing dividends. Our scan reveals that Darden Restaurants, operator of Olive Garden and The Capital Grille, has resumed its dividend effective September 24. Marathon Oil Corporation, a major energy firm listed on the S&P 500, has also resumed its dividend effective October 1. Two real estate companies hit our list – Mack-Cali Realty Corp suspended its dividend on September 30 while Granite Point Mortgage Trust resumed its dividend effective September 28.
Investor Conference Lineup
Jefferies Financial Group hosts its Annual Investor Meeting 2020 on October 15. The major financial services and capital markets firm has seen its stock price range from $24 at the pre-COVID February high to a trough of $11.20 at the bottom of the COVID-crash. It’s been a steady grind higher from the spring, however, with JEF trading back near $20. The IPO market has been hotter than blazes in the last several months in terms of the performance of newly-issued companies. Portfolio managers should be on the lookout for positive business developments from the firm. CEO Richard Handler will present, among other executives.
In the technology space, Hewlett Packard Enterprise (HPE) holds its Analyst Meeting 2020 on Thursday as well. The work-from-home and learn-from-home ‘new normal’ will surely be a topic for the computer company. HPE split from Hewlett-Packard in 2015. HPE is focused on business enterprises in the server and storage spaces. The massive shift away from the corporate office to the home office has undoubtedly changed computer and storage usage. Any clues to possible shifts back to the office will be important to hear during this event.
Finally, Sanderson Farms hosts its Investor Day 2020 on Friday. Not only are the work-from-home and learn-from-home trends in place, but so too is eat-at-home. While high-frequency restaurant reservation data suggests more people are eating out versus six months ago, many choose to play it safe and at the kitchen table. Sanderson Farms, US’s third-biggest poultry producer, has seen its stock price decline from $179 late last year to $125 today. Several topics will be discussed up and down the supply chain with final remarks from the CEO on the latest marketing strategy as the consumer continues to shift to healthier options.
Upcoming Earnings that Previously Had a Preliminary Date
Companies will occasionally announce information in advance of their usual earnings date. It’s a means by which to warn investors for either good news or bad. Tracking these situations is important to staying abreast of the latest happenings within an equity portfolio. Four names with upcoming earnings dates that had a preliminary announcement are Steel Dynamics, Lithia Motors, Theratechnologies, and Fortive Corporation. Portfolio managers should be on guard for the possibility of unusual information being disclosed within these earnings reports later this month.