GameStop Earnings on Tap as End of Q3 Season Nears

Earnings season is quickly winding down, but there are still a handful of notable names left to report, including Toll Brothers (TOL, $68.65), GameStop (GME, $170.67) and Costco Wholesale (COST, $530.69) – each of which will unveil their results this week.

Corporate results have overall been solid so far, with 39% of S&P 500 companies reporting year-over-year growth in earnings – the highest since the second quarter of 2010, says John Butters, senior earnings analyst at FactSet Research Systems.

Top of mind have been supply-chain issues and rising inflation. According to Butters, the term "supply chain" has been mentioned by 342 S&P 500 companies so far this earnings season, the most since at least 2010. The materials and consumer staples sectors have had the most mentions, in terms of the percentage of companies, at 96% apiece, followed by industrials (94%) and consumer discretionary (80%).

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As far as price pressures, "the term 'inflation' was mentioned at least once during the earnings conference calls of 290 S&P 500 companies from Sept. 15 through Nov. 16," Butters adds.

Still, most companies have turned in strong results, with 82% of S&P 500 companies exceeding analysts' earnings per share (EPS) estimates so far. Per Butters, this is the fourth highest percentage since FactSet began tracking the data in 2008.

Analysts Bearish Ahead of GameStop Earnings

The hype around GameStop has eased in recent months, with the meme stock mostly range-bound between the $170 and $220 price points since late August. True, that $50 trading range would be considered wide for several stocks, but for GME, it's fairly muted when compared to the stock's wild short-squeeze-fueled swings from earlier this year.

The video game retailer is still set to end 2021 on a high note – at least on a share-price basis. GME is up more than 800% so far this year.

But while Wedbush analyst Michael Pachter believes GameStop is "well positioned to be a primary beneficiary of the new console launches" and remains optimistic the company could be profitable in fiscal 2021, it is currently trading at levels "that are completely disconnected from the fundamentals of the business."

He has an Underperform rating on GME, which is the equivalent of a Sell. And he's in good company, too. The consensus rating of the four analysts covering GameStop tracked by S&P Global Market Intelligence is Underperform, while their average price target of $37 is well below the stock's current per-share price.

As for GME's fiscal third-quarter earnings report, due out after the Dec. 8 close?

Wall Street pros are targeting a per-share loss of 52 cents, a slight improvement over the 53 cents-per-share loss it posted in the year-ago period. Revenues, meanwhile, are projected to arrive at $1.2 billion, up 20% year-over-year (YoY).

Big Build Expected in Toll Brothers Earnings

What's in store for Toll Brothers?

There's no denying that the housing market has been hot in 2021. "Flight to safety from the pandemic and more living space have been a boon for single-family housing in the suburban housing market," says CFRA Research analyst Kenneth Leon.

And while he believes homebuilding still has room to run due in part to a housing shortage, "headwinds remain on home deliveries from supply-chain bottlenecks, higher material costs and a shortage of skilled labor."

Still, "TOL has pricing power with very high demand for luxury and near-luxury homes, as more U.S. households seek new single-family homes, partly tied to COVID-19 impact," Leon writes. And as "the market leader for luxury homebuilding," Toll Brothers is seeing strong demand across most of its markets. He currently has a Buy rating on the stock.

The company's fiscal fourth-quarter earnings report is scheduled on the earnings calendar for ahead of Tuesday's open. Analysts, on average, are looking for revenue to rise 15.3% from the year prior to $2.9 billion. That will fuel a 60.6% YoY surge in earnings to $2.49 per share.

But Wedbush analyst Jay McCanless (Neutral) is targeting even higher earnings of $2.59 per share for the homebuilder. Among the things McCanless will be looking for in the company's earnings call is pricing power, considering TOL "said it was raising prices in its fiscal third-quarter report."

Additionally, the analyst will watch for updates on Toll Brothers' stock buyback program. "TOL bought 1.7 million shares in its fiscal third quarter and indicated a similar amount would likely be repurchased in its fiscal fourth quarter," he wrote in note.

Can Earnings Help Costco Resume Its Uptrend?

Costco Wholesale will release its fiscal first-quarter earnings report after the Dec. 9 close. The stock's long-term ascent up the charts recently stalled due to broad-market omicron-related headwinds, but the shares are still more than 40% higher for the year-to-date.

In its fiscal fourth-quarter earnings call, the retailer discussed the ways it is navigating supply-chain disruptions and rising inflation, including putting limitations on key items like toilet paper and Kirkland Signature water. Additionally, Richard Galanti, chief financial officer for Costco, said the firm was raising some prices due to higher costs, though it is being "pragmatic" about price increases.

"Amid an inflationary backdrop, Costco has effectively balanced sales growth and profit in recent quarters with reinvestment," says Stifel analyst Mark Astrachan.

"Our Buy rating on COST shares reflects its status as a best-in-class retailer, underpinned by its strong value proposition to consumers, which we expect to result in continued outperformance versus peers and market share gains," he adds. "Expectations for a membership fee price increase is a further potential catalyst for COST shares."

For COST's fiscal first quarter, the pros' consensus estimate is for earnings of $2.61 per share, up 13.5% year-over-year. Revenue is projected to land at $49.1 billion, a 9.2% improvement over its year-ago results

Astrachan, for his part, is expecting slightly higher earnings of $2.63 per share on marginally lower revenue of $48.9 billion.