stocks

Analyst: FedEx Stock Has Upside Potential Ahead of Earnings

Our preview of the upcoming week's earnings reports includes FedEx (FDX), KB Home (KBH) and Darden Restaurants (DRI).

FedEx (FDX, $227.14) headlines this week's light earnings calendar, with the shipping giant slated to report its fiscal fourth-quarter results after the June 23 close.

FDX made waves last week when it announced a massive dividend hike – boosting its quarterly payout by 53% to $1.15 per share. Additionally, the company said it would add three new board members as part of a deal with activist investor D.E. Shaw and unveiled a redesigned executive compensation aimed at boosting overall share performance.

The industrial stock jumped more than 14% on that news, but remains 12% lower on a year-to-date basis.

Can FedEx's upcoming earnings report help shares chip away at this deficit even more?

While macroeconomic uncertainty and execution have remained headwinds, the stock is largely washed out and there is near-term upside potential, says Wells Fargo analyst Allison Poliniak-Cusic, who has an Overweight (Buy) rating on FedEx stock.

As for FDX's fiscal fourth quarter, Poliniak-Cusic believes labor and elevated network are still drags, but these should be offset by a "meaningful" compensation tailwind. As such, the analyst expects FedEx to post a beat this time around.

Analysts, on average, are expecting FedEx to report earnings of $6.88 per share, up 37.3% year-over-year (YoY). Revenue is projected to rise 8.4% from the year-ago period to arrive at $24.5 billion.

KB Home to Show Earnings Growth, Despite Signs of Slowing Housing Market

Homebuilders have been on Wall Street's radar recently amid signs the housing market is finally starting to cool.

Case in point: The Commerce Department last Thursday said housing starts fell 14.4% month-over-month in May to an annual rate of 1.55 million units – the lowest since September 2020. Building permits also took a notable nosedive.

Industry trends will remain in focus when KB Home (KBH, $25.59) reports its fiscal second-quarter earnings report after the June 22 close.

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"Homebuilders surveyed [in the National Association of Homebuilders/Wells Fargo home market index] say appraisal values are getting tough to qualify for larger mortgages," says CFRA Research analyst Kenneth Leon, who recently downgraded KBH stock to Hold from Buy on rising interest rates and an expected decline in homebuying demand. "Demand may taper in the next 12-18 months, and we think KBH selling communities have higher risk."

But Wedbush analyst Jay McCanless remains bullish on KBH ahead of earnings, with an Outperform (Buy) rating.

Based on preliminary operating data KBH released on June 7, McCanless believes the homebuilder was at the high end of closing guidance for the quarter. "We suspect the main catalyst was some closings that slipped to the fiscal second quarter of 2022 from the fiscal first quarter of 2022 because of omicron, but if there was a positive change in the supply-chain issues, that would be positive for KBH and the group," the analyst writes in a note.

Despite signs of a slowdown in the housing industry, analysts are still projecting solid growth in KBH's fiscal second quarter. Consensus estimates are for earnings of $2.01 per share (+34% YoY) and revenue of $1.6 billion (+13% YoY).

All Eyes on Darden Restaurant's Full-Year Guidance

Wall Street pros, on average, expect an 11.3% year-over-year jump in revenue for Darden Restaurants' (DRI, $113.91) fiscal fourth quarter. And that will push earnings to $2.21 per share (+8.9% YoY). But it's the company's fiscal 2023 guidance that analysts will really be watching when the Olive Garden parent steps into the earnings confessional ahead of the June 23 open. 

"For fiscal fourth-quarter earnings, we expect sales & earnings results should largely meet expectations," says UBS Global Research analyst Dennis Geiger (Buy). "Much focus is on fiscal 2023 guidance which we believe is particularly challenging to provide despite likely current momentum, given macro headwinds create uncertainty and are likely to pressure industry results over the coming quarters."

Raymond James analyst Brian Vaccaro agrees that investors will be "keenly aware" of DRI's fiscal 2023 guidance, which will likely reflect commodity inflation and easier COVID-related comparisons. 

And while macro headwinds remain, Vaccaro believes "industry trends could remain surprisingly resilient" amid normalizing post-COVID behavior and consumers' spending of excess savings. The analyst has an Outperform rating on DRI and says the consumer discretionary stock is trading at "an attractive entry point in our view for investors with a less negative macro outlook."

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