We have entered 2Q 2017 and with all of two days under our belt, it looks like April is at least starting off more like March than January or February. As we discussed in this week’s Monday Morning Kickoff, we are in what we call No Man’s Land — that time period after the quarter close and before companies start reporting their earnings. It tends to be a time of reduced trading volume, something we’ve seen at both NYSE and Nasdaq listed stocks, as investors wait for tell-tale signs of what’s to come. Another way to phrase it is to say they are waiting for the first signs of what is likely to come.
Retailer Woes Means Even Stronger Tailwinds for Amazon
In the last few weeks of March, we had less than stellar results from LuluLemon (LULU), Nike (NKE), FedEx (FDX) and several other companies. While Urban Outfitters (URBN) won’t report its quarterly results for a while, on Monday night it shared that thus far during the quarter, its comparable retail segment net sales are “mid-single digit negative” vs. up 1 percent in the year ago quarter. Last night, Saks owner Hudson Bay (TSE) shared that overall consolidated sales fell more than 1 percent year over year. More signs that traditional retail remains a challenging environment due in part to Connected Society investing theme company Amazon (AMZN).
Amazon shares, have been on a tear over the last three months, climbing more than 19.8 percent vs. 3.9 percent for the S&P 500. Along the way, the shares have set several new highs, including a fresh intraday high yesterday at $908.54 before closing at $906.83 and firmly in overbought territory. As we head into earnings season, we remember that despite the continued tailwinds that are pushing Amazon’s businesses — the shift to digital consumption and the cloud — Amazon continues to invest heavily in its business. The risk is that from time to time the company’s investment plans tend to be larger than those expected by Wall Street, and when confronted with that realization investors shed shares.
We’ve seen that several times in recent years, and given our view that first-quarter earnings season is likely to bring a return of volatility to the market, we’re going to get a little more cautious on AMZN shares.
- With an additional 7.5 percent to our $975 price target, we are reducing our rating on AMNZ shares to a Hold from Buy.
- We would look to revisit our rating below $850 or on signs that potential upside to our price target is closer to $1,050.
AT&T Gets the FirstNet Nod and That’s Also Good for Dycom
As expected, it was announced AT&T won a lucrative contract to build and manage a nationwide public safety network for America’s police, firefighters, and emergency medical services. Dubbed FirstNet, it will cover all 50 states, five U.S. territories, and the District of Columbia, including coverage for rural and tribal lands. Besides basic voice and Internet service, AT&T expects the network to be used for applications “providing near real- time information on traffic conditions to determine the fastest route to an emergency.”
This win also bodes well for specialty contractor Dycom (DY) that counts AT&T as its largest customer. As Dycom’s other key customers that include Verizon (VZ) and Comcast (CMCSA), deploy both next-generation solutions as well as add incremental capacity to existing networks, we continue to see blue skies ahead for DY shares on the Tematica Select List.
Circling back to the key item of 2017 for AT&T shares — the pending merger with Time Warner (TWX) — chatter in and around DC seems to suggest that President Trump has softened his opposition to the combination of the two companies. We’d note this follows the recent approval of the pending acquisition by the European Commission.
- As more clarity on the merger between AT&T and Time Warner develops, we are likely to revisit our $44 price target. All things being equal, we are likely to add to our position below $40
- Our price target on DY shares remains $115.
Easter and Spring Break Bode Well For Disney
As we enter peak Spring Break travel season, which bodes well for Disney’s (DIS) parks business, particularly Disney World and its other Florida attractions, we remind subscribers that the company recently announced it was boosting ticket prices, which we may cringe at as consumers, but love as shareholders. Combined with leveraging its Frozen and Star Wars content at the parks over the coming years, we see Disney providing new reasons to revisit these destinations.
Looking beyond the April travel season and continued performance of Beauty and the Beast at the box office, the next catalyst we see for the shares will be several box-office films being released by Disney — Guardians of the Galaxy 2 (May 5), Pirates of the Caribbean: Dead Men Tell No Tales (May 26), Cars 3 (June 16) and Spider-Man: Homecoming (July 7).
- We have just over 10 percent to our $125 price target for DIS shares.
Second, later this week on TematicaResearch.com we’ll share our thoughts on the purported acquisition of Panera Bread (PNRA) by Guilty Pleasure investment theme company Starbucks (SBUX) as well as our take on the rash of economic data to come later this week.
Third, be sure to the website later in the week for the latest edition of the Cocktail Investing Podcast as well as archived episodes.
Finally, in observance of the upcoming Easter holiday, US stock markets will be closed on Friday, April 14. With the aforementioned spring break in full swing next week, we too here at Tematica will be taking a respite as we get ready to gear into 1Q 2017 earnings the following week.
Odds are we won’t be able to keep ourselves from posting some commentary throughout the week on TematicaResearch.com, but your next regularly scheduled Tematica Investing issue will be on Wednesday, April 19.