We are in the midst of the busiest week of the earnings season. Most of the bellwethers have posted Q2 results but we still have 150 companies in the S&P reporting this week. It is very easy to miss results given the endless headlines crossing wires.
We will take the next few reports to look through some of the names and point out critical themes while unearthing a few trade and investment ideas for readers.
Advanced Micro Devices (AMD)
- Reported a solid quarter with a penny beat on the bottom line and revenue growth of 70% year-over-year.
- Gross Margins expanded to 54% from 48% due to a better product mix (more data center sales verse PC)
- Guidance was disappointing as it projected the mid-point of guidance below consensus expectations.
- The Gross Margin outlook was a red flag as analysts would like to see a higher number given the growth of DC as a percentage of revenue.
- The bottom line is AMD continues to pull market share from Intel (INTC). The PC segment remains a concern as the company draws a third of its revenue from that segment. However, the DC growth will remain a tailwind. The real worry for investors is if we see a slowdown in that space.
- Shares of AMD initially fell in reaction to the headlines. The stock settled at $92 and has started to march back up to the $100 level. This area sets up as key resistance for AMD. We would remain patient and see if we could either: a) get it cheaper around $85 or b) wait for a breakout above the $50-sma in a strong market.
- The stock needs to break above the downward trend line in the chart (solid black line).
AMD Weekly Chart:
PayPal (PYPL)
- The payment service provider beat by 6 cents on the bottom line. Revenues increased 9% from the prior year, slightly outpacing expectations.
- The Total Payment Volume increased 14% y/y to an impressive $339.8 billion.
- The company guided Q3 EPS in line but forecast revenue below expectations as it expects a slow down in consumer spending. It raised its full-year EPS outlook while cutting the revenue expectations.
- PYPL rolled out a strategy focused on Checkout, digital wallets, and Braintree. At the same time, it streamlined operating expenses which allow for higher margins and an improved EPS outlook.
- Perhaps more important than the earnings was the announcement of a $2 billion investment from activist investor Elliott Management.
- In addition, PYPL announced a $15 billion share repurchase program
- Peer Square (SQ) reports earnings tonight after the close.
- Shares of PYPL are working its way out of a long bottoming process. It rallied from $70 to the $100 area ahead of results as it attempts to work its way out of the long downward trend.
- We would be buyers of PYPL given the improved expense management, share buyback, and activist involvement.
PYPL Weekly Chart:
Qorvo Inc (QRVO)
- The company beat bottom-line Revenues fell 7% y/y but were in line with expectations.
- Guidance was generally in line although the mid-point of the EPS outlook was slightly below the consensus expectations.
- The company develops wireless connectivity products for mobile and Infrastructure & Defense Products (IDP).
- The mobile side underperformed, a common theme for this earnings season, while IDP was stronger than expected.
- A key worry for extended weakness in mobile is the idea that Samsung, a key customer for QRVO, has an inventory build that will lead to slower order growth.
- Shares of QRVO are on a wild ride since posting results. The better-than-feared numbers led to a pop to the $115 level but the stock would roll over to the $98 area due to concerns around mobile. QRVO has since regained some of those losses to push back up to $108.
- A breakout above this level is possible but we would be careful chasing the stock as the overhang from mobile will remain.
QRVO Daily Chart:
EV Plays have enjoyed a nice run. The Inflation Reduction Act that is working its way through Congress has reinvigorated interest in the space. We would remain cautious as there are some potential hold-ups before the bill passes into law. Once it does, there will remain questions around the fundamentals. Lucid Group (LCID) and Lordstown Motor Corp (RIDE) are two names that reported this week.
Lordstown Motor Corp (RIDE)
- The primary thing to remember about RIDE is that it still does not have any revenue.
- The company reported an operating profit of $61 million but it included a sale on its purchase agreement with Foxconn.
- The company did cut expenses by 33% sequentially.
- RIDE reaffirmed the Q3 target for the start of commercial production of the Endurance, its pickup truck, and commercial deliveries are expected in Q4. The first vehicle program from its Foxconn joint venture is expected to be announced in the fourth quarter.
- Shares of RIDE rallied from the $2.40 to $3.60 area. We would prefer to see some revenue stream through the door before thinking about investing in this name. It makes for a nice trading vehicle but buyer beware.
RIDE Monthly Chart:
Lucid Group (LCID)
- The company missed bottom-line expectations by 2 cents. The top line miss was a little more egregious as it came in at $97 million compared to expectations of $150 million.
- The primary culprit was the supply chain which cut into production.
- LCID lowered its production forecast for 2022 to 6,000-7,000 vehicles compared to the prior range of 12,000-14,000.
- It did note that demand remained strong with over 37,000 reservations, and approximately $3.5 billion in sales.
- LCID is fully funded through 2023 which is good as investors can avoid a dilutive secondary offering.
- The stock is testing key support levels at the $18 area. If it can hold these levels through a market downturn, then that would be impressive.
LCID Daily Chart:
