Earnings Season: Here Comes The Fun

by: Bill Maurer

Earnings season is the most wonderful time of the year for many. While most of the big names have already reported, there are still plenty of names left to report. In fact, most of the momentum names, some of the biggest battleground stocks, have yet to report. Today, I'm here to focus on seven names yet to report. A few of these names often provide investors with a chance for big gains or losses, as they move very quickly. While some of these names have pre-announced results, they still have questions to answer. In this article, I'll preview these names and detail the important questions each name needs to answer.

Deckers Outdoor (NASDAQ:DECK) - date to be announced:

Deckers is the company that brings you UGG boots, along with the Teva and Sanuk brands. After a poor finish due to a warm winter in 2011-2012, Deckers shares plunged from nearly $120 in late 2011 to under $30 in the second half of 2012. The stock rallied back to $90 in recent months, and now sits around $78.

Deckers is a highly debated stock. Many have called UGGs a fad, but the company continues to increase revenues. So far, this winter has been extremely cold, and that should be very good for business. Deckers guided to 14.5% revenue growth and 32% earnings per share growth for Q4. Analysts are expecting a little more, currently looking for 15% revenue growth and earnings per share growth of 36%.

Deckers has rallied back from its problems in the past, but the company needs to prove itself again. Net income is still trying to recover from the 2012 fall, and the company's buyback has certainly helped EPS. Deckers is set up for a strong winter season with the cold, but the company needs to execute. I'm much more positive on the name than I used to be, but Deckers has to have a solid Q4, because the quarter is estimated to supply about 46% of 2013's revenues and 96% of the year's EPS. If Deckers didn't take advantage of the cold winter and gives a poor 2014 forecast, this name could be one of 2014's biggest losers.

Dendreon (NASDAQ:DNDN) - date to be announced:

2014 is most likely a make or break year for the biotech name behind the prostate cancer treatment Provenge. Dendreon has lost billions of dollars and burned through tons of cash. Provenge sales disappointed in the first three quarters of 2013, and some have started to wonder if the company is headed for bankruptcy.

Dendreon pre-announced Q4 revenues, which were ahead of expectations. The stock initially jumped on the news, but has fallen back since. Dendreon is a heavily shorted stock, with more than 31% of the float short, and that's after a nearly 25% drop in short interest in recent months. This stock has the ability to explode on good news, and it has done so in the past. Dendreon has jumped from the low single digits to $20, $30, even $50 plus in the past, but it's also fallen down to earth, and that's where it is now.

Dendreon needs to answer the following questions when it fully reports results for the quarter:

  • When will the company generate revenues from Provenge in Europe? Dendreon has approval, but probably needs a partner, and reimbursement questions remain.
  • How are cost cutting measures working? Dendreon announced another new restructuring plan late in 2013, but costs have still been way too high. In the past, Dendreon targeted $100 million per quarter in revenues to become cash flow positive. Revenues right now are in the mid $70 million area. Is there a new target?
  • Does Dendreon need to raise funds? The company's cash position was down to $199 million at the end of 2013, less than half of what it was at the end of 2012. A debt payment of nearly $28 million is due in June, and the company probably ended 2013 with about $200 million more in liabilities than assets. The balance sheet is getting worse by the quarter.

With a share price of less than $3 currently, Dendreon may be 2014's ultimate lottery ticket. If all goes well, this stock could probably get back into the double digits. But if past problems persist and bankruptcy appears likely, losses could be tremendous.

Green Mountain Coffee Roasters (NASDAQ:GMCR) - Feb. 5th, after bell:

Another name that you might expect to do well in a cold winter is Green Mountain, the company behind Keurig. The k-cup coffee maker is another tremendous turnaround story. Like Deckers, the name crashed from a bit over $100, thanks to poor results and a David Einhorn short position. Green Mountain made it all the way down to $15, when results started to improve and the buyback announcement changed many thoughts. Green Mountain also topped out recently around $90, and closed Friday at $81. The company has even started a dividend.

Green Mountain had a tremendous fiscal 2013, which ended in September 2013. Cash flow was tremendous, but it was boosted by a number of one-time items. This fiscal year, cash flow is expected to plunge back to normal levels. Additionally, the company's revenue growth rate has plunged from 95% just a few year's ago to a currently expected 8.2% in this fiscal year. Green Mountain needs to expand outside of North America, which should get the revenue story back on track. But for now, there is no timeframe, so the company is looking to other beverages and items that can be used in the Keurig for growth.

For Green Mountain shares to stay elevated, the company needs to prove a couple of items. First, that revenue growth has not completed stalled. Guidance for low to mid-single digit revenue growth in fiscal Q1 was not a welcomed sign. Analysts are looking for 4.9% revenue growth and EPS of $0.90, the high end of the $0.85 to $0.90 range given by the company. Second, cash flow needs to be strong. Cash flow will be down from last year's levels, but it needs to be positive. The company has slashed capital expenditures tremendously in recent years, helping to boost free cash flow. The company may need to spend more going forward. Finally, the company needs to continue its improvement in margins and earnings. Coffee prices have come down dramatically, and the company is in the midst of improving its expense structure. With revenue growth flattening out, and coffee prices eventually starting to creep back up, the company cannot see earnings stagnate.

Philip Morris (NYSE:PM) - Feb. 6th, mid-morning:

The other six names on this list are all considered growth companies, so I figured that I should sneak in one value name. The cigarette giant recently dipped below $80 for the first time in nearly two years, as market concerns over emerging markets and the company's warning for 2014 has spooked investors. At the same time, the dividend yield is racing towards 5% on an annual basis, and the reduced share price will make the $6 billion a year buyback much more powerful.

Philip Morris had a disappointing 2013, and the company warned that 2014 currency-neutral EPS would only rise by 6% to 8%, well below the double digit growth rate the company normally looks for. The company is going to use 2014 as an investment year, in an effort to grow revenues around the globe. In recent months, a number of strategic acquisitions have been made, and the company will be launching new products later this year in an effort to take advantage of the strength in e-cigarettes. Estimates have come down, but so has the stock's price.

For Q4, analysts are looking for a revenue decline of 1.3% to $7.79 billion and EPS of $1.37, which would be up 13 cents from the year ago period. The more interesting commentary will be on 2014. Does the company expect shipment volumes to start turning, and are currencies going to become a tailwind at some point? They've been a serious headwind in recent years. Additionally, I'll also be looking to see how free cash flow was in 2013, and if the company gives capital expenditure guidance for 2014. Right now, Philip Morris returns more money in dividends and buybacks than it is producing in cash flow. That has led the debt pile to increase rapidly in recent years. I've been concerned with the rise, although I'm not worried about the company just yet. Free cash flow will eventually start to rise, and the buyback rate should go lower when the current plan ends in 2015. This beaten down name will look to rebound in 2014, and a strong finish to 2013 could help ease many recent concerns.

SodaStream (NASDAQ:SODA) - date to be announced:

Like Dendreon, SodaStream pre-announced Q4 results, and it was a revenue and major profit warning. Shares tanked, but the punishment many not have fit the crime. Revenues missed estimates, although not by a wide margin. The key was that net income fell dramatically, and this was unexpected. The company was plagued by lower sell-in prices during a challenging holiday retail environment, product costs were higher, and currencies hurt a bit. While these issues are expected to continue in the first half of 2014, the company believes it is set up nicely for the future.

When SodaStream reports, there will not be a ton of investor emphasis on Q4. The warning was issued, and that's all baked in. The key here will be the 2014 growth forecast. Since the warning, revenue estimates have dropped from $671.89 million (19.1% growth over the then 2013 estimate) to $657.52 million (17% growth over current 2013 estimate). The big change is in terms of 2014 EPS estimates, which have dropped from $3.28 to $2.36.

SodaStream shares hit a new 52-week low on Friday, but the company trades at just 15.5 times 2014 earnings. That's a very reasonable valuation to pay for this company's growth, should it come. Yes, 2013 was disappointing in terms of earnings, but it also was a record revenue year, and many seem to forget that. This is also a very heavily shorted stock, with nearly 9 million shares short at the latest update. That's basically 50% of the float. A decent 2014 forecast could spark a short squeeze and send this stock much higher.

Tesla Motors (NASDAQ:TSLA) - date to be announced:

The widely discussed auto maker will again be in the spotlight as investors look at growth versus price. The company already announced that Q4 deliveries were much higher than expected. However, revenue and earnings numbers were not disclosed, so there still is a bit of a guessing game. Since Tesla reported Q3 results in November, Q4 revenue estimates have risen from just over $560 million to the currently expected value of $657 million. With time still left until earnings, I would not be surprised if estimates continue higher.

Investors want to know if the growth story will continue at a fast pace in 2014, since that's why this stock has risen from the $30s to $181 in the last year. The company is expected to do $3.19 billion in revenues after $2.38 billion in 2013 (expected). That's more than 34% growth, along with improved GAAP and non-GAAP profits. Cash flow will also be key to watch. Tesla has been one of the best rallies in our market over the past year. With the company announcing Q4 deliveries much higher than thought, shares have rocketed higher, but so have estimates and expectations. Tesla remains a decently shorted stock, so good news at the Q4 report could send the name over $200. But this name also carries tremendous risk, and the company's Q3 lack of profitability caused the stock to tank from $181 to $116.

Twitter (NYSE:TWTR) - Feb. 5th, after bell:

The social media giant will receive a lot of attention this week as it reports its first quarter as a public company. Expectations will certainly be high, especially after last week's blowout results from Facebook (NASDAQ:FB). Analysts are currently looking for revenues of $217.78 million and a non-GAAP loss of 2 cents. Yahoo! Finance does not have year ago numbers since the company only recently went public.

There are a few key items that will come up in this report:

  • Presentation - How will the company's release look? What kind of information will we get or not get (guidance)?
  • Profitability - Twitter is expected to lose money, especially on a non-GAAP basis, and that is expected to continue into 2014. Facebook has become profitable, when will Twitter?
  • Growth - Analysts are looking for nearly 77% revenue growth in 2014. Will the company be able to achieve such growth?

Twitter shares have rocketed higher since the IPO (although not at first), now trading at $64.50. Shares have come off their near $75 high, but they are not close to their $38.80 post-iPO low. Expectations for Twitter will be extremely high given the stock's rally and Facebook's results. Don't forget, some lock-up expirations will start rather soon, and that could provide some pressure on shares. On the flip side, short interest has continued to go higher and higher.

Final thoughts:

While many of the big names have already reported earnings, some of the more interesting names still have to report. Today, I've covered seven names that I'll be heavily focusing on. Many of these names are the so-called "momentum names", because they move very quickly and often trade on emotion and momentum. You can imagine that these earnings reports will have sizable impacts on these stocks. Some of these names are the best growth stories around, but they all need to prove themselves, especially those trading at lofty values.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Investors are always reminded that before making any investment, you should do your own proper due diligence on any name directly or indirectly mentioned in this article. Investors should also consider seeking advice from a broker or financial adviser before making any investment decisions. Any material in this article should be considered general information, and not relied on as a formal investment recommendation.