Wall Street Brunch: Netflix Earnings And Retail Sales Ahead

Summary:

• Netflix is expected to see a rise in subscriber numbers with revenue of $9.76 billion.
• Major earnings reports this week also include Charles Schwab, UnitedHealth, Johnson & Johnson and Bank of America.
• Economic focus shifts to consumer spending, with recent data suggesting stronger income growth and a firmer consumer footing than previously believed.
• Wolfe Research recommends shorting discounters and buying high-end spending stocks, citing the positive wealth effect from significant gains in stocks and real estate.

Listen below or on the go on Apple Podcasts and Spotify

Netflix’s crackdown on password sharing is expected to help user numbers. (0:18) September retail sales expected to rise. (2:27) Warren Buffett buys more SiriusXM. (3:47)

The following is an abridged transcript:

Big-name earnings will dominate sentiment this week and streaming afficionados like me will be watching Netflix (NASDAQ:NFLX).

Shares are up nearly 50% year to date, more than doubling the return of the broader market, so expectations will be high when numbers hit on Thursday.

Netflix is forecast to report revenue of $9.76 billion, EPS of $5.11 and an adjusted operating margin of 27.7%.

Subscriber growth is still key, with analysts forecasting nearly 286 million active subscribers by quarter’s end, a net increase of about 4.2 million from the previous quarter. That growth is partly attributed to Netflix’s successful crackdown on password sharing.

While most analysts maintain a bullish outlook, some express caution. Barclays recently downgraded the stock to Underweight citing concerns about future growth pathways. Additionally, Citi analysts question the company’s ability to achieve $25 earnings per share in 2025, as some bulls predict.

Oppenheimer said the company remains “the dominant streaming platform” and maintains the largest market share of U.S. TV viewership. The firm believes NFLX’s initiatives, such as password sharing rules, advertising and optimizing subscriber plan choices, will drive subscriber growth and average revenue per membership, leading to higher revenue. Oppenheimer noted that the company announced an increase to the Premium tier in the U.S., UK, and France last October and now anticipates a hike in Premium pricing for other regions. Analysts also see an 8%–15% increase to the Standard plan.

On Seeking Alpha, Pearl Gray Equity and Research, which has a Strong Buy on the stock, argued that additional upside is in store for NFLX amid resilient fundamental growth, overlooked value drivers and promising valuation metrics.

Also on the earnings calendar, Charles Schwab (SCHW), UnitedHealth Group (UNH), Johnson & Johnson (JNJ), Bank of America (BAC), Goldman Sachs (GS), Citigroup (C), Rio Tinto (RIO), PNC Financial (PNC), State Street (STT), Walgreens (WBA) and United Airlines (UAL) report on Tuesday.

On Wednesday, Abbott Labs (ABT), Morgan Stanley (MS), U.S. Bancorp (USB), CSX (CSX) and Discover Financial (DFS) weigh in.

Taiwan Semi (TSM), Blackstone (BX), Travelers (TRV) and KeyCorp (KEY) join Netflix on Thursday.

Procter & Gamble (PG), American Express (AXP) and Regions Financial (RF) issue numbers on Friday.

On the economic front, attention will turn to consumer spending after the latest inflation data did little to change the Fed landscape. Traders are now pricing in 50 basis points of rate cuts through the end of the year, down from 100 bps right after the easing cycle started.

Pantheon Macro says that while disinflation trends remain well embedded, the September PPI figures indicate a 0.25% rise in September core PCE, which would mean “the risks to the Fed’s latest inflation forecast are skewed slightly to the upside.”

The September retail sales report arrives on Thursday with economists predicting a 0.3% rise on the month and a 0.2% rise excluding autos.

Wells Fargo economists say that :revisions incorporated in September’s personal income and spending data have shown the consumer to be on firmer footing than previously believed.”

“The revisions lifted income more than spending and suggested households haven’t been spending at the expense of saving in the same way as formerly indicated with a 2.9% estimated saving rate. Stronger income growth looks more supportive of spending capacity, which has caused us to lift our near-term consumption outlook.”

The top five U.S. retail stocks according to SA’s Quant Rating system are, in order, Nordstrom (JWN), Amazon (AMZN), eBay (EBAY), Ollie’s Bargain Outlet (OLLI) and Kohl’s (KSS). But only Nordstrom snags a Buy rating.

In the news this weekend, Warren Buffett’s Berkshire Hathaway (BRK.A)(BRK.B) went on a buying spree in shares of SiriusXM (SIRI) earlier this week.

In a three-day run Berkshire picked up shares worth $86.73 million and boosted its total stake in the company to 108.72 million shares.

The conglomerate disclosed a stake in SiriusXM back in November 2023. In September, SIRI became an independent public company with a simplified capital structure following the closing of its transaction with Liberty Media.

And Google (GOOGL) (GOOG) has asked a federal judge in California for a delay in a significant court order that requires the company to allow more competition in its lucrative Play Store of apps.

U.S. District Judge James Donato’s injunction, which was issued early this week following a lawsuit initiated by “Fortnite” creator Epic Games, is set to take effect on November 1. The company requested a pause on the order until it readies an appeal.

According to Reuters, Google argued that Donato’s order would damage its business and bring “serious safety, security, and privacy risks into the Android ecosystem.”

In December, Epic successfully argued before a federal jury that Google illegally stifled competition through its control over app downloads on Android devices and in-app payments, leading to Donato’s injunction.

For income investors, AbbVie (ABBV) goes ex-dividend on Tuesday, with a payout date of November 15.

PNC Financial (PNC) goes ex-dividend Wednesday, paying out on November 5.

H.B. Fuller (FUL) goes ex-dividend on Thursday and pays out on Halloween.

And Colgate-Palmolive (CL) goes ex-dividend on Friday, paying out on November 15.

And in the Wall Street Research Corner, with the retail sales report ahead, Wolfe Research is recommending shorting discounters and buying high-end spending stocks for a fourth-quarter trade.

Strategist Chris Senyek says: “With stocks and real estate contributing roughly $50T in gains to household balance sheets since the end of 2019, consumers (ARE) feeling the positive impacts of the wealth effect.”

High-end spending stocks include Toll Brothers (TOL), Ralph Lauren (RL), Tapestry (TPR), Nordstrom (JWN), Richemont (CFRHF) and Hermes (OTCPK:HESAY).

Among the low-end spending names are Walmart (WMT), Bread Financial (BFH), Ross Stores (ROST), Monro (MNRO), Upbound Group (UPBD) and LGI Homes (LGIH).

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