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The bulls get another chance to come back today. Maybe the next wave of earnings reports will give them enough traction to push against the ongoing current of viral anxiety.  

 

Yesterday started well enough but turned into a repeat of Monday once word got out that the Centers for Disease Control concede that "this might be bad." While we'd appreciate a more constructive response, the most detailed analysis we've seen suggests that the outbreak can be a 0.2% brake on the U.S. economy in the current quarter. That's far from apocalyptic and it just doesn't support what's now a 7% market decline.

 

People like Warren Buffett see this as a buying opportunity. While some Berkshire Hathaway businesses are taking a short-term hit on their operations, Buffett is willing to surrender a little current cash flow from Dairy Queen and other subsidiaries because he recognizes that this is a temporary slowdown and not a permanent shift in the human condition. In that scenario, all he can see is stocks at depressed levels, which he literally compares to the food he needs to keep consuming to remain alive.

 

He's 89 years old. He's seen and survived a lot. If he isn't overly concerned, we aren't either. But for now, it's savage out there. Our stocks are down 6% in two days and the selling is practically universal. People are dumping everything. When they come back, they'll start with quality . . . stocks like the ones we recommend.

 

And the business of investing goes on. Companies are still operating. Most people . . . the overwhelming majority . . . are not sick. It's still earnings season and we have numbers to anticipate. The market might not be in a mood to distinguish between good and bad quarters right now, but when calmer heads prevail, strength will be rewarded.

 

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Earnings Preview: Square (SQ: $77, down 8% this week)

Earnings Date: Wednesday, 5:00 p.m. ET

Expectations: 4Q19
Revenue: $594 million

Net Profit: $104 million
EPS: $0.21

 

Year Ago Quarter Results
Revenue: $464 million

Net Profit: $68 million
EPS: $0.14

 

Implied Revenue Growth: 28%
Implied EPS Growth: 50%

 

Target: $105
Sell Price: $65
Date Added: March 20, 2017
BMR Performance: 347%

 

Key Things To Watch For in the Quarter

 

Nearly three years ago we started coverage of Square at $17. The company has done great things since then. This time around, we're looking for a relatively modest 28% uptick in revenue (remember, we always look at adjusted revenue on this company) and 50% earnings growth. That's roughly what CEO Jack Dorsey told us to expect . . . maybe it's on the high end of the guidance range, but management has a track record for setting slightly conservative targets.

 

The only question is how much Square's former subsidiary Caviar contributed to the results. While that Food Delivery business has now been sold (for a healthy $410 million), it was ailing before the sale, contributing approximately $14 million to revenue and $4 million to gross profit in the recent quarter. Any unanticipated weakness will depress the results a little . . . but in the grand scheme of things, it's going to be a blip in the overall narrative.

 

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Earnings Preview: Anaplan (PLAN: $57, down 5%)

Earnings Date: Thursday, 8:00 a.m. ET

Expectations: 4Q19
Revenue: $97 million
Net Loss: $14 million
EPS: -($0.10)

 

Year Ago Quarter Results
Revenue: $69 million

Net Loss: $17 million
EPS: -($0.13)

 

Implied Revenue Growth: 40%
Implied EPS Growth: narrower loss

 

Target: $70
Sell Price: $45
Date Added: March 9, 2019
BMR Performance: 54%

 

Key Things To Watch For in the Quarter

 

Again, we're content to take management at its word here. Our targets are on the high end of guidance, which came up about 2% three months ago. While it's possible that enterprise spending dropped off a cliff in the intervening period, it's extremely unlikely that an increasingly optimistic outlook would flip so fast. Other Technology companies catering to this universe of customers have had no trouble. If anything, their businesses have expanded faster than even their own executives expected.

 

However, in the current market environment, success will be evaluated by how well 2020 guidance matches what investors have convinced themselves they need to see. "Consensus" is tracking around $460 million in revenue for the year, which translates into 33% continued growth. It will be great if management tells us that number is in sight, but even if it isn't, this company is ramping up at high speed.

 

The difference between 20% and 33% revenue expansion this year isn't going to slow the path to profitability as much as a single quarter. We're all about that long path here, regardless of how well every twist along the way matches other people's expectations.

 

 

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Earnings Preview: CBRE Group (CBRE: $58, down 8%)

Earnings Date: Thursday, 8:00 a.m. ET

Expectations: 4Q19
Revenue: $6.9 billion
Net Profit: $458 million
EPS: $1.35

 

Year Ago Quarter Results
Revenue: $6.3 billion

Net Profit: $415 million
EPS: $1.21

 

Implied Revenue Growth: 10%
Implied EPS Growth: 11%

 

Target: $71
Sell Price: $56
Date Added: February 22, 2016
BMR Performance: 125%

 

Key Things To Watch For in the Quarter

 

One of our favorite stocks. CBRE is a juggernaut transforming global Real Estate. Here, too, management has been clear on guidance, although a strong dollar and the timing of big contracts can take a 1-2% bite out of our targets in the worst scenario. However, an upside surprise is equally likely, especially as the company's Property Management unit keeps expanding faster than the core Real Estate portfolio. This is rapidly becoming a service enterprise unlocking massive value for corporate clients by acting as a consultant. The old property brokerage days are fading into the past year by year.