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3 Things to Watch in the Stock Market This Week

By Demitri Kalogeropoulos – Apr 18, 2020 at 7:17AM

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Earnings reports are on the way from a few of Wall Street's favorite growth stocks.

Stocks posted a second consecutive week of gains last week, with both the Dow Jones Industrial Average (^DJI 0.80%) and the S&P 500 (^GSPC 1.21%) rising by more than 1.5%. The increase cut further into recent losses, with the S&P 500 now sitting at just an 11% decline in 2020 after having been down by 30% in late March.

Indexes will continue to shift with changing attitudes about the economic rebound that's on the way once the COVID-19 threat fades. In the meantime, a few individual stocks are set for significant moves in the week ahead.

Let's look at the trends to watch when Netflix (NFLX 2.39%), Domino's Pizza (DPZ 0.42%), and The Hershey Company (HSY 0.45%) post their first-quarter earnings reports over the next few days.

A family watches TV together.

Image source: Getty Images.

Netflix's engagement

Netflix set new all-time highs last week as investor optimism bubbled up over a potential spike in member growth. Consumers around the world are spending more time at home and have seen other entertainment options (like movie theaters, theme parks, and sporting events) drop off the menu. Wall Street is betting that shift is good news for the streaming video industry's biggest subscription service.

Member gains will be closely watched in Tuesday's report, since they could land significantly above the official forecast of 7 million additions. A key question is whether Netflix can approach or exceed its blockbuster prior-year mark of 9.6 million new sign-ups. Yet investors might be even more impressed by any engagement metrics that the company reveals, since that trend supports steadily rising monthly prices. Finally, look for an optimistic short-term outlook from CEO Reed Hastings as Netflix focuses on using this moment to launch valuable content franchises from its massive entertainment platform.

Domino's sales growth

Domino's will announce its results on Thursday, and investors already have a good idea about what to expect. The pizza delivery leader said in late March that sales growth initially slowed early in the quarter, but then sped up through late February and into March as social distancing took hold across Europe and the U.S. Rising demand for home delivery apparently more than offset lost sales opportunities from closed universities and all those canceled sporting events and concerts.

CEO Ritch Allison and his team will let investors know whether those generally positive trends held up in recent weeks, and shareholders should also get an important update on Domino's financial position.

The company carried a lot of debt before the COVID-19 crisis hit and has since fully drawn down its revolving credit line. That's a precaution since sales trends haven't collapsed, as they have for some restaurant chains. But it makes sense for the growth stock to accumulate cash right now in case a quick economic growth rebound isn't in the cards.

Hershey's outlook

Investors are expecting some good news from confectioner Hershey in its report on Thursday morning. Management in late January celebrated ending 2019 on a strong note, with organic sales rising 1.9% in the fiscal fourth quarter and 1.8% for the full year. Its shift toward salty snacks helped push profitability higher, too. Adjusted gross margin landed at 43.4% of sales last quarter, compared with 42.5% a year earlier.

Slower economic growth and intense social-distancing efforts in places like Europe and the U.S. likely disrupted parts of Hershey's business in recent weeks. But many of its brands are staple treats that would benefit from more at-home time. Thus, look for CEO Michele Buck and her team to highlight their performance at retailing partners like supermarket chains and warehouse stores when they discuss their updated outlook for 2020.

Demitrios Kalogeropoulos owns shares of Netflix. The Motley Fool owns shares of and recommends Netflix. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Domino's Pizza, Inc. Stock Quote
Domino's Pizza, Inc.
$326.09 (0.42%) $1.35
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$29,494.84 (0.80%) $230.52
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$3,699.16 (1.21%) $44.12
Netflix, Inc. Stock Quote
Netflix, Inc.
$229.43 (2.39%) $5.36
The Hershey Company Stock Quote
The Hershey Company
$224.79 (0.45%) $1.01

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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