This is a wild time for investors. The number of issues weighing on our finances is vast: the outcome of the U.S. presidential election, big changes to social security next year, COVID-19 cases rising into winter, and the list goes on and on. At the moment, these developments are overshadowing earnings season, but at the end of the day, earnings drive stock prices. Here are three big names reporting this week.
McDonald's (MCD 1.12%) kicks off the week with its third-quarter earnings report on Monday. The fast-food titan was not spared from the chaos that plagued the first half of 2020. The shutdown and social distancing that COVID-19 brought with it caused McDonald's revenue to decline by 19% through the first six months of the year. Earnings per share dropped a staggering 43% to $2.12 during that time frame.
The bulk of the damage was incurred in the second quarter, when the shutdown most impacted the United States market. For its upcoming earnings report, McDonald's has to show two things. First, investors will obviously be looking to see how the fast-food chain rebounded from the tough first half of the year. Second, they'll be looking for any outlook on the fourth quarter and 2021.
McDonald's has struggled to create top-line revenue growth in recent years, relying on restructuring to unlock earnings through refranchising its store base. The pandemic has made it more difficult to gauge the progress that McDonald's is making on that front. The shuttering and social distancing requirements for traditional restaurants and bars could actually be a strong catalyst for McDonald's drive-thru business, and the stock has rallied this year, reaching an all-time high last month. Given the uncertainty of how the virus is going to progress through the colder months, that pricing makes McDonald's shares a tough buy at this time.
With McDonald's reporting on Nov. 9, Zacks estimates are calling for earnings of $1.93 per share.
Reporting Nov. 12, Walt Disney (DIS 0.20%) is a company of uncommon polarity at the moment.
On the one hand, Disney is charging hard into the streaming industry. Disney+ has crushed it in terms of creating a subscriber base in a very short amount of time. The content library that Disney boasts -- which was bolstered by the company's acquisition of Twenty-First Century Fox -- makes it an incredible competitor. Add in Hulu, and Disney is primed to press for domination in the realm of streaming.
Disney's theme parks, on the other hand, are a problem, and an expensive problem at that. Parks/experiences revenue declined 29% for the nine months ended June 27 (the first three quarters of Disney's 2020 fiscal year). That undercut the company's revenue by more than $5.6 billion. The reopening of Disney's parks following closures earlier this year has not gone smoothly. Disneyland Paris recently closed again, while the flagship Disneyland Park in California remains closed.
Disney World in Florida is the largest of Disney's resorts. While Disney World is open, capacity is limited, with social distancing rules limiting the number of seats available on certain rides and shows. The company's focus has shifted to an emphasis on the streaming industry, but that doesn't magically get rid of the overhead associated with its network of massive theme parks. It's also worth noting that content creation is an expensive business, and Netflix is a prime example that generating positive free cash flow from a streaming business is challenging.
Disney had been a hot stock leading up to the pandemic. It is still a great company, but Disney is looking at a rough patch until COVID-19 is cleared up.
Zacks estimates are calling for a loss of $0.62 per share for the fourth quarter of fiscal 2020.
DraftKings (DKNG -0.08%) probably won't be criticized too hard for its third-quarter earnings -- or rather, lack thereof. Investors will be looking for meaningful revenue growth, though. DraftKings needs to show revenue gains that justify the big gains the stock has made this year. I own DraftKings, and am hoping to see net losses in line with estimates, with top-line growth exceeding expectations.
That doesn't necessarily mean that's what I'm going to get! The gambling industry has big potential. It's essentially tapping into a formerly illegal market and taking it public. Enthusiasm over this notion has caused a surge in shares of DraftKings and Penn National Gaming this year (along with some pretty substantial pullbacks). DraftKings stock has fallen more than 20% in the last month, but shares are still up big for the year.
The problem here is simply valuation. DraftKings currently has a $16 billion market capitalization, while total pro forma sales this year are expected to be around $500 million to $540 million, based on guidance provided in the second-quarter earnings release. This puts a lot of pressure on the company to show better-than-expected sales growth.
DraftKings will report its Q3 results on Nov. 13. Zacks estimates are calling for a loss of $0.64 per share.
While there is a lot going on in the world right now, the biggest thing for stocks will always be the underlying earnings of the companies themselves. It's an important thing to remember when investing in stocks.