ACTION PLAN - May 17, 2023

Mid Week Updates

Xclusive Trading
May 17, 2023

Last Week and Upcoming Geopolitical Events

9-11 May 2023- The 42nd ASEAN Leaders’ Summit.
11-13 May 2023- G7 Finance Ministers’ and Central Bank Governors’ Meeting.
13 May 2023- EU Indo-Pacific Ministerial Forum.
14 May 2023- Turkey and Thailand.
18 May 2023- Deadline for Black Sea Grain Initiative (BSGI).
19-23 May 2023- G7 Leaders' Summit.
Upcoming Economic Calendar for the Week
- Wednesday, May 17- Housing starts.
- Thursday, May 18- Initial jobless claims, existing home sales, and U.S. leading economic indicators.
- Friday, May 19- Fed Chairman Powell and former Fed Chairman Bernanke on the panel.

Companies Reporting Earnings for the Remaining Week

Walmart Inc. (WMT)

Walmart Inc. is set to release its Q1 earnings before the market opens on Thursday, May 18. Its discount pricing model seems to benefit the company in the weaker consumer spending environment.

The stock has risen around 8% year-to-date. The immediate resistance is at $155 and presently trading above its 50 DMA, 5% away from its all-time high of $160.77. Moreover, the Deutsche Bank has maintained a bullish call while projecting its same-store sales growth to be 6%, up from a prior estimate of 5.5%. Its Fitch rating stands at AA as of Dec 2022.

CISCO Systems, Inc. (CSCO)

CISCO is set to announce its third-quarter earnings for the 2023 fiscal year on May 17, 2023, at 4:30 PM (ET). Wall Street estimates its earnings to be 97 cents/share on revenue of $14.39 billion, compared to its year-ago quarter, in which the company reported earnings of 87 cents/share on revenue of $12.84 billion, indicating a 12.1% increase YoY.

The stock has seen a fall of more than 6.5% over the past month till the close of May 16. The company’s subscription segment now accounts for nearly 44% of the total revenue and no longer relies solely on legacy hardware. Its excess cash of more than $20 billion on its balance sheet gives the company option to return the excess cash to the shareholders in the form of dividends and share buybacks. Its total annualized recurring revenue over the last quarter stood at $23.3 billion, up 6% YoY, as it has been pushing toward the recurring revenue model with its software services and subscriptions segment. Moreover, the stock forward P/E stands at 11.71, and considering the fundamentals, the share trading near $47/share seems to be at a quite reasonable valuation considering the double-digit sales projections in the near term.

On technical aspects, the stock has been hovering near the 200 DMA for some time now after correcting from the 50% retracement of the previous downtrend. Therefore, if the stock finds support at 200 DMA and manages to sustain above it for some time, then it can certainly open the door for an uptrend.

Synopsys Inc. (SNPS)

The company is said to report its second quarter fiscal year 2023 earnings on May 17 after the market close. The consensus EPS estimate is $2.47, -1.2% YoY, and revenue estimate is $1.38 billion, +7.7% YoY. The company has beaten EPS estimates 100% of the time and revenue estimates 75% of the time over the last two years.

The company is a leading Electronic Design Automation (EDA) and Intellectual Provider (IP) designer. EDA is an essential element of the semiconductor market, which presently stands at half a trillion. As per DIGITIMES research, the semiconductor market is expected to grow at a CAGR of 7% and exceed US$1 trillion in 2030. The company has been capitalizing on the current AI trend. It has launched an AI-driven suite solutions for the design, testing, verification, and manufacturing of advanced analog and digital chips. The group has a 50% of the market share in the oligopolistic industry. Its net income margin (TTM) at 18.22% and EBITDA margin (TTM) at 21.50% are above its 5-year average of 16.47% and 17.52%, respectively. The company has a profile of high recurring revenue, enabling a higher retention rate and facilitating it to act more resiliently during recession times.

The stock has been consolidating for over a year now, and the new highs on a weekly chart lack strength due to RSI divergences, suggesting the stock need to gain strength before any price rise.

Alibaba Group Holdings Ltd (BABA)

The company will report its earnings before the U.S. market opens on May 18. It is expected to earn $1.35/share compared to a year ago quarter when the earnings were at $1.18/share, and its revenue is forecasted to be $30.28 billion, compared to $28.35 billion from a year ago quarter. The stock has been down 70% from its highs due to regulatory scrutiny of tech companies in China. However, the headwinds may be on the verge of fading, and it could be an ideal time for investing, considering the company’s cash treasure of $55 billion. It also plans to invest $1 billion to boost its cloud services segment over the next three years.

The stock has risen more than 50% from its recent lows of $58 and is presently trading at $88.76. However, it has been below its 50-week moving average for over two years, and its recent two attempts to cross it has been failed. Hence, earning numbers would be interesting to see which can propel the upside move in the stock.

Applied Materials, Inc. (AMAT)

The company will report its second-quarter fiscal 2023 earnings on May 18. It expects its net sales to be around $6.4 billion, suggesting a 2.4% YoY growth, and the earnings are estimated at $1.84 per share, a 0.5% decline YoY. It has achieved a compound EPS growth of 23% per year, close to a 19% annual average share price increase, indicating consistency in investors' sentiment. In addition, its forward P/E ratio (Non-GAAP) at 17.21 is less than the sector median of 19.84, making it reasonably priced.

The stock has been trading above its 50 DMA, just above the 50% retracement of the previous downtrend. The daily RSI at around 64 indicates reasonable strength and price sustaining above the golden retracement ratio of 61.8, i.e., $130 would open the doors towards the new highs.

Deere & Company (DE)

The company will report its quarterly earnings on May 19. It is expected to report earnings of $8.50/share, an increase of 24.82% YoY. It expects its net income for fiscal 2023 to be between $8.75-$9.25 billion compared with $7.1 billion in fiscal 2022. Its forward P/E (Non-GAAP) stands at 12.21 compared to the sector’s median of 16.34. However, its rising debt is a concern, which has risen at 5.3% CAGR over the last five fiscal years, and its total debt stood at 0.72 of total capital as of the first quarter of the 2023 fiscal year.

The technicals do not suggest a good picture, with the stock trading below its 200 DMA and has been in a downtrend since the beginning of 2023. RSI at 34 on a daily timeframe, too, suggests bears have the upper hand at present.

Copart, Inc. (CPRT)

The company is set to release its earnings for the third quarter of fiscal year 2023 on May 17 post market hours. The earnings per share is estimated at 62 cents, indicating a 7.7% rise YoY, and the revenue estimation is $1.01 billion. The company’s capex expenditure amounted to $257 million for the first two quarters of the fiscal year, up from $157 million in the year-ago comparable quarters, of which 80% relates to storage capacity expansion. The expansion plan is likely to clip the cash flows.

The trailing P/E of the company stands at 36.52. The stock has been trading in an uptrend ever since it broke out of the consolidation range in January. It touched an all-time high of 81.92 recently and has been trading at RSI above 70 on a daily timeframe. Hence, any price correction would provide a good buying opportunity going forward.

TAKE-TWO INTERACTIVE SOFTWARE, INC Common Stock (TTWO)

The company is set for its fourth-quarter earnings of the fiscal year 2023 on May 17. The revenue estimate for the quarter is $1.34 billion, a 58.42% increase from the year-ago quarter. Moreover, the earnings for the quarter are expected to be at 70 cents.

The operating costs surged in the third quarter to $889 million, a 123% increase YoY because the company has been investing in product development to win market share. Thus, the margins in the present to-be-reported quarter are also expected to be under pressure.

The stock has been rising after the price created a low of around $90. It is trading above its 50 DMA, and price consolidation in the $120-140 range in the coming weeks/ months would create a perfect scenario for a future upmove.

Ross Stores Inc (ROST)

The company is set to release its first-quarter earnings for the fiscal year 2023 on May 18. The revenue is expected to be at $4.5 billion, a 3.9% increase YoY and the earnings are expected to be $1.03/share, a 6.4% rise. The company has been in the process of executing its store expansion plans, and the gains from the new stores are likely to be reflected in its fiscal first quarter of 2023. In addition, in its last quarter, the company had anticipated that the comp performance would be affected in the first quarter of 2023 due to increasing inflationary pressures.

The stock has been in a rising trend after the stock formed a low of around $70 and then rose more than 70% to touch the $120 level. Presently, it has been hovering around 50 DMA. However, the price action suggests a falling wedge formation reflecting the correction of the prior uptrend, which can see a price rise if it finds support near the $100 mark.

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-Xclusive Trading Staff

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