Key news this week: Tiffany and Hewlett-Packard earnings

Happy Monday everyone! Hope everyone had a wonderful weekend. Mine was spent cooking and eating, and it was fantastic. I’m thinking of it as a preview to this week’s upcoming Thanksgiving festivities (my favorite holiday!). But, the market won’t rest until Thursday, and until then there are a few companies reporting big earnings this week. Let’s chat about my thoughts on the key market news to watch this week.

Tiffany & Co

Tiffany& Co (TIF) is reporting earnings on Tuesday, and I expect good things from the jewelry retailer. First of all, Tiffany has a great earnings pattern, with big beats for 3 of the last 4 quarters and strong positive market response in return. I’ve probably said this a million times, but I think we will continue to see retail growth come from the higher end retailers, particularly as we get positive economic news. And, Tiffany has been succeeding in international markets too, which feature a growing middle class of brand-conscious consumers.

I’m considering picking up Tiffany before earnings not only because they have had a recent string of positive earnings reactions, but because it should be good to hold through the next few quarters’ results as well. Tiffany is a strong company with one of the strongest brand identities out there. Like Disney or Coca Cola, I find it hard to bet against a brand so familiar to consumers (regardless of whether they even purchase the products).

Plus, next quarter will include the holiday shopping season, which tends to be a great quarter for jewelry retailers. Not only is there typical Christmas gift shopping, but according to WeddingWire, a third of all engagements occur between Thanksgiving and New Year’s. That’s good news for Tiffany, the aspirational ring of many soon-to-be brides.

Hewlett-Packard

I’m interested to see Hewlett-Packard’s (HPQ) earnings report since it will be the first one since they announced their split into two companies. This announcement might give some more insight into the reasoning behind the split, as well as hints if the split will be a successful move.

As I mentioned in my post about the split, I think the decision came from a place of weakness. Given that and HP’s dwindling market share, I have no interest in even considering getting involved in the stock until I see more results post the split decision (at least mid-next year).

Deere & Co.

Deere (DE) is another company that’s had a strong string of earnings reports recently. Last quarter, the tractor manufacturer posted a positive earnings surprise of 6.39%, and on average, Deere has posted a 12.08% positive surprise in the last four quarters.

However, even though they’ve been beating expectations, it’s just because expectations were low. The company has had decreased sales from last year to this year, and expects an 8% drop in sales in the fourth quarter of 2014. Overall, it expects a 6% revenue decline for 2014 and lowered its net income expectations accordingly.

A big reason for Deere’s decline is low farm income. A big chunk of Deere’s customer group is farmers, so if they aren’t doing well it’s likely Deere isn’t doing well either. Deere might see help from increased construction as the real estate market improves, but they aren’t the big supplier in that market like they are with farming.

I don’t expect this to be a great report for Deere. It’s possible there will be a positive reaction if they beat estimates, but beating estimates with declining sales is not a great place to be. Even if there is a temporary increase in the price, the fundamentals just aren’t stable so I wouldn’t be confident holding the stock.

Durable Goods

It’s interesting the durable goods report comes out on the same week as Tiffany and Deere’s earnings, since both companies manufacture durable goods. Durable goods are products that don’t have to be purchased frequently, such as TVs, refrigerators, jewelry, and lawn equipment. It’s a general barometer of strength in the economy and consumer confidence, since unconfident consumers don’t tend to make big investment purchases.

That’s all I’ve got, folks. Hope this helps you all get prepared for the market activity we’ll see this week.