Looking Ahead: Aug CPI, Fed Meeting, ZS DOCU KR Earnings
The August Jobs Report on Friday was a “goldilocks” report by consensus. The economy added 187,000 jobs in August – according to the BLS – while prior months were revised down by 110,000. It therefore appears that the jobs market is slowing – but not rolling over. This is a win for bulls on two fronts. On the one hand, the job market is slowing sufficiently that the Fed can pause when it next meets on Wednesday September 20. The Fed Futures are now pricing in a 94% probability that it will do so. On the other hand, the job market is not rolling over and so a soft landing appears the most likely scenario. The next important data point on this front is the August CPI on Wednesday September 13.
Let’s now take a look at some earnings reports that I’m focusing on next week. The market is closed on Monday for Labor Day. On Tuesday afternoon, $25 billion cybersecurity company Zscaler (ZS) reports. I am by no means an expert on ZS’s Zero Trust Exchange platform but I have a small short position (0.56%) in the stock because it is quite expensive at almost 100x current year EPS guidance ($1.63-$1.64).
Next up are Docusign (DOCU) earnings on Thursday afternoon. DOCU shares have been pummeled, losing 5/6ths of their value over the last two years. However, I continue to think there is value in the stock at these levels. Fundamentals appear to be stabilizing for the leading esignature platform and the stock now trades at a reasonable low 20s multiple on current year net income guidance. I increased my position to 1.02% on Friday.
On Friday morning, personal favorite and the country’s leading grocer, Kroger (KR), reports earnings. KR stock has flatlined over the last year or so but the stock represents one of the best values in the market IMO. KR is guiding current year comps to +1% to +2% (+2.5% to +3.5% excluding the termination of their relationship with Express Scripts) and EPS of $4.45-$4.60. That means you get a quality company that sells the ultimate necessity – food – for 10x current year EPS guidance. KR also pays a 2.52% annual dividend. It’s very hard for me to see how you could go wrong owning KR. I increased my position to 10.16% on Friday – my largest single stock position – and I will look to sell puts ahead of earnings next week as well.