Top US stocks: NVIDIA, Peloton and Big Lots

The EU is set to probe NVIDIA’s takeover of Arm, Peloton sinks into the red as regulators look at its treadmill recall, Big Lots misses expectations, Dell, Marvell and Workday deliver record results, Gap raises its outlook, and HP sells what it can amid the global chip shortage.

USA (1)

NVIDIA

The European Commission is preparing to launch an investigation into NVIDIA’s $54 billion takeover of British chip designer Arm as concerns about its effect on competition in the market continue to rise.

Reports from several media outlets said NVIDIA was set to make its submission seeking approval for the deal in the week starting September 6, which is then expected to kickstart the EC’s probe. NVIDIA has vowed to counter any concerns raised by regulators in order to get the deal over the line. The UK regulator’s initial assessment highlighted the deal raised ‘serious competition concerns’.

Arm designs chips that are widely used throughout the industry, prompting concerns that NVIDIA will gain a significant advantage over its rivals as a result.

Peloton

Peloton shares were trading sharply lower in pre-market trading today after releasing second quarter earnings after the closing bell yesterday, revealing it was pushed into the red and suffered a slowdown in growth.

Revenue rose 54% to $937 million and it ended the period with 2.33 million connected subscribers, with both beating expectations. However, the recall of its treadmills in May and increased investment in shipping helped push Peloton to a net loss of $313.2 million – considerably larger than the $139.6 million loss forecast by Wall Street. That was the first sequential slowdown in topline growth since it went public and came after three consecutive quarters of profit.

It is having to sacrifice profitability over the short term and said it won’t escape the red until the next financial year, and also warned that the SEC is investigating how it disclosed matters regarding the recall and handled reports of injuries caused by its treadmills.

Peloton said it expects to end the current financial year with 3.63 million connected subscribers and deliver $5.4 billion in revenue and a $325 million adjusted Ebitda loss.

Big Lots

Big Lots said sales fell as it came up against tougher comparatives but said demand for everything from furniture and home décor to apparel and electronics remains well above pre-pandemic levels.

Sales fell 11.4% year-on-year to $1.64 billion as it came up against tough comparatives from last year, but still came in over 16% higher than pre-pandemic levels. Diluted EPS of $1.09 came in the mid-point of the company’s guidance range but was down heavily from the $11.29 booked last year. Comparable sales fell slightly more than expected while earnings were just shy of Wall Street forecasts.

Big Lots warned it expects to book a loss of $0.10 to $0.20 in the third quarter and for comparable sales to decline by a mid-single digit percentage. It said margins will also contract due to increased freight costs. Sales are set to decline mildly over the full year due to supply chain disruption and full year earnings should be in the range of $5.90 to $6.05. That would compare to the $16.11 delivered in 2020 and $6.16 in 2019.

Dell

Dell delivered yet another record quarter as demand for its hardware and cloud services continued to rise in the world of hybrid working, and said it expects to keep up the momentum in the current quarter.

Revenue grew 15% to $26.1 billion to mark yet another record quarter following the strong performance delivered in the first quarter. Adjusted EPS rose 17% to $2.24. That comfortably came in ahead of the $25.5 billion in revenue and earnings of $2.03 forecast by Wall Street. Its division responsible for laptops and other hardware reported 27% topline growth while its infrastructure unit reported a 3% rise in sales.

Dell said it is expecting revenue to be up by a mid-to-high teens percentage in the third quarter. A number of brokers tweaked their target price on the stock after the update and on average they believe the stock is a Buy with a target price of $116.55 – some 14.8% above the current share price.

Workday

Workday said it enjoyed the strongest quarter in its history when it published second quarter earnings late yesterday as enterprise spending continues to go from strength-to-strength, prompting it to raise expectations for the rest of the year.

Revenue grew 18.7% year-on-year to $1.26 billion, coming in just ahead of the $1.24 billion forecast by analysts. Adjusted operating income rose over 23% to $291.8 million, surprising Wall Street that had forecast a drop in profits to $247.5 million.

Workday said subscription revenue should rise up to 20% in the third quarter and that it is expecting annual subscription revenue to rise 19% to $4.5 billion.

Gap

Gap said its investment in marketing, brands and technology were now paying off as momentum for its brands spanning Banana Republic to Old Navy continues to gain traction, prompting the firm to raise its guidance for the year.

Net sales rose 29% to $4.2 billion. That came in 5% above pre-pandemic levels and the highest second-quarter sales result in over a decade. Comparable sales were up 12% compared to 2019. Its diluted EPS of $0.67 turned from a $0.17 loss the year before when sales were severely hit by the pandemic as stores were closed and that also came in higher than the result from two years before.

Gap raised its outlook for the rest of the year and said it is expecting revenue to grow 30% year-on-year and for diluted EPS to be in the range of $1.90 to $2.05, having previously targeted EPS of $1.60 to $1.75. That would be a stark improvement from the $1.78 loss booked in 2020 and also a jump from the $0.92 delivered in 2019.

Marvell Technology

Marvell Technology said it delivered record revenue in the second quarter as demand for its networking chips holds up amid the global chip shortage.

Net revenue came in toward the upper end of guidance and rose to $1.07 billion from $832.3 million the year before, driven by strong demand for data centres and cloud infrastructure. The net loss came in at $276 million, swelling from an $88.2 million loss last year. Non-GAAP diluted EPS rose to $0.34 from $0.29.

The company said it was expanding from three reportable divisions to five going forward: data centre, carrier infrastructure, enterprise networking, consumer and automotive/industrial. It said third quarter revenue should come in around $1.14 billion and that non-GAAP EPS should be around $0.38, slightly ahead of the $0.37 expected by Wall Street.

Hewlett Packard

HP said it saw ‘strong and sustained demand’ for its technology in the third quarter, resulting in strong revenue and profit growth that puts it on course to deliver a solid set of results over the full year.

Net revenue climbed 7% year-on-year to $15.3 billion and adjusted EPS more than doubled to $1.00. The topline was slightly below analyst expectations but earnings were much better than the $0.79 forecast by Wall Street. HP said results were held back by the global chip shortage but that it was selling as much as it can produce.

HP said fourth quarter EPS should be between $0.82 to $0.88 and that for the full year that should be $3.56 to $3.62. If delivered, that would represent an improvement from $2.28 last year.

Southwest Airlines

Southwest Airlines has decided to reduce the number of flights it operates for the rest of the year as it continues to adjust to the volatile travel market and overcome operational problems that has caused severe problems for the airline this year.

The airline said it will operate an average of just 27 flights per day between September 7 and October 6, and cut 162 daily flights between October 7 to November 5. It said it would also shake-up its schedule for November and December but protect holiday bookings. Chief executive Gary Kelly said this would ‘create a more reliable travel experience’.

The company was hit by operational issues that caused delays to flights and increased cancellations, and is also having to adapt capacity after ramping-up this year only to be met by a volatile environment.

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