Money & Markets Week Ahead for the week of July 12, 2021: This week marks the return of major quarterly earnings reports. I look at an exclusive membership company’s IPO and estimates for second-quarter earnings as we approach the next round of quarterly financial reports.
There’s another inflation indicator on the calendar as well.
Here’s more of what to watch in the week ahead on Wall Street:
On the IPO Front: Membership Collective
There are a few initial public offerings (IPO) on the calendar this week.
Membership Collective Group plans to price its IPO on Thursday. It will list on the New York Stock Exchange under the ticker symbol MCG.
What Is Membership Collective?
Membership Collective was started in London in 1995.
It operates spaces known as Soho Houses, which are collaborative areas for writers, artists, performers, designers and directors.
The company also offers memberships to restaurants, luxury hotels and social clubs around the world.
In its S-1 filing with the Securities and Exchange Commission, Membership Collective has more than 111,300 members across North America, the United Kingdom, Europe and Asia.
In 2020, Membership Collective generated $384 million in total revenues — down from the $642 million the company reported in 2019.
The company said a large part of the revenue downturn was the COVID-19 pandemic that kept members from using its facilities.
In the three months ending April 4, 2021, the company reported total revenues of $72.4 million compared to $141.5 million reported in the same three months of 2020 — a 48.8% decrease in top-line revenue.
The company increased its year-over-year operating losses from $58.8 million in 2019 to $154.7 million in 2020.
The company plans to sell 30 million shares at a price range of $14 to $16 per share.
The intent is to raise around $450 million with the offering.
According to Renaissance Capital, at a midpoint of $15 per share, Membership Collective would see a market value of $3.1 billion.
JPMorgan, Morgan Stanley, Goldman Sachs, Bank of America Securities and HSBC are all bookrunners on the deal.
The Skinny on the Membership Collective IPO
This has a WeWork and Magnises (remember Magnises CEO Billy McFarland’s Fyre Festival debacle) feel where members pay for exclusivity.
I like the concept of providing a collaborative space for people to come together and exchange ideas, but it has not taken off.
A big concern here is that the company struggles financially after being in business for 25 years.
Even now, as the COVID-19 pandemic passes us, Membership Collective continues to struggle with top-line revenue.
I would sit out on this IPO, not just when it launches, but for the immediate future.
Deeper Dive: Q2 2021 Earnings
We are closing the books on the latest quarterly earnings season.
Major banks will, as is tradition, kick off a new round of earnings reports this week with JPMorgan Chase & Co. (NYSE: JPM) and Goldman Sachs Group Inc. (NYSE: GS) reporting on Tuesday.
That provides a great opportunity to look at expectations for the next quarter.
S&P 500 Companies Expect Big Increase in EPS in Q2
From the third quarter of 2018 to the second quarter of 2020, S&P 500 companies experienced a steady drop in their earnings per share.
The second quarter of 2020 was specifically brutal as companies reported a 37% decline in earnings quarter over quarter.
However, things have started to pick back up from the COVID-19 pandemic.
Estimates for the second quarter of 2021 show S&P 500 companies could see their biggest quarterly increase in earnings per share — 7.3% — in the last four years.
According to FactSet, the energy sector is on track for the biggest quarterly increase in earnings in the second quarter — 37% — while materials could rise 17% growth and financials may jump 9%.
Conversely, consumer staples could see flat EPS growth and utilities are expected to be down 2%.
Companies across all sectors took a huge earnings hit during COVID-19 lockdowns.
Now that those lockdowns are easing around the world, businesses are getting back on track in terms of earnings growth.
They still have a long way to go to reach pre-pandemic levels, but earnings are moving in the right direction.
With the next round of quarterly earnings kicking off this week, it will be interesting to see how things stack up.
Money & Markets Week Ahead: Data Dump
We’ll get another look at how the price of selling goods and services has changed when the U.S. Bureau of Labor Statistics releases its monthly Core Producer Price Index on Wednesday.
The index measures the change in the selling price of goods and services sold by producers — excluding food and energy.
It’s an in-depth look at the price of items from the perspective of the seller.
Selling Prices Hold Steady Since March 2021
After suffering a drop in prices from April 2020 to June 2020 — due to the COVID-19 pandemic — producer prices have steadily increased.
However, in 2021, those prices have seen their largest increases since 2019.
In January, producer prices jumped 1.2%. But, those rises have pared back slightly and have been consistently around 0.7% over the last three months.
Analysts are projecting the Core Producer Price Index to show a 0.5% increase in seller prices — a slight drop from May’s 0.7% increase.
To finish off the Money & Markets Week Ahead, here’s a look at some of the key earnings reports due out this week:
Simulations Plus Inc. (Nasdaq: SLP)
JPMorgan Chase & Co. (NYSE: JPM)
PepsiCo Inc. (Nasdaq: PEP)
Goldman Sachs Group Inc. (NYSE: GS)
Bank of America Corp. (NYSE: BAC)
Wells Fargo & Co. (NYSE: WFC)
Citigroup Inc. (NYSE: C)
BlackRock Inc. (NYSE: BLK)
Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE: TSM)
UnitedHealth Group Inc. (NYSE: UNH)
Morgan Stanley (NYSE: MS)
US Bancorp (NYSE: USB)
Honeywell International Inc. (Nasdaq: HON)
Charles Schwab Corp. (NYSE: SCHW)
That’s all for this week.
Until next time…
Matt Clark, CMSA®
Research Analyst, Money & Markets
Matt Clark is the research analyst for Money & Markets. He is a certified Capital Markets & Securities Analyst with the Corporate Finance Institute and a contributor to Seeking Alpha. Prior to joining Money & Markets, he was a journalist and editor for 25 years, covering college sports, business and politics.