Money & Markets Week Ahead for the week of October 18, 2020: The airline business has not had a good year.
And it’s not likely to get much better.
I’m going to give you my thoughts on a pair of airline giants who report earnings this week as well as talk about another big IPO expected to launch.
Here are some things investors should watch on Wall Street this week:
On the IPO Front
A big cybersecurity firm’s initial public offering (IPO) should launch this week.
McAfee Corp. plans to launch its IPO on Thursday. It will trade on the Nasdaq under the ticker MCFE.
What is the company: McAfee Corp. made its name developing and selling software that protects computers against spam and malware.
Over the last 30 years, the company has grown to develop its own threat intelligence network. It analyzes and gathers data on threats from more than 500 million endpoints globally.
It also has data and workload protection software for cloud-based operations.
This will be the second IPO listing for the company as it traded publicly from 1999 to 2011 before it was delisted.
For the six months ending in June 2020, McAfee reported a net income of around $31 million on revenue of $1.4 billion.
In the same period a year ago, the company had a net loss of $146 million on $1.3 billion in revenue.
The financial skinny: The company is offering 31 million shares plus another 6 million shares offered by selling shareholders. The price will range from $19 to $22 per share.
The company hopes to raise around $814 million with its IPO.
Following the IPO, there is expected to be more than 165 million Class A and 266 million Class B shares outstanding, giving the company a valuation of up to $9.5 billion.
The lead underwriters for the IPO are Morgan Stanley (NYSE: MS), Goldman Sachs Group Inc. (NYSE: GS), TPG Capital BD, BofA Securities Inc. and Citigroup Inc. (NYSE: C).
The company was once part of Intel Corp. (NYSE: INTC), which acquired McAfee for around $7.7 billion in 2011.
Intel transferred a 51% stake in McAfee to TPG Capital LP in 2016 for $1.1 billion. TPG is listed as one of McAfee’s backers on its prospectus.
My thought bubble: McAfee’s IPO will not be alone in the final quarter of the year in terms of big offerings.
Home rental company Airbnb and food delivery firm DoorDash are also planning to launch their IPOs later this year.
McAfee’s offering comes at a time when the IPO market has started to rebound following a drop-off in April due to the coronavirus.
Thus far this year, the biggest software IPO was Snowflake Inc. (NYSE: SNOW), which raised $3.8 billion in its IPO last month.
Earnings to Watch
It’s no secret that airlines and the rest of the travel industry has been hammered by the coronavirus.
Passengers are staying off jets because of social distancing. Thus the rest of the travel industry (think hotels, resorts and cruise ships) are also feeling the pain.
Last week, United Airlines Holdings Inc. (Nasdaq: UAL) reported a loss of $8.16 per share, which was worse than the average $7.60-per-share loss analysts expected.
Delta Air Lines Inc. (NYSE: DAL) also reported an earnings loss — to the tune of $3.30 per share — along with a 75% revenue loss.
Both were below analysts’ expectations.
This week, American Airlines Group Inc. (Nasdaq: AAL) and Southwest Airlines Corp. (NYSE: LUV) are expected to follow the same line of losses.
Both report earnings on Thursday.
Analysts project American to lose more than $7 per share when they report. I think that’s a little high.
I expect American to post an earnings-per-share loss of just under $7 per share.
As for Southwest, the expectation is for an earnings loss of around $2.20 per share.
I agree with that expectation — and wouldn’t be surprised to see greater losses.
The airline industry continues to get beaten up by the coronavirus and, as infections start to tick back up — opening the door for a rough winter season — those losses are going to continue into the fourth quarter.
Money & Markets Week Ahead: Data Dump
When the Fed speaks, investors listen.
Investors will be paying a lot of attention this week as seven Federal Reserve presidents, along with Fed Chairman Jerome Powell, have speeches planned for this week.
Powell will speak on the Fed’s economic outlook on Thursday morning, and the news isn’t expected to be any better than it has been.
I expect Powell to continue pressing Congress for more fiscal relief for individuals and businesses while cautioning against expecting any significant economic growth as the coronavirus pandemic continues.
Late Tuesday, Philadelphia Fed President Patrick Harker will speak, followed by Atlanta Fed President Raphael Bostic and Dallas Fed President Rob Kaplan.
On Wednesday, the Atlanta, Boston and Minneapolis Feds will hold a joint event on racism and the economy. New York Fed President John Williams will speak in the afternoon.
The Fed speaking tour concludes on Thursday when Boston Fed President Eric Rosengren, Chicago Fed President Charles Evans and Bostic will speak.
The data dump continues on Thursday when the Labor Department releases its initial and continuing jobless claims.
Last week, claims were around 898,000 — higher than the estimate of 830,000 — signaling that an economic turnaround is slowing down.
It was the highest level of jobless claims since the middle of August.
Third-quarter gross domestic product (GDP) analysis is expected on Oct. 29.
The median forecast for the third quarter is for GDP to grow 31.9%, following a loss of 31.4% in the second quarter.
To finish off the Money & Markets Week Ahead, here’s a look at some of the key earnings reports due out this week:
Halliburton Co. (NYSE: HAL)
International Business Machines Corp. (NYSE: IBM)
Lockheed Martin Corp. (NYSE: LMT)
Netflix Inc. (Nasdaq: NFLX)
UBS Group AG (NYSE: UBS)
Chipotle Mexican Grill Inc. (NYSE: CMG)
Kinder Morgan Inc. (NYSE: KMI)
NextEra Energy Inc. (NYSE: NEE)
American Airlines Group Inc. (Nasdaq: AAL)
AT&T Inc. (NYSE: T)
Northrop Grumman Corp. (NYSE: NOC)
Southwest Airlines Corp. (NYSE: LUV)
American Express Co. (NYSE: AXP)
Bloomin’ Brands Inc. (Nasdaq: BLMN)
That’s all for this week.
Until next time…
Research Analyst, Money & Markets
Matt Clark is the research analyst for Money & Markets. He’s the host of our podcast, The Bull & The Bear, as well as the Marijuana Market Update. Before joining the team, he spent 25 years as an investigative journalist and editor — covering everything from politics to business.