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Netflix, Inc. (NFLX), AT&T Inc. (T), McDonald’s Corporation (MCD): Can These Companies Deliver Amid High Expectations?

Netflix, Inc. (NASDAQ:NFLX)The U.S. stock market is extending its rally heading into the week of July 22, with the S&P 500 finishing in positive territory during 10 of the last 11 trading sessions.

On Wednesday, July 18, Federal Reserve Chairman Ben Bernanke testified in front of Congress, stating the central bank will not take its foot off the pedal until the U.S. economy is strong enough to stand on its own feet. Equity markets became rattled in late June when investors misinterpreted Bernanke’s comments, but the broader market has now resumed the upward trend it established back in November 2012.

Expectations are high for the market to continue its impressive rally. Analysts at Bank of America raised their year-end price target for the S&P 500 to 1,750 based on improving fundamentals and earnings growth. As of this writing, the S&P 500 stands at 1,688.51, indicating a modest 3.6% upside through year-end.

All in all, expectations are high for many of the companies reporting on Wall Street in coming days. Here are three companies with very high expectancies that could cause the market rally to falter:

Streaming television and movie service

Monday, July 22, 2013 after market close; EPS $0.40 / Revenue $1.07 billion

Internet subscription service Netflix, Inc. (NASDAQ:NFLX) is approaching the all-time record highs reached in July 2011, nearly 2 years later to the date. Shares have risen 190% in calendar 2013 heading into Monday’s Q2 2013 earnings release.

Investors are applauding the company’s domestic streaming margin, which expanded to 20.6% during Q1 2013 from a previous 14.3% during Q1 2012. More impressively, the contribution margin has consistently expanded during each of the last five quarters (14.3%, 16.4%, 17.2%, 19.2%, 20.6%).

Concerns remain for Netflix, Inc. (NASDAQ:NFLX) shareholders, however. The company continues to lose money every quarter within international streaming, as total members have more than doubled from 3.07 million to 7.14 million subscribers. Analysts at the Wall Street Journal disagree with the focus on profitability, providing their take in a July 15 piece titled Netflix Should Read Amazon’s Script (paid login required). The Journal argues that Reed Hastings should focus on building its subscriber base at the expense of profits, similar to the model of Amazon CEO Jeff Bezos.

Ahead of Monday’s earnings report, analysts at Barclays raised their Netflix, Inc. (NASDAQ:NFLX) price target to $250 from a previous $220. The investment firm believes Netflix, Inc. (NASDAQ:NFLX) will report strong subscriber growth trends due to original content growth and increased usage on smartphones.

I’ve written negatively on Netflix, Inc. (NASDAQ:NFLX) before, most recently 5 Reasons to Sell Netflix and Pandora, and Buy Coinstar and It’s a Bubble: Why Netflix Doesn’t Deserve a Dot-Com Valuation.

Telecommunications giant

Tuesday, July 23, 2013 after market close; EPS $0.68 / Revenue $31.82 billion

Expectations are high for AT&T Inc. (NYSE:T) heading into its Q2 2013 earnings release, following the company’s announcement to acquire Leap Wireless for $15 per share on July 12. The deal for the small wireless carrier, which operates under the Cricket brand, is subject to regulatory approval. Competing bids from other carriers could emerge for Leap Wireless, such as AT&T Inc. (NYSE:T) competitor T-Mobile.

News of the Leap Wireless acquisition comes following persistent rumors that AT&T Inc. (NYSE:T) would acquire the wireless spectrum owned by DISH Network Corp (NASDAQ:DISH) or the entire company outright. A Spanish newspaper also reported in June that AT&T Inc. (NYSE:T) submitted a $93 billion offer for European telecom giant Telefonica.

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