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Can Big Techs Repeat Q2's Impressive Performances in Q3?

The third-quarter earnings season is currently in full motion with more than 1000 companies lined up to report their results this week. Among these are several corporate behemoths, but the primary focus of market participants will be on five big tech brothers.

Microsoft Corp. MSFT, Apple Inc. AAPL, Amazon.com Inc. AMZN, Facebook Inc. FB and Alphabet Inc. GOOGL reported blockbuster results in the second quarter in spite of coronavirus-induced economic devastations. Let's discuss briefly how these five big techs are positioned before the release of their earnings this week.

Microsoft (MSFT) has a dominant position in the desktop PC market, with its operating systems being used in the majority of PCs worldwide. The company has doubled down on the cloud computing opportunity. Moreover, it is one of the three largest providers of gaming hardware.

The Zacks Rank #2 company has an Earnings ESP of 0.00%. However, the current Zacks Consensus Estimate for earnings per share indicates year-over-year growth of 10.9%. The company has an expected earnings growth rate of 10.4% for the current year (ending June 2021). It has a long-term (3-5 years) growth rate of 12.5% compared with 8.7% of the S&P 500.

Microsoft witnessed positive earnings ESP in the past four quarters with an average of 10.2%. The stock price has surged 33.2% year to date. Despite this, the forward price-to-earnings ratio (P/E) for the current financial year is 32.92X, lower than the industry average of 33.98X. The company will release first-quarter fiscal 2021 (ended September 2020) on Oct 27, after the closing bell.

Apple's Services and Wearables businesses are expected to drive top-line growth in fiscal 2020 and beyond. Although its business primarily runs around its flagship iPhone, the Services portfolio has emerged as the new cash cow. The company's focus on autonomous vehicles and augmented reality/virtual reality technologies presents growth opportunity in the long haul.

The Zacks Rank #3 company has Earnings ESP of +2.97%. The company has an expected earnings growth rate of 23.8% for the current year (ending September 2021). It has a long-term (3-5 years) growth rate of 11% compared with 8.7% of the S&P 500. The Zacks Consensus Estimate for the current year has improved 0.3% over the last 30 days.

Apple witnessed positive earnings ESP in the past four quarters with an average of 16.4%. The stock price has jumped 56.7% year to date. The company will release fourth-quarter fiscal 2020 (ended September 2020) earnings results on Oct 29, after the closing bell.

Amazon.com Inc. is one of the largest e-commerce companies in the world. Amazon is rapidly diversifying into a host of other product categories, especially on building video content, primarily for Prime subscribers. The company is the leading provider of cloud infrastructure as a service to enterprise customers. The expanding customer base of Amazon Web Services driven by its strengthening cloud offerings will continue to help Amazon in the global cloud space.

The Zacks Rank #3 company has Earnings ESP of +34.39%. The company has an expected earnings growth rate of 37.6% for the current year. It has a long-term (3-5 years) growth rate of 30.1% compared with 8.7% of the S&P 500. The Zacks Consensus Estimate for the current year has improved 0.2% over the last 30 days.

Amazon witnessed positive earnings ESP in two out of the past four quarters with an average of 132%. The stock price has soared 73.5% year to date. The company will release third-quarter 2020 earnings results on Oct 29, after the closing bell.

Alphabet Inc. has been showing increased appetite in the Home Assistant space. It made its foray into this market in 2016 with the launch of Google Home. The company has been growing rapidly in this fast-growing highly-competitive cloud market. The Google search engine is the dominant player in both laptop and mobile platforms. Moreover, Alphabet is strongly positioned with the YouTube platform for online and mobile video.

The Zacks Rank #2 company has Earnings ESP of +7.40%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. The company has a long-term (3-5 years) growth rate of 16.3% compared with 8.7% of the S&P 500. The Zacks Consensus Estimate for the current year has improved 0.1% over the last 7 days.

Alphabet witnessed positive earnings ESP in two out of the past four quarters with an average of 4%. The stock price has advanced 18.2% year to date. Despite this, the forward P/E for the current financial year is 34.97X, lower than the industry average of 38.64X. The company will release third-quarter 2020 earnings results on Oct 29, after the closing bell.

Facebook continues to witness significant traction in online and mobile advertising spending. The company intends to capture the opportunity presented by ever-increasing video viewing on social media platforms. nstagram has emerged as an important cash cow for Facebook after introducing its ad platform to worldwide advertisers. Messenger and WhatsApp are its other lucrative business lines.

The Zacks Rank #3 company has Earnings ESP of +1.82%. The company has an expected earnings growth rate of 26.3% for the current year. It has a long-term (3-5 years) growth rate of 18.9% compared with 8.7% of the S&P 500. The Zacks Consensus Estimate for the current year has improved 0.5% over the last 60 days.

Facebook witnessed positive earnings ESP in three out of the past four quarters with an average of 9.1%. The stock price has jumped 35% year to date. Despite this, the forward P/E for the current financial year is 33.89X, lower than the industry average of 38.64X. The company will release third-quarter 2020 earnings results on Oct 29, after the closing bell.

The chart below shows the price performance of above-mentioned five big techs in the third quarter.

 

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