Goldman Sachs, JPMorgan Chase, Microsoft, Intel are Twitter part of Zacks Earnings Preview
For Immediate Release
Chicago, IL – July 20,2020 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes The Goldman Sachs Group, Inc. GS, JPMorgan Chase & Co. JPM, Microsoft Corporation MSFT, Intel Corporation INTC and Twitter, Inc. TWTR
Previewing Tech's First Full Coronavirus Earnings Season
There were no major surprises in bank earnings, but that was likely a function of very low expectations as the market was already primed for the group coming out with bulking up their loan-loss reserves and margins getting squeezed by historically low interest rates.
The market expected the big banks and brokers to show momentum in their capital markets and investment banking businesses. And we got notable upside surprises on that count from the likes of Goldman Sachs and JPMorgan.
We still have plenty of Finance earnings to come, but the focus shifts to the Technology sector, with a number of major players like Microsoft, Intel, Twitter and others on deck to report results. Tech stocks have been in the vanguard of the market’s recovery from the March 23 lows and it may not be easy for these companies to satisfy the market’s lofty expectations.
Stocks in the Zacks Technology sector are up +14.2% in the year-to-date period, handily outperforming the S&P 500 index’s breakeven showing, with Microsoft doing twice as well as the Tech sector itself.
A big reason for these stocks’ strong recent performance is the secular momentum in their underlying businesses that are least affected Covid-19 related disruptions. In fact, the pandemic has, in many cases, accelerated long-standing digitization trends that are helping big parts of the U.S. economy and workforce to operate almost normally in these otherwise abnormal times.
Today’s Microsoft has come a long way since its dominance in the PC era that relied on the company’s Windows operating system and suite of MS Office applications. The company has transformed itself into a cloud computing powerhouse and emerged as among the top three players in the space, along with Amazon and Google. It is these cloud-based services that are allowing us to remain functional while working from homes.
Intel has been a lot less successful than Microsoft in repositioning itself to the new world, but the company has a growing cloud exposure through its datacenter business, which has been a key driven in recent quarters.
Microsoft shares have historically responded positively to quarterly releases; the last time the stock was down on a quarterly release was exactly two years ago. Even then, the stock was only barely in the red. The company is expected to come out with $1.40 in EPS on $36.6 billion in revenues, up +2.2% and +8.5% from the year-earlier period, respectively.
For the Technology sector as a whole, Q2 earnings are expected to be down -12.7% on -1% lower revenues. This would follow +3.8% earnings growth on +4% higher revenues in the preceding quarter.
Please note that all 16 Zacks sectors are expected to have earnings declines in Q2, with the Tech sector’s earnings decline one of the lowest among all the sectors. It will be interesting to see if the group can sustain its stock market momentum after the earnings picture gets clearer.
The Overall Earnings Picture
S&P 500 earnings estimates for full-year 2020 have evolved since early January. The expectation was for a roughly +8% growth at the start of the year, which has now become a decline of -24.3% decline, a shade better than last week’s -24.4% decline. We should point out here that the estimates have largely been stable over the last few weeks.
Growth is expected to resume next year, with full-year 2021 earnings for the S&P 500 index currently expected to be up +27% relative to 2020 estimates. But as strong as next year’s growth estimate is, total 2021 index earnings would still haven’t gotten back to pre-Covid levels.
In other words, S&P 500 earnings in 20201 are currently expected to be modestly below the 2019 level.
These numbers translate to an index ‘EPS’ of $154.46 in 2021 vs. $121.66 in 2020 and $160.65 in 2019.
While the pandemic has a bearing on all sectors, the impact is a lot less pronounced on the Tech sector.
Q2 Earnings Season Scorecard
As of Friday, July 17th, we have seen Q2 results from 47 S&P 500 members or 9.4% of the index’s total membership. The reporting cycle really ramps up this week, with more than 300 companies on deck to report results, including 82 S&P 500 members. In addition to the aforementioned Tech companies, we have a number of companies from the Finance, Transportation, and Industrial sectors reporting results this week.
Total Q2 earnings for the 47 index members that have reported results already are down -46% from the same period last year on -2% lower revenues, with 74.5% beating EPS estimates and 68.1% beating revenue estimates.
For the Finance sector, which is heavily represented in the results at this stage, we now have Q2 results from 36.8% of the sector’s total market capitalization in the S&P 500 index. Total earnings for these Finance companies are down -56.2% from the same period last year on +7.5% higher revenues, with 76.5% beating EPS estimates and 70.6% beating revenue estimates.
All sectors are expected to have lower earnings relative to the year-earlier period, with 4 of the 16 sectors expected to lose money in Q2 (decline rates in excess of -100%). These four sectors are unsurprisingly Energy (Q2 earnings expected to decline -146.4%), Transportation (-151.9%), Autos (-231.8%) and Consumer Discretionary (-116.8%).
For an in-depth look at the overall earnings picture and expectations for the coming quarters, please check out our weekly Earnings Trends report >>>> Q2 Earnings Season Gets Underway
These Stocks Are Poised to Soar Past the Pandemic
The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.
Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.
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