Technology

Microsoft, Intel, Apple, Amazon and Alphabet are part of Zacks Earnings Preview

For Immediate Release

Chicago, IL – July 27,2020 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes Microsoft Corporation MSFT, Intel Corporation INTC, Apple Inc. AAPL, Amazon.com, Inc. AMZN and Alphabet Inc. GOOGL.

The Technology Sector Shows Earnings Power Amid Coronavirus

Technology stocks have lost some of their shine in recent days, with some blaming underwhelming earnings reports as the source of weakness. A good example in that respect is Microsoft’s stock market weakness after its earnings release.

There is the case of Intel as well, which has literally been taken to cleaners after coming out with its quarterly release. But the chipmaker has long been in a league of its own when it comes to missing out on market opportunities and disappointing the markets. As such, considering it in the same league as Microsoft, even though the two were in the vanguard of the PC era together, may be a little unfair.

Handicapping how Tech stocks would perform after they release quarterly results is a timely exercise as we enter the heart of the Q2 earnings season this week with marquee operators like Apple, Amazon, Alphabet and others on deck to report results this week.

As we look ahead to earnings releases from these Tech leaders, we should be mindful of the group’s outstanding stock market performance thus far.

The sector has been leading the overall market in a major way (+14.3% vs. +0.6%), with Microsoft and Apple performing almost twice as good as the Tech sector.

So what was wrong with the Microsoft earnings report when it beat EPS and revenue estimates?

Some people cite signs of deceleration in the company’s cloud computing business, with Azure revenues growing only +50% vs. +54% in the preceding quarter. Overall Q2 earnings and revenues for the company were up +5.5% and +12.8% from the same period last year. Even Intel had Q2 earnings and revenues up +10.3% and +19.5% year over year.

These would be solid growth numbers in any period, but they become even more impressive when we put them in the broader context that Q2 earnings and revenues for the S&P 500 index as a whole are on track to be down in excess of -40% and -10% from the same period last year.

What I am saying is that the ‘problem’ isn’t in the Microsoft or Tech numbers, but rather in how these stocks have moved since the March 23rd lows. Market participants are simply using the quarterly reports as an opportunity to cash out of these very profitable positions.

I would expect something similar to play out as the market digests quarterly releases from Apple, Facebook, Amazon, Alphabet and others. 

Tech Sector Scorecard

For the Tech sector, we now have Q2 results from 35.1% of the sector’s market capitalization in the S&P 500 index. Total earnings for these Tech companies are down -5.2% on +1% higher revenues, with 93.3% beating EPS estimates and 66.7% beating revenue estimates.

Q2 Earnings Season Scorecard

As of Friday, July 24th, we have seen Q2 results from 128 S&P 500 members or 25.6% of the index’s total membership. The reporting cycle really ramps up this week, with more than 800 companies on deck to report results, including 185 S&P 500 members. In addition to the aforementioned Tech companies, we have companies from all the other sectors, including Energy sector leaders.

Total Q2 earnings for the 128 index members that have reported results already are down -41.9% from the same period last year on -7.1% lower revenues, with 74.2% beating EPS estimates and 64.1% 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 -147.7%), Transportation (-155.3%), Autos (-228.1%) and Consumer Discretionary (-117.7%).

The Overall Earnings Picture

The expectation was for a roughly +8% growth at the start of the year, which has now become a decline of -23.6%.

Importantly, there is a favorable revision trend of late, which shows today’s decline of -23.6% down from -24.4% in early July.

Growth is expected to resume next year, with full-year 2021 earnings for the S&P 500 index currently expected to be up +26.6% 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 $155.38 in 2021 vs. $122.78 in 2020 and $160.72 in 2019.

For an in-depth look at the overall earnings picture and expectations for the coming quarters, please check out our weekly Earnings Trends report >>>> Early Signs of Earnings Improvement

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