Weekly Preview: Earnings To Watch (AAPL, AMD, AMZN, FB, GOOG, MSFT, TSLA)
After Thursday’s 1% decline sparked by concerns that the Biden administration is preparing to increased capital gains taxes, stocks closed near record highs on Friday, suggesting that investors are now cautiously optimistic that the tax fears — which reports suggest would rise to 40% — were overblown.
Reports suggests that part of the reformed tax plan is to increase the current capital gains tax rate of 20% to 39.6% for Americans earning more than $1 million. A Goldman Sachs analyst weighed in on the topic, saying in a note to investors Friday, “We expect Congress will pass a scaled back version of this tax increase.” The analyst noted that the more likely outcome is a modest increase of around 28%. That level-headed thought seem to resonate with investors.
Stocks on Friday responded more favorably. The Dow Jones Industrial Average rose 227.59 points Friday to close at 34,043.49, gaining 0.67%. The Blue Chip index was driven by increases in Apple (AAPL), Bank of America (BAC) and Microsoft (MSFT) which offset declines in Intel (INTC), which lost 5.5% during the session. The S&P 500 index closed 45.19 points higher to 4,180.17, while the tech-heavy Nasdaq Composite Index added 198.39 points to close at 14,016.81.
Aside from the aforementioned Apple and Microsoft, Nasdaq’s rally was driven by gains in, among others, Tesla (TSLA), Amazon (AMZN) and Zoom Video (ZM). The market appears encouraged by not only by the number of positive first quarter earnings reports from S&P 500 companies that have been released so far, but also from the upbeat guidance. The main question is whether this rally can continue through next week. Big Tech comes into focus with four of the FAANG stocks slated to announce their results.
Investors will have to reconcile the quarterly figures, along with the impact the pandemic has had on last year’s comparable numbers. In the case of Amazon and Microsoft, both companies thrived as customers were forced not only to shop online, but also learn/work from home. This, in turn, drove demand for their respective cloud offerings. In other words, how much weight can be placed on their actual figures, given the disruption (and benefit) companies realized during the lockdown restrictions?
Nevertheless, evidenced by Friday’s strong stock gains, investors are feeling confident that the earnings results will be supportive of higher valuations. The results received so far not only have been encouraging, there is reason to expect a sustained recovery through the second quarter as vaccine distribution continues. That said, for investors who have missed the rally while on the sidelines waiting for a clearer sign of a recovery, there is still time.
Here are the earnings I’ll be watching this week.
Tesla (TSLA) - Reports after the close, Monday, Apr. 26
Wall Street expects Tesla to earn 78 cents per share on revenue of $10.29 billion. This compares to the year-ago quarter when earnings came to 23 cents per share on revenue of $5.99 billion.
What to watch: Tesla shares have fallen as much as 40% since reaching a 52-week high of $900 to a low of $539 on March 5. However, since that low, the stock has risen as much as 46%. That rate of volatility is par for the course for Tesla. Investors want to know how much higher or lower can the stock go. According to Cathie Wood's ARK Investment Management, which has an ETF with a 10% stake in Tesla, the shares could be worth as much as $3,000 per share by 2025. The firm has laid out multiple scenarios for its price target, including the possibility that Tesla’s eventual ride-hailing business will generate $42 billion in revenue and $20 billion profit by 2025. In the meantime, the company’s deliveries will drive the stock. Tesla delivered 500,000 vehicles in 2020. And vehicle deliveries for 2021 is projected to grow between 50% to 70% above 2020 levels. The electric vehicle pioneer will have to keep its foot on the (electric) pedal next week as its delivery guidance.
Advanced Micro Devices (AMD) - Reports after the close, Tuesday, Apr. 27
Wall Street expects AMD to earn 44 cents per share on revenue of $3.21 billion. This compares to the year-ago quarter when earning were 18 cents per share on $1.79 billion in revenue.
What to watch: Expectations are just risen for AMD, or should be, given not only the strong Q1 results provided by rival Intel (INTC), but upside guidance Intel issued. Intel’s confidence suggests there is now an expected rebound in chip demand. Investors are also now anticipating a re-acceleration in both datacenter revenue and PC demand. These trends bode well for AMD which has steadily gained market share from Intel in both categories, particularly due to the launch of its Ryzen processor family and EPYC server processors. The company’s gross margin has also been a key contributor to its success and rising cash flow. Assuming AMD’s gross margin will continue to grow, AMD stock looks significantly undervalued relative to its growth opportunity. Meanwhile, AMD stock is down more than 13% year to date, trailing the 10% rise in the S&P 500 index. Given that the company has topped the Street’s revenue estimates in six of the past seven quarters and is well-positioned to do so again, now would be an ideal time to buy AMD shares on its recent pullback.
Wall Street expects Alphabet to earn $15.69 per share on revenue of $51.49 billion. This compares to the year-ago quarter when earnings came to $9.87 per share on revenue of $41.16 billion.
What to watch: Shares of Google parent Alphabet, up 12% in thirty days and 30% year to date, compared with 11% rise in the S&P 500 index, have outperformed their FAANG peers over the past six months. The gains have been driven by the tech giant’s cyclical recovery in its advertising business. This was noticeable last quarter when the company delivered 23% revenue increase which, according to several analysts, justified a higher multiple. Investors are also excited about the recent uptrend in several verticals in online advertising, particularly in areas such as retail, financial services and travel. The market is also excited about Google Cloud revenue which last quarter rose 47% and appears strong. Notably, Google Cloud still accounts for just under 7% of Alphabet's revenues, meaning more meaningful growth could be underway. On Tuesday the market will want to see sustained improvement in the cloud business to assess at which point it becomes a more compelling narrative for the stock.
Microsoft (MSFT) - Reports after the close, Tuesday, Apr. 27
Wall Street expects Microsoft to earn $1.77 per share on revenue of $41.03 billion. This compares to the year-ago quarter when earning were $1.40 per share on $35.02 billion in revenue.
What to watch: Sustained work and learn-from-home trends, which have driven increased demand for Microsoft services, particularly in the Intelligent Cloud segments, are expected to remain high. The strong outlook has generated tons of bullish momentum for the stock which has rallied almost 15% in three weeks. The company’s strong execution track record is another reason for the increased confidence. Microsoft has surpassed profit expectations dating back twelve quarters, while missing revenue estimates only once. As such, Wall Street remains broadly positive about the company’s prospects to achieve double-digit revenue growth in fiscal 2021, particularly given the strong growth rate within its Azure cloud platform which in 2021 is expected to surpass Amazon’s AWS. This raises the question whether all of this good news is priced in. To keep the rally going, Microsoft on Tuesday must deliver not only robust business segment results, but also better-than-expected guidance.
Apple (AAPL) - Reports after the close, Wednesday, Apr. 28
Wall Street expects Apple to earn 98 cents per share on revenue of $77.1 billion. This compares to the year-ago quarter when earnings came to 64 cents per share on revenue of $58.31 billion.
What to watch: If there were any doubts about Apple’s urgency to transition the company’s devices towards Arm-powered chips, these doubts were erased last week at the company’s Spring launch event. During which the tech giant announced new iMac and iPad Pro devices that will be powered by the company's self-designed M1 chip, suggesting the speed and pace of the technical transition to its self-designed chip within all of the company’s major computing devices will be quick. The company also unveiled long-anticipated AirTags location finders in addition to a Podcast subscription service and a the new 4K Apple TV. Investors will want to know how much more new revenue can these products generate in quarters ahead? But Apple is more than just a hardware company. The company’s Services business, which now accounts for some 25% of total revenue, surged last quarter to a record $15.7 billion, topping consensus of $14.88 billion. Can the strong trend continue?
Facebook (FB) - Reports after the close, Wednesday, Apr. 28
Wall Street expects Facebook to earn $2.36 per share on revenue of $23.55 billion. This compares to the year-ago quarter when earnings came to $1.71 per share on revenue of $17.74 billion.
What to watch: Facebook shares have gone on an impressive run over the past several weeks, rising more than 23% from $255 on March 8 to a recent 52-week high of $315. The social media giant is benefiting from a combination of factors. Aside from an improved ad-spending environment, there’s also an accelerated shift to digital by corporations who are looking to leverage the services that Facebook offers. In terms of product engagement with products such as Messenger, Instagram and WhatsApp, Facebook continues to enjoy significant increases in usage, driven by coronavirus-induced lockdowns. These include recent initiatives to enable e-commerce services to users. On Wednesday the market will want to know how much have these services contributed to the bottom line? While the Facebook stock is not as cheap today as it were two months ago, the company’s leadership position will support the stock which is expected to outperform throughout 2021.
Amazon (AMZN) - Reports after the close, Thursday, Apr. 29
Wall Street expects Amazon to earn $9.48 per share on revenue of $104.38 billion. This compares to the year-ago quarter when earnings came to $5.01 per share on revenue of $75.45 billion.
What to watch: What can Amazon do to deserve respect? Despite the fact it is growing faster than its FAANG peers, Amazon stock remains range-bound and has been for the past nine months. The stock is trading about 4% below its August 2020 peak. Meanwhile, the e-commerce giant is fresh from reporting fastest revenue growth rate in more than ten quarters. Not only does Amazon continue to benefit from strong demand acceleration caused by the pandemic, the company has executed an effective strategy to grow its Prime members, while getting Prime members to spend more during each transaction. And there are plenty of evidence to suggests that Amazon’s market share gains are here to stay beyond the pandemic. With the stock trading at less-than four times forward revenue it would be a mistake to part with this long-term winner.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.