Significant earnings beats from Big Tech and the big banks are likely to cause a surprising surge in corporate earnings this earnings season.
S&P 500 index SPX,
companies are now expected to show positive earnings growth of 1.7% for the fourth quarter, with 58% of results already in. That would allow the index to come out of an earnings recession that occurs when corporate earnings decline for two or more quarters in a row after a year earlier.
At the end of last year, analysts expected December earnings to fall 9.3% year-on-year, which would have been the fourth straight quarter of year-over-year declines. The overall projections slowly started to improve as more results came in and this week they finally turned positive.
The momentum was fueled by strong profits in the financial services, information technology and communications sectors. Since the S&P 500 is weighted by market value, larger companies like to have a greater impact on the index’s overall earnings trajectory.
According to FactSet Senior Earnings Analyst John Butters, the financial sector was the largest contributor to the increase in revenues. The mixed growth rate for the industry, which combines actual and expected results depending on whether a company has already reported earnings, is now at a positive 17.2%, while expectations were for a 9.4% decline from December 13.
Companies with a meaningful impact include JPMorgan Chase & Co. JPM,
which exceeded earnings expectations by 44%, while Goldman Sachs Group Inc. GS,
defeated by 62%, Citigroup Inc. C,
defeated by 55%, Morgan Stanley MS,
by 48%, and Capital One Financial Corp. COF,
exceeded estimates by 87%
In the information technology sector, revenues of Apple Inc. AAPL,
Intel Corp. INTC,
and Microsoft Corp. MSFT,
helped drive the industry’s mixed growth rate to 15.6% from a 1.5% forecast in December. Alphabet Inc. GOOG,
GOOGL,
and Facebook Inc. FB,
also far exceeded expectations, bringing the mixed growth rate for the communications services sector up to 6% positive, compared to an expected drop of 12.9% on December 31.
Outside of these three sectors, Amazon.com Inc. AMZN,
and Ford Motor Co. F,
also delivered major earnings surprises that, according to Butters, contributed significantly to the rise in mixed earnings growth.
Boeing Co. BA,
was the biggest drag, as the company reported an adjusted loss of $ 15.25 per share, while analysts expected a loss of $ 1.78 per share. Without Boeing’s results, the S&P 500’s mixed growth rate would be more than double what it is today, Butters wrote.
Overall, 81% of companies that have achieved results so far achieved better-than-expected profits, he said.
There’s another busy earnings roll over the next week, with 77 members of the S&P 500 to report, including three companies also listed in the Dow Jones Industrial Average. Walt Disney Co. DIS,
and Cisco Systems Inc. CSCO,
are among the biggest names because of zip numbers.
Here’s what to look for:
Streamlined
Disney is expected to post another quarter into the red Thursday afternoon as the pandemic continues to weigh on its theme park and media businesses, but investors seem willing to look beyond the company’s pandemic-influenced earnings performance, according to LightShed Partners analyst Richard Greenfield .
Of great importance in Disney’s report is the company’s progress with its Disney + streaming service. Disney is continuing to expand its subscriber base at a rapid pace, but after the company’s latest report, there was some concern about how much of that growth came from those who signed up for the company’s Indian Hotstar product, giving Disney a much lower average revenue per user.
Disney Income Sample: Can Disney + Maintain Its Scorching Pace to Support the Magical Kingdom?
A new chapter for Twitter
Twitter Inc. TWTR,
have likely benefited from the same strong advertising trends that Pinterest Inc.
and Facebook late last year, but those results aren’t as important as what’s next.
Executives at Twitter will likely be faced with questions Tuesday afternoon about user engagement trends following the decision to permanently ban former President Donald Trump from the platform for his role in instigating the January violence in the Capitol.
“Regardless of anyone’s take on the president or Twitter’s recent policies, we see Trump as a unique driving force for activity and engagement on the platform that will not be easily replaced,” Wells Fargo analyst Brian Fitzgerald wrote after the ban was announced.
Bernstein analyst Mark Shmulik hypothesized that while Twitter’s involvement could take a hit, the ban could result in an “increase in brand-safe ad inventory,” as some advertisers didn’t want their spots near Trump-related content. appear prior to the ban.
Advice: Apple’s privacy changes affect more than just Facebook
Networking
The IT spending landscape appears to be improving, which Evercore ISI analyst Amit Daryanani said could lead to slightly better-than-expected results for Cisco when the company releases results Tuesday afternoon. He will seek information on the vision of new Chief Financial Officer R. Scott Herren and the progress of the company’s efforts to increase subscription revenue.
Rideshare recovery?
Lyft Inc. LYFT,
and Uber Technologies Inc. UBER,
likely continued on their rocky road to recovery in the fourth quarter, but Shmulik warned that the company’s growth rate for the period could be flat or even slightly below the third quarter given a rise in global cases, the emergence of new COVID -19 species, and the winter weather.
Read: Uber’s growing, ‘exciting’ delivery business and potential ride recovery have left analysts optimistic
Lyft reports on Tuesday afternoon, while Uber will follow a day later. Uber executives are likely to discuss the company’s recently announced decision to purchase Drizly, an alcohol delivery service.