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After last year’s holiday quarter broke a profit recession, the same isn’t expected this year – but it’s not impossible, and can happen three months late.
Quarterly earnings of the S&P 500 SPX,
are expected to drop as fourth quarter results roll in over the next few weeks, having declined in each of the first three quarters of 2020. Analysts, however, expect a recovery through 2021, along with fourth quarter numbers that exceed their average expectations.
CFRA chief investment strategist Sam Stovall told MarketWatch that beating expectations for fourth quarter numbers would be in line with historical trends. Profits have exceeded expectations for more than 30 consecutive quarters leading up to the first quarter of 2020, he said, when the pandemic took a toll on business results. A beaten overall profit this quarter would help extend a new streak of beats to three in a row.
A key question for FactSet analyst John Butters is whether earnings could ultimately end up in positive territory for the quarter, even as estimates call for an overall decline of 6.8%. Based on the historical five-year trend alone, it doesn’t seem likely, but companies have posted much stronger paces over the past two quarters, meaning an end to the earnings recession could be a possibility. . The few fourth-quarter reports that have been released so far have beaten earnings expectations by about 26.2% on average, Butters wrote.
What you need to know to prepare for results season: expect another big payoff quarterback
The pandemic has had an uneven impact on businesses, with digital giants like Amazon.com Inc. AMZN,
and Zoom Video Communications Inc. ZM,
benefiting from an increasingly remote world as categories such as leisure, hotels and restaurants struggle. Cruise lines, hotels and airlines are expected to experience huge negative swings in their earnings from the previous year, which will help push the S&P 500 down.
The energy sector is expected to be the biggest loser for the fourth quarter, with analysts polled by FactSet modeling a drop of 101%.
“The causes of the decline are vast, in our view, both in the upstream and downstream parts of the energy value chain,” CFRA analysts wrote.
West Texas Intermediate CL00,
the benchmark for US crude oil, saw an average price of $ 40 a barrel in the quarter, 29% lower than a year ago, analysts noted, “Getting almost 30% lower for its made product. certainly wrong, and with about two out of every three barrels of oil equivalent made up of liquids (such as crude), this drop in prices was a major factor. “
According to FactSet, only four sectors are expected to generate positive earnings momentum in the quarter, driven by materials with expected growth of 8%. Within this sector, the metals and mining category, as well as industrial gases, could perform well, CFRA analysts said.
Other sectors expected to show positive growth are consumer staples, health care and information technology, according to FactSet.
The earnings season kicks off in earnest in the coming week, with 40 members of the S&P 500 ready to report with six Dow Jones Industrial Average DJIA,
Components. Highlights include Netflix Inc. NFLX,
United Airlines Holdings Inc. UAL,
and Intel Corp. INTC,
Here’s what to watch out for in the coming week.
Bet on it
Look for a steady stream of bank profits, led by Bank of America Corp. BAC,
and Goldman Sachs Group Inc. GS,
Tuesday morning, with Morgan Stanley MS,
follows a day later. Citigroup Inc. C,
and Wells Fargo & Co. WFC,
the financial parade started on Friday, and both showed better than expected profits with disappointing income results.
Bank stocks have outperformed the S&P 500 since late September.
“A positive rhetoric has emerged: Faster economic growth and expansionary fiscal policy drive higher net interest income (NII) and lower credit costs, while resumption of share buybacks further increases profitability and BPA, ”UBS analyst Saul Martinez wrote in a note to clients. , although it proceeds a little more carefully on the sector. One of Martinez’s concerns is that “Mortgage income is expected to come down to earth from the high levels of 2020”.
press PLAY
Netflix had a scorching first half of 2020, but struggled to live up to that momentum in the third quarter. The company will try to get back on track when it releases its fourth quarter results, which will show how popular shows like “The Queen’s Gambit” and a new season of “The Crown” have impacted trends. subscribers.
Full preview: Netflix could struggle to pull it off following early pandemic subscriber rush
Another key area to watch is the impact of price increases on churn levels. The company increased its prices in the United States and Canada during the fourth quarter and “it is increasingly clear that we will see widespread price increases in 2021,” according to Bernstein analyst Todd Juenger.
Netflix reports its results Tuesday afternoon.
End of an era
Intel is taking a new direction after recently hiring VMware Inc. VMW,
CEO Pat Gelsinger will reprise his lead role from mid-February. But investors will hear one last call from the old guard when the chip giant holds its earnings call Thursday afternoon.
To find out more: can Intel’s “boy wonder” attract a Steve Jobs?
While the call may not shed light on Intel’s new vision, the company noted in a press release announcing Gelsinger’s appointment that it had made “strong progress on its 7-nanometer process technology and planned to provide an update ”in conjunction with the results. Intel also revealed that it expected its fourth quarter earnings and revenue to exceed the company’s earlier guidance.
Intel has struggled in recent years following a series of technological missteps and will look to get back on track in 2021.
Slow climb
Domestic travel picked up in the fourth quarter, particularly around vacations, but United Airlines and the rest of the airline industry still face many challenges. Cowen & Co. analyst Helane Becker predicts that the industry’s first quarter revenue could be down 45% from levels seen in the first quarter of 2019, given lower tariffs and a vaccine deployment slower than expected. United will offer their take on the situation with their Wednesday afternoon report and Thursday morning results call.
A share of the Dow
Six components of the Dow Jones Industrial Average are on the program, starting with Goldman Sachs on Tuesday morning, then Procter & Gamble Co. PG,
and UnitedHealth Group Inc. UNH,
Wednesday morning. Travelers Cos. Inc. TRV,
launches the Thursday morning list, while Intel and International Business Machines Corp. IBM,
finish the day after the closing bell.
IBM could say more about an ongoing sales reorganization at the company as it tries to simplify the customer experience. “This move will inherently allow IBM to penetrate deeper into its customer base and increase its share of the portfolio,” wrote Evercore ISI analyst Amit Daryanani in a recent note to clients.
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