After the holiday quarter last year saw a recession in earnings, it is not expected this year – but it is not impossible and can happen three months late.
Quarterly profits for S&P 500 SPX,
are expected to decline as the results of the fourth quarter appear in the coming weeks, after declining in each of the first three quarters of 2020. But analysts predict an increase in 2021, as well as fourth-quarter figures that exceed expectations medium.
CFRA chief investment strategist Sam Stovall told MarketWatch that exceeding expectations for fourth-quarter figures would be in line with historical patterns. Earnings exceeded expectations for more than 30 consecutive quarters before the first quarter of 2020, he said, when the pandemic first affected corporate results. An overall breakthrough in earnings this quarter would help extend a new series of innings to three in a row.
A key question for FactSet analyst John Butters is whether earnings could eventually hit positive territory for the quarter, even if estimates call for an aggregate 6.8% decline. Based solely on the five-year historical trend, it would not seem likely, but companies have seen much stronger rates in the last two quarters, which means that ending the earnings recession could be a possibility. Several reports from the fourth quarter that have come so far have exceeded average earnings expectations by about 26.2%, Butters wrote.
What you need to know to prepare for the earnings season: wait another quarter of the big earnings pace
The pandemic has had an uneven impact on business, with digital giants such as Amazon.com Inc. AMZN,
and Zoom Video Communications Inc. ZM,
benefiting from an increasingly distant world, while categories such as leisure, hospitality and restaurants are struggling. Cruise lines, hotels and airlines are expected to see a huge negative increase in revenue compared to a year earlier, helping to reduce the S&P 500.
The energy sector is expected to be the biggest loser for the fourth quarter, with analysts surveyed by FactSet modeling a 101% decline.
“The causes of the decline are wide, in our opinion, both in the upstream and downstream portions of the energy value chain,” CFRA analysts wrote.
West Texas Intermediate CL00,
US crude oil prices averaged $ 40 a barrel in the quarter, 29% lower than a year earlier, analysts noted: “Getting almost 30% less for the product certainly hurts and with about two out of every three barrels of oil equivalent consisting of liquids (such as crude oil), the price drop was an important factor. ”
Only four sectors are expected to gain momentum in the quarter, according to FactSet, which is driven by materials with an expected 8% increase. Within this sector, the metals and mining category, as well as industrial gases, could perform strongly, CFRA analysts said.
The other sectors projected to show positive growth are consumer fundamentals, healthcare and information technology, according to FactSet.
The earnings season kicks off next week, with 40 members of the S&P 500 reporting along with six DJIA Dow Jones Industrial Average,
component. Highlights include Netflix Inc. NFLX,
United Airlines Holdings Inc. UAL,
and Intel Corp. INTC,
Here’s what to look for next week.
Put it on
Look for a steady stream of bank earnings, led by Bank of America Corp. BAC,
and Goldman Sachs Group Inc. GS,
Tuesday morning with Morgan Stanley MS,
a day later. Citigroup Inc. C,
and Wells Fargo & Co. WFC,
the financial parade began on Friday and both showed better-than-expected profit, with disappointing revenue results.
Bank shares have surpassed the S&P 500 since the end of September.
“There has been a positive narrative: faster economic growth and expansionary fiscal policy are driving up net interest income (NII) and lowering credit costs, while the resumption of share buybacks further increases profitability and EPS,” the UBS analyst wrote. Saul Martinez, in a note to customers, although he is a little more cautious about the sector. Martinez’s concerns include that “mortgage revenues should drop to high levels in 2020.”
Press play
Netflix had a bright first half of 2020, but tried to pick up the pace in the third quarter. The company will try to get back on track when it reports the results of the fourth quarter, which will show how popular shows like “The Queen’s Gambit” and a new season of “The Crown” have influenced subscriber trends.
Full Preview: Netflix Can Fight for Successful Continuation of Early Pandemic Pandemic
Another key area to monitor is the impact of rising prices on churn levels. The company raised prices in the US and Canada in the fourth quarter and “there is growing evidence that we will see large price increases in 2021,” according to Bernstein analyst Todd Juenger.
Netflix reports the results on Tuesday afternoon.
The end of an era
Intel is moving in a new direction after recently touching VMware Inc. VMW,
Executive Director Pat Gelsinger will take up his top role starting in mid-February. But investors will hear for the last time from the old guard when the chip giant holds the winning call on Thursday afternoon.
For more details: Can Intel’s “wonder boy” attract a Steve Jobs?
Although the call may not shed light on Intel’s new vision, the company noted in a press release announcing Gelsinger’s appointment that it has made “strong advances in its 7-nanometer process technology and intends to provide an upgrade” along with income. Intel also revealed that it expected its fourth-quarter revenue and earnings to exceed the company’s previous outlook.
Intel has struggled in recent years with a series of technological mistakes and will look to get back on track in 2021.
Slow ascent
Domestic travel rose in the fourth quarter, especially during the holidays, but United Airlines and the rest of the airline industry are still facing a lot of pain. Analyst Cowen & Co. Helane Becker predicts that first-quarter revenue for the industry could fall by 45% from levels seen in the first quarter of 2019, given depressed tariffs and a slower-than-expected launch of the vaccine. United will offer their perspective on the situation with its report on Wednesday afternoon and the call for revenue on Thursday morning.
A slice of Dow
Six Dow Jones Industrial Average components are available, starting with Goldman Sachs on Tuesday morning and then Procter & Gamble Co. PG,
and UnitedHealth Group Inc. UNH,
Wednesday morning. Travelers Cos. Inc. TRV,
launches Thursday morning, while Intel and International Business Machines Corp. IBM,
round the next day after the closing bell.
IBM could share more about reorganizing sales at the company as it tries to simplify the customer experience. “This move will inherently allow IBM to penetrate deeper into their customer base and increase their portfolio share,” Evercore ISI analyst Amit Daryanani wrote in a recent note to customers.