Thursday, February 9 2017

The Zacks Research Daily features the best research output of our analyst team. In today’s write-up, we are featuring analyst reports on 16 major stocks, including reports on Dow Chemical (DOW), Shell (RDS.A) and HSBC Holdings (HSBC). These reports have been hand-picked from amongst the 70 or so stock research reports published by our analyst team today. You can see all of today’s research reports here >>

In addition to these stock research reports, we are also giving you a real-time scorecard of the ongoing Q4 earnings season. We have a long history of closely monitoring earnings releases and presenting our analysis of emerging aggregate trends in the weekly Earnings Trends and Earnings Preview reports.

Our latest Earnings Trends report is: Positive Earnings Picture

Q4 Earnings Scorecard (as of Thursday, February 9th)

Including all of this morning’s releases, we now have Q4 results from 346 S&P 500 members, or 69.1% of the index's total membership. Total earnings for the 346 index members that have reported results already are up +5.8% on +4.6% higher revenues, with 68.8% beating EPS estimates and 53.8% beating revenue estimates.

This is better earnings and revenue growth performance than we have seen from this group of 346 S&P 500 members in other recent periods, even after adjusting for the strong growth from the Finance sector (earnings growth would be +4.2% excluding the Finance sector on +4.4% higher revenues). The charts below compare the Q4 growth pace with what we had seen from the same group of 346 index members in other recent periods (right-hand chart shows ex-Finance numbers).

The proportion of companies beating EPS and revenue estimates, however, is tracking below other recent periods. Only 40.5% of the index members are able to beat both EPS and revenue estimates, which compares to 48% in the preceding quarter for the same sample of 346 S&P 500 members (the 4-quarter average is 45.7% & the 12-quarter average is 45%), as the chart below shows.

Looking at Q4 as a whole, combining the actual results from the 346 index members with estimates from the still-to-come 154 companies, total earnings are expected to be up +7.4% from the same period last year on +3.9% higher revenues. This is the best earnings and revenue growth pace in two years. Importantly, the strong Q4 growth is not a function of easy comparisons, but rather a result of actual gains. The fact is total earnings for the S&P 500 index are on track to reach an all-time quarterly record, surpassing the level achieved in 2014 Q4.

The chart below shows the expected Q4 earnings tally for the index contrasted with what was actually earned in the preceding 8 quarters and what is expected to come in the following 4.

Estimates for the current period (2017 Q1) are holding up fairly well; they are coming down, but not at the pace as would typically expected. Total earnings for the index are currently expected to be up +7.9% in Q1, which is down from +10.3% on January 4th.

Today's Featured Research Reports

Dow Chemical shares have gained +10.3% over the past three months, outperforming the Zacks Chemicals industry (up +7.6% over the same period), with the company's better-than-expected Q4 results helping sustain the stock's positive momentum. The Zacks analyst likes the imrpoved outlook for the company’s core end-use markets and management's cost-cutting and aggressive portfolio management actions. The company is  moving forward with its planned mega-merger with DuPont, which is expected to create significant synergies. However, Dow’s agriculture business remains affected by depressed crop commodity prices. (You can read the full research report on Dow Chemical here >>)

Shell shares have modestly outperformed the Zacks Integrated Oil industry over the past one year (up +25.7% vs. +22.2% gainf for the industry). While the integrated behemoth's upstream unit swung to a Q4 profit from a year-ago loss, overall earnings fell far below estimates. The Zacks analyst likes the company’s expense management and progress on its large divestment program. The most important take away from the earnings release was the remarkable speed of its BG integration that contributed significantly to production volumes. Still, there is limited upside potential for shares as weak downstream operations will hamper RDS.A’s near-term results. (You can read the full research report on Shell here >>)

Strong Buy rated HSBC shares outperformed the Zacks categorized Foreign Banks industry over the least six months, gaining +22% vs +17.5%. The Zacks analyst likes its extensive global network, strong capital position and a solid asset growth. Also, the company’s plans to execute share buyback program and keep the dividend payout intact act as catalysts. Further, continued disposal of unprofitable/non-core operations has been successful in enhancing its efficiency, as operating costs continue to decline. Nonetheless, estimates have been going down ahead of the company’s 2016 earnings release given the concern related to a dismal European economy, weak loan demand, litigation expenses and stringent regulations. (You can read the full research report on HSBC here >>)

Other noteworthy reports we are featuring today include Exxon Mobil (XOM), Microchip Technology (MCHP) and Dr. Reddy's (RDY).

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Sheraz Mian

Director of Research

Note: Sheraz Mian heads the Zacks Equity Research department and is a well-regarded expert of aggregate earnings. He is frequently quoted in the print and electronic media and publishes the weekly Earnings Trends and Earnings Preview reports. If you want an email notification each time Sheraz publishes a new article, please click here >>>