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Banks Provide Positive Start to Q3 Earnings Season
Bank stocks have been notable laggards in recent quarters, with market participants preferring the faster growing technology stocks to these seemingly boring companies. But as the turmoil of the last few days’ market action shows, the unwinding of the overcrowded trades in technology and other momentum stocks can get messy very easily.
Banks are boring, but they have a lot going for them. Granted, bank margins have been held down, and low interest rates and loan portfolios haven’t been growing as fast as many of us would like. With respect to loan growth, lending to businesses (broadly referred to as ‘C&I,’ or commercial and industry loans) is healthy enough, with the moderate pace in consumer loans more likely a reflection of stricter and more prudent standards at the banks. And margins should start moving higher with the recent uptrend in interest rates. Bank management teams have become very good at cost controls, and they pay out stable and growing dividends.
Banks earnings aren’t great, but they are good enough and reasonably stable, unless you see the U.S. economy heading toward a recession. We see all of this in the results from JPMorgan, Wells Fargo and Citigroup, which kicked-off the Q3 earnings season for the Finance sector on Friday. Q3 earnings for these three major banks are +16.1% from the same period last year on +3.4% higher revenues. All in all, the trading and mortgage banking revenues were weak and investment banking was flat, with most of the growth coming from consumer banking and effective cost controls.
Finance Sector Scorecard (as of Friday, October 12th)
We now have Q3 results from 4 of the 97 Finance sector companies in the S&P 500 index. Keep in mind, however, that these 4 companies account for 21.5% of the sector’s total market capitalization in the index.
Total earnings for these 4 Finance companies are up +16.1% from the same period last year on +3.4% higher revenue growth, with 75% beating EPS and revenue estimates.
The sector’s earnings growth picture is tracking above historical periods, while revenue growth is modest and in-line with recent trends.
For the quarter as a whole, total Finance sector earnings are expected to be up +31.6% from the same period last year on +3.1% higher revenues. This would follow +21.5% earnings growth in 2018 Q2 on +7.6% higher revenues. Please note that the sector’s strong growth this year is for the most part to thanks to the corporate tax cuts early this year.
Overall Expectations for 2018 Q3
Total Q3 earnings are expected to be up +18.7% from the same period last year on +7.8% higher revenues, with double-digit earnings growth for 10 of the 16 Zacks sectors. The growth pace has started going up as companies come up with better-than-expected results, as we saw with the banks on Friday.
Including the banks, we now have Q4 results from 24 S&P 500 members, with total earnings for these 24 index members up +21.2% from the same period last year on +9.5% higher revenues. This is still a small and relatively unrepresentative sample. But the one thing that stands out at this stage is the low proportion of companies beating revenue estimates relative to other recent periods.
This Week’s Major Reports
We have a busy reporting docket in the coming week, with almost 150 companies coming out with quarterly results, including 52 S&P 500 members.
This week’s reporting docket is concentrated in the Finance sector, with the remaining major banks and regional operators, brokers and insurers reporting results. Other notable concentrated areas include the airlines and railroad operators and a number of big name companies. By the end of this week, we will have seen Q3 results from only about 15% of the index’s membership, but that sample of results will represent a fairly representative cross-section of most of the major sectors.
Here are the major reports on the docket this week from outside of the Finance sector:
Johnson & Johnson- JNJ reports quarterly results before the market open on Tuesday, October 16th, with the company expected to earn $2.03 per share on $19.9 billion in revenues, representing year-over-year gains of +6.8% and +1.3%, respectively. The stock has been weak lately, down -5.4% in the year-to-date period, underperforming the Zacks Medical sector’s +0.2% gain and the S&P 500 index’s +2.1% gain in the same time period. The stock was up on the last earnings release on July 17th, which followed two back-to-back quarters of negative reactions to earnings releases.
Netflix– Netflix is expected to report results after the market’s close on Tuesday, October 16th, with the company expected to earn $0.68 per share on $3.99 billion in revenues. Earnings per share for the quarter will be +134.5% higher from the year-earlier period while revenues would be up +33.7% from the same period last year.
The stock always responds in a major way to the earnings report, but the big data points for the market aren’t EPS and revenues, but rather subscriber growth. The stock was down following the June-quarter release when international subscriber growth missed expectations and has yet to get back to the pre-Q2 release date of July 16th, even prior to the recent sell-off. The expectation for this quarter is that the company added 4.4 million international streaming subscribers.
Schlumberger– Schlumberger reports before the market’s open on Friday, October 19th, with the oilfield services giant expected to post $0.46 in EPS on $8.59 billion in revenues, up +9.5% and +8.7% from the year-earlier level, respectively. The revisions trend has been negative since the quarter got underway, with analysts lowering their estimates on weakness in North American activity levels, particularly on the pressure-pumping side.
The stock has lagged the broader energy space, with Schlumberger shares down -12.9% in the year-to-date period vs. a +0.9% gain for the Zacks Energy sector.
For more details about the overall earnings picture and the Q3 earnings season, please check our weekly Earnings Trends report.
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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JPMorgan, Wells Fargo, Citigroup, Johnson & Johnson, Netflix and Schlumberger are part of Zacks Earnings Preview
For Immediate Release
Chicago, IL – October 15, 2018 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes JPMorgan (JPM - Free Report) , Wells Fargo (WFC - Free Report) , Citigroup (C - Free Report) , Johnson & Johnson (JNJ - Free Report) , Netflix (NFLX - Free Report) and Schlumberger (SLB - Free Report) .
To see more earnings analysis, visit https://at.zacks.com/?id=3207.
Every day, Zacks.com makes their Bull Stock of the Day available, free of charge. To see it, click here.
Banks Provide Positive Start to Q3 Earnings Season
Bank stocks have been notable laggards in recent quarters, with market participants preferring the faster growing technology stocks to these seemingly boring companies. But as the turmoil of the last few days’ market action shows, the unwinding of the overcrowded trades in technology and other momentum stocks can get messy very easily.
Banks are boring, but they have a lot going for them. Granted, bank margins have been held down, and low interest rates and loan portfolios haven’t been growing as fast as many of us would like. With respect to loan growth, lending to businesses (broadly referred to as ‘C&I,’ or commercial and industry loans) is healthy enough, with the moderate pace in consumer loans more likely a reflection of stricter and more prudent standards at the banks. And margins should start moving higher with the recent uptrend in interest rates. Bank management teams have become very good at cost controls, and they pay out stable and growing dividends.
Banks earnings aren’t great, but they are good enough and reasonably stable, unless you see the U.S. economy heading toward a recession. We see all of this in the results from JPMorgan, Wells Fargo and Citigroup, which kicked-off the Q3 earnings season for the Finance sector on Friday. Q3 earnings for these three major banks are +16.1% from the same period last year on +3.4% higher revenues. All in all, the trading and mortgage banking revenues were weak and investment banking was flat, with most of the growth coming from consumer banking and effective cost controls.
Finance Sector Scorecard (as of Friday, October 12th)
We now have Q3 results from 4 of the 97 Finance sector companies in the S&P 500 index. Keep in mind, however, that these 4 companies account for 21.5% of the sector’s total market capitalization in the index.
Total earnings for these 4 Finance companies are up +16.1% from the same period last year on +3.4% higher revenue growth, with 75% beating EPS and revenue estimates.
The sector’s earnings growth picture is tracking above historical periods, while revenue growth is modest and in-line with recent trends.
For the quarter as a whole, total Finance sector earnings are expected to be up +31.6% from the same period last year on +3.1% higher revenues. This would follow +21.5% earnings growth in 2018 Q2 on +7.6% higher revenues. Please note that the sector’s strong growth this year is for the most part to thanks to the corporate tax cuts early this year.
Overall Expectations for 2018 Q3
Total Q3 earnings are expected to be up +18.7% from the same period last year on +7.8% higher revenues, with double-digit earnings growth for 10 of the 16 Zacks sectors. The growth pace has started going up as companies come up with better-than-expected results, as we saw with the banks on Friday.
Including the banks, we now have Q4 results from 24 S&P 500 members, with total earnings for these 24 index members up +21.2% from the same period last year on +9.5% higher revenues. This is still a small and relatively unrepresentative sample. But the one thing that stands out at this stage is the low proportion of companies beating revenue estimates relative to other recent periods.
This Week’s Major Reports
We have a busy reporting docket in the coming week, with almost 150 companies coming out with quarterly results, including 52 S&P 500 members.
This week’s reporting docket is concentrated in the Finance sector, with the remaining major banks and regional operators, brokers and insurers reporting results. Other notable concentrated areas include the airlines and railroad operators and a number of big name companies. By the end of this week, we will have seen Q3 results from only about 15% of the index’s membership, but that sample of results will represent a fairly representative cross-section of most of the major sectors.
Here are the major reports on the docket this week from outside of the Finance sector:
Johnson & Johnson- JNJ reports quarterly results before the market open on Tuesday, October 16th, with the company expected to earn $2.03 per share on $19.9 billion in revenues, representing year-over-year gains of +6.8% and +1.3%, respectively. The stock has been weak lately, down -5.4% in the year-to-date period, underperforming the Zacks Medical sector’s +0.2% gain and the S&P 500 index’s +2.1% gain in the same time period. The stock was up on the last earnings release on July 17th, which followed two back-to-back quarters of negative reactions to earnings releases.
Netflix– Netflix is expected to report results after the market’s close on Tuesday, October 16th, with the company expected to earn $0.68 per share on $3.99 billion in revenues. Earnings per share for the quarter will be +134.5% higher from the year-earlier period while revenues would be up +33.7% from the same period last year.
The stock always responds in a major way to the earnings report, but the big data points for the market aren’t EPS and revenues, but rather subscriber growth. The stock was down following the June-quarter release when international subscriber growth missed expectations and has yet to get back to the pre-Q2 release date of July 16th, even prior to the recent sell-off. The expectation for this quarter is that the company added 4.4 million international streaming subscribers.
Schlumberger– Schlumberger reports before the market’s open on Friday, October 19th, with the oilfield services giant expected to post $0.46 in EPS on $8.59 billion in revenues, up +9.5% and +8.7% from the year-earlier level, respectively. The revisions trend has been negative since the quarter got underway, with analysts lowering their estimates on weakness in North American activity levels, particularly on the pressure-pumping side.
The stock has lagged the broader energy space, with Schlumberger shares down -12.9% in the year-to-date period vs. a +0.9% gain for the Zacks Energy sector.
For more details about the overall earnings picture and the Q3 earnings season, please check our weekly Earnings Trends report.
Zacks "Profit from the Pros" e-mail newsletter offers continuous coverage of the industries and the stocks poised to outperform the market. Click to subscribe to this free newsletter today.
About Zacks
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros.
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Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.