This earnings season is turning out much better than investors were fearing. Sure, earnings are down from last year, but that was to be expected after such a strong market performance in 2019. But most companies are beating expectations. According to Sheraz Mian’s recent Earnings Trends, approximately 70% of companies have outperformed on the top and bottom lines.
You can thank the large caps for a lot of that success! Whether it’s the big banks that kicked everything off a couple weeks ago or the tech names that are really flexing their muscles right now, this asset class is showing everyone how it’s done.
We’ve got a screen called XL Large-Caps with the Best Zacks Rank that finds companies with market caps over $25 billion that also are ranked Strong Buys or Buys. Below are three companies that passed the criteria for this screen and just reported solid quarterly results.
Bank of America (BAC - Free Report)
Earnings season has been pretty good so far, and it all got started with the big banks last month. Bank of America (BAC - Free Report) was one of those behemoths that got us started on the right foot.
On January 15, the company reported its sixth straight positive earnings surprise. Earnings per share of 74 cents for the fourth quarter beat the Zacks Consensus Estimate by 8.8% and also improved 6% from last year.
More specifically, BAC has beaten 14 times and matched once in the past 15 quarters, which means it hasn’t missed since early 2016. It has also amassed an average surprise of 8.6% over the past four quarters.
Revenue of $22.3 billion was down a bit from last year, but did inch past our consensus of around $22 billion.
The Banks – Major Regional space is in the Top 14%, which is a nice position given the unusually low interest rate environment.
BAC has certainty felt the pressure with several business segments showing lower net income generation from last year. However, the company enjoyed improved trading and investment banking numbers, as well as decent loan growth.
Furthermore, BAC is also opening branches in new regions, improving its digital offerings, focusing more on consumer banking and controlling costs.
Earnings estimates have been trending higher for months. The Zacks Consensus Estimate for this year is $3.05, which is up 2% in three months and 1.3% in the past 30 days.
Earnings are then expected to grow approximately 8% to $3.29 next year. That consensus has advance 3.8% in 90 days and 2.2% in 30.
Shares of BAC are up 15% over the past year, which is pretty good for a stable name with a market cap just under $300 billion.
Intel (INTC - Free Report)
There are two things that Intel (INTC - Free Report) knows how to do REALLY well: 1) make chips and 2) beat the Zacks Consensus Estimate.
This company hasn’t missed in years. Take a look at the Price, Consensus & EPS Surprise graph below; green arrows right off the page!
The latest beat included fourth-quarter earnings per share of $1.52, which topped our consensus by more than 22% and brought the four-quarter average up to 14.6%.
Earnings per share improved by more than 18% from last year as well.
But that’s only part of what the CEO called: “the best quarter in company history”.
INTC also reported revenues of $20.2 billion, which marks the first time it made more than $20 billion in a single quarter. The result beat the Zacks Consensus Estimate by 5.2% and improved nearly 9% from last year.
One of the brightest spots in the quarter was the Data Center Group, which saw revenues jump 18.8% from last year to $7.21 billion. The upside was led by a strong mix of high-performance second-gen Xeon Scalable processors and solid demand for Cloud service providers (CSP).
Furthermore, its PC group rose 2% when the market was expecting a decline.
Earnings estimates have improved nicely since the report. The Zacks Consensus Estimate for this year is now $4.99 per share, or 5.7% better than 30 days ago.
The estimate for next year is up to $5.09 after rising 7.8% in that time. For the moment, analysts only expect a 2% improvement from the previous, but there’s plenty of time for that to change especially if the CEO is right that 2020 will be another record year.
Shares of INTC have gained approximately 46% over the past year, and its part of the highly ranked Semiconductor – General space (Top 16% of the Zacks Industry Rank).
IBM (IBM - Free Report)
Revenue growth of 0.1% doesn’t seem like something to write home about, unless of course you’ve reported five straight quarters of year-over-year declines.
Such was the case for IBM (IBM - Free Report) in its fourth quarter report, which came out on January 21. Shares are up by more than 5% since then and nearly 14% in the past year.
Big Blue was one of the first big caps to report strong numbers and, therefore, help calm investor fears that this earnings season would be a disappointment.
So far, it hasn’t been, especially for the large caps and technology… and IBM is both!
Revenues of nearly $21.8 billion inched higher year over year, but more easily beat the Zacks Consensus Estimate by 0.4%.
We can look to the clouds for the main reason why this long revenue growth slump came to an end. Total cloud revenues soared 21% to $6.8 billion.
Another noteworthy performer was Red Hat, which had revenues rally 24%. IBM completed this acquisition in July as part of its efforts to boost the Open Hybrid Architecture Initiative. Red Hat is part of the Cloud and Cognitive Software segment.
Acquisitions are a big part of IBM’s growth and that will continue moving forward. It has bought more than 150 companies since 2000.
On the bottom line, IBM doesn’t usually beat by a lot… but it does beat often. For the fourth quarter, earnings per share of $4.71 topped the Zacks Consensus Estimate by 0.43%. The average beat over the past four quarters is 1.8%, which isn’t bad for a company this size that’s been around for over 100 years.
IBM has a record of positive earnings surprises that stretches back several years.
Looking forward, its growth will be driving by cloud computing (of course), but also analytics and security. IBM expects 2020 non-GAAP earnings per share of $13.35, which caused expectations to move up recently.
The Zacks Consensus Estimate for this year is now $13.33 per share, which has advanced 1% from two months ago. Next year’s outlook has risen by the same amount to $14.16, which suggests year-over-year growth of more than 6%.
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