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Research Daily

Thursday, July 23, 2020

The Zacks Research Daily presents the best research output of our analyst team. Today's Research Daily provides a real-time scorecard of the ongoing Q2 earnings season and emerging signs of stabilization and improvement in the overall earnings picture. Our core strength in earnings data and analytics allows us to identify these trend shifts in real time and share them with our readers. 

As is always the case, today's daily features new research reports on 16 major stocks, including Johnson & Johnson (JNJ), SAP SE (SAP) and McDonalds (MCD). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.

You can see all of today’s research reports here >>>

Q2 Earnings Season Scorecard

Total Q2 earnings for the 113 S&P 500 members (22.6% of the index) that have reported results are down -45.4% on -5.5% lower revenues, with 71.7% beating EPS estimates and 66.4% beating revenue estimates.

The big development on the earnings front is the revisions trend for Q3 and beyond, with estimates starting to go up over the last few days.

Q3 earnings for the index are currently expected to be down -24.8%, which is down from -25.1% yesterday and -26.3% on July 10th.

We are starting to see similar improvement in estimates for the December quarter and full-year 2020 estimates as well. 

This picture will evolve as more companies come out with Q2 results, but it is nevertheless a positive development on the earnings front.

For more details about the Q2 earnings season and the overall earnings picture, please check out our weekly Earnings Trends report.  

Johnson & Johnson shares have outperformed the Zacks Large Cap Pharmaceuticals industry over the past year (+16% vs. +13.2%) on the back of new drugs and successful label expansion of blockbuster drugs Imbruvica, Darzalex and Stelara. 

J&J beat estimates for sales and earnings in Q2. It raised its 2020 outlook due to faster-than-expected recovery in the Medical Devices unit. J&J is also making rapid progress with its pipeline and line extensions. Several pivotal data readouts are expected in 2020.

However, the Medical Devices unit is being hurt by decline in elective surgical procedures amid the coronavirus pandemic. Headwinds like generic competition and pricing pressure remain. J&J faces numerous lawsuits, which allege personal injuries to patients caused by the use of its products. These lawsuits have resulted in uncertainty.

(You can read the full research report on Johnson & Johnson here >>>)

Shares of SAP have gained +17.9% over the past six months against the Zacks Computer Software industry’s rise of +20.9%. The Zacks analyst believes that SAP is benefiting from strong growth in cloud revenues and expanding customer base. Robust adoption of S/4HANA, Fieldglass, Concur and SuccessFactors Employee Central solutions is a key catalyst.

Moreover, synergies from its acquisition of Qualtrics, and partnership with IBM bode well for the top line. It recently reported encouraging second-quarter preliminary results. Management notes that improving business activity during the second quarter aided recovery in Software licenses revenues.

However, SAP maintained trimmed 2020 guidance, owing to coronavirus crisis-induced business uncertainty. Further, rise in investments to enhance cloud-based offerings are likely to impede near-term margin expansion.

(You can read the full research report on SAP here >>>)

McDonalds’ shares have gained +8% over the past three months against the Zacks Restaurants industry’s rise of +10.3%. The Zacks analyst believes that the company is benefitting from increase in drive-thru sales.

Also, its increased focus on delivery and accelerated deployment of EOTF restaurants in the United States is commendable. Additionally, the company is making every effort to drive growth in international markets as well. Notably, earning estimates for 2020 have increased over the past 30 days, depicting analyst’s optimism regarding the stock growth potential.

However, coronavirus related woes pose concerns. This along with costs associated with brand positioning in all the key markets and ongoing investments in initiatives might weigh on margins, at least in the near term. Also, decline in comps pose threat for the company.

(You can read the full research report on McDonalds here >>>)

Other noteworthy reports we are featuring today include Coca-Cola (KO), Broadcom (AVGO) and Lockheed Martin (LMT).

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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>>>

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