Friday, September 4, 2020

We have provided a big-picture update on the evolving earnings backdrop in today's Zacks Research Daily. And as we always do, we have featured fresh research reports on 16 major stocks, including Tesla (TSLA), Mastercard (MA) and United Parcel Service (UPS). 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 >>>

The Earnings Discussion 

This is a good time to take a look at consensus expectations for the September quarter, with results for the June quarter essentially over now. As of today, we have only S&P 500 company still to report Q2 result. This company is Kroger (KR), which reports next week on Sept. 11th.

Regular readers of our earnings commentary know that we were encouraged the tone and substance of Q2 results, even though the overall growth picture remained anemic as a result of the ongoing Covid-19 pandemic.

A big reason for our favorable earnings commentary has been the revisions trend, which notably turned positive in early July and has remained so ever since. As a result, while earnings growth is still expected to remain under pressure in the September quarter, it has nevertheless been steadily improving.

Total Q3 earnings for the S&P 500 index are currently expected to be down -23.9% from the same period last year on -3.2% lower revenues, which would follow the -32.6% earnings decline -9.2% lower revenues in Q2.

Please note that Q3 earnings were expected to be down -26.5% at the start of July, so the decline rate has notably improved since the start of the quarter. We see similar improving trend with estimates for full-year 2020 and 2021. 

Tesla shares have lost groun over the last few trading sessions, but the stock has literally been on fire this year, up +353.6%. Some pullback after such rapid fire gains are to be expected,  but the Zacks analyst believes that Tesla has a first-mover advantage in the EV space with high range vehicles, superior technology, and software edge.

Robust Model 3 demand, ramp up of Model Y production, significant Shanghai Gigafactory progress, amazing line-up of upcoming products and aggressive expansion efforts bode well for the firm. However, high R&D, SG&A costs and massive capex may clip the margins.

Tesla is investing heavily to increase production capacity, boost sales and construct Gigafactories, which are likely to strain its near-term prospects. Waning margins for Model S/X is another concern. Thus, investors are recommended to wait for a better entry point.

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

Shares of Mastercard have gained +13.7% over the past six months against the Zacks Financial Transaction Services industry’s rise of +8.8%. The Zacks analyst believes that the company is gaining from an increased demand for digital and contactless solutions owing to the COVID crisis.

The company has undertaken several acquisitions to supplement organic efforts and diversify revenues over the years, which has helped expand its addressable markets and strengthen core product solutions. Investment in technology keeps it at the forefront of the rapidly-evolving payments industry.

It is also witnessing buoyant demand for its Data & Analytics and Cyber solutions. Mastercard’s solid capital position enables investment in business and returning value to shareholders. However, escalating costs might put pressure on the company’s margins. It also cancelled its annual 2020 outlook for net revenues and operating expense due to coronavirus-induced business loss.

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

UPS shares have gained +29.8% over the past year against the Zacks Transportation - Air Freight and Cargo industry’s fall of +40.5%. The Zacks analyst believes that UPS is being aided by a significant increase in home deliveries amid the prevalent coronavirus pandemic.

Notably, the need for door-to-door delivery of essentials during this crisis is rising. Owing to the surge in residential and healthcare shipments, UPS performed impressively in second-quarter 2020. The substantial boom in e-commerce business is a huge positive and is likely to boost UPS' September-quarter results too.

Notably, adjusted free cash flow surged 77.2% year over year in first-half 2020. The fact that the Zacks Consensus Estimate for current-year earnings has been revised 24% upward over the past 60 days reflects the optimism surrounding the stock.

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

Other noteworthy reports we are featuring today include Lockheed Martin (LMT), Square (SQ) and Colgate-Palmolive (CL).

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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>>>