Today's Must Read
Solid Insurance Business Aids Berkshire (BRK.B), Cat Loss Ails
Chevron (CVX) Boosts Permian Position with Noble Buy
Tuesday, January 5, 2021
The Zacks Research Daily presents the best research output of our analyst team. Today's Research Daily provides a preview of the Q4 earnings season that will take the spotlight with the earnings release from JPMorgan (JPM) and other banks on January 15th. As always, we have also featured new research reports on 16 major stocks, including Facebook (FB), Berkshire Hathaway (BRK.B) and Chevron (CVX). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.
2020 Q4 Expectations
The consensus expectation is for Q4 earnings for the S&P 500 index to be down -10.5% from the same period last year on +0.1% higher revenues. This would follow the -7% decline in Q3 and the -32.2% drop in earnings in Q2.
The growth trend is expected to rebound in the current period, with 2021 Q1 earnings for the index currently expected to be up +12.6%. The overall earnings picture started improving in July as the pandemic-driven lockdowns started easing.
As a result, estimates have steadily improved since that time period, a trend that we expect will gain momentum as companies report Q4 results in the coming days and share their outlook for 2021 Q1 and beyond.
The expectation is for full year 2021 earnings to increase by +22.5% after the -16.6% decline in 2020.
Facebook shares have outperformed the S&P 500 over the past year (+27.4% vs. +16%) on the back of steady user growth across all regions, particularly Asia Pacific. Increased engagement for its products like Instagram, WhatsApp, Messenger and Facebook Watch is a major growth driver.
However, Facebook expects user-base growth to be flat or slightly down in the United States and Canada in the fourth quarter of 2020, sequentially. The company expects ad-revenue growth on a year-over-year basis to be better than the third quarter’s growth rate, driven by continued strong advertiser demand during the holiday season.
Strong demand for Oculus 2 is expected to boost other revenues. However, changes made by Apple and Google in their mobile operating systems and browser platforms have limited Facebook’s ability to track user-activity trend, which is a headwind.
Shares of Berkshire Hathaway have gained +25.3% in the last six months against the Zacks Insurance - Property and Casualty industry’s gain of +18.4%. The Zacks analyst believes that continued insurance business growth fuels increase in float, drive earnings and generates maximum return on equity. The non-insurance businesses are delivering improved results with increased revenues over the past few years. A sturdy capital level provides further impetus.
The company is one of the largest property and casualty insurance companies measured by premium volume. Berkshire's inorganic growth story remains impressive with strategic acquisitions. A strong cash position supports earnings-accretive bolt-on buyouts and indicates the company's financial flexibility.
A sturdy capital level provides further impetus. However, exposure to catastrophe loss induces earnings volatility and also affects the property and casualty underwriting results of the company. Huge capital expenditure remains a headwind for the company.
Chevron shares have gained +19.7% over the past three months against the Zacks Integrated Oil industry’s rise of +26.2%. The Zacks analyst believes that Chevron is not immune to commodity price crash, forcing it to cut capital spending and suspend buybacks. The company’s high oil price sensitivity is a concern too.
While the company has struggled with depressed demand stemming from the coronavirus pandemic, it has reiterated its commitment to its dividend on a number of occasions. Chevron’s Noble Energy takeover has expanded its footprint in the DJ Basin and the Permian Basin along with the addition of cash-generating offshore assets in Israel.
However, the supermajor’s reserve replacement ratio of 44% is indicative of its inability to add reserves to replace the amount of oil and gas produced.
Other noteworthy reports we are featuring today include Boeing (BA), Equinix (EQIX) and Southern Copper (SCCO).
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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>>>