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Research Daily

Sheraz Mian

Q2 Earnings Season Preview and Featured Analyst Reports for J&J, AMD & Union Pacific


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Monday, June 27, 2022

The Zacks Research Daily presents the best research output of our analyst team. Today's Research Daily features current 2022 Q2 consensus expectations for the S&P 500 index and new research reports on 16 major stocks, including Johnson & Johnson (JNJ), Advanced Micro Devices, Inc. (AMD), and Union Pacific Corporation (UNP). 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 Preview

Total Q2 earnings for the S&P 500 index are expected to be up +2.3% from the year-earlier period on +9.8% higher revenues, with strong growth in the Energy sector offsetting declines in the Finance and Tech sectors.

Excluding the strong contribution from the Energy sector whose Q2 earnings are expected to be up +187.5%, total earnings for the rest of the S&P 500 index would be down -5% from the same period last year.

The Energy sector strength has also been factor in the aggregate revisions trend, with positive Energy sector revisions helping offset estimate cuts elsewhere.

In other words, the Energy sector strength is helping mask weakness in most of other sectors, resulting in a seemingly stable aggregate revisions picture. This trend has been in play for 2022 Q2 as well as full-year 2022.

For full-year 2022, the current expectations is for S&P 500 earnings to be up +9.1% on +9.4% higher revenues. Excluding the Energy sector, 2022 earnings for the remainder of the index would be up only +3.7%.

With respect to the revisions trend, aggregate 2022 earnings estimates are actually +3.4% since the start of the year. But it is the record upward revisions to the Energy sector that is keeping the aggregate revisions trend in positive territory. Excluding the positive revisions to the Energy, which are up +72.7% since the start of the year, aggregate 2022 earnings for the rest of the rest of the index are down -9.8% since the start of the year.

As such, it is misleading for market participants to claim that earnings estimates have yet to come down. There will most likely be more downward adjustments to estimates if the bearish macroeconomic projections come to fruition. But in a base-case outlook, earnings estimates have already adjusted lower.

For more details about Q2 estimates and evolving expectations for the coming periods, please check out our weekly Earnings Trend report here >>> Will Earnings Estimates Finally Come Down? 

Featured Analyst Reports

Johnson & Johnson shares have modestly outperformed the Zacks Large Cap Pharmaceuticals industry over the year-to-date basis (+7.9% vs. +7.5%), with the company’s diversification makes it relatively resilient amid macroeconomic turmoil. Its Pharma unit is performing at above-market levels, supported by its blockbuster drugs, Darzalex and Stelara, and contribution from newer drugs, Erleada and Tremfya. Sales in the MedTech unit recovered in Q1 and the company is focusing on growing this business through new products.

However, sales in Consumer unit are being hurt by external supply constraints. J&J is making rapid progress with its pipeline and line extensions. Several pivotal data readouts are expected in 2022. Headwinds like generic competition and pricing pressure continue. Though J&J has taken meaningful steps to resolve its talc and opioid litigation, they continue to remain an overhang on the stock.

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

AMD shares have declined -1.7% over the past year against Zacks Electronics - Semiconductors industry’s decline of -3.5%, with the company benefiting from strong demand of its Ryzen and EPYC server processors, owing to the increasing proliferation of Artificial Intelligence (AI) and Machine Learning (ML) in industries like cloud, gaming and data center. The growing clout of 7 nanometer (nm) products in the data center vertical, driven by work-from-home and online learning trends, is a key catalyst.

AMD provided strong 2022 guidance for revenues backed by robust growth across all businesses. Higher server and client processor revenues are likely to lead to a sequential increase. The Xilinx and Pensando acquisition will boost AMD's data center business. Alliances with Amazon, Microsoft, Baidu and augment business prospects.

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

Union Pacific shares have declined -0.5% over the past year against Zacks Transportation - Rail industry’s decline of -3.4%. Escalation in fuel costs as oil prices move north induced a 16% rise in the operating expenses in the March quarter. Costs are likely to be high in the June quarter as well. Detailed results will be out on Jul 21. High debt/EBITDA ratio is another worry. Increased capex may also be bothersome.

However, the company’s efforts to reward its shareholders even in the current uncertain scenario please us. The company hiked dividend twice in 2021. In May 2022, UNP upped its quarterly dividend by a further 10%. The railroad operator is also active on the buyback front. Management expects share repurchases in 2022 to be in line with the 2021 levels of $7.3 billion. UNP's strong free cash flow generating ability supports its shareholder-friendly activities. An uptick in freight revenues as economic activities pick up the pace is an added positive.

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

Other noteworthy reports we are featuring today include Novartis AG (NVS), Anheuser-Busch InBev SA/NV (BUD), and ServiceNow, Inc. (NOW).

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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