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U.S. stock markets are set for the third-quarter 2022 earnings season commencing this week. Market participants will keenly watch this earnings season as it will provide the most descriptive view of U.S. corporate health amid record-high inflation and an extremely hawkish Fed.
In addition to revenues and the net profit numbers of companies, several metrics of margins, like gross margin, operating margin and net margin will be of immense importance to investors this earnings cycle. Moreover, the outlook of U.S. corporates will guide the next course of Wall Street’s movement.
Our estimates for third-quarter earnings of the market’s benchmark, the S&P 500 Index, has shown a gradual decline in the past three and a half months. As of Oct 12, per our estimation for the third quarter as a whole, total earnings of the S&P 500 Index will rise a mere 0.1% year over year on 9.1% higher revenues.
We have identified five large-cap stocks that are set to beat on third-quarter earnings. Investment in these stocks should be fruitful as an earnings beat is expected to drive stock prices going forward. These companies are — Morgan Stanley (MS - Free Report) , UnitedHealth Group Inc. (UNH - Free Report) , Lockheed Martin Corp. (LMT - Free Report) , United Airlines Holdings Inc. (UAL - Free Report) and First Horizon Corp. (FHN - Free Report) .
Q3 at a Glance
Like the first half, the third quarter of 2022 also remained tough for the U.S. economy. Various measures of inflation remained elevated at a 40-year high. The Fed has hiked the benchmark interest rate by 3% so far in 2022 and it was in the range of 3.25% to 3.5% at the end of the third quarter. Moreover, the central bank has started to reduce the size of its $9 trillion balance sheet systematically since June.
Despite these aggressive monetary policies adopted by the Fed, inflation is showing no signs of declining. The complete devastation of the global supply-chain system and the shortage of labor continued to put pressure on businesses in the form of higher input costs and wages.
The lingering war between Russia and Ukraine and the lockdown in China due to the resurgence of COVID-19 infections were the major hindrances to the restoration of the global supply-chain system. Agencies like the IMF, the World Bank and the OECD have warned of a possible global recession in 2023.
Our research shows that for stocks with the combination of a Zacks Rank #3 or better and a positive Earnings ESP, the chance of an earnings beat is as high as 70%. These stocks are anticipated to appreciate after their earnings releases. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
The chart below shows the price performance of our five stocks in focus in the last quarter.
Image Source: Zacks Investment Research
Morgan Stanley is continuously undertaking measures, including the acquisitions of Eaton Vance and E*Trade Financial, to become less dependent on capital markets-driven revenue sources. These initiatives are bearing fruits for MS. Increased focus on corporate lending will likely keep supporting financials in the quarters ahead. Further, higher interest rates will support the net interest income of Morgan Stanley.
MS has an Earnings ESP of +0.59%. Morgan Stanley recorded an earnings surprise in three out of the last four reported quarters, with the average beat being 9.7%. The company is set to release earnings on Oct 14, before the opening bell.
UnitedHealth has been benefiting from a strong market position and an attractive core business that continues to be driven by new deals, renewed agreements and expansion of service offerings.
UNH’s solid health services segment provides diversification benefits. UnitedHealth’s government business remains well-poised for growth. A sturdy balance sheet enables investments and prudent capital deployment through share buybacks and dividends.
UNH has an Earnings ESP of +0.35%. It has an expected earnings growth rate of 14.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the past 30 days.
UnitedHealth recorded earnings surprises in the last four reported quarters, with an average beat of 3.7%. The company is set to release earnings on Oct 14, before the opening bell.
Lockheed Martin is the largest U.S. defense contractor that has a steady inflow of orders from its leveraged presence in the Army, Air Force, Navy and IT programs. Steady contract flows and subsequent backlog growth bolster the long-term revenue prospects of LMT.
The F-35 program continues to be a key growth program for Lockheed Martin’s Aeronautics business segment and boosts its sales prospects. The budgetary provisions tend to boost its business.
LMT has an Earnings ESP of +0.97%. Lockheed Martin recorded earnings surprises in the last four reported quarters, with an average beat of 65.5%. The company is set to release earnings on Oct 18, before the opening bell.
United Airlines has been seeing a steady recovery in domestic and leisure air-travel demand. On the back of upbeat air-travel demand, UAL was profitable in the second quarter of 2022 and expects to be the same in the third quarter as well.
With air-travel demand upbeat in the United States, United Airlines upped its revenue growth guidance for third-quarter 2022 and expects operating revenues to grow 12%. Adjusted operating margin is expected to be approximately 10.5% in the September quarter.
UAL has an Earnings ESP of +5.29%. It has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 2.3% over the past seven days.
United Airlines recorded earnings surprises in two out of the last four reported quarters, with the average beat being 10.5%. The company is set to release earnings on Oct 18, after the closing bell.
First Horizon’s numerous buyouts have diversified its product offerings and strengthened its footprint in targeted markets. Rising loan balances will strengthen FHN’s balance sheet.
First Horizon’s premier regional franchise, and robust commercial and specialty banking capabilities have likely driven its $13.4-billion acquisition by TD Bank. Normalizing credit quality, backed by economic improvement aids the company.
FHN has an Earnings ESP of +4.78%. The Zacks Consensus Estimate for current-year earnings has improved 3.2% over the past 30 days. First Horizon recorded earnings surprises in three out of the last four reported quarters, with an average beat of 14.3%. The company is set to release earnings on Oct 18, after the closing bell.
Image: Bigstock
5 Large-Cap Stocks Likely to Beat on Q3 Earnings
U.S. stock markets are set for the third-quarter 2022 earnings season commencing this week. Market participants will keenly watch this earnings season as it will provide the most descriptive view of U.S. corporate health amid record-high inflation and an extremely hawkish Fed.
In addition to revenues and the net profit numbers of companies, several metrics of margins, like gross margin, operating margin and net margin will be of immense importance to investors this earnings cycle. Moreover, the outlook of U.S. corporates will guide the next course of Wall Street’s movement.
Our estimates for third-quarter earnings of the market’s benchmark, the S&P 500 Index, has shown a gradual decline in the past three and a half months. As of Oct 12, per our estimation for the third quarter as a whole, total earnings of the S&P 500 Index will rise a mere 0.1% year over year on 9.1% higher revenues.
We have identified five large-cap stocks that are set to beat on third-quarter earnings. Investment in these stocks should be fruitful as an earnings beat is expected to drive stock prices going forward. These companies are — Morgan Stanley (MS - Free Report) , UnitedHealth Group Inc. (UNH - Free Report) , Lockheed Martin Corp. (LMT - Free Report) , United Airlines Holdings Inc. (UAL - Free Report) and First Horizon Corp. (FHN - Free Report) .
Q3 at a Glance
Like the first half, the third quarter of 2022 also remained tough for the U.S. economy. Various measures of inflation remained elevated at a 40-year high. The Fed has hiked the benchmark interest rate by 3% so far in 2022 and it was in the range of 3.25% to 3.5% at the end of the third quarter. Moreover, the central bank has started to reduce the size of its $9 trillion balance sheet systematically since June.
Despite these aggressive monetary policies adopted by the Fed, inflation is showing no signs of declining. The complete devastation of the global supply-chain system and the shortage of labor continued to put pressure on businesses in the form of higher input costs and wages.
The lingering war between Russia and Ukraine and the lockdown in China due to the resurgence of COVID-19 infections were the major hindrances to the restoration of the global supply-chain system. Agencies like the IMF, the World Bank and the OECD have warned of a possible global recession in 2023.
Stocks in Focus
Five large-cap companies will report third-quarter 2022 earnings within the next seven days. Each of these stocks has a positive Earnings ESP and carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Our research shows that for stocks with the combination of a Zacks Rank #3 or better and a positive Earnings ESP, the chance of an earnings beat is as high as 70%. These stocks are anticipated to appreciate after their earnings releases. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
The chart below shows the price performance of our five stocks in focus in the last quarter.
Image Source: Zacks Investment Research
Morgan Stanley is continuously undertaking measures, including the acquisitions of Eaton Vance and E*Trade Financial, to become less dependent on capital markets-driven revenue sources. These initiatives are bearing fruits for MS. Increased focus on corporate lending will likely keep supporting financials in the quarters ahead. Further, higher interest rates will support the net interest income of Morgan Stanley.
MS has an Earnings ESP of +0.59%. Morgan Stanley recorded an earnings surprise in three out of the last four reported quarters, with the average beat being 9.7%. The company is set to release earnings on Oct 14, before the opening bell.
UnitedHealth has been benefiting from a strong market position and an attractive core business that continues to be driven by new deals, renewed agreements and expansion of service offerings.
UNH’s solid health services segment provides diversification benefits. UnitedHealth’s government business remains well-poised for growth. A sturdy balance sheet enables investments and prudent capital deployment through share buybacks and dividends.
UNH has an Earnings ESP of +0.35%. It has an expected earnings growth rate of 14.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the past 30 days.
UnitedHealth recorded earnings surprises in the last four reported quarters, with an average beat of 3.7%. The company is set to release earnings on Oct 14, before the opening bell.
Lockheed Martin is the largest U.S. defense contractor that has a steady inflow of orders from its leveraged presence in the Army, Air Force, Navy and IT programs. Steady contract flows and subsequent backlog growth bolster the long-term revenue prospects of LMT.
The F-35 program continues to be a key growth program for Lockheed Martin’s Aeronautics business segment and boosts its sales prospects. The budgetary provisions tend to boost its business.
LMT has an Earnings ESP of +0.97%. Lockheed Martin recorded earnings surprises in the last four reported quarters, with an average beat of 65.5%. The company is set to release earnings on Oct 18, before the opening bell.
United Airlines has been seeing a steady recovery in domestic and leisure air-travel demand. On the back of upbeat air-travel demand, UAL was profitable in the second quarter of 2022 and expects to be the same in the third quarter as well.
With air-travel demand upbeat in the United States, United Airlines upped its revenue growth guidance for third-quarter 2022 and expects operating revenues to grow 12%. Adjusted operating margin is expected to be approximately 10.5% in the September quarter.
UAL has an Earnings ESP of +5.29%. It has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 2.3% over the past seven days.
United Airlines recorded earnings surprises in two out of the last four reported quarters, with the average beat being 10.5%. The company is set to release earnings on Oct 18, after the closing bell.
First Horizon’s numerous buyouts have diversified its product offerings and strengthened its footprint in targeted markets. Rising loan balances will strengthen FHN’s balance sheet.
First Horizon’s premier regional franchise, and robust commercial and specialty banking capabilities have likely driven its $13.4-billion acquisition by TD Bank. Normalizing credit quality, backed by economic improvement aids the company.
FHN has an Earnings ESP of +4.78%. The Zacks Consensus Estimate for current-year earnings has improved 3.2% over the past 30 days. First Horizon recorded earnings surprises in three out of the last four reported quarters, with an average beat of 14.3%. The company is set to release earnings on Oct 18, after the closing bell.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.