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Zacks Earnings Trends Highlights: Target and Walmart

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For Immediate Release

Chicago, IL – May 23, 2024 – Zacks Director of Research Sheraz Mian says, "Positive revenue surprises were a bit less commonplace relative to other recent periods, but margins have expanded at a better-than-expected rate."

Where Is Earnings Growth Coming From?

Note: The following is an excerpt from this week’sEarnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>

Here are the key points:

  • What we saw in the Q1 earnings season was a resilient and steadily improving profitability picture, both in terms of the growth rate and the evolving revisions trend. Positive revenue surprises were a bit less commonplace relative to other recent periods, but margins expanded at a better-than-expected rate.
  • Total earnings for the 474 S&P 500 members that have reported Q1 results are up +4.2% from the same period last year on +3.9% higher revenues, with 77.8% beating EPS estimates and 60.5% beating revenue estimates.
  • As was the case in the preceding two quarters, the Tech sector remains a key growth driver in 2024 Q1. Had it not been for the robust Tech sector earnings growth, total earnings for the rest of the index would be down -0.6% (instead of +4.2% as a whole).
  • For 2024 Q2, S&P 500 earnings are expected to be up +9.0% from the same period last year on +4.6% higher revenues. While Q2 estimates have ticked down over the last few weeks, they are still modestly above levels at the start of the period.

In recent days, the earnings focus has been on the Retail sector, with Target (TGT - Free Report) once again coming up short in its quarterly report. UnlikeWalmart (WMT - Free Report) , which handily beat estimates last week and continues to benefit from market share gains in higher-income households for its grocery-weighted merchandise, Target has to deal with the anemic demand backdrop for its discretionary merchandise.

Target is making efforts to make its grocery offerings more attractive through price cuts, but its grocery offerings lack its rival’s heft. Target management flagged signs of stabilization for its discretionary offerings, and relatively easier comparisons to the year-earlier period should help the retailer’s same-store sales results in the current period. Still, the company’s stock price underperformance relative to Walmart is unlikely to reverse any time soon.

We have discussed the Retail sector’s earnings scorecard and how the sector’s Q1 results stack up relative to the other recent periods in section 1 of this report.

The Earnings Big Picture

For 2024 Q2, total S&P 500 earnings are currently expected to be up +9% on +4.6% higher revenues. Earnings estimates in the aggregate have ticked down over the last couple of weeks but still remain above levels at the start of the quarter

While the Energy sector has been a big contributor to the strength in estimates, the revisions trend outside of the Energy sector has been favorable as well.

As we have noted in this space all along, the Tech sector is firmly in growth mode and is a significant contributor to this year’s growth pace. Had it not been for the +16.1% earnings growth for the Tech sector, total earnings for the index would be up only +6.3%.

The Energy sector is a modest drag on this year’s growth pace, with the earnings growth rate improving to +9.9% on an ex-Energy basis. Excluding both the Energy and Tech sectors, 2024 earnings for the rest of the index would be up +12.8%.

As we have been flagging here all along, the Tech is enjoying a favorable revisions trend.

A big contributing factor to the Tech sector’s positive earnings outlook is the sector’s margins outlook.

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