Back to top

Image: Bigstock

Zacks Earnings Trends Highlights: Apple, Microsoft, Alphabet and Intel

Read MoreHide Full Article

For Immediate Release

Chicago, IL – February 6, 2020 – Zacks Director of Research Sheraz Mian says, “The picture emerging from the Q4 earnings season is one of steady improvement in the overall picture, with an above-average proportion of companies beating top-line expectations and estimates for the current and coming periods holding up.”

Q4 Earnings Season Scorecard

Note: The following is an excerpt from this week’s Earnings 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:

  • The picture emerging from the Q4 earnings season is one of steady improvement in the overall picture, with an above-average proportion of companies beating top-line expectations and estimates for the current and coming periods holding up. 
  • For the 266 S&P 500 members that have reported Q4 results through February 4th, total earnings (or aggregate net income) are up +0.4% from the same period last year on +3.0% higher revenues, with 70.7% beating EPS estimates and 67.3% beating revenue estimates.
  • While the proportion of companies beating Q4 EPS estimates is tracking below what we had seen from this same group of 266 index members, the revenue beats percentage is notably above historical periods.
  • For the Technology sector, we now have Q4 results from 80.8% of the sector’s total market cap in the index. Total earnings for these Tech companies are up +6.2% on +6.3% higher revenues, with 85.3% beating EPS estimates and an equal proportion beating revenue estimates.
  • The Tech sector’s Q4 performance represents a notable improvement over what we have been seeing from the sector in other recent periods, particularly the last four quarters. 
  • For the Finance sector, we now have Q4 results from 65.3% of the sector’s market capitalization in the S&P 500 index. Total earnings for these Finance sector companies are up +6.3% from the same period last year on +6.0% higher revenues, with 71.0% beating EPS estimates and 75.8% beating revenue estimates.
  • For Q4 as a whole, total earnings or aggregate net income for the S&P 500 index are expected to be down -0.2% from the same period last year on +4.2% higher revenues, with the Energy sector as a big drag on growth.
  • Energy sector earnings are expected to be down -46.6% from the same period last year on -3.9% lower revenues. Excluding the Energy sector, total earnings for the index would be up +3.2%.
  • Sectors with weak growth in Q4, besides Energy, include Autos (-63.3%), Basic Materials (-23.2%), Aerospace (-43.4%), Industrial Products (-1.6%), Retails (-1.9%), and Transportation (-4.2%). Q4 earnings are expected to be below the year-earlier level for 7 of the 16 Zacks sectors. 
  • Sectors with positive earnings growth in Q4 include Utilities (+15.2%), Business Services (+14.7%), Finance (+13.0%), and Consumer Discretionary (+10.8%). Tech sector earnings are now expected to be up +4% on +5.4% higher revenues.
  • Positive Finance sector (+13.0% earnings growth on +9.8% revenue growth) is a big help to the aggregate growth picture for the index. Excluding Finance sector, total Q4 earnings for the rest of the S&P 500 index would be down -3.2%.
  • The Finance sector’s favorable growth picture in Q4 is solely because of easy comparisons in the insurance industry, with earnings for the industry on track to be +39.8%. Excluding the Insurance industry, the Finance sector’s Q4 earnings growth drops to -8.4% (+13% with Insurance). 
  • For the small-cap S&P 600 index, we now have Q4 results from 149 index members. Total earnings for these small-cap companies are down -1.0% from the same period last year on +1.4% higher revenues, with 65.8% beating EPS estimates and 71.1% beating revenue estimates.
  • For Q4 as a whole for the small-cap index, total earnings are expected to be down -3.4% from the same period last year on +0.5% higher revenues, with strong growth in the Finance sector helping offset the Energy sector drag.
  • Excluding the Finance sector, S&P 600 earnings would be down -21.9% in Q4. But had it not been for the Energy sector drag, Q4 earnings would be up 0.9%.
  • Estimates for the current period (2020 Q1) have started coming down, with the ongoing Coronavirus outbreak weighing on the near-term outlook. Total S&P 500 earnings are expected to be up +2.1% on +4.8% higher revenues.  
  • Total 2019 earnings or aggregate net income for the S&P 500 index are expected to be down -1.6% on +2.8% higher revenues, which would follow the +23.2% earnings growth on +7.4% higher revenues in 2018. Growth is expected to resume in 2020, with earnings growth of +7.6% on +4.2% higher revenues.
  • The implied ‘EPS’ for the index, calculated using current 2019 P/E of 20.7X and index close, as of February 4th, is $159.40, modestly down from $161.93 in 2018. Using the same methodology, the index ‘EPS’ works out to $171.55 for 2020 (P/E of 19.2X). The multiples for 2019 and 2020 have been calculated using the index’s total market cap and aggregate bottom-up earnings for each year.
  • The impact of the ongoing Coronavirus outbreak has not started showing up in estimates at this stage, but will likely be a big drag, particularly on estimates for the current period (2020 Q1).

Q4 Earnings Season Scorecard (as of February 4th, 2020)

We now have Q4 results from 266 S&P 500 members that combined account for 70.3% of the index’s total market capitalization. Total earnings for these 266 index members are up +0.4% from the same period last year on +3.0% higher revenues, with 70.7% beating EPS estimates and 67.3% beating revenue estimates.

An above-average proportion of companies are beating revenue estimates at this stage. This has to count as a positive since estimates for the period had not come down as much as had historically been the case. The reasonableness of estimates ahead of the start of this reporting season can be gauged from the EPS beats percentage, which is tracking below historical periods.

With respect to the revisions trend for the current period (2020 Q1), we got off to a favorable start, with estimates actually nudging gup a bit though last week. But that favorable trend has started to reverse, primarily reflecting the impact of the China virus outbreak.

Expectations for the Quarter

The earnings growth trend established in the first three quarters of the year is not expected to change in the last quarter of the year, with tough comparisons to the year-earlier period weighing on growth.

For Q4 as a whole, combining the results that have come out with estimates for the still-to-come companies, total earnings for the S&P 500 index are currently expected to be down -0.2% on +4.2% higher revenues, with 7 of the 16 Zacks sectors expected to have lower earnings relative to the year-earlier period.

Meanwhile, the tech sector is up so far, driven by Apple’s (AAPL - Free Report) +11.4% growth in Q4 earnings on +8.9% higher revenues. Growth at Microsoft (MSFT - Free Report) , Alphabet (GOOGL - Free Report) , Intel (INTC - Free Report) and others have also helped the sector’s growth picture.

The earnings growth picture is expected to change as we turn the page on 2019 given the tough comparisons to tax-boosted earnings in 2018, with growth resuming in 2020 Q1.

The market took the earnings decline in 2019 in the stride, looking ahead to the expected growth resumption this year and beyond. These expectations still hold, though they have started coming down lately, with the impact of the ongoing China virus outbreak a major unknown.

Today's Best Stocks from Zacks

Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.

This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.

See their latest picks free >>

Follow us on Twitter:  http://twitter.com/zacksresearch

Join us on Facebook:  http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts

Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.

Media Contact

Zacks Investment Research

800-767-3771 ext. 9339

support@zacks.com

http://www.zacks.com

Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Published in