Friday, December 30, 2022
 

The Zacks Research Daily presents the best research output of our analyst team. Today’s Research Daily features an update on the evolving earnings picture for 2023 and new research reports on 16 major stocks, including Apple Inc. (AAPL), Johnson & Johnson (JNJ) and CSX Corporation (CSX). 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 >>>
 

Earnings Outlook for 2023

Multiple forces are at play in driving stock prices at any point in time. But the two biggest forces in the long run are interest rates and corporate earnings, with our focus in this note solely on the earnings part.

Aggregate bottom-up earnings for the S&P 500 index are currently expected to be up +2.2% in 2023 on +2.1% higher revenues. This would follow the +4.7% earnings growth in 2022 on +10.6% higher revenues.

Estimates for 2023 have been steadily coming down, after peaking in mid-April 2022. In the aggregate, S&P 500 earnings estimates have declined by -9.4% since mid-April for the index as a whole and -11.8% excluding the Energy sector.

Estimates have been cut for 12 of the 16 Zacks sectors, with the biggest cuts to estimates for the Construction (Negative revision of -29.6% since mid-April), Consumer Discretionary (-21.5%), Retail (-21.2%), Tech (-19.6%), Industrials (-13.8%), Aerospace (-13.7%), and Transportation (-10.2%). Estimates for Energy, Utilities, Autos and Basic Materials have modestly increased.

The future course of revisions will depend on how the underlying economic outlook unfolds in response to the Fed tightening cycle.

I am of the opinion that a relatively a benign outcome for the U.S. economy where it is able to dodge a nasty recession will be consistent with an earnings outlook that is roughly in-line with current earnings estimates.

I am not suggesting that estimates do not need to come down further. But rather that with aggregate estimates outside of the Energy sector already down by almost -12% since mid-April, there may not be a whole lot of further room to fall as long as the economic outlook doesn't materially deteriorate.

Today's Featured Research Reports

Shares of Apple have declined -27.9% over the past year against the Zacks Tech sector's decline of -37.3% and the S&P 500 index's -20.9% pullback. The Zacks analyst believes that Apple’s holiday season iPhone shipments are expected to suffer from disruptions at its Chinese partner Foxconn’s factory in Zhengzhou. We expect Apple to ship roughly 70 million iPhones in the first quarter of fiscal 2023.
 

The company expects year-over-year revenue growth to decelerate in the fiscal first quarter compared with the fiscal fourth quarter due to unfavorable forex. Mac revenues are expected to be negatively impacted by forex. Apple expects Mac revenues to decline substantially year over year during the December quarter.
 

Services revenue growth is expected to be negatively impacted by challenging macroeconomic conditions, unfavorable forex, as well as weakness in digital advertising and gaming. Nevertheless, a growing subscriber base in the Services business and a strong liquidity position are key catalysts.
 

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

Shares of Johnson & Johnson have gained +3.1% over the past year against the Zacks Large Cap Pharmaceuticals industry’s gain of +12.3%. The Zacks analyst believes that J&J’s sales in the MedTech unit are recovering and the company is focusing on growing this business through new products. J&J is making rapid progress with its pipeline and line extensions.
 

However, macroeconomic headwinds like inflationary pressure, rising input costs and negative currency impact are hurting margins. Headwinds like generic competition and pricing pressure continue. Stelara’s upcoming loss of exclusivity in 2023 is a concern. 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 >>>)
 

CSX shares have outperformed the Zacks Transportation - Rail industry over the past six months (+6.5% vs. +3.5%). The Zacks analyst believes that CSX is benefiting from higher export coal volumes, domestic intermodal shipments and favorable pricing. With the demand scenario expected to remain strong, despite the current market bloodbath, management anticipates double-digit growth in operating income and revenues for 2022 from 2021's reported levels.
 

However, supply-chain disturbances are hurting CSX's operations. Weakness in the merchandise segment due to lower volumes of fertilizers is concerning. High costs, primarily due to escalating fuel expenses, pose a threat to CSX’s bottom line. High capital expenditures are also worrisome.
 

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

Other noteworthy reports we are featuring today include Halliburton Company (HAL), American International Group, Inc. (AIG) and CenterPoint Energy, Inc. (CNP).
 

Director of Research
 

Sheraz Mian
 

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>>>