Thursday, November 2, 2023

The Zacks Research Daily presents the best research output of our analyst team. Today's Research Daily features a real-time update on the ongoing Q3 earnings season and new research reports on 16 major stocks, including Merck & Co., Inc. (MRK), Bank of America Corporation (BAC) and Advanced Micro Devices, Inc. (AMD). 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 >>>

Q3 Earnings Season Scorecard

Including all the results that came out the morning of Thursday, November 2nd, we now have Q3 results from 377 S&P 500 members or 75.4% of the index's total membership. Total earnings for these companies are up +1.1% from the same period last year on +1.6% higher revenues, with 82% beating EPS estimates and 61.8% beating revenue estimates.

This is better earnings growth for these 377 index members relative to what we have seen from this group in the last four quarters. The EPS beats percentage at 82% is the highest for this group of 377 index members since 2021 Q2 and above the average for the preceding 20 quarters of 77.4%.

The picture is different on the revenues side, with the Q3 revenue growth rate of +1.6% above the preceding period's +0.9%. but otherwise representing a decelerating growth trend.

A much smaller proportion of companies have been able to beat consensus revenue estimates. In fact, the 61.8% revenue beats percentage for Q3 for these 377 index member is the lowest for this group of companies since 2020 Q1 when Covid got underway. The Q3 revenue beats percentage remains above the 20-quarter low of 58.9% but otherwise remains well below the 20-quarter average of 69.9%.

Looking at Q3 as a whole, combining the actuals for the 377 S&P 500 members with estimates for the still-to-companies, total earnings are expected to increase +2% from the same period last year on +1.5% higher revenues.

This is the first time quarterly earnings growth has turned positive after three back-to-back quarters of declines.

Today's Featured Analyst Reports 

Merck share have gained +7.0% over the past year against the Zacks Large Cap Pharmaceuticals industry’s gain of +15.2%. Company’s products like Keytruda and Gardasil have been driving sales. With continued label expansion into new indications, particularly earlier-stage launches, Keytruda is expected to remain a key top-line driver.

Animal health and vaccine products are core growth drivers. Merck boasts a strong cancer pipeline, including Keytruda, which should drive long-term growth. Merck is investing in M&A activity to strengthen its pipeline.

However, generic competition for several drugs and rising competitive pressure, mainly on the diabetes franchise, will continue to be overhangs on the top line. There are concerns about Merck’s ability to grow its non-oncology business ahead of Keytruda’s loss of exclusivity later in the decade.

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

Shares of Bank of America have underperformed the Zacks Banks - Major Regional industry over the past six months (-3.7% vs. +0.8%). Because of inflationary pressure, overall costs are expected to remain elevated. The current tough macroeconomic outlook might weigh on the company’s investment banking (IB) business.

This, along with the volatile nature of the capital markets, might hurt non-interest income growth. Despite these headwinds, we believe that higher rates and decent loan demand will keep aiding the company’s net interest income (NII) growth. The opening of financial centers and improving digital capabilities is expected to further aid the top line.

(You can read the full research report on Bank of America here >>>)

AMD shares have outperformed the Zacks Electronics - Semiconductors industry over the year-to-date period (+66.8% vs. +40.1%). The company’s strong adoption of Ryzen and fourth-generation EPYC CPU drove Data Center and Client revenues sequentially in third quarter. AMD expects to witness year-over-year growth in the Data Center and Client segments by double-digit percentage for the current quarter.

Sequentially, Data Center segment revenues are expected to grow on a double-digit percentage. However, AMD’s third-quarter 2023 results suffered from weak Gaming and Embedded revenues. Gaming declined due to lower semi-custom revenues while Embedded segment suffered from lower performance in the communications market.

AMD expects weakness in the Gaming and Embedded segment to hurt revenues in the current quarter. Gaming and Embedded segment revenues are expected to decline by a double-digit percentage on a sequential basis.

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

Other noteworthy reports we are featuring today include Netflix, Inc. (NFLX), Union Pacific Corporation (UNP) and Eaton Corporation plc (ETN).

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>>>