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Google, Amazon, Microsoft, Disney and Cisco are part of Zacks Earnings Preview
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For Immediate Release
Chicago, IL – November 9, 2020 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes Alphabet Inc. (GOOGL - Free Report) , Amazon.com, Inc. (AMZN - Free Report) , Microsoft Corporation (MSFT - Free Report) , The Walt Disney Company (DIS - Free Report) and Cisco Systems, Inc. (CSCO - Free Report) .
Tech Leadership Reflects Earnings Power
Technology stocks were market leaders even before Covid-19 arrived, but the pandemic has really cemented these companies’ status. These reasons are obvious; these companies ranging from Alphabet to Amazon and others have become ever more essential to how we live and work in these socially distanced times.
These companies may not be monopolies, in the legacy legal sense, but they are nevertheless as sustainably profitable as if they were the Standard Oil of the past. The one point I want to make is that these companies’ market leadership and dominance isn’t a result of transitory development or a fad or even a bubble, as some folks allege, but rather a rational reflection of fundamental ground realities.
In other words, the stock market prominence of these Tech companies reflects their enormous and growing earnings power.
As we have pointed out in this space in the past, the composition of the stock market, using the S&P 500 index as a proxy for the market, has undergone a fundamental shift in recent years. This, in turn, is a reflection of the changes in the broader U.S. economy, with a fast-growing and extremely dynamic Technology sector seeping into every nook and cranny of the economy.
The net effect of these compositional changes is that the Technology sector is by far the biggest contributor of earnings to the S&P 500 index, handily eclipsing the Finance sector, which enjoyed the biggest earnings weightage in the index for many years.
Not only is the Technology sector bringing in the most money, it also enjoys the best earnings growth profile. Please note that while Tech earnings are on track to decline -1.4% this year, the Finance sector and the broader index are expected to see 2020 earnings decline by -23.6% and -17.8%, respectively.
The growth outlook is even more impressive for the big Tech companies, particularly the Big 5 players: Apple, Microsoft, Alphabet, Amazon and Facebook.
For a company the size of Apple to be increasing its earnings by +19% in 2021 and +9% in 2022 is impressive anyway you look at it. The growth figures for Amazon are in a different world altogether. I am not making a valuation comment here, just discussing earnings. Valuation is like beauty — it is in the eye of the beholder.
There can be legitimate concerns that valuation for some of these Tech stocks may have gone a bit too far, particularly following the group’s impressive run-up this year. That said, valuation is as much a function of interest rates as it is of profitability outlook.
We can reasonably assume that the market will be a lot more open to paying a higher multiple for these “growthy" companies in an environment when interest rates are expected to remain low for a long time.
Tech Sector Scorecard
For the Tech sector, we now have Q3 results from 87.1% of the sector’s market capitalization in the S&P 500 index. Total earnings for these Tech companies are up 11.6% from the same period last year on 8.6% higher revenues, with 96.6% beating EPS estimates and 93.1% beating revenue estimates.
Looking at Q3 as a whole, total Tech sector earnings are expected to be up +10% from the same period last year, on +7.7% higher revenues.
Q3 Earnings Season Scorecard (as of Friday, November 6th)
We now have Q3 results from 447 S&P 500 members or 89.4% of the index’s total membership. Total earnings (or aggregate net income) for these 447 companies are down 7.3% from the same period last year on 1.9% lower revenues, with 85.2% beating EPS estimates and 76.3% beating revenue estimates.
The two sets of comparison charts below put the Q3 results from these 447 index members in a historical context, which should give us a sense how the Q3 earnings season is tracking at this stage relative to other recent periods.
Not only is the pace of declines decelerating, but a much bigger proportion of companies are beating EPS and revenue estimates.
The reporting cycle slows down in a notable way going forward, with this week bringing in more than 500 companies to report Q3 results, including 15 S&P 500 members. The notable companies reporting results in the coming week include Disney, Cisco and others.
Looking at Q3 as a whole, combining the actual results that have come out with estimates for the still-to-come companies, total earnings for the index are expected to be down 8.9% on 1.4% lower revenues.
The key factor from the market’s standpoint is how estimates for 2020 Q4 evolve as we go through the remainder of the Q3 reporting cycle.
Please note that the revisions trend appears to have leveled off in recent days, with estimates effectively stalling out. The 11.7% decline for Q4 is unchanged over the past week.
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
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.
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 https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Google, Amazon, Microsoft, Disney and Cisco are part of Zacks Earnings Preview
For Immediate Release
Chicago, IL – November 9, 2020 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes Alphabet Inc. (GOOGL - Free Report) , Amazon.com, Inc. (AMZN - Free Report) , Microsoft Corporation (MSFT - Free Report) , The Walt Disney Company (DIS - Free Report) and Cisco Systems, Inc. (CSCO - Free Report) .
Tech Leadership Reflects Earnings Power
Technology stocks were market leaders even before Covid-19 arrived, but the pandemic has really cemented these companies’ status. These reasons are obvious; these companies ranging from Alphabet to Amazon and others have become ever more essential to how we live and work in these socially distanced times.
These companies may not be monopolies, in the legacy legal sense, but they are nevertheless as sustainably profitable as if they were the Standard Oil of the past. The one point I want to make is that these companies’ market leadership and dominance isn’t a result of transitory development or a fad or even a bubble, as some folks allege, but rather a rational reflection of fundamental ground realities.
In other words, the stock market prominence of these Tech companies reflects their enormous and growing earnings power.
As we have pointed out in this space in the past, the composition of the stock market, using the S&P 500 index as a proxy for the market, has undergone a fundamental shift in recent years. This, in turn, is a reflection of the changes in the broader U.S. economy, with a fast-growing and extremely dynamic Technology sector seeping into every nook and cranny of the economy.
The net effect of these compositional changes is that the Technology sector is by far the biggest contributor of earnings to the S&P 500 index, handily eclipsing the Finance sector, which enjoyed the biggest earnings weightage in the index for many years.
Not only is the Technology sector bringing in the most money, it also enjoys the best earnings growth profile. Please note that while Tech earnings are on track to decline -1.4% this year, the Finance sector and the broader index are expected to see 2020 earnings decline by -23.6% and -17.8%, respectively.
The growth outlook is even more impressive for the big Tech companies, particularly the Big 5 players: Apple, Microsoft, Alphabet, Amazon and Facebook.
For a company the size of Apple to be increasing its earnings by +19% in 2021 and +9% in 2022 is impressive anyway you look at it. The growth figures for Amazon are in a different world altogether. I am not making a valuation comment here, just discussing earnings. Valuation is like beauty — it is in the eye of the beholder.
There can be legitimate concerns that valuation for some of these Tech stocks may have gone a bit too far, particularly following the group’s impressive run-up this year. That said, valuation is as much a function of interest rates as it is of profitability outlook.
We can reasonably assume that the market will be a lot more open to paying a higher multiple for these “growthy" companies in an environment when interest rates are expected to remain low for a long time.
Tech Sector Scorecard
For the Tech sector, we now have Q3 results from 87.1% of the sector’s market capitalization in the S&P 500 index. Total earnings for these Tech companies are up 11.6% from the same period last year on 8.6% higher revenues, with 96.6% beating EPS estimates and 93.1% beating revenue estimates.
Looking at Q3 as a whole, total Tech sector earnings are expected to be up +10% from the same period last year, on +7.7% higher revenues.
Q3 Earnings Season Scorecard (as of Friday, November 6th)
We now have Q3 results from 447 S&P 500 members or 89.4% of the index’s total membership. Total earnings (or aggregate net income) for these 447 companies are down 7.3% from the same period last year on 1.9% lower revenues, with 85.2% beating EPS estimates and 76.3% beating revenue estimates.
The two sets of comparison charts below put the Q3 results from these 447 index members in a historical context, which should give us a sense how the Q3 earnings season is tracking at this stage relative to other recent periods.
Not only is the pace of declines decelerating, but a much bigger proportion of companies are beating EPS and revenue estimates.
The reporting cycle slows down in a notable way going forward, with this week bringing in more than 500 companies to report Q3 results, including 15 S&P 500 members. The notable companies reporting results in the coming week include Disney, Cisco and others.
Looking at Q3 as a whole, combining the actual results that have come out with estimates for the still-to-come companies, total earnings for the index are expected to be down 8.9% on 1.4% lower revenues.
The key factor from the market’s standpoint is how estimates for 2020 Q4 evolve as we go through the remainder of the Q3 reporting cycle.
Please note that the revisions trend appears to have leveled off in recent days, with estimates effectively stalling out. The 11.7% decline for Q4 is unchanged over the past week.
For an in-depth look at the overall earnings picture and expectations for the coming quarters, please check out our weekly Earnings Trends report >>>> The Favorable Earnings Picture Continues for Q3 & Beyond
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>
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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 https://www.zacks.com/performance for information about the performance numbers displayed in this press release.