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Earnings season isn’t even halfway over yet, but corporate profits have been coming in better than expected so far and another week of good results could help end the earnings recession.
Nearly 100 members of the S&P 500 SPX, -1.77% are set to deliver results in the week ahead, meaning about two-thirds of the index will have reported by the end of the week. Results on the whole for the S&P have beaten estimates thus far, according to Credit Suisse Chief U.S. Equity Strategist Jonathan Golub, who said that 62% of components had topped earnings-per-share expectations as of Thursday. The average company exceeded estimates by 4.9%.
While FactSet still projects an overall decline in fourth-quarter net income for the index based on a blend of reported results and analyst forecasts, profit surprises over the past week from the likes of Apple Inc. AAPL, -4.43% and Amazon.com Inc. AMZN, +7.38% have made the view a bit less pessimistic. FactSet’s blended model calls for a 0.35% drop in net income once all companies have reported, compared with projections for a 1.9% drop a week ago.
Given the way companies so far have been exceeding expectations, corporate net income might actually finish in positive territory after the reporting season ends, which could snap the string of year-over-year declines in net income that occurred during the first three quarters of 2019.
See more: Earnings recession could end with a fourth-quarter comeback
Among the biggest names in the week ahead are Dow Jones Industrial Average DJIA, -2.09% components Walt Disney Co. DIS, +0.36% and Merck & Co. Inc. MRK, -1.23%, as well as Alphabet Inc. GOOGL, -1.48% Uber Technologies Inc. UBER, -1.06%, and Chipotle Mexican Grill Inc. CMG, -1.50%
Dow duo
The week ahead figures to be a quieter week for the Dow: After 14 companies reported in the past week alone, Disney and Merck are the only two components on the schedule.
This will be a crucial report for Disney as the company’s much-heralded Disney+ streaming service launched midway through the quarter. Investors will be looking for commentary from management on subscriber and engagement trends, as well as plans for the offering going forward. Another topic of interest heading into Disney’s earnings call is the impact of the coronavirus outbreak on theme-park attendance. The company began a temporary closure of Shanghai Disneyland in late January.
See: Disney earnings preview: ‘A pivotal quarter’ has Disney+ doing battle with coronavirus fears
“We note the closure comes at a lucrative and peak travel time to celebrate Lunar New Year on 1/25, and the holiday season extends into February,” wrote J.P. Morgan’s Alexia Quadrani. The company reports after the closing bell.
Merck’s morning report will be all about Keytruda as Wall Street will be looking to see whether sales momentum kept up for the popular cancer drug.
Carpooling
Uber’s stock has shot up more than 20% in the past month, in part after the company showed that it’s paying more attention to costs. The ride-hailing giant agreed to sell its India food-delivery business to a local player, showing that the company is becoming more rational about where it conducts operations amid investor impatience over Uber’s steep losses. The company is on Thursday afternoon’s agenda.
In the more traditional world of car names, Ford Motor Co. F, -0.23% reports Tuesday afternoon and General Motors Co. GM, +0.18% follows the next morning.
As for a less traditional type of ride, Peloton Interactive Software Inc. PTON, +0.31% is on the calendar for Wednesday afternoon. Wall Street will be eagerly hoping to find out whether the company’s viral ad turned potential buyers away from its expensive exercise equipment or whether it actually helped introduce new customers to Peloton’s offerings.
Social gathering
Google parent Alphabet leads a spate of social-media and internet names with its Monday report. This will be the company’s first time facing investors after it announced that Sundar Pichai would take over as the chief executive of Alphabet, after formerly helming just the Google subset. “At the margin, we think this increases the possibility for rationalization among Other Bets investments,” RBC’s Mark Mahaney wrote, referring to the company’s futuristic non-core projects, which include Waymo self-driving car technology and Verily health-technology efforts.
Alphabet earnings preview: What is the path to remain a trillion-dollar company?
Snap Inc. SNAP, -2.65% has shown stronger user-growth momentum since it rolled out a redesigned Android app last year and investors will be looking to see whether it continued to drive in new users, especially in emerging markets. Twitter Inc. TWTR, -2.23% will look to rebound from a tough quarter three months back when the company revealed that an ad-bug issue was negatively impacting revenue.
Snap posts numbers Tuesday afternoon, while Twitter follows Thursday morning.
Third-party data suggested that Pinterest Inc. PINS, -0.77% eclipsed Snap in user count last year, but Instinet’s Mark Kelley says sentiment seems “muted” heading into the Thursday afternoon release. He’ll focus on Pinterest’s “e-commerce opportunity” and the traction for new shopping features.
Food for thought
Menu initiatives will be in focus when Chipotle takes the earnings stage Tuesday afternoon. The company has already extended its popular carne asada limited-time offer through early 2020 and Cowen & Co.’s Andrew Charles said he “would not be surprised if carne asada became an ongoing [limited-time offer] that could be pulsed in and out, similar to Taco Bell’s Nacho Fries.”
Speaking of Taco Bell, it’s parent Yum! Brands Inc. YUM, -0.78% is due to deliver results Thursday morning. A key issue will be the company’s recent decision to acquire Habit Burger Grill, which “suggests Yum’s newly minted Chief Executive Officer David Gibbs is positioning the business for more aggressive growth,” BTIG’s Peter Saleh wrote Also look for more information about Beyond Meat Inc. BYND, -5.86% tests for Yum’s KFC brand.
In the bag
It’s been a light stretch for retail earnings thus far, but a few key names are due up this week.
Costco Wholesale Corp. COST, -1.28% shares have been fairly quiet lately, but Oppenheimer’s Rupesh Parikh sees a “unique positive catalyst” potentially on the horizon. “We (and others) have speculated on a special dividend for multiple quarters now,” he wrote in a recent note to clients. He’s “increasingly optimistic” that the company could announce a special dividend of about $10 in one of the next few quarters. Costco’s earnings are due out Wednesday afternoon.
See more: Costco’s December sales rise 11% to $17 billion
The past year hasn’t been kind to handbag makers Capri Holdings Ltd. CPRI, -4.53% and Tapestry Inc. TPR, -3.27%, which have both seen their stocks drop about 30% over a 12-month span. Both are on the earnings docket for the week ahead and will be looking to turn things around with their holiday sales. Wells Fargo analyst Ike Boruchow expects to see “signs of stabilization” for Capri’s Michael Kors brand, which could free up the comany to better explore opportunities with its Versace and Jimmy Choo properties.
As for Coach-parent Tapestry, “the ‘easy compares’ thesis is front-and-center here with Kate Spade, as it would be difficult to perform worse than the brand did in 2019,” he wrote.
Capri reports on Wednesday morning and Tapestry follows a day later.
