Key Earnings You Must Watch
Earnings season is upon us.
Markets have been battered with cautious macro headlines over the past couple of months. Bears warn markets about rising rates, geopolitical turmoil, inflationary pressures, supply chain constraints, and weaker margins.
These warnings have won the day as evident by the latest AAII data which saw bullish sentiment dwindle to a minuscule 15%. This was the 10th lowest reading in the survey’s history.
This week we get to see if these global macro trends are as worrisome as the prognosticators insist.
Tuesday morning provided us insight into some market leaders. Johnson & Johnson (JNJ), Travelers (TRV), Lockheed Martin (LMT), and Halliburton (HAL) all provided first-quarter results. Collectively, they were better than feared.
The initial price action has been muted. We will monitor these stocks to ascertain where investors’ mindsets lie.
Here are some key earnings reports that investors should watch this week to garner a better sense of the economic environment and investor sentiment.
Tuesday after the market closes. Morgan Stanley recently upgraded Big Blue, calling it “a place to hide among macro uncertainty”. The company will give us insight into IT hardware outlays and whether market fears around decelerating spending have merit. The company trades at 12x forward earnings which makes it an intriguing valuation play. Shares sit on the long-term 200-weekly MA trend ($127). Investors want to see if these results break it out of tight consolidation.
Tuesday after the market closes. There are some calling this a make-or-break quarter for the company. The focus will be on global paid subscribers. The company guided for 2.5 million net adds this quarter. Average Revenue per User (ARPU) is another key metric given recent price increases. ARPU is expected to rise by 8% which should allow the company to expand contribution margins. The stock has been under pressure since its poor Q4 performance when it missed sub expectations. Shares need to hold $340 to avoid further downward pressure.
Wednesday before the market opens. A key read on the semiconductor industry supply chain. The semiconductor equipment player counts Taiwan Semi, Intel, and Samsung among its primary customers. It is a European company that will provide us some insight into how the region is performing following Russia’s invasion of Ukraine. The stock is down 24% year-to-date and is fighting to hold support above the $500 level.
Procter & Gamble (PG)
Wednesday before the market opens. A key read for the market on consumers. Organic sales are expected to rise over 6% in Q1 boosted by higher prices. Gross Margins will be watched to see how much of an impact rising input costs are having on the bottom line. The stock recently held its 50-weekly MA ($147) and is now threatening to break out above $165 resistance.
Wednesday after the market closes. Metals and miners have been leaders in the market. We are seeing signs of the group tiring. AA has been straddling the $90 area ahead of its report. Questions about peak aluminum prices are on the rise. Keep a close eye on its macro outlook as there are concerns that demand from China will fall off a cliff.
CSX Inc (CSX)
Wednesday after the market closes. Transports are under pressure as there remain concerns around an economic slowdown. Trucker J.B. Hunt (JBHT) helped assuage some of those fears with a strong report on Monday night. The problem is truckers continue to show signs of outpacing rail as port congestions cripple the train operations. CSX has been trading in a tight range between $35-39 since November. We will see if this report can break the name out of this consolidating trend.
Kinder Morgan (KMI)
Wednesday after the market closes. The pipeline benefits from rising oil prices. The stock has rallied 29% since mid-December in anticipation of strong results. The company has been in talks to expand its gas and LNG pipelines. This will give investors an early look into potential expansion plans for drilling to combat the rising gasoline prices. $20 sets up psychological resistance for the stock.
Lam Research (LRCX)
Wednesday after the market closes. The second semiconductor equipment play to report this week. LRCX has significant revenue exposure to the Asia Pacific region. This gives us insight into both the European region (from ASML) and APAC. Demand remains strong but supply chain constraints have limited equipment players from blowing out expectations. There is fear that this runway is starting to dissolve. The chart looks weak as it fights to regain that $500 support level.
Wednesday after the market closes. The poster child of momentum stocks. There have been concerns around supply chain issues impacting electric vehicle production. The company has seen disruptions at its Shanghai facility due to the country’s “Zero Tolerance” policies on covid. The company did launch its Austin and Berlin facilities which should help offset any declines. Margins will remain in focus due to rising cost inflation. The stock has danced around the $1000 level since last November.
Thursday before the market opens. There are concerns around wireless carriers as promotional activity in Q1 is expected to weigh on profitability margins. T completed its Warner-Media (WBD) spin-off which provided shareholders 71% ownership in the new company (WBD reports 4/26 if you are curious). Shares of T were under selling pressure but have bounced back approximately 10% ahead of the print.
Thursday before the market opens. The copper and gold miner has been a market leader in 2022. Shares have stalled out at the $50 area which bears watching. There are high expectations for the report given the strength in metal prices. Investors will be watching to see if this strength is offset by rising input prices.
Union Pacific (UNP)
Thursday before the market opens. The rail play is 20% of the iShares Transportation ETF (IYT). The stock recently fell 12% to a 52-week low around the $240 area. The decline was due to concerns about the company’s inability to meet customer demand which has forced clients to find other transportation. If UNP disappoints, it will test that $240 support level and put pressure on the IYT given its heavy weighting.
Thursday after the market closes. This is the first major report for social media companies and provides markets insight into the digital advertising landscape. The report will be used in the Twitter (TWTR) valuation debate as the zeitgeist continues to rally around every Elon Musk tweet and TWTR headline. SNAP shares have been decimated, falling 60% from its all-time highs in September. The stock is showing signs of holding support around $30. This will be one of the more volatile names to watch.
American Express (AXP)
Friday before the market opens. The stock is seeing a rally ahead of its earnings report. Bank reports have reflected a strong consumer spending environment in the credit card space. There has been a pickup in business and Travel & Entertainment spend which is a sweet spot for AXP. This has raised expectations for a blowout report.
SAP SE (SAP)
Friday before the market opens. This is the first major enterprise software company to report earnings. The German-based company had significant exposure to Russia. The impact of Russia’s invasion is cause for concern and has led to heavy put buying in the stock. Expectations are low so any upside surprise could lead to a squeeze in shares. The stock trades just above key support at the psychological $100 level. Watch Salesforce.com (CRM) for a sympathy trade.
Friday before the market opens. The second major wireless carrier to report earnings this week. We mentioned the worries around wireless carriers in T’s sneak peek. The chart of VZ does look strong as it held above $50-psyche support and has recently climbed above the 200-sma. Shares of VZ are cheap at 9.5x forward earnings and the stock pays a healthy dividend of 4.79%. Income investors should have this in their portfolio, regardless of the results.