Screening the U.S. stock market for earnings momentum now is like sipping from a fire hose. Even before Congress slashed corporate taxes, first-quarter profits for the Standard & Poor’s 500 index (.SPX) were expected to jump 11% on a sharp rebound for the energy sector amid higher oil prices. Now the growth forecast stands at 17.3%, which would mark the highest rate since 19.5% growth recorded in the first quarter of 2011, according to FactSet.
It gets better. If companies beat earnings forecasts like they usually do, the actual growth rate could top 22%, according to Credit Suisse. And if a handful of early reporters are any indication, upside surprises could be larger than usual. Earnings season informally kicks off on April 13 with quarterly reports from JPMorgan Chase (JPM), Wells Fargo (WFC), and Citigroup (C).
Alcoa, the traditional reporting leader, changed its name to Arconic (ARNC) and split off its commodity products into something called Alcoa (AA), and both pieces now report later.
We recently screened the S&P 500, excluding energy, for April reporters whose revenue estimates, earnings estimates, or both have risen over the past month. That’s a standout signal because even though estimate increases during the first quarter were the largest since FactSet began tracking them in 2002, they were confined mostly to January. In March, earnings estimates broadly fell a smidgen. Companies that bucked this trend might be benefiting from recent momentum from factors that have little to do with taxes. Here are three to watch.
Goldman Sachs Group (GS) reports first-quarter results on April 17. We wrote favorably about the stock in a January cover story. Three out of four of Goldman’s businesses—investment banking, asset management, and investing—are prospering. The one that has been struggling is trading. Its weakness through the fourth quarter of last year came in part from a notable absence of market volatility.
A jump in volatility during the first quarter of this year raises the possibility that trading profits could rebound, pulling overall earnings per share higher. At the end of February, analysts predicted Goldman would earn $5.36 a share during the first quarter. Now they say $5.53.
Strong earnings could halt slide
Facebook (FB) reports first-quarter results on April 25. Investors are watching for signs that advertisers are revolting following a data privacy scandal. Barron’s last month called Facebook the “new sin stock” and wrote that its shares look like a bargain. On Wednesday, Congress said Facebook chief Mark Zuckerberg will testify in front of a panel on April 11. That can’t be comforting to shareholders, but revenue estimates for Facebook have actually climbed since the end of February.
How’s that? RBC Capital and Ad Age recently conducted their 11th advertising survey, reaching out to 750 industry players. When asked which platforms offered the best return on investment, respondents ranked Facebook ahead of Google for the first time. Some 58% of Facebook advertisers said they plan to increase their spending over the next year.
That was only the second-highest score. The highest was 61%, for Instagram, which is owned by Facebook.
American Airlines Group (AAL) reports first-quarter results on April 26. “We expect they will probably raise pre-tax margin and [revenue per available seat-mile] guidance due to strong international booking and yield trends,” wrote Cowen & Company analyst Helane Baker in a Monday note. The earnings-per-share consensus for the first quarter has crept four cents higher to 60 cents since the end of February. Revenue estimates have climbed, too. Shares fetch a scant nine times this year’s projected earnings on broad investor distrust of the industry.
Longtime airline watchers are waiting for carriers to respond to high profitability with runaway capacity growth and price wars. So far, apart from some crowded markets, there is little evidence of that.
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