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Earnings Recession? What's that? šŸ¤‘

Writer's picture: Harsh Patel, CFAHarsh Patel, CFA


We've now passed the halfway pointĀ in the FY 2019 earnings season, and all that talk of theĀ USĀ earnings recession worseningĀ seems to be fading away. Corporate America is leading the way when it comes to posting strong earnings growth,Ā but manyĀ corporates around the world alsoĀ seem toĀ have had a healthy 2019 on the whole - as always there are winners and losers, which we'll get into below.


But first, the big picture


So what's the current state of playĀ this earnings season?Ā 


Well, the overarching narrative so far is that more companies have been outperforming versus consensus expectations than those which have underperformed, but this outperformance has been fairly heavily skewed towards growth stocks and in particular, the Tech sector ā¤ļø


Taking a look at some high level S&P 500 stats should help shed some light:


Earnings (profit) performance versus expectations:

  • c.Ā 90% of S&P 500 Tech companies who have reported so far have posted earnings which were better than expected by research analysts

  • 10 out of the 12 major S&P 500 sectors have posted better-than-expected earnings versus expectations in aggregate

  • Real Estate and Energy are the only 2 sectors which have seen more underperformance, with "only"Ā c. 45% of companies in these sectors having outperformed on earningsĀ versus expectations

Revenue performance versus expectations:

  • Again, 10 out of 12 S&P 500 sectors posted better than expected overall revenue growth

  • Utilities and Industrials are the only two sectors with slightly worse than expected overall revenue growth

What happened this week?


While there are WAY too many companies to cover here (>2,800 companies reported earnings globally this past week alone...), we have picked out some notable winners and losers from this week's earnings reporters for you below. Each of these stocks has a story of its own, so we hope this helps as a guide and we'll leave further research (i.e. googling) to you!


This week's earnings winners:

BNP Paribas, L'Oreal, Pinterest, Qualcomm, Sanofi, Sonos, Total, Toyota,Ā Twitter,Ā Uber


This week's earnings losers:

Aker Solutions,Ā Fiat Chrysler Automobiles, Ford,Ā GlaxoSmithKline, GoPro, Merck, Peloton, Siemens,Ā Snap, Yum Brands


A special mention for Tesla which had quite the rollercoaster this week, first as a winner, then a loser, before being back to where it started. More on Tesla in "What Else Is Going On" below!


A look ahead to next week


The earnings flood continues next week, with >4,100 global corporates revealing how good, bad or ugly their 2019 was.Ā Again, we've picked out the names which might be of interest to you below:


Americas:


10 Feb: Allergan, Voya Financial 11 Feb: America Movil, Hasbro, Lyft 12 Feb: Altice USA, Cisco, CVS Pharmacies, Equifax, MGM Resorts, Shopify, SunLife Financial, Teva Pharmaceuticals 13 Feb: AIG, Brookfield AM, Expedia,Ā GoDaddy, Liberty Global,Ā NVIDIA, Pepsi, Roku, RakutenĀ  14 Feb:Ā Yandex


Europe /Ā Rest of World:


10 Feb: ADP, Carl Zeiss,Ā Michelin, Moncler 11 Feb: Air Liquide, Daimler, Ocado 12 Feb: Akzo Nobel,Ā Barrick Gold, Heineken, Kering, Softbank 13 Feb: Airbus,Ā Asahi, Barclays, Capgemini, Credit Suisse, KBC Group,Ā Linde, Nestle, Nissan, NN Group, Orange, Pernod Ricard, Takeaway.com, Vivendi, Zurich Insurance 14 Feb: AstraZeneca, Credit Agricole,Ā EDF, RBS, Renault, Toshiba


A slightly sombreĀ final note


As you'll no doubt have seen all over the news by now, the coronavirus isĀ causing major disruption to the Chinese economy, and threatening to cause major disruption across the world. This has translated into a number of companiesĀ starting to warn investorsĀ that their operations and consequentlyĀ revenues / profitability will likely be impacted in Q1 2020 - something to monitor over coming months - and monitor we shall šŸæšŸ„¤

What Else is Going On?


On Fire šŸ”„

US Economy


The USĀ labour market started 2020 in the same way it finished 2019 - going from strength to strength.Ā The economyĀ added 225,000 jobsĀ in January versus consensus expectations of 165,000, and wages grew by 3.1% versus the same time last year.Ā 


Strong wage growth andĀ low unemployment hands President Trump a strong narrative going into election season - he's already started touting his impactĀ byĀ spending much of hisĀ State of the Union addressĀ this week talking about the economy. It was the usual mix of a few half truths alongside a sprinkling of lies, and of course,Ā fact checkers had a field day.


Still, thanks to a strong US economy,Ā he'll be a formidable opponent in the election later this year for whoever wins the Democratic party nomination (that whole process got off toĀ aĀ chaotic and confusingĀ startĀ this week).



šŸ‡ØšŸ‡³ā¤ļøšŸ‡ŗšŸ‡ø šŸ”œ šŸ‡ŗšŸ‡øšŸ’”šŸ‡ŖšŸ‡ŗ

Trade Wars


China &Ā the US bothĀ confirmed this week that they will halveĀ tariffs on a selection of each other's importsĀ - part of that "Phase One"Ā trade deal signed in January.Ā The reduction in tariffs from both sides will beĀ in effect from February 14.Ā Cue the Valentine jokes here...


...or maybe put them on hold for a second, because it looks likeĀ the U.S. could alsoĀ announceĀ newĀ tariffs on European goodsĀ on the same day.Ā Goods like champagne and leather handbags could be affected here, so watch out for Europan luxury stocks towards the end of next week - Givenchy, Hermes, LVMH,Ā Remy Cointreau and Pernod Ricard could all come under fire.Ā 



Electric Fury šŸŽ¢

Tesla


ICYMI - Tesla shares have been on a pretty dizzying rollercoaster this past week and a half, even when compared to their recent furious rally over the past 3 months.Ā 


It all started last Wednesday, with Tesla reporting its first ever annual profit as part of its FY 2019 earnings release.Ā 


Thursday +Ā Friday:Ā Baillie Gifford - the company's second largest shareholder after Elon - subsequently increased its stake in the company, while many wall street research analysts began upgrading their recommendations on the stock. Result:Ā +12%


This past Monday:Ā Following that rally, Panasonic announced as part of its own earnings report thatĀ its battery business became profitable thanks to a pick-up in Tesla output. This was again accompanied by more analyst upgrades to the stock. Result: +20%


Tuesday:Ā FOMOĀ -Ā the world and his dog jumps on the bandwagon (a classic sign that herd mentality is taking over and thatĀ it's time to exit your investment...). $55bn worth of Tesla stock was traded on the day - for context an average day sees around $3.5bn of Tesla stock being traded. During a frantic trading session, the stock reached an all-time high of $968.99 before closing slightly lower at $887.06. Result:Ā +14%


Wednesday:Ā Another highly active trading session saw reaction from the market as a Tesla VP announced the company would beĀ temporarily delaying deliveries from its Shanghai factory due to the coronavirus. This news combined with a very high perceivedĀ valuationĀ drove profit taking from some investors. Result:Ā -17%


Thursday / Yesterday:Ā The stock settled down around the $750 level - perhaps aĀ wild price considering it was floating between $200-$350 for a few years until October 2019.Ā Analysts point to a still-elevated forward PE ratio of 55x, compared to Amazon (49x), Apple (22x) and Alphabet (23x).Ā 


An interesting sub-plot:Ā Tesla has for years been the most shorted large capĀ stock in the US, but many of these investors have been rushing to close out their short positions over the past 2 months in light of the share price rally, creating a "short-squeeze"Ā on the stock price (investors first borrow, and thenĀ sell a stock to open a short position - to close this position out requires the investor to buy the stock and return it to its original owner. This buying drives prices higher).Ā 


We expect the stock to settle down in the absence of new information (earnings have been reported) going forwardĀ - butĀ don't be surprised if it takes a while to do so!


Please know, the value of investments can go up as well as down and you may receive back less than your original investment, meaning, when investing your capital is at risk.


Disclaimer: At Evarvest we believe in making investing and investment education more accessible, but we donā€™t provide investment advice and individual investors should make their own decisions. While we try our best, we cannot ensure the accuracy of the information we provide.


This content is copyright protected by Evarvest Limited (12544579). Evarvest Limited refers to the Evarvest network and/or one or more of its subsidiaries, each of which is a separate legal entity.Ā 

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At Evarvest we believe in making investing and investment education more accessible, but we don’t provide investment advice and individual investors should make their own decisions.

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Any and all information produced by Evarvest Limited (Company No. 12544579) is copyright protected, and while we try our best, we cannot ensure the accuracy of the information we provide.

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Please know, the value of investments can go up as well as down and you may receive back less than your original investment. Further, the tax on your investments depends on your individual circumstances and may be subject to change.  

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Evarvest Limited refers to the Evarvest network and / or one or more of its subsidiaries, each of which is a separate legal entity.

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