The second triangle: the Descending Triangle
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Market Update 17/04 – Earnings and PMI To Watch This Week
Earning this week for Tesla, Netflix, Bank of America, and more.
Last Week's Earning Recap
First-quarter earnings season begins in earnest during the second full week of April, led by banking giants JPMorgan Chase (JPM), Wells Fargo (WFC), and Citigroup (C).. All three companies reported strong profits, as rising rates boosted interest income.
JP Morgan reported a $12.6B profit in Q1, an increase of 52%compared to 2022. Plus, the company also posted an EPS of $4.10 beating the expected by 21.54%, with revenue of 38.35B which exceeds the estimation by 2.58B.
Citigroup, the country’s third-largest lender, reported a profit of $4.6B in Q1. a rise of 7% from a year earlier. With an EPS of $2.19 beating the expected by 29.79%, and reported revenue of 21.45B which exceeds the estimation of $20.06B.
Wells Fargo reported earnings of $1.23 beats an estimation of $1.13 with a profit of $4.99B an increase from $3.79B reported last year. While its reported revenue of $20.73B exceeds by $0.7B.
The robust earnings reports Friday also signaled that the crisis caused by the collapse of Silicon Valley Bank and Signature Bank last month has strengthened the biggest U.S. banks.
Earnings: April 17 – 21
There’s a lot going on in the US earnings season this week. The list of those atop the calendar includes Tesla, Netflix, P&G, IBM, semiconductor companies TSMC, United Airlines, and other tech companies. Banks remain a hot topic, with Morgan Stanley, Goldman Sachs, and Bank of America all coming up.
This earnings season is likely to produce a lot of tradable events and surprises, especially given the inflation and interest rate hikes currently taking place.
Tesla
Tesla is expected to report a 24% increase in revenue to $23.3 billion and an adjusted EPS decline of over 20% to $0.86, according to Refinitiv consensus numbers. This is compared to the year-ago quarter when earnings were $1.07 per share on revenue of $18.76 billion.
How much higher can Tesla stock climb? The shares are up 51% year to date. The electric vehicle maker benefits from both record vehicle production and deliveries. However, the company has gone through a series of price cuts, which could impact not only revenue and profits but also the guidance for fiscal 2023.
Company growth strategies, such as product production and profit margins, have been key factors in the company’s success. These factors will be the main driver of the stock for the just-ended quarter and the rest of the year. Consequently, several analysts have warned that they think that more price reductions could be seen this year and that profitability is not necessarily going to bottom out in the first quarter of this year. In addition to price cuts, Tesla needs to cut costs to protect its margin, but a soft reading could revive concerns about capacity and a lack of new models in 2023, putting the consensus estimate in doubt.
Netflix
Netflix had one of its toughest years on record last year. The company’s subscriber growth slowed and it lost its title as the market leader after Disney gained traction, while revenue grew at its slowest pace ever and earnings fell for the first time in seven years.
In the past six months, Netflix stock has surged almost 40%, making it one of the top performers in large-cap tech. The market has confidence in the streaming giant’s ability to regain its growth momentum in the near future since shares are up over 15% year to date.
Based on Wall Street analyst estimates, Netflix’s EPS is expected to be $2.85 while revenue of $8.17B in Q1 2023, compared to $3.53 per share on $7.87B in revenue in the year-ago quarter.
Bank of America
America’s second-largest bank is expected to report EPS of $0.82, the earnings growth flattened in the first quarter compared to the same quarter last year. The Bank is also forecast to generate up to 9% sales growth to reach $25.3B on projected revenue of $25.4 billion.
Despite a rising interest rate environment being good for banks, as they can charge higher interest rates on loans, Bank of America’s sensitivity to rate hikes comes from the higher yields it must pay to its large depositor base to remain competitive.
In the past six months, BAC stock has fallen by 12.20%, making it the second steepest fall after COVID period in the last 5 years.
TSMC
For the first time since 2019, Taiwan Semiconductor Manufacturing Co is expected to see revenue growth slow and earnings decline due to tougher comparatives, which will only get worse over the next three quarters.
It is expected that TSMC will report an increase in quarterly revenue of 6.2% to NT521.33 billion, despite a decline in dollar revenue of around 2.5% to $17.1 billion due to unfavorable foreign exchange rates. In the diluted EPS category, it is expected that results should fall 3.7% to NT7.53 from NT9.72 last year.
IBM
The company is no longer heavily dependent on its legacy business, with its hybrid cloud platform accounting for more than 70% of total software revenues in the most recent quarter, which represents a significant change from its previous business model. By deploying the hybrid cloud, IBM is able to run any application on any platform.
Investing analysts expect IBM’s EPS to be $1.26 on $14.35B in revenue as compared to the year-ago quarter, EPS was $1.26 on $14.2B in revenue. Over the past six months, IBM shares have been rangebound, falling 9% year to date compared to an 8% rise for the S&P 500 index.
PMI’s
There will be a release of US manufacturing and services PMI numbers on Friday before the market opens. The manufacturing PMI has been in the contraction zone for a few months now while the service PMI has been hovering around 50 levels across multiple countries for some time now. It could be beneficial to watch for both reports to trend in the same direction to create predictions about future market stability. Whether a technical recession is avoided or not is unknown. However, if both services and manufacturing contract,then economic turbulence could follow.
** Manufacturing PMI figures were mixed in March, with another increase in the United States and a decline in the Eurozone. Worldwide, the index fell slightly.
Some of the notable companies earning this week's schedule.
- Johnson & Johnson, Goldman Sachs, Bank of America — before the opening bell on Tuesday, April 18, 2023.
- Netflix, Omnicom, United Airlines — After the closing bell on Tuesday, April 18, 2023
- Morgan Stanley — Before the Wednesday, April 19, 2023 opening bell.
- Tesla — after the Wednesday, April 19 2023 closing bell.
The key takeaways/market update is a series by AxeHedge, which serves as an initiative to bring compact and informative In/Visible Talks recaps/takeaways on leading brands and investment events happening around the globe.
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