- This week will be very busy on the earnings front, 13 U.S. corporations with a valuation over a $100 billion are expected to report.
- Technology names in particular are expected to share their latest insights.
- Please consider the risks when investing in shares over earnings, only maintain positions if you are a long-term investor.
Earnings season is in full swing mode at the moment in what could very well be the busiest week this season.
Investors will get an update on the latest developments within technology and telecommunications. The following is a quick overview of the expectations from each of those earnings.
Apple, the stock market's leading market capitalization firm, is expected to release its earnings on Tuesday, the 22nd of July after the market close.
While investors and analysts will of course keep a close eye on the numbers and the guidance, all eyes and hopes are for the announcement of a new product. This could be the new 6 series iPhone, perhaps an iWatch or another unexpected surprise.
Consensus estimates for the quarter stand at $1.23 per share which would represent nearly 15% earnings per share growth from last year's $1.07 per share. For those wondering about the optically low consensus estimates, note that shares have split in a 7-for-1 ratio recently.
Sales are seen at $37.93 billion on average, which would imply a 7.4% jump in reported sales. Note that the forecast range of analysts is wide with estimates ranging from $36.6 billion to highs of $40.3 billion, creating some uncertainty surrounding the release.
Many analysts have turned more bullish on Apple in recent months. While earnings disappointed earlier this calendar year, the new sizable share repurchase program, the hiked dividend and the stock split all pushed shares higher in recent times. Over the past three months, shares have gained more than 25% which might have pushed up the expectations for this quarter to a large extent.
Microsoft, the company behind the still legendary Windows operating system will report on Tuesday after the market closure as well. Many investors are wondering about the future outlook for the business after the relative new CEO Satya Nadella announced that the company would cut 18,000 jobs last week.
The vast majority of these cuts will affect the former Nokia business with roughly 12,500 jobs disappearing at that business. Many commentators have criticized former CEO Steve Ballmer's decision to buy the business last year.
Microsoft has long relied on its operating system and enterprise solutions to deliver huge earnings and cash flows which have been used to finance struggling operations such as Xbox and Bing which have been struggling. On the other hand, Office 365 and Azure have been promising ventures, although their impact is too limited to make a meaningful impact on the bottom line. As such Nadella will focus on cutting costs to create a more lean organization, while focusing more on cloud-based software and enterprise solutions. This contradicts with the recent trends of rapid hardware sales growth driven by the Surface and Nokia of course.
Analysts expect Microsoft to post earnings of $0.60 per share which is down by six cents compared to last year. Despite the anticipated drop in earnings, sales are expected to show a continued increase thanks to the acquisition of Nokia. Sales are seen around $23.03 billion, which would imply 15.5% growth on an annual basis.
While Nadella is focused on the longer term, he has to deliver in the short term as well. Investors have pushed up expectations with shares showing meaningful gains last week, now trading with gains of 20% for the year. Shares currently trade at their highest levels since 2000 as investors are hoping for good news.
Verizon, of course best known from its Wirless division, will release its earnings on Tuesday as well before the market opening.
Analysts are looking for earnings to rise towards $0.90 per share versus just $0.73 per share as reported last year. Earnings are driven by the completion of the acquisition of Vodafone's 45% stake in the joint venture which it has with the company. The $130 billion deal has been much anticipated and hoped for by investors.
Verizon is almost the equivalent of a bond investment with share trading in a relatively tight trading range, with investors largely attracted to the appealing 4.2% dividend yield. Over the past year, shares have traded in a relatively tight $46-$51 trading range, currently trading near the high end of this trading range. Near lows in interest payments have been helpful was well given the leverage employed by the firm.
Verizon's big competitor AT&T is scheduled to report a day later, being scheduled to release earnings on Wednesday after the market close.
Just like Verizon, AT&T is struggling to show meaningful growth as all the gains in the wireless activities are offset by the continued shrinkage of the traditional legacy businesses. For the quarter, analysts are projecting earnings to come in at $0.64 per share which would be down by three cents compared to last year.
Sales are anticipated to increase by 3.7% towards $33.26 billion, although there is some disagreement among the investment community regarding the pace of sales growth. Analysts projections range for sales of $32.5 billion to high estimates of $34.2 billion.
Just like Verizon, shares of AT&T have been trading in a relatively tight $32-37 trading range as the 5.1% dividend yield makes AT&T an attractive alternative to many bond investments.
Takeaway For Investors
As always, earnings reports do have the potential to move stock prices a lot. The reaction of investors in technology names like Apple and Microsoft can create some volatility in their stock and the general market in particular. Normally the earnings release of Verizon and AT&T will not create excessive volatility.
While things are looking good for corporate America in general, the lack of revenue growth is a major concern for many, as share repurchases and margin expansion have fueled earnings per share growth. To sustain earnings growth, revenues will have to increase going forward.
Please consider the risks when investing in companies when holding your positions over their earnings release, unless you are a truly long-term investor with a long time horizon. Good luck!