The Bright And Soft Spots: The S&P 500 Earnings Announcements This Week

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Includes: AAPL, BXUB, BXUC, CVX, IVV, LLSP, RSP, RWL, RYARX, SDS, SFLA, SH, SPLX, SPUU, SPXL, SPXS, SPXU, SPY, SSO, T, UPRO, VFINX, VOO, XOM
by: Procyon Mukherjee

Summary

Of the 187 companies reporting results this week, Apple in the Technology Sector, Chevron and ExxonMobil in the Energy sector, AT&T in the telecom sector together are the biggest influencers.

The Energy Sector blended earnings decline for Q1 2016 of -8.9% is larger than the estimate of -8.6% at the end of the first quarter (March 31).

The blended earnings decline for the Information Technology sector is -7.4%. Excluding Apple, the blended earnings decline for the sector would be -4.1%.

AT &T remains a bright spot in the growing Telecom Sector.

General

The article has extensively used the source data from Factset Earnings Insight of S&P 500, which influences the S&P500 SPX.

The companies whose results will influence the S&P500 SPX this week are ExxonMobil (XOM- 3.11%), Apple (AAPL- 2.4%) & Chevron (CVX- 1.5%) & AT&T (T- 1.5%) going by the index component weights of stocks in the S&P 500 Index. Together they are more than 8.5% weight of the Index as per this Report, not a small number.

The Blended Earnings, which combines actual results for companies that have reported and estimated results for companies yet to report, is a metric extensively used to analyze the results of the sectors in the S&P 500, like the Technology, the Energy or the Telecom sector.

Telecom Sector: AT&T

The Telecom Sector remains to be at the epicenter of growth, with so much happening around network connectivity, sale of network equipment and devices as per this Report. With an explosive growth in smart phones and wearables, Telecom Sector is slated to continue its double digit growth for some time to come.

AT&T is the brightest spot this week (announcement of results on 26th April), which is estimated to make a strong rise in the EPS (mean estimate) this quarter ($0.69) from a year ago ($0.63), something that is in line with all the others in Telecom Services sector. However if AT&T is excluded, the estimated earnings growth rate for the Telecom Services sector would fall to 1.9%. Of the five companies in the sector, AT&T is predicted to be the largest contributor to earnings growth.

Technology: Apple

The outlook of earnings in the Technology sector has been so far following a blended earnings decline trend, which is not getting reversed with Apple results (expected on 26th April) and Apple is expected to be the largest contributor to the blended earnings decline for the Information Technology sector for Q1 2016. The blended earnings decline for the Information Technology sector is -7.4%. Excluding Apple, the blended earnings decline for the sector would be -4.1%. Apple according to Wall Street estimates is expected to report earnings of $1.98 per share.

The Technology sector in S&P 500 and Nasdaq have both shown signs of an early sell off beginning of this year but since have recovered . The results of Apple will be the last in the series of results, now that Google & Microsoft earnings are announced and both have followed a trend of lower earnings than a year ago. Results of Apple are widely estimated to be around $1.98 per share against $2.33 a year ago for the same quarter. This is influenced by the iPhone revenue growth estimates which showed a declining trend of 7% last quarter (from the high levels of growth we had seen earlier) and this quarter is slated for a sharper correction in the same direction. Some analysts estimate a decline in revenues (de-growth) from Apple iPhone sales for the first time this quarter. On the other hand Apple Watch is supposed to be one in a series of product launches that the world is waiting to see. Many new areas of growth are waiting to happen and investors will be waiting for more specific updates this time.

Energy Sector: ExxonMobil & Chevron

The Energy sector is the largest contributor to the earnings decline for the S&P 500 as a whole. If the Energy sector is excluded, the blended earnings decline for the S&P 500 would improve to -3.6% from -8.9%. So the results of ExxonMobil & Chevron are much awaited results for this sector as well as for S&P 500 as a whole.

April 29th is the date when both Exxon Mobil and Chevron are scheduled to report earnings for the first quarter. The current mean EPS estimate for Exxon Mobil for Q1 2016 is $0.31, compared to year-ago actual EPS of $1.17. The current mean EPS estimate for Chevron for Q1 2016 is -$0.13, compared to year-ago actual EPS of $1.06.

However, we must keep in mind that Q1 2016 will mark the end of the year-over-year declines in earnings for the S&P 500 Energy sector including that of prices for oil. Since the end of the first quarter, the price of crude oil has increased 12.6% (to $43.18 from $38.34). Over the next few quarters it is only expected that the average price of oil and earnings will increase on a sequential basis.

The Energy sector is reporting the largest year-over-year decline in earnings (-110.3%) of all ten sectors. The year over-year decline is larger than -100% because the sector is now expected to report an aggregate loss (-$1.3 billion) for Q1 2016, compared to year-ago aggregate earnings $12.9 billion. All the sub-industries in this sector are reporting or are projected to report a year-over-year drop in earnings: Integrated Oil & Gas (-89%), Oil & Gas Drilling (-79%), Oil & Gas Equipment & Services (-77%), Oil & Gas Refining & Marketing (-63%), Oil & Gas Storage & Transportation (-7%), and Oil & Gas Exploration & Production (NA).

The outlook for energy sector for the rest of the year seems to be mixed as per this EIA Report as current values of futures and options contracts suggest high uncertainty in the price outlook. The failure of talks at Doha does not bode well for a concerted action on oil, but left to fundamentals it could be the end of reliance on OPEC as a price recovery mechanism. For those like ExxonMobil or Chevron, who operate at the lowest end of the cost curve have only to gain in the long term.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.