Stocks continue to chug higher, tallying nearly 10% gains so far this year. Meanwhile, earnings reports continue to flow. Overall, 78% of companies that have reported beat Wall Street’s consensus.
According to FactSet’s Earnings Insight for the quarter, the S&P 500 has grown earnings at a 6.5% clip, with nine sectors expected to see an increase in earnings. (Energy is expected to report the most robust growth.)
Keeping an eye on valuations is crucial, as the forward price-earnings ratio for the S&P is 17.3, well above the market’s five-year average of 15.3.
This week, we’ll take a look at three more companies — two tech, one consumer giant — aiming to do the same next week.
Earnings Reports: Netflix (NFLX)
Earnings Date: July 17
Earnings Growth: 78%
So far this year, Netflix, Inc. (NASDAQ:NFLX) stock has gained over 28%, contributing to its 63% climb over the past 12 months. The trajectory has been more or less higher, too, raising the question of whether the streak can continue when NFLX reports earnings on July 17.
For the most recent three-month period, Netflix is slated to post earnings of 16 cents per share, a 78% year-over-year expansion. That’s part of the reason 144% growth for the full-year is on tap, although that mouth-watering number is expected to even out to an average of 60% per year long-term. Organic growth is a bit slimmer; sales are slated to expand by 31% this quarter, 28% this year and 20% next year.
The 16 cents per share on tap is 50% lower than the consensus three months ago, though, and any sign of weakness — either in subscriber growth or traditional earnings valuations — could make investors reconsider the forward multiple sitting north of 80.
Earnings Reports: International Business Machines (IBM)
Earnings Date: July 18
Earnings Growth: -7%
Since reaching a peak in March, International Business Machines Corp. (NYSE:IBM) has fallen off dramatically. Shares briefly topped $180, but slid all the way down to the low $150s, which is where they currently stay. Zoom out even further, and IBM stock was sitting north of $200 per share back in 2013.
Revenue for IBM has been sliding since 2012, and that trend is expected to continue for the current quarter and year. For the most recent three-month period, to be reported on July 18, a sales decline of nearly 4% is supposed to lead to earnings decline of 7%. For the full year, meanwhile, a sales decline around 2% will keep earnings flat.
IBM has been working to divest and reorganize its legacy business, transitioning — like most tech companies — to the cloud. And the slight silver lining is that the downtrend in shares does leave the dividend yield just shy of 4%.
But more talk about strategic initiatives isn’t likely going to add much fuel to the fire next week. The turnaround for IBM is merely going to take time.
Earnings Reports: Johnson & Johnson (JNJ)
Earnings Date: July 18
Earnings Growth: 3.4%
Johnson & Johnson (NYSE:JNJ) has gained 14% so far this year and, despite that climb, sports a 2.6% dividend. JNJ also reports earnings on July 18 and is expected to report meager but steady growth. For the most recent three-month period, earnings of $1.80 per share are expected — roughly 3% higher than a year ago. That’s on par with the consensus from analysts three months back as well.
Johnson & Johnson has beat earnings in each of its previous four quarterly reports and has a long, impressive track record of cranking out consistent results.
On top of that, JNJ just got an FDA approval of its psoriasis drug Tremfya. While that news won’t impact the actual earnings result, monitor management’s expectations during the call.
Hilary Kramer is the editor of GameChangers, Breakout Stocks, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
