So far, three-quarters of companies that have reported results this quarter have beaten the consensus — and that’s thanks to legitimate growth for the first time in some time. Average earnings growth is just shy of double-digits.
However, just 6% of S&P 500 companies have taken the earnings plunge, and barely more than half have beaten on the top line. This week we’re on tap for some of the bigger names in tech, telecom and fintech, including Netflix, Inc. (NASDAQ:NFLX), which has seen fire-breathing gains of 887% over the past five years.
So what will become of NFLX stock and the other two companies reporting earnings this week? Can they continue the uptrend for the broader market?
Let’s take a look.
Earnings Reports to Watch: Netflix (NFLX)
NFLX stock has gained 18% so far this year (after rising 2.7% Monday ahead of earnings), and nearly twice as much if we zoom out to the past 12 months. But some analysts are expecting a slowdown in domestic subscriber growth when the company reports earnings on Monday — the 5.3 million added subscribers would be a tally lower than last year’s and the year prior.
Earnings wise, expectations are high for Netflix; Wall Street’s consensus has nearly doubled in the past three months and represents more than six-fold growth for the streaming company. As long as Netflix continues its streak of topping estimates — especially when the consensus represents such insane growth — I think investors will continue to overlook looming issues, like the company’s potential inability to keep justifying its fluffy valuation.
As time goes, easy markets will reach maturity. And unlike with some tech company’s “products,” the cost of original content isn’t going to drop or become scalable. Already, some are concerned about Netflix’s debt load, which is almost twice as wide as its cash pile. I think investors have more time to make money before these issues affect investing profits … but keep an eye on any warning signs in Monday’s report after the bell.
Earnings Reports to Watch: Verizon (VZ)
Verizon Communications Inc. (NYSE:VZ) hasn’t enjoyed quite the same upward momentum as Netflix, with a 9% loss in the books just a few months into 2017.
And while its forward price-earnings ratio of 13 may seem cheap compared to Netflix at first glance, it’s not so cheap when compared to Verizon’s estimated long-term earnings growth, which sits at just 2%.
The stock does boast a nearly 5% dividend, but it also has nearly five times as much debt as cash. And without earning growth, I don’t imagine much of an expansion on the payout front.
For the most recent quarter, earnings are on tap to drop 8.5% on a 5% drop in revenue. And Wall Street has been slowly lowering its hopes, not just for this report, but for this year and the next.
Don’t be impressed even if Verizon hobbles over the lowered bar. I prefer collecting income from companies with more growth on tap.
Earnings Reports to Watch: Visa (V)
Visa Inc (NYSE:V) more or less moved sideways all of last year. But new year, new stock — shares of Visa have rocketed to 15% gains in 2017. In fact, Visa is my favorite stock out of these three for its rock-solid fundamentals, too.
Yes, shares are slightly frothy, but with a premium that’s far easier to justify than a company like Netflix that plays by its own mysterious valuation rules.
The stock’s forward P/E of 23 is a bit higher than the company’s long-term growth, but I also feel more confident in its earnings growth because it so closely mirrors revenue growth. This quarter, 19% top-line growth is going to trickle down to 16% bottom-line growth, and the numbers for the full-year are pretty similar.
I love Visa’s mix of being an established credit-card business and a mobile payments play. Mobile payments are one of the biggest mega-trends out there. And of “cutting-edge technologies,” it’s one of the easiest to monetize. If Visa somehow stumbles this quarter — which I don’t expect — use the selloff to buy some shares.
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.