An earnings recession is likely, but earnings growth is beating expectations with Apple, Uber, and Coinbase three stocks to watch this week.
US earnings season is past the halfway point, and S&P 500 companies are exceeding the low bar set prior to the reporting period.
In this week’s Investor Spotlight, we review the earnings season so far, discuss last week’s tech results, and home in on three companies reporting in the week ahead.
US earnings clear a low bar
The bar was set low for company earnings heading into the first quarter reporting period. Although still expected to deliver negative EPS growth, earnings have exceeded expectations so far, according to data compiled by FactSet.
Aggregate EPS growth for S&P 500 companies is forecast to fall 3.7% for the quarter, up from a 6.7% forecast contraction tipped at its outset. Cyclical stocks have been amongst the biggest outperformers, indicating a more resilient US economy.
The blended earnings estimate for the consumer discretionary sector is currently 47.8%, with industrials, energy, and financial services also posting stronger than expected growth.
S&P 500 earnings growth: Q1 2023 chart
The stronger results fuelled an emerging trend on Wall Street of US tech outperformance.
Not for the first in recent history, strength in big tech is propping up the performance of the S&P 500, which is pushing higher on a noteworthy lack of breadth. As can be seen in this chart produced by Jason McIntosh from ‘Motion Trader’, there’s a growing divergence between the S&P 500 Index and the equal-weight S&P 500 Index.
Source: Jason McIntosh, Motion Trader
Three stocks to watch
The reporting season is past its halfway point, with a lion's share of Wall Street’s hottest companies already reporting. However, investors still confront a stacked corporate calendar.
Source: Earnings Whispers
Here are three companies to watch in the week ahead.
Apple reports on Friday morning (AEST). As outlined here by IG Market Analyst Hebe Chen, Apple is expected to see a drop in both revenues and profits for the quarter, with EPS tipped to slip to $1.44 per share.
After a year clouded by softening demand and continued supply-side disruptions, investors will be keenly awaiting what the business says about future sales activity and the company’s ability to defend margins. Amid geopolitical risks, expectations for weaker consumption, and fewer growth opportunities, what guidance Apple management provides about future earnings growth will be the focus.
Following several quarters of subdued growth, analysts are expecting a stronger pick-up in earnings in the periods ahead.
That prospect supports a bullishness toward Apple stock amongst the analyst community.
Currently, 34 of 42 brokers recommend a buy, while seven suggest a hold, and one a sell. The consensus price target is roughly in line with the market price target, however, and has been progressively lowered recently.
Apple shares look to be rangebound in the long term, having failed to make a new high in over a year. Medium-term momentum is skewed to the upside. However, an upward-sloping wedge pattern indicates this rally could reverse. Sellers have emerged in Apple shares above $176 in the past, meanwhile, technical support is around $157 and $150.
Apple weekly chart
After surprising investors by delivering positive earnings last quarter, Uber is tipped to reveal EPS of -$0.09 for Q1 2023. Despite this, earnings are still forecast to increase by 52% from the corresponding period last year as the company’s business returns to normal following pandemic restrictions across the globe.
The outlook remains murky for Uber as the company looks to navigate softer macroeconomic conditions and regulatory risks that could impact the business’s ability to retain drivers. EPS going forward is forecast to barely break into positive territory, with sustained positive earnings not expected until 2024.
Uber’s take rate, or the amount of money it makes as a total percentage of fares, is expected to pick up.
Analysts remain very constructive on Uber stock. Out of 46 surveyed analysts, 31 recommend buying, while only four suggest holding and one selling. The consensus price target is at a hefty premium of $46.78.
Uber shares still appear in a downtrend and a series of higher lows suggests the stock may have bottomed. Buyers could emerge on dips towards upward-sloping trend line support.
Short-term resistance appears to be around $36.00 per share.
Uber weekly chart
Trader favourite Coinbase reports on Thursday morning as the business looks to push through the turmoil of last year’s crypto winter and continued financial market uncertainty.
Following a devastating 2022 for Coinbase profits, analysts are expecting the business will begin moving in the right direction again this year. EPS in Q1 is forecast to rise 32.13% to -$1.34, with the broker’s earnings expected to have bottomed in the middle of last year.
Revenues are expected to be significantly lower than in the corresponding period last year, however, they are expected to be higher than in the previous two quarters.
Analysts are neutral on the stock, following 18 months that have seen it lose more than 80%of its value. Most recommend a hold, with 13 analysts suggesting that action, seven pitching a sell and nine a buy. The consensus price target is $73.14.
In the bigger picture, Coinbase is clearly in a downtrend. Near-term support looks to be around $52.00, while resistance could emerge at a confluence of levels at $60.00.