Wall Street has seen a good start to the fourth-quarter 2021 earnings season. Although we are at the initial stages of the reporting cycle, the results are better than expected. Investors have high expectations from this earnings season as overall earnings of corporate America are likely to remain robust after skyrocketing in the first three quarters of 2021.
Five blue-chip companies — American Express Co. AXP, Apple Inc. AAPL, The Boeing Co. BA, Caterpillar Inc. CAT and Chevron Corp. CVX — are slated to release their earnings results next week. These stocks are likely to gain in the near term, buoyed by their possible earnings beat.
Dow in Q4 At a Glance
The Dow – popularly known as the blue-chip index of Wall Street – had an impressive 2021 rallying 18.7% despite being pandemic-ridden. The availability of a number of COVID-19 vaccines, the government’s efforts toward nationwide vaccination and continuation of the fiscal and monetary stimulus resulted in an earlier-than-expected reopening of the U.S. economy.
In the fourth quarter, the Dow advanced 7.4% as the termination of fiscal stimulus, soaring inflation and the resurgence of coronavirus had failed to derail the index’s northbound journey. Importantly, in December, the blue-chip index climbed 5.4% despite the Fed’s decision to speed up the tapering of the quantitative easing program and the central bank’s indication for a possible interest rate hike in the first half of 2022. The resurgence of the Omicron variant of COVID-19 was a concern too.
Strong Start to Fourth-Quarter Earnings
As of Jan 19, 43 S&P 500 companies reported fourth-quarter 2021 results. Total earnings of these companies are up 18.3% year over year on 11.7% higher revenues with 86% beating EPS estimates and 79.1% surpassing revenue estimates.
Total fourth-quarter earnings of the market’s benchmark — the S&P 500 Index — are projected to climb 21.5% from the same period last year on 12% higher revenues, following 41.4% year-over-year earnings growth on 17.4% higher revenues in the third quarter, 95% year-over-year earnings growth on 25.3% higher revenues in the second quarter and 49.3% year-over-year earnings growth on 10.3% higher revenues in first-quarter 2021.
The first three quarters of last year were favorably impacted since the preceding quarters of the year before that affected by pandemic-induced lockdowns and restrictions. However, the U.S. economy had started reopening at a very slow pace since the beginning of the fourth quarter of 2020.
Stocks in Focus
Five Dow companies will report earnings next week. Each of these stocks carries either a Zacks Rank #1 (Strong Buy) or 3 (Hold) and has a positive Earnings ESP. You can see the complete list of today’s Zacks #1 Rank stocks here.
Our research shows that for stocks with the combination of a Zacks Rank #3 or better and a positive Earnings ESP, the chance of an earnings beat is as high as 70%. These stocks are anticipated to appreciate after their earnings releases. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
The chart below shows the price performance of five above-mentioned stocks in last quarter.
Image Source: Zacks Investment Research
Apple is benefiting from continued momentum in the Services and robust performance from iPhone, iPad, Mac, Wearables and an expanding App Store ecosystem. Although Apple’s business primarily runs around its flagship iPhone, the Services portfolio has emerged as the company’s new cash cow. AAPL currently has more than 745 million paid subscribers across its Services portfolio.
Apple is encouraging developers to use artificial intelligence and machine learning in their apps. The company’s Core ML 2 API helps developers recognize faces or animals in photos, and parse the meaning of text. AAPL’s focus on autonomous vehicles and augmented reality/virtual reality technologies presents growth opportunities in the long haul.
The Zacks Rank #1 Apple has an Earnings ESP of +2.89%. It has an expected earnings growth rate of 3.7% for the current year (ending September 2022). The Zacks Consensus Estimate for current-year earnings improved 0.5% over the last 30 days.
AAPL recorded earnings surprises in the last four reported quarters, with an average beat of 22.3%. Apple is set to release earnings results on Jan 27, after the closing bell.
American Express is witnessing strong recovery in revenues backed by a revival in consumer spending and strong economic growth. An increase in worldwide network volumes is driving discount revenues — AXP’s largest revenue driver.
Consumer spending on travel and entertainment, which carry higher margins for American Express, is advancing well. AXP’s balance sheet looks solid with manageable debt. Solid cash generation abilities of American Express bode well through which business investments and capital deployment can be undertaken.
The Zacks Rank #3 AXP has an Earnings ESP of +2.72%. It has an expected earnings growth rate of 1% for the current year. The Zacks Consensus Estimate for current-year earnings improved 0.5% over the last 60 days.
American Express recorded earnings surprises in the last four reported quarters, with an average beat of 35.4%. AXP is set to release earnings results on Jan 25, before the opening bell.
Chevron is one of the best-placed global integrated oil firms to achieve a sustainable production ramp-up. CVX’s existing project pipeline is one of the best in the industry, thanks to its premier position in the lucrative Permian Basin.
Chevron’s Noble Energy takeover has expanded its footprint in the region and the DJ Basin. CVX now has access to Noble Energy’s low-cost, proven reserves along with cash-generating offshore assets in Israel — particularly the flagship Leviathan natural gas project — thereby boosting its footing in the Mediterranean.
The Zacks Rank #3 Chevron has an Earnings ESP of +6.04%. It has an expected earnings growth rate of 15.7% for the current year. The Zacks Consensus Estimate for current-year earnings improved 0.4% over the last 7 days. CVX is set to release earnings results on Jan 28, before the opening bell.
Caterpillar has a strong backlog that improved $7.2 billion in a year to $20.6 billion at the end of the third quarter of 2021. This will drive CAT’s top line in the upcoming quarters. Improving demand in several of Caterpillar’s end markets and savings from its restructuring actions might negate the impact of high material and labor costs and supply chain headwinds.
The Construction Industries segment will benefit from strength in residential construction and non-residential construction in the United States, and rising demand in other parts of the world. Demand from mining backed by higher commodity prices will aid the Resource Industries segment. A robust liquidity position and investments in expanding services and digital initiatives will drive growth of CAT as well.
The Zacks Rank #3 Caterpillar has an Earnings ESP of +10.18%. It has an expected earnings growth rate of 18.8% for the current year. The Zacks Consensus Estimate for current-year earnings improved 0.3% over the last 30 days.
CAT recorded earnings surprises in the last four reported quarters, with an average beat of 30.2%. Caterpillar is set to release earnings results on Jan 28, before the opening bell.
Boeing remains the largest U.S. aircraft manufacturer in terms of revenues, orders and deliveries, and is one of the largest aerospace and defense contractors. The outlook for BA’s defense business remains optimistic. Per the latest market outlook, the company anticipates that the world will need 19,000 new planes, over the next decade.
Looking ahead, Boeing is focused on future franchise programs such as the MQ-25, the T-7A Red Hawk, KC-46A Tanker, VC-25B and the MH-139A Grey Wolf. BA is also working to ensure the strong performance of its existing platforms, especially its space programs, including Commercial Crew and Space Launch Systems.
The Zacks Rank #3 Boeing has an Earnings ESP of +61.40%. It has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 4.2% over the last 30 days. BA is set to release earnings results on Jan 26, before the opening bell.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
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