Energy
Monday, July 25th, 2022 1:24 pm EDT
The busiest earnings week of the summer is here — oh, and the Federal Reserve will announce its latest decision on interest rates Wednesday afternoon as the U.S. central bank tries tame the hottest inflation in four decades. Don’t forget the first look at second-quarter gross domestic product Thursday morning. That’s when we find out if the U.S. economy contracted for the second straight quarter — usually a major factor in declaring a recession. There’s a lot happening. All in all, against this hectic backdrop, more than a third of the 33 companies in Jim Cramer’s Charitable Trust, which is the portfolio we use for the Club, are scheduled to report quarterly earnings this week. Big picture After a dismal first six months of 2022, stocks have performed better in July. All three major U.S. stock benchmarks are in the green so far this month, led by the tech-heavy Nasdaq’ s gain of nearly 7%. The S & P 500 is up over 4.5%, while the Dow Jones Industrial Average has advanced nearly 4%. Some on Wall Street are skeptical about the rally and whether it has legs. Nevertheless, this week’s slate of corporate earnings will offer bullish and bearish investors alike further updates on major concerns that have weighed on stocks, including the prospect of a potential recession. What we hear from companies this week could influence the near-term direction of the stock market — good or bad. As earnings flood in, there are three things we think members should especially watch out for: any mentions of inflation and/or strong U.S. dollar headwinds as well as whether management teams issue conservative guidance. We took an in-depth look at each in a story published earlier Monday . Here’s a schedule of everything on the docket starting Tuesday, along with some of the broad themes and company-specific updates we’re looking for in each print. We’ll also provide earnings and revenue consensus estimates, as compiled by FactSet, for all 13 Club stocks that are set to report this week. As we explained in our overview on doing investment homework , earnings estimates can be valuable to have on hand when one of your portfolio companies reports. The reason is that they can influence how the market reacts to the quarterly results and, by extension, how a company’s stock may trade in the near term. And don’t forget to listen on the post-earnings conference calls . Tuesday: Alphabet and Microsoft 1. Alphabet (GOOGL) Second-quarter results after the close; conference call set for 5 p.m. ET Projected EPS: $1.27 Projected revenue: $69.87 billion Club’s thoughts: We’re really looking to see how well Alphabet’s digital advertising business held up, knowing smaller players like Snap (SNAP) have struggled. Alphabet — thanks to Google Search ads, in particular — is the largest player in the digital ad industry, so it may be not have seen as much weakness as Snap. We went in-depth on that Friday . We’ll also be curious to see how the growth rate of Google Cloud fared, but perhaps to a slightly lesser extent than in the recent past, given all the focus on the ad slowdown. Analysts are looking for Google Cloud revenue of $6.41 billion, according to StreetAccount. 2. Microsoft (MSFT) Fiscal fourth-quarter results after the bell; conference call at 5:30 p.m. ET Projected EPS: $2.29 Projected revenue: $52.39 billion Club’s thoughts: While cloud won’t be our primary focus with Alphabet, it will be a huge focus for Microsoft and its Azure business. Analysts polled by StreetAccount are looking Azure revenue growth of 46.8% on a constant currency basis. Relatedly, keep in mind Microsoft has already warned the strong U.S. dollar would take a bite out of Q4 earnings. Microsoft only provides its guidance during the conference call, so be patient with this one and be skeptical of any immediate stock reaction before guidance is actually given. Wednesday: Humana, Qualcomm, Ford and Meta 3. Humana (HUM) Second-quarter earnings release before the bell: conference call at 9 a.m. ET Projected EPS: $7.67 Projected revenue: $23.45 billion Club’s thoughts: Health insurer Humana has been one of the defensive stocks we added to our portfolio this year. After its strong first-quarter results, we’re looking for more indication the company has worked past its Medicare Advantage membership growth struggles and continues to make progress on its $1 billion value creation program. HUM was our second best performer in the second quarter. 4. Qualcomm (QCOM) Third-quarter earnings release after the close; conference call set for 4:45 p.m. ET Projected EPS: $2.89 Projected sales: $10.86 billion Club’s thoughts: We’re wondering whether there may be any positive changes to Qualcomm’s longer-term guidance related to a closely watched analyst’s prediction last month that Qualcomm will remain the exclusive supplier of 5G modem chips in Apple’s 2023 iPhone model. More generally, we’re looking for commentary on smartphone demand and progress on Qualcomm’s revenue diversification strategy. 5. Ford Motor (F) Second-quarter earnings after the bell; conference call scheduled for 5 p.m. ET Projected EPS: 45 cents Projected revenue: $37.2 billion Club’s thoughts: We got some very solid news on Ford’s EV battery strategy Thursday, which we analyzed in full last week. With earnings this week, we’re hoping to hear management provide fresh commentary on where things stand with semiconductor supply chains, commodity costs, and auto loan delinquencies. 6. Meta Platforms (META) Second-quarter earnings after the close; conference call set for 5 p.m. ET Projected EPS: $2.55 Projected revenue: $28.92 billion Club’s thoughts: Like with Alphabet, Meta’s digital ad business provides better return-on-investment than platforms like Snap. While that should make it more resilient, relatively speaking, to the industry slowdown, Meta’s ad revenue for Q2 and its forward guidance remain very important. We’re also curious whether the Facebook and Instagram parent will trim its expense outlook even more than it did when announcing Q1 results in April. Thursday: Honeywell, Linde, Amazon and Apple 7. Honeywell International (HON) Second-quarter results before the bell; conference call set for 8:30 a.m. ET Projected EPS: $2.03 Projected sales: $8.67 billion Club’s thoughts: We’re looking to hear how Honeywell’s sizable aerospace segment is doing, as that industry recovers from its pandemic-related slump. Bank of America estimates that the oil and gas end market is about 12% of Honeywell’s business, too, so we’re also curious how strength in that industry is impacting Honeywell. 8. Linde (LIN) Second-quarter earnings release before the open; conference call slated for 9 a.m. ET Projected EPS: $2.96 Projected revenue: $8.36 billion Club’s thoughts: We’ve viewed Linde as an inflation hedge because of two qualities the industrial gas and engineering firm has. The first is that its products are a crucial component in the supply chain of other products, and second is the company’s contracts with customers give it the ability to pass through costs. That’s why we are interested in hearing how the company is navigating surging energy prices in Europe. Given Linde’s presence in so many key end markets, we’ll be looking for any commentary on the conference call that could inform our view on other companies or macro issues; that’s what we call “a read-through” from the call. 9. Amazon (AMZN) Second-quarter earnings after the close; conference call set for 5:30 p.m. ET Projected EPS: 12 cents Projected revenue: $118.98 billion Club’s thoughts: With concerns about a recession and a pullback in business spending, how is revenue growth at the company’s cash cow, Amazon Web Services, holding up? Beyond Amazon’s results themselves, we’ll be closely listening for updates on how management is correcting the e-commerce giant’s overexpansion issues. Anything management says on supply chain and fuel costs, two other headwinds recently for Amazon, will also be of interest. 10. Apple (AAPL) Third-quarter results after the bell; conference call scheduled for 5 p.m. ET Projected EPS: $1.16 Projected revenue: $82.73 billion Club’s thoughts: Apple is the last Big Tech company in our portfolio to report this earnings season. While we think these third-quarter results could be a little weak, thanks to China-related supply and demand issues, management’s forward outlook is very important. In particular, we’re looking for updates on supply chains and any hints on how iPhone demand is faring in the face of economic slowdown worries. Friday: Procter & Gamble, Chevron and AbbVie 11. Procter & Gamble (PG) Fourth-quarter results before the open; conference call at 9 a.m. ET Projected EPS: $1.22 Projected sales: $19.41 billion Club’s thoughts: Inflationary pressure on input costs and the impact of the strong U.S. dollar are two headwinds that could weigh on P & G’s earnings and forward outlook. We want to see how management is navigating those issues — and for inputs in particular, if they see any relief on the horizon. We also hope to learn whether P & G has observed consumers trading down to cheaper alternatives to its products. 12. Chevron (CVX) Second-quarter earnings before the bell; conference call at 11 a.m. ET Projected EPS: $5.08 Projected revenue: $58.66 billion Club’s thoughts: While oil prices have come off their early June highs, we expect Chevron to support tremendous free cash flow figures for Q2. We also know Chevron can still generate tons of cash and return large chunks of it to shareholders at crude’s recent levels in the mid-to-upper $90s per barrel and low $100s per barrel. Our investment in Chevron is largely about the capital return story, so we’ll be paying close attention to anything and everything management says on the topic. Insights into energy markets more broadly, and the impact from the Russia-Ukraine war, will be notable. We made two trades Monday in energy stocks, booking some profits in shares of Chevron and buying some more shares of Halliburton (HAL). Neither move reflects our feelings on CVX ahead of its quarter, they were portfolio management steps that reflect our view that oil stocks are an important hedge. Though net-net, these trades reduced our energy exposure a bit. 13. AbbVie (ABBV) Second-quarter earnings before the open; conference call set for 9 a.m. ET Projected EPS: $3.33 Projected sales: $14.67 billion Club’s thoughts: Our focus will primarily be about gauging what AbbVie’s post-2023 growth outlook is because that’s when its blockbuster drug Humira will lose its exclusivity in the U.S. The company is leaning on two the other drugs, Skyrizi and Rinvoq, to fill the void when Humira, which is used to treat rheumatoid arthritis and other conditions, goes off-patent. Abbvie’s medical aesthetics franchise is another important watch item. (Jim Cramer’s Charitable Trust is long MSFT, GOOGL, HUM, META, QCOM, F, LIN, HON, AAPL, AMZN, PG, CVX, HAL and ABBV . See here for a full list of the stocks.) 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