The third-quarter 2020 earnings season begins this week, with major banks releasing their financial reports. The third-quarter earnings results are likely to have strong implications on Wall Street after the disappointing results during the coronavirus-hit second quarter, which was the worst earnings season since the great recession. However, there are four stocks with a favorable Zacks Rank that are poised to beat on quarterly earnings this week.
Q3 at a Glance
The third quarter has two characteristics — the U.S. economic recovery, which witnessed a noticeable momentum in May and June, buoyed by the unprecedented fiscal and monetary stimulus by the U.S. government and the Fed, continued in July also.
However, a series of economic data for August and September indicate that the economic momentum has lost its pace. The primary reason for this slow pace of growth is the termination of the $2.2-trillion fiscal stimulus — popularly known as the CARES Act — at the end of July.
Both the Republicans and the Democrats have agreed for a second round of fiscal stimulus. The coronavirus woes continue to hurt the economy. Resurgence of COVID-19 infections in several states has compelled the U.S. economy to operate at a significant sub-optimal level. Moreover, lack of vaccine or a proper line of treatment has only worsened the situation.
Nevertheless, disagreements appear related to the size and scope of the aid package. Notably, the Democrats initially demanded a $3.4-trillion package which they later reduced to $2.2 trillion. Meanwhile, the Republicans initially offered a $1-trillion package, which was later increased to $1.8 trillion. No Congressional deal about a new fiscal stimulus has been reached till date.
Third-Quarter Earnings Likely to Remain Negative
Overall, the third-quarter earnings for the S&P 500 Index are projected to be down 22% year over year on 2.9% lower revenues. This is an improvement over the second-quarter earnings that plunged 32.3% on 9.2% lower revenues. Remarkably, the first-quarter earnings of companies on the S&P 500 Index were down 13.5% on 1.4% higher revenues. (Read More: Are Bank Stocks Cheap or Value Traps?)
A Silver Lining
Despite negative expectations for the third-quarter earnings results, the important fact is that the overall projections have gradually improved since July, on the reopening of a large part of the U.S. economy.
The U.S. economy is notably growing, albeit at a slow pace, despite the lack of a second round of fiscal stimulus. This should sustain the improving earnings trend. Moreover, in its Oct 9 forecast, the Atlanta Fed has projected that the U.S. GDP will jump 35.2% in the third quarter compared with the second quarter, when it plunged 31.4%.
Our Top Picks
We have narrowed down our search to four stocks slated to release third-quarter results this week. Each of these stocks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy) 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 (Hold) 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 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 our four picks in the third quarter.
BlackRock Inc. BLK offers products that span the risk spectrum, including active, enhanced and index strategies through a variety of structures that include separate accounts, mutual funds, iShares (ETFs) and other pooled investment vehicles. This Zacks Rank # 2 company has an Earnings ESP of +2.76%.
BlackRock has an expected earnings growth rate of 5.2% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.9% over the last seven days. It has a trailing four-quarter earnings surprise of 6%, on average. The company is set to release earnings results on Oct 13, before the opening bell.
Sleep Number Corp. SNBR provides sleep solutions and services in the United States. It designs, manufactures, markets, retails, and services beds, pillows, sheets, and other bedding product under the Sleep Number name. The Zacks Rank # 2 company has an Earnings ESP of +31.16%.
Sleep Number has an estimated earnings growth rate of 3.7% for the ongoing year. The Zacks Consensus Estimate for 2020 earnings has moved 1.1% north over the last 30 days. It has a trailing four-quarter earnings surprise of 40.6%, on average. The company is scheduled to report quarterly figures on Oct 14, after the closing bell.
Pool Corp. POOL is the world's largest wholesale distributor of swimming pool supplies, equipment and related products. In addition, it is a leading regional wholesale distributor of irrigation and landscape products. The Zacks Rank # 2 company has an Earnings ESP of +0.82%.
Pool has an anticipated earnings growth rate of 13.3% for the current year. It has a trailing four-quarter earnings surprise of 16%, on average. The company is slated to announce earnings numbers on Oct 15, before the opening bell.
J.B. Hunt Transport Services Inc. JBHT provides surface transportation and delivery services in the continental United States, Canada, and Mexico. It operates in four segments: Intermodal (JBI), Dedicated Contract Services (DCS), Integrated Capacity Solutions (ICS), and Truckload (JBT). This Zacks Rank # 1 company has an Earnings ESP of +5.09%.
The Zacks Consensus Estimate for J.B. Hunt’s current-year earnings has been rwvised 0.4% upward over the past week. It has a trailing four-quarter positive earnings surprise of 4.4%, on average. The company is set to release earnings results on Oct 16, before market open.
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