Q3 Earnings Season Scorecard - Earnings Growth Turns Positive
Thursday, October 26, 2023
The Zacks Research Daily presents the best research output of our analyst team. Today's Research Daily features a real-time update on the ongoing Q3 earnings season and new research reports on 16 major stocks, including Microsoft Corporation (MSFT), Novo Nordisk A/S (NVO) and Lowe's Companies, Inc. (LOW). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.
You can see all of today’s research reports here >>>
Q3 Earnings Season Scorecard
Including all the reports that came out this morning, we now have Q3 results from 209 S&P 500 members or 41.8% of the index's total membership. Total earnings for these 209 index members are up +11.1% from the same period last year on +4.4% higher revenues, with 80.4% beating EPS estimates and 63.2% beating revenue estimates.
This is a notably improved earnings growth trend for this group of 209 index members than we have seen since 2021 Q4. The Q3 revenue growth pace for this group of companies is in-line with the decelerating growth trend that has been in place 2021 Q4.
With respect to the Q3 beats percentages, the EPS beats percentage of 80.4% for this group of 209 index members is unchanged from what we had seen in each of the last two reporting cycles, but otherwise modestly above the average for the last 20 quarters or 5 years of 79.1%.
The Q3 revenue beats percentage of 63.2% is the lowest since the 61.7% for this group of companies in 2020 Q1. The Q3 revenue beats percentage of 63.2% compares to the 5-year low for this group of 209 index members of 56.9% in 2019 Q1 and 5-year average of 69.6%.
Looking Q3 as a whole, combining the actual words that have come out with estimates for the still-to-come companies, total S&P 500 earnings are now expected to be up +0.5% on +1% higher revenues. This is the first time quarterly earnings are on track to be positive after three back-to-back quarters of declines for the S&P 500 index. For more details about the Q3 earnings season and evolving expectatioans for the coming periods, please check out our weekly Earnings Trends report here >>>> The Earnings Picture Continues to Improve
Today's Featured Analyst Reports
Microsoft shares have outperformed the Zacks Computer - Software industry over the year-to-date period (+43.0% vs. +38.4%), with the performance expected to continue following the company's better-than-expected Q3 results. The company continues to gain from strong Intelligent Cloud and Productivity and Business Processes revenues. Intelligent Cloud revenues were driven by growth in Azure and other cloud services.
Productivity and Business Processes revenues rose due to a strong adoption of Office 365 Commercial solutions. Continued momentum in the small and medium businesses, frontline worker offerings and a gain in revenue per user drove the top line. Steady growth in Dynamics products and cloud services aided LinkedIn revenues.
However, continued customer shift to cloud offerings is hurting growth in Office's commercial licensing revenues. Higher operating expenses driven by marketing, LinkedIn and cloud engineering amid intense competition in the cloud space remain a concern.
(You can read the full research report on Microsoft here >>>)
Shares of Novo Nordisk have outperformed the Zacks Large Cap Pharmaceuticals industry over the year-to-date period (+45.3% vs. +7.2%). The company has one of the broadest diabetes portfolios in the industry. Ozempic and Rybelsus have been performing well in the market. Saxenda and Wegovy sales have been gaining momentum.
Label expansions of diabetes and obesity care drugs will likely further boost sales. Novo Nordisk recently raised its 2023 view due to higher demand for diabetes drug Ozempic and obesity drug Wegovy. Its diversifying efforts to develop new treatments are also encouraging.
However, competition is getting stiffer from pharma bigwigs like Pfizer, who are likely to eat away from Novo Nordisk’s Diabetes care market share, due to serious supply constraints in international markets. Patent expiry and pricing pressure across the diabetes market also remain a woe. Estimates have increased ahead of the Q3 earnings release.
(You can read the full research report on Novo Nordisk here >>>)
Lowe shares have underperformed the Zacks Building Products - Retail industry over the year-to-date period (-4.6% vs. -4.0%). The company’s outlook reflects the ongoing challenges associated with big ticket discretionary spend and general economic concerns. For the third quarter, the company expects to face challenging year-over-year comparison.
Despite this beat, Lowe's maintained its fiscal 2023 view. It anticipates a 2-4% decline in comps, with a 150-basis point impact from lumber deflation. However, Lowe's is well positioned to capitalize the demand in the home improvement market, thanks to its investments in technology and the robust Pro business segment.
In second-quarter fiscal 2023, the company posted better-than-expected results, benefiting from strong margins stemming from gains from the Total Home strategy, a sturdy spring recovery and the execution of the Perpetual Productivity Improvement initiative.
(You can read the full research report on Lowe’s here >>>)
Other noteworthy reports we are featuring today include HSBC Holdings plc (HSBC), Pioneer Natural Resources Company (PXD) and Ecolab Inc. (ECL).
Director of Research
Sheraz Mian
Note: Sheraz Mian heads the Zacks Equity Research department and is a well-regarded expert of aggregate earnings. He is frequently quoted in the print and electronic media and publishes the weekly Earnings Trends and Earnings Preview reports. If you want an email notification each time Sheraz publishes a new article, please click here>>>
Today's Must Read
Adoption of Cloud & Office 365 Strength Aid Microsoft (MSFT)
Wegovy & Ozempic Fuels Novo Nordisk (NVO), Competition Stiff
Lowe's (LOW) Gains From Pro Business, Lower DIY Demand Ails
Featured Reports
Business Restructuring, Focus on Asia, Rates Aid HSBC (HSBC)
Per the Zacks analyst, HSBC's business restructuring efforts, Asia focus expansion plans, emphasis on profitable businesses, higher interest rates and decent loan demand will keep aiding financials.
Pioneer Natural (PXD) Continues to Bank on Oil-Rich Permian
The Zacks analyst likes Pioneer Natural since it has a strong footprint in prolific oil-rich acres in the Permian Basin, securing a handsome production outlook.
Focus on R&D Aids Ecolab (ECL) Despite Compliance Risks
The Zacks analyst is upbeat about Ecolab's focus on research and development despite its business being subjected to various laws and regulations relating to the environment and product registration.
PACCAR's (PCAR) Battery Cell JV Bodes Well Amid Cost Woes
While PACCAR's joint venture with Daimler and Cummins for US battery cell production is encouraging, the Zacks analyst is worried about high capex and R&D costs that might hurt the firm's margins.
Centene (CNC) Rides on Growing Premiums Amid Rising Costs
Per the Zacks analyst, solid Medicaid business, contract wins and acquisitions continue to drive the company's premiums and subsequently, its revenues. However, high expenses remain a concern
Dividends, Buyback Boost J.B. Hunt (JBHT) Amid High Debt
The Zacks analyst likes the shareholder-friendly measures adopted by J.B. Hunt. However, high debt does not bode well for its bottom line.
Strong Investment Aid PNM Resources (PNM) Amid Merger Delay
Per the Zacks analyst, PNM Resources' strong investment will increase reliability of its operation. Yet, delay in getting necessary approval for AGR merger can lower profitability and growth prospects
New Upgrades
Improving Sales & Growth Plans Aid Armstrong World (AWI)
Per the Zacks analyst, Armstrong World is riding on solid segmental performances thanks to favorable AUV performance, strategic growth initiatives and diversified end markets.
USA Compression (USAC) to Gain from Strong Gas Demand
The Zacks analyst believes that the equipment supplied by USA Compression Partners is an integral part of natural gas pipelines, helping the partnership to earn stable future cash flows.
TripAdvisor (TRIP) Benefits From Tripadvisor Core Strength
Per the Zacks analyst, growing momentum in Tripadvisor-branded display and platform, and Tripadvisor experiences is aiding the company's Tripadvisor Core segment.
New Downgrades
Declining Demand for COVID-19 Products Ail Repligen (RGEN)
Per the Zacks Analyst, Repligen is witnessing a decline in its COVID-19 related product revenues which is hurting the top-line. Stiff competition in the bioprocessing products market also remain a woe
Corning (GLW) Plagued by Weak Demand in Optical Communication
Per the Zacks analyst, soft demand trends and inventory corrections in the Optical Communication segment along with a dearth of end-market diversification strain Corning's margins.
Dull Mineral Nutrition Arm, Macro Woes Hurt Phibro (PAHC)
The Zacks analyst is worried about the lower-than-expected demand for Phibro's Mineral Nutrition products dampening the core segment's revenues. Challenging macroeconomic issues continue to concern.
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Microsoft Corporation (MSFT) : Free Stock Analysis Report
Ecolab Inc. (ECL) : Free Stock Analysis Report
Novo Nordisk A/S (NVO) : Free Stock Analysis Report
Lowe's Companies, Inc. (LOW) : Free Stock Analysis Report
Pioneer Natural Resources Company (PXD) : Free Stock Analysis Report
HSBC Holdings plc (HSBC) : Free Stock Analysis Report
