Is the Earnings Improvement for Real?

Thursday, July 23, 2020

The Zacks Research Daily presents the best research output of our analyst team. Today’s Research Daily provides a real-time scorecard of the ongoing Q2 earnings season and emerging signs of stabilization and improvement in the overall earnings picture. Our core strength in earnings data and analytics allows us to identify these trend shifts in real time and share them with our readers. 

As is always the case, today’s daily features new research reports on 16 major stocks, including Johnson & Johnson (JNJ), SAP SE (SAP) and McDonalds (MCD). 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 >>>

Q2 Earnings Season Scorecard

Total Q2 earnings for the 113 S&P 500 members (22.6% of the index) that have reported results are down -45.4% on -5.5% lower revenues, with 71.7% beating EPS estimates and 66.4% beating revenue estimates.

The big development on the earnings front is the revisions trend for Q3 and beyond, with estimates starting to go up over the last few days.

Q3 earnings for the index are currently expected to be down -24.8%, which is down from -25.1% yesterday and -26.3% on July 10th.

We are starting to see similar improvement in estimates for the December quarter and full-year 2020 estimates as well. 

This picture will evolve as more companies come out with Q2 results, but it is nevertheless a positive development on the earnings front.

For more details about the Q2 earnings season and the overall earnings picture, please check out our weekly Earnings Trends report.  

Johnson & Johnson shares have outperformed the Zacks Large Cap Pharmaceuticals industry over the past year (+16% vs. +13.2%) on the back of new drugs and successful label expansion of blockbuster drugs Imbruvica, Darzalex and Stelara. 

J&J beat estimates for sales and earnings in Q2. It raised its 2020 outlook due to faster-than-expected recovery in the Medical Devices unit. J&J is also making rapid progress with its pipeline and line extensions. Several pivotal data readouts are expected in 2020.

However, the Medical Devices unit is being hurt by decline in elective surgical procedures amid the coronavirus pandemic. Headwinds like generic competition and pricing pressure remain. J&J faces numerous lawsuits, which allege personal injuries to patients caused by the use of its products. These lawsuits have resulted in uncertainty.

(You can read the full research report on Johnson & Johnson here >>>)

Shares of SAP have gained +17.9% over the past six months against the Zacks Computer Software industry’s rise of +20.9%. The Zacks analyst believes that SAP is benefiting from strong growth in cloud revenues and expanding customer base. Robust adoption of S/4HANA, Fieldglass, Concur and SuccessFactors Employee Central solutions is a key catalyst.

Moreover, synergies from its acquisition of Qualtrics, and partnership with IBM bode well for the top line. It recently reported encouraging second-quarter preliminary results. Management notes that improving business activity during the second quarter aided recovery in Software licenses revenues.

However, SAP maintained trimmed 2020 guidance, owing to coronavirus crisis-induced business uncertainty. Further, rise in investments to enhance cloud-based offerings are likely to impede near-term margin expansion.

(You can read the full research report on SAP here >>>)

McDonalds’ shares have gained +8% over the past three months against the Zacks Restaurants industry’s rise of +10.3%. The Zacks analyst believes that the company is benefitting from increase in drive-thru sales.

Also, its increased focus on delivery and accelerated deployment of EOTF restaurants in the United States is commendable. Additionally, the company is making every effort to drive growth in international markets as well. Notably, earning estimates for 2020 have increased over the past 30 days, depicting analyst’s optimism regarding the stock growth potential.

However, coronavirus related woes pose concerns. This along with costs associated with brand positioning in all the key markets and ongoing investments in initiatives might weigh on margins, at least in the near term. Also, decline in comps pose threat for the company.

(You can read the full research report on McDonalds here >>>)

Other noteworthy reports we are featuring today include Coca-Cola (KO), Broadcom (AVGO) and Lockheed Martin (LMT).

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Sheraz Mian

Director of Research

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

J&J’s (JNJ) Pharma Segment Resilient Amid Generic Headwinds

SAP Rides on Growth in S/4HANA Platform, Expanding Clientele

McDonald’s (MCD) Banks on Digitalization, Soft Comps a Worry

Featured Reports

Coca-Cola to Streamline Portfolio for Enhanced Recovery

Per the Zacks analyst, Coca-Cola’s strategy of streamlining portfolio of brands by removing the Zombie brands is likely to boost supply chain and help enhanced recovery in post-COVID environment.

Broadcom (AVGO) Banks on Wireless Products & Acquisitions

Per the Zacks analyst, strong demand for Broadcom’s Wi-Fi 6 solutions, and synergies from acquisitions of CA and Symantec’s infrastructure software business are expected to drive top-line growth.

Solid Order Growth Aid Lockheed (LMT) Amid Tiff with Turkey

Per the Zacks analyst, steady flow of orders from Pentagon and U.S. allies continues to boost Lockheed’s revenue.

Core BD Life Sciences Segment Favors Becton, Dickinson (BDX)

Per the Zacks analyst solid prospects in core BD Life Sciences unit continue to favor Becton, Dickinson.

Work-From-Home & Online Learning Wave Aids Zoom Video (ZM)

Per the Zacks analyst, Zoom Video is benefiting from the coronavirus-induced remote working and Internet-based education wave.

Loan Growth Supports U.S. Bancorp (USB), Higher Costs a Woe

The Zacks Analyst believes that improving economy and initiatives to expand market share have helped U.S. Bancorp witness growth in loan and deposits.

Growth Projects to Aid Newmont (NEM) Amid Cost Woes

While the company faces headwind from high production costs, it should gain from investment in its growth projects and efforts to improve efficiency, per the Zacks analyst.

New Upgrades

Growth Projects, Expansion to Aid Agnico Eagle (AEM)

According to the Zacks analyst, the company will gain from progress in its key growth projects and its investment in assets to expand production.

Strategic Initiatives Aid Synchrony (SYF), High Costs Hurt

Per the Zacks analyst, a number of strategic initiatives such as buyouts and partnerships has led to significant growth of the company. However, escalating expenses remain a concern.

Solid Product Portfolio & Healthy Demand Aid iRobot (IRBT)

Per a Zacks analyst, iRobot (IRBT) is gaining from healthy demand for its Roomba and Braava products. Also, spur in e-commerce business and innovations are other driving factors.

New Downgrades

RenaissanceRe (RNR) Continues to Grapple With High Cat Loss

Per the Zacks analyst, the company being a property & casualty (P&C) insurer, remains susceptible to several catastrophic events, occurrence of which affects its underwriting results.

Store Closure, Rent Collection Woes Hit Federal Realty (FRT)

The Zacks Analyst is worried about shrinking traffic at Federal Realty’s retail assets, store shutdowns and tenant bankruptcy.

Faulty Pricing Model, Stiff Competition Hurt Bandwidth (BAND)

Per the Zacks analyst, faulty pricing model and intense competition with high customer concentration risks are likely to hurt Bandwidth’s margins in the near term.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
SAP SE (SAP) : Free Stock Analysis Report
McDonalds Corporation (MCD) : Free Stock Analysis Report
Lockheed Martin Corporation (LMT) : Free Stock Analysis Report
CocaCola Company The (KO) : Free Stock Analysis Report
Johnson Johnson (JNJ) : Free Stock Analysis Report
Broadcom Inc. (AVGO) : Free Stock Analysis Report
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