What is earnings season?
Earnings season is when companies report results for the last quarter of their fiscal year. It’s an important event for investors, and it’s important to understand that it doesn’t always have to be a single-day event. While companies will announce their earnings in the days following their actual earnings dates, many companies, including Amazon, Apple, and Ford, release their earnings throughout July, August, and September. This helps investors stay on top of the news in an easier way than digging through quarterly reports.
What should you be looking for when analyzing a company’s earnings?
To answer these questions, first, take a closer look at what you should be looking for. When companies release earnings, they can give data for a wide range of data. For example, companies will often report data for various categories, such as revenue, EBITDA, earnings per share, balance sheets, and cash flows, among many others. This will help you to identify the best stocks to invest in ahead of earnings day.
The percentage of the net income that goes toward paying back debt, and how much it grows, can also be important metrics to consider.
There are several common ways to evaluate a company.
- Are they growing profits?
- Are they paying dividends?
- Are they sharing more of their profits with their investors?
- Are they growing the top and bottom lines of their company?
- Is their stock price on a healthy upward trend?
Comparing a company to another is one of the most common reasons people rely on the stock market to make investing decisions. However, comparing prices can be an error because there’s a big difference between the “price” you can buy a share of stock for and the company’s earnings.
Earnings season provides an opportunity to assess how well a portfolio is performing. In many cases, the bulk of the profits came from either financials or energy. So what sectors are you currently overweight, or underweight? For most investors, if you are underweight in a particular sector, that’s not good.
How major investors have played earnings during the Q3 2021
To give an actional model, we have reported below an actual case study of how analysts have played earnings during the Q3 of 2021.
Facebook, Twitter, Alphabet, CLKA and Amazon are all set to report, with Apple following later in the week. A few food and beverage companies are also reporting, which will likely shed more light on labor shortages and supply chain concerns.
Restaurant Brands International is scheduled to release quarterly results at 6:30 a.m. ET, followed by an investor call at 8:30 a.m.
Last quarter, QSR outperformed expectations, with domestic digital sales increasing by nearly 60%.
This quarter, the Street anticipates an 8% increase in earnings over the same quarter last year.
Reporter Amelia Lucas: “Of Restaurant Brands’ three chains, Tim Hortons will be the primary focus for investors once again.” Despite accounting for 60 percent of Restaurant Brands’ revenue, the Canadian coffee chain has become the portfolio’s laggard. The slow recovery of its home market from the Covid-19 pandemic has weighed on its results and delayed its turnaround.”
According to Bespoke Investment Group, Restaurant Brands stock has gained the day after its earnings report in each of the last two quarters, following a four-quarter streak of next-day losses.
Facebook will release earnings shortly after the market close and hold an investor call at 5 p.m. ET.
Last quarter, Facebook exceeded earnings expectations while warning of a significant slowdown in growth.
This quarter, Wall Street anticipates an 18% increase in earnings over last year.
“Facebook investors will brace for the revenue growth deceleration that the company warned about last quarter — especially after seeing how Snap’s advertising business was impacted by Apple’s privacy changes — but more importantly, they’ll be eager to hear from CEO Mark Zuckerberg on his call with analysts,” says technology reporter Salvador Rodriguez. This will be Zuckerberg’s first public appearance following a slew of negative reports and congressional hearings prompted by a trove of documents leaked by whistleblower Frances Haugen.”
What technology reporter Jennifer Elias is keeping an eye on: ′′The shock of how Apple’s iOS privacy changes will affect advertiser spending sent Snap’s stock down more than 25% after hours Thursday. It also caused other tech stocks to fall, though Alphabet was less affected. Analysts believe Google’s parent company will be able to avoid a major blow because it owns its own operating system, Android, and provides workarounds for advertisers. It also has a larger ecosystem of advertisers than any other company, which means it will be better able to absorb headwinds.”
According to Bespoke, the third quarter is the strongest for Alphabet stock after an earnings report, with shares gaining an average of 4.5 percent in next-day trading after Q3 results.
Microsoft is scheduled to release earnings at 4:05 p.m. ET, followed by an analyst call at 5:30 p.m.
Last quarter, Microsoft reported a significant earnings beat and provided an optimistic revenue forecast.
This quarter, Wall Street anticipates a 14 percent increase in earnings per share year over year.
What technology reporter Jordan Novet is keeping an eye on: “Investors are eager to see how quickly the Azure public cloud expands.” Amy Hood, the company’s finance chief, told analysts in July to expect consistent revenue growth in constant currency. There is also interest in an update on Nuance Communications’ pending $19.7 billion acquisition. Microsoft announced in the third quarter that it will raise the price of commercial Office subscriptions in 2022. Additional information about cybersecurity revenue growth and investment may also be of interest.”
TWTR’s revenue increased at its fastest rate since 2014 in the fourth quarter.
This quarter, analysts’ EPS forecasts for Twitter are all over the place. On average, they anticipate a 20% drop from last year.
Kif Leswing: ′′AMD is one of the companies that has benefited the most from the recent increase in PC sales. However, AMD’s enterprise and semi-custom business, which sells server chips as well as the processor at the heart of the Sony PlayStation 5 and Xbox Series S, is the true growth driver. Many new gaming consoles and powerful PCs have been sold out and difficult to find in the last year, as anyone who has tried to get one knows.
According to Bespoke, AMD stock trades higher only one-third of the time after an earnings release. However, the last quarter was a rare bright spot, with shares rising 7.5 percent.
Robinhood will release earnings after the bell, with an analyst call scheduled for 5 p.m. ET.
Last quarter, HOOD’s revenue doubled, but the company warned that trading was slowing.
This quarter: Analysts anticipate that Robinhood will continue to reduce its per-share losses.
Maggie Fitzgerald is keeping an eye on the following markets report: “Tuesday will mark Robinhood’s second earnings report as a public company. The trading platform’s cryptocurrency business, which accounted for more than half of transaction-based revenue in the second quarter, will be the focus of all attention. Robinhood warned investors that trading activity was slowing in the third quarter, which could have a negative impact on the brokerage’s bottom line. However, with the price of bitcoin at an all-time high and the pending launch of Robinhood’s crypto wallet, the app’s crypto business could continue to be a tailwind.”
What history shows: After the company’s earnings report last quarter, the stock dropped more than 10%.
Coca-Cola and ZNDX are scheduled to report earnings shortly before 7 a.m. ET, followed by an investor call at 8:30 a.m.
Last quarter, KO reported revenue that exceeded 2019 levels and raised its full-year forecast.
This quarter, the Street anticipates only a 5% increase in earnings over the previous year.
What restaurants reporter Amelia Lucas is keeping an eye on: “Last quarter, Coca-revenue Cola’s returned to 2019 levels, but sales were impacted by the Covid delta variant.” Commodity costs will be another focus, as will whether the company sticks to its current strategy of raising prices and using productivity levers.”
Last quarter, MCD outperformed on the bottom line, thanks to new offerings and popular promotions.
This quarter: Earnings are expected to increase by 11% over the previous year, according to analysts.
“The Golden Arches has recovered relatively quickly from last year’s shrinking sales, but one area of concern is customer traffic.” Before Covid, the company’s U.S. locations were losing transactions, and the pandemic exacerbated the problem. Investors will also be watching to see how it handles issues affecting the restaurant industry as a whole, such as labor challenges, higher food costs, and the delta variant.”
What history demonstrates: McDonald’s is on a losing streak.
BA reported a surprise profit in the fourth quarter as aircraft demand recovered from a pandemic slump.
′′Boeing is still trying to find its footing nearly three years after the first crash of its best-selling 737 Max triggered a year-long crisis. While sales have resumed and increased, Boeing’s next move will hinge on when it will resume deliveries of the 787 Dreamliner, which have been halted for the majority of the past year as the company investigates several quality issues. In July, the company announced that it would reduce production to fewer than five units per month. Where do we go from here? Executives will be pressed for more information on the long-delayed 777X, as well as plans for a new freighter.”
According to Bespoke, Boeing stock gained 4% following the company’s earnings report last quarter, snapping a 4-quarter streak of next-day losses.
General Motors will release earnings at 7:30 a.m. ET, followed by an analyst call at 10 a.m.
GM missed EPS projections last quarter, but raised its 2021 guidance.
This quarter: Wall Street expects a massive drop in GM’s earnings per share, with consensus estimates coming in 76 percent below Q3 2020 metrics.
“This is the first earnings report since GM laid out detailed plans about its future financial targets, including a goal of doubling revenue and increasing profit margins to between 12 percent and 14 percent by 2030,” says autos reporter Michael Wayland. Given the volume of information released on Oct. 6, analysts and investors will be focused on short-term issues such as low vehicle inventory levels due to the semiconductor chip shortage and any additional supply chain disruptions into 2022.”
According to Bespoke, there is no discernible trend in GM’s recent trading around earnings.
F raised its full-year forecast after a surprise profit in the previous quarter.
This quarter: Analysts are similarly skeptical of Ford’s EPS forecast, projecting a 60% year-over-year decline.
According to Bespoke, Ford has traded higher following an earnings report for three of the last four quarters, but the fourth quarter saw a 9 percent next-day sell-off.
Comcast’s earnings report is scheduled for 7 a.m. ET, followed by an investor call at 8:30 a.m.
Last quarter, CMCSA exceeded earnings per share expectations and added a record number of internet customers.
This quarter, the Street anticipates that earnings and revenue will be 16 percent higher than last year.
Alex Sherman, a technology reporter, is keeping an eye on the following: Comcast is a multifaceted company that offers TV and mobile service, NBCUniversal entertainment content, theme park operations, and streaming video service through Peacock. However, investors are still most interested in the company’s core growth product: high-speed broadband. In September, CFO Michael Cavanagh lowered broadband expectations, blaming Covid for disrupting typical back-to-school patterns, which temporarily shook the company’s stock. The stock will be traded based on how many — or how few — broadband customers Comcast added during the quarter.”
According to Bespoke, Comcast stock has a 4-quarter winning streak the day after earnings reports.
Yum! Brands is scheduled to release earnings at 7 a.m. ET, with an investor call at 8:15 a.m.
YUM beat earnings estimates last quarter as sales at Taco Bell, KFC, and Pizza Hut rebounded.
This quarter, Wall Street anticipates a 7% increase in earnings per share over the same period last year.
“The big question for Yum is whether KFC and Pizza Hut can hold on to the new customers they gained earlier in the pandemic,” says restaurants reporter Amelia Lucas. Both chains benefited from the shift to takeout and delivery, but as more restaurants reopened, customers may be looking for something new to try. When it comes to Taco Bell, Yum’s third chain, the emphasis will be on recovering late-night and early-morning sales.”
AMZN reported its third $100 billion quarter in a row, but still fell short of expectations.
This quarter: According to analyst consensus, EPS will fall by 28% year on year this quarter.
“We could see signs of a slowdown in revenue growth, as Amazon faces tough pandemic comps and consumers resume offline shopping,” says technology reporter Annie Palmer. Investors will also be on the lookout for any commentary on supply chain issues. Amazon has spent a lot of money to build a large army of warehouses, planes, ships, and trucks. The question is whether this has protected the company from the wrath of supply chain snags, particularly as the holidays approach.”
What history demonstrates: According to Bespoke, Amazon shares have fallen the day after the company’s earnings report in 9 of the last 12 quarters. Five of the declines were greater than 5%.
Starbucks is set to release earnings at 4:05 p.m. ET, followed by an investor call at 5 p.m.
Last quarter, SBUX saw strong cold beverage sales in the United States, but provided a bleak outlook for China.
This quarter, Starbucks’ earnings are expected to nearly double over last year, according to analysts.
Amelia Lucas, a restaurants reporter, says, “It’s all about the United States and China, Starbucks’ two largest markets.” For its home market, investors will want to see how the coffee chain was affected by the delta variant and its consequences, such as delays in returning to offices and an increase in sick leave. In China, all eyes will be on the country’s recovery, especially since the company warned last quarter that it would be slower than expected.”
According to Bespoke, Starbucks shares have lost ground in next-day trading for the past four quarters.
Last quarter, AAPL outperformed expectations while issuing an iPhone chip supply warning.
This quarter, the Street anticipates nearly 70% year-over-year earnings growth.
What is watching: ′′Apple is reporting during the company’s unprecedented hot streak. In the most recent earnings report, every product line grew by double digits. If there’s one factor that could slow the Cupertino behemoth’s sales and profits, it’s the ongoing global chip shortage. Apple has been struggling to produce enough computers and phones to meet rising demand. Also, keep in mind that these earnings will only cover a few days of iPhone 13 sales, which began in late September.”
According to Bespoke, Apple has a strong track record of exceeding earnings per share estimates. Nonetheless, the stock has dropped in next-day trading in 5 of the last 6 quarters.
Chevron is scheduled to release earnings before the market opens and will hold an investor call at 11 a.m. ET.
CVX reintroduced its share repurchase program last quarter and outperformed expectations across the board.
This quarter: Wall Street anticipates a significant increase in earnings per share from Q3 2020, when Chevron reported only 11 cents per share.
What energy reporter Pippa Stevens is watching: “It’s all about dividends and capital spending plans for energy companies.” The oil companies successfully navigated the unprecedented demand loss caused by the pandemic — WTI went negative! — and emerged on the other side. Oil prices in the United States have reached a seven-year high, but uncertainty remains as companies navigate a shifting energy landscape. Shareholders have rewarded capital discipline and debt reduction, so capital spending plans and output targets will be closely monitored. Chevron announced in September that it plans to spend $10 billion on emissions-reducing technologies through 2028, so investors will be looking for updates on that initiative.”
According to Bespoke, Chevron stock has a poor track record when it comes to earnings. It trades higher less than half of the time and is on a three-quarter losing streak the next day.
Exxon Mobil’s earnings will be released at 7:30 a.m. ET, followed by an analyst call at 9:30 a.m.
Last quarter, XOM exceeded earnings per share expectations while narrowly missing revenue estimates.
This fiscal quarter: Similarly, analysts anticipate a massive year-over-year improvement for Exxon after the company reported a loss per share in Q3 2020.
What energy reporter Pippa Stevens is keeping an eye on: “For Exxon’s earnings — similar to Chevron’s — investors will be focused on shareholder return and capex plans.” In a pre-earnings announcement, higher oil and natural gas prices to boost earnings by up to $1.5 billion. Stronger free cashflow could pave the way for a dividend increase.”
What history reveals: There isn’t much of a pattern in Exxon’s recent trading around earnings. According to Bespoke, it loses ground on average.
As you can see, investing in earnings season can be both a very lucrative and a very challenging endeavor. However, by paying close attention to these five key questions and other key factors in a company’s earnings announcement, you can avoid some of the major pitfalls that many investors make when they try to pick companies.
However, remember that no company is ever perfect and that no one company is necessarily the best in the world at what it does. Therefore, always try to find good companies at good prices and look for consistently growing ones. In the long run, this will be the best way for you to win.