US OPEN: Wall Street surge on earnings

US indices  opened higher after  3M, Merck & Co, Pfizer and PepsiCo reported better than expected quarterly results. Sentiment also improved on news that more states including Ohio and Illinois are planning to reopen their economies. The number of confirmed cases in the US surpassed 1 million and death toll surpassed 56 000 although the rate of new infections and deaths has been slowing to levels not seen since March. Other major companies like Alphabet, Ford and Starbucks  will report their quarterly earnings later on today.

PepsiCo (PEP.US) – reported better than expected quarterly earnings. Company earned $1.07 per share which is  4 cents a share above expectations. Revenue also came in above forecasts. The beverage and snack giant  withdrew its outlook due to pandemic-related uncertainties. PepsiCo still expects to buy back $2 billion in shares this year and pay $5.5 billion in dividends.

Caterpillar (CAT.US) – reported lower than expected earning. Company earned $1.60 per share, which is 9 cents a share below estimates. Revenue was lower then expected due to weak demand. Caterpillar is not providing any full-year guidance due to uncertainties surrounding the pandemic.

 

Earnings season is entering its busiest stretch. This week a lot of major US companies will publish their quarterly results. Below we present brief analysis of the top 5 US companies in which we indicate issues worth paying attention to.

Today Alphabet (GOOGC.US) will report its quarterly results after the market close. Wall Street expects adjusted EPS of $14.30 vs. $11.90 in Q1 2019. Analysts expect strong growth in both adjusted earnings per share (EPS) and paid clicks. Wall Street is forecasting that Alphabet will post adjusted EPS growth of 20.2% and revenue growth of 13.0% for Q1 2020. That would be the slowest-reported revenue growth in at least three years.

What to look for:  Recently investors were concerned about weak advertiser spending. Google, which shares rose 20% in thirty days, is supposedly lowering its marketing budgets for the second part of the year by as much as 50%. The company will halt hiring both full-time employees and contractors. Previously company had forecast an increase in marketing spending. Investors attention will focus on two key figures: paid clicks that measure online traffic; and cost per click, which measures how much money a company receives per click. Paid clicks represent clicks on advertisements by users of the Google search engine and other platforms owned by Alphabet, including Gmail, Google Maps, and Google Play and views of advertisements on YouTube. Cost per click represents the average amount Alphabet charges advertisers for each paid click by users, and is calculated by dividing click-driven revenue by the total number of paid clicks.

 

Facebook (FB.US) will report its quarterly results on Wednesday, 29^th April after the closing bell. Shares of social networking giant gained almost 25% within last thirty days however rate of profit growth has slowed considerably compare to the previous years. In Q1 2017, adjusted quarterly EPS advanced 39.2% YOY, while this figure rose by 49.3% YOY in Q1 2018. But the growth rate slowed sharply to 21.0% in Q3 2019 and to 14.5% in Q4 2019.2. Company's revenue gains also shrinked to 26.0% in Q1 2019 compare to 49.2% growth in Q1 2017 and 49.0% Q1 2018. Wall Street estimates only a 16.0% YOY revenue gain to $17.5 billion in the first quarter of 2020.

What to look for: income from digital advertising business is expected to be lower as companies are reducing spending due to the pandemic. Investors will also focus on the company’s user growth and engagement metrics which are often the main drivers of the stock, namely its monthly active users (MAU) and its average revenue per user (ARPU) which measure both how much company is expanding its user base and how well it's monetizing it.

Analysts are expecting a strong results for the first quarter, with growing number of monthly active users (MAU), and robust gains in adjusted earnings per share (EPS). Source: Bloomberg, XTB Research.

Microsoft (MSFT.US) reports on Wednesday, 29^th April after the market close. Microsoft has shown solid results in the previous quarters, however analysts are expecting some downturn in both EPS and revenue growth for Q3 FY2020 (company's fiscal year ends in June), due to the negative economic impacts of the pandemic. Markets estimate earnings growth of 13.5%, which is the slowest pace since Q4 2018. Revenue growth in this quarter is expected to be 11.2%, which is the slowest pace since the fourth quarter of 2017.

What to look for: Performance of the company's Commercial Cloud business, especially its cloud computing platform Azure, which has been a catalyst of growth in recent years and is the main reason that the stock is up 9% year to date. Due to the work-from-home (WFH) shift, cloud platforms have experienced a significant growth in demand.

Microsoft's Intelligent Cloud segment, especially its cloud computing platform Azure, has been a key area of growth in recent years. Wall Street expects that this tendency will continue, along with increase in earnings per share (EPS) and revenue. Source: Bloomberg, XTB Research

Amazon (AMZN.US) – will post quarterly results after the market close on Thursday 30th April. Giant – e-commerce company shares have soared over 40% in the past month alone to a new record high, giving the company a market value of more than $1.2 trillion.

What to look for: Analysts expect Amazon to report rising corporate revenue, while adjusted earnings per share will be flat.  Besides massive e-commerce business, investors will also pay attention the company’s AWS cloud platform, which generates significant part of Amazon’s profits, but recently has been losing some ground to Microsoft’s Azure.

AWS sales rose by 48.7% YOY to $ 5.4 billion in Q1 2018 and by 41.4% YOY to $ 7.7 billion in Q1 2019. Analysts expect further growth of 33.1% YOY in the first quarter of 2020. Source: Bloomberg, XTB Research

Apple (AAPL.US) reports results for Q2 FY 2020 after the market close on 30^th April (company ends its fiscal year in September). On one hand analysts expect lower adjusted earnings per share and revenue. On the other hand, Wall Street expects strong expansion of its Services business.

What to look for: The Company recently announced that its Services, including App Store, Apple Arcade, and iCloud, are now available in 20 more countries. Investors will try to assess whether the Services business, which has grown to become Apple’s second-largest business, may offset the any potential declines in iPhone unit sales.

Apple's Services revenue will be the key figure to watch out for. Services business expanded recently and now offers a wide range of product-related services as well as news, streaming video games, music and streaming entertainment. Services net sales jump by 16.9% in Q1 2020 to a new record of $ 12.7 billion. This source of income is becoming more important as Apple's was forced to close retail stores due to the pandemic. Source: xStation5, XTB Research.