The first round of earnings reports has impressed investors who have been shaken by the correction and are now looking for much more than revenues and promises of growth. They’re looking for real demonstrations of growth—some have it, some don’t.
Earnings expectations this season are exceptionally high and analysts want to see a 17.3-percent increase. But they’re worried about the prospect of “peak earnings”. Peak earnings would see increases come in at 18-20 percent overall, but it also means that it’s going to get a lost worse next year, with a possible gain of only 10 percent.
So, while expectations are high, this is a growth story more than anything, and this is how stocks have fared in the first round of earnings:
#1 Netflix (NYSE:NFLX): Growing Like Weeds
Expectations were high going into the Netflix earnings report yesterday, but it still beat expectations, leading to a pre-market Tuesday pop in share prices of 7.14 percent before the opening bell.
If this stays on course, Netflix could be looking at a mind-blowing 70-percent value gain year-to-date.
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As of 11:45a.m. EST, Netflix has gained almost 8 percent on the day, hitting $332.33 and a market cap of $144.24 billion.
Investors latched on to the streaming giant’s huge jump in subscriber growth—bigger than it’s had in over a decade and a half.
Everyone’s pretty much bullish on Netflix at this point, with Oppenheimer increasing its price target to $370 from $285 after the Q1 earnings report. “In our view, multiple consecutive strong domestic net additions quarters are being driven by bundling and incremental marketing […] Internationally, bundling and faster original content ramp offers opportunity to penetrate new market cohorts faster ...”, CNBC quoted Oppenheimer as saying.
Barclays agreed, saying: “Despite scale, subscriber growth is accelerating: Despite price increases […] Netflix set a record for growth in Q1, with net adds growing 50%, beating estimates handily.”
#2 Goldman Sachs: Thank You Volatility
Goldman Sachs also beat estimates with a 27-percent jump in Q1 profit attributed to a major upswing in trading revenue directly linked to the recent global market volatility, according to TheStreet.
That came with a 38-percent jump in equities trading revenue—it’s best result in three years.
Estimates were for $5.58 per share earnings, while Goldman ended up posting $6.95 per share for Q1. According to FactSet, the consensus for investing and lending revenue was $1.46 billion, while Goldman reported $2.09 billion—a 43-percent increase. Related: The Biggest Threat To The Economy
But while the earnings report initially impressed investors, the share price rally didn’t hold.
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Playing the volatility game might not be enough.
#3 Johnson & Johnson: Drugged Up and Happy
Johnson & Johnson also beat expectations for Q1, but like Goldman, shares had a pre-market rally and then lost their luster.
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The initial rally was on the back of sales of drugs that offset weaknesses in others, but overall it was a picture of fairly strong pharmaceutical growth amid stiff competition. But in this case, strengths that just offset weaknesses aren’t enough to cause a sustained rally in a market where investors are expecting much more.
In terms of earnings per share, expectations were $2.02, while J&J hit $2.06. Revenue expectations were $19.46 billion, with reporting coming in at $20 billion.
#4 UnitedHealth: Another Netflix Growth Story?
This one fared better, and closer to a Netflix-style earnings victory that showed real growth.
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UnitedHealth shares rose 4 percent after it reported better-than-expected earnings and raised its outlook for 2018, paring only some of those gains later in the day.
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UnitedHealth is the largest health insurer in the U.S. and it managed to add more than 2 million customers in Q1, while investors were also impressed by growing operations outside of insurance.
#5 Banks, the Big 4 ‘Flying High’
Bank of America (NYSE:BAC), JPMorgan Chase & Co., Wells Fargo, and Citigroup were all boosted by equity market volatility that sent stock-trading revenues soaring, along with higher interest rates that have bolstered lending operations. Corporate tax cuts have also been a boon for the big four.
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Source: Bloomberg
As David Kelly, chief global strategist at JPMorgan Asset Management put it for Bloomberg: “The central issue with the stock market right now is encapsulated with the bans. This is about as good as it gets. We’re going to see these huge earnings gains.”
Coming up … Keep a close eye on IBM’s earning report right after the bell today.
By Tom Kool for Safehaven.com
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