As we move deeper into the current earnings season this week will feature quarterly reports from some of the biggest names in the technology sector.
After driving the bull market for several years, the technology sector cooled off in the latter part of 2018 due to investor concern over the impact the sector would face as a result of the trade war between the U.S. and China. As trade negotiations have progressed strength has returned to the sector and much of last year’s losses have been erased, and in some cases stocks have risen to fresh all-time or 52-week highs.
Technology has become a huge part of day to day life, and as such Wall Street views tech stocks as a primary indicator on the health of the overall economy. Given the sector’s importance, big earnings beat, or earnings miss, has the potential to not only rattle the entire tech sector, but also have a ripple effect across the broader market, making this week’s quarterly reports very important for the health of the current bull market.
Wall Street is so far overlooking slowing earnings growth, but if we start to see signs of weakness in the big tech names the entire market could find itself correcting as it did in December.
Here are five names to watch this week, regardless of whether or not you own any of these stocks in your own portfolio.
One of the biggest names in technology, Microsoft (MSFT), reports its fiscal third-quarter numbers after the market closes on Wednesday. Analysts forecast earnings of $1.00 for the quarter on sales of $29.83 billion. During the same period last year, the tech giant earned $0.95 with revenue of $26.82 billion. Microsoft has been a top performer in recent years as the company has managed to climb to the top of the highly competitive and fast-growing cloud computing market. The company has shown annual earnings growth of 13% over the last five years and looking ahead analysts expect to see profits rise at an annual rate of 14.5% over the next five years. Microsoft posted a small earnings miss of $0.01 last quarter while revenues were in-line with estimates. This quarter the street expects the company to post a positive earnings surprise with a whisper number of $1.04. The stock has a slightly high valuation with a forward P/E of 24.7, so shares are currently priced for perfection and the market will need to see a better than expected profit for the quarter if shares are going to trade higher from the current level. MSFT trades at $123.75 and hit an all-time high on Monday of $124.00. InvestorsObserver’s Stock Score Report gives MSFT an overall score of 88 and analysts have an average price target of $126.76 on the stock.
Social media leader Facebook (FB) is scheduled to release its first-quarter results after the market close on Wednesday. The consensus calls for earnings of $1.65 per share and sales of $14.96 billion. During the same period last year Facebook posted earnings of $1.69 with sales of $11.97 billion. 2018 was a tough year for FB stock as the company dealt with fallout over a data privacy scandal that took place during the 2016 presidential election. Wall Street feared that the company would experience advertiser backlash, but that has not proven to be the case and optimism returned to the stock in December and FB shares have appreciated by 38% on the year as traders focus more on the company’s dominance of social media and its rapidly growing profits. Earnings have risen 51% annually over the last five years and are expected to continue to rise at an annual rate of 16.5% over the next five years. Facebook is currently working to grow its revenue streams on WhatsApp and Instagram, both of which are very popular social media apps and could lead to much stronger than expected bottom line growth. Facebook has a solid track record of posting large positive earnings surprises, and the street expects another solid beat with a whisper number of $1.74. FB trades at 20 times future earnings so there is good upside potential if the company is able to post numbers in-line or better than expected moving forward. InvestorsObserver’s Stock Score Report gives FB an overall score of 68 and analysts have an average price target of $196.32 on the stock.
E-commerce giant Amazon.com (AMZN) will report its first-quarter numbers after the market closes Thursday with analysts forecasting earnings of $4.72 on revenue of $59.65 billion. Amazon reported earnings of $3.27 per share on revenue of $51 billion during the same period last year. Despite its size, Amazon continues to grow at a blistering pace after operating for years in the red. Over the last five years the company grew its bottom line by 81% per annum and look ahead analysts forecast a remarkably high annual growth rate of 91% for the next five years. Given the huge earnings growth that the market expects it is not surprising to see AMZN trade at a high valuation. Currently the stock is trading at 93 times past earnings and 47 times future earnings. The valuation is high, but investors should not let the valuation scare them as the stock has already traded at very high multiples and if Amazon is able to continue to grow at the pace analysts expect the stock will continue to move higher. Amazon controls e-commerce and has also emerged as a leader in cloud computing. Both sectors should continue to boost the bottom line moving forward as the company looks to grow additional revenue streams in the grocery and pharmaceutical markets. The stock is up 25% on the year and will extend those gains on a strong quarterly report. The street expects a good quarter and a big earnings beat with a whisper number of $4.95. AMZN gets an overall score of 79 on InvestorsObserver’s Stock Score Report and analysts have placed an average price target of $2,145.00 on the stock.
Chip maker Intel (INTC) is expected to post Q1 numbers after the market close Thursday. The consensus calls for earnings of $0.87 and revenue of $16.01 billion. The forecasts are in-line with the company’s quarterly results for the same period last year when Intel reported earnings of $0.87 and revenue of $16.1 billion. The stock has been a strong performer in 2019, with shares up 24.5% year to date. The chip sector was one of the hottest sectors on Wall Street between 2016 and mid-2018, but the sector ran into trouble as a trade war broke out between the U.S. and China which sparked concern over the eventual impact on chip demand. As negotiations have progresses, and optimism has risen that a deal will be reached between the world’s two largest economies investor confidence has returned and the entire sector has shown strength in recent months. Last quarter Intel posted mixed results with a bottom line beat on slightly weaker than expected sales. The stock sold off for a brief period after the revenue miss, but investors quickly shifted their attention to the strong earnings number and pushed the stock to a new 52-week high. Currently INTC is trading at $58.40, just shy of its $59.59 52-week high set last week. The street expects another earnings beat with a whisper number of $0.90 for the quarter. INTC is an attractive value with a forward P/E of just 12.3 and earnings are forecast to rise just under 8% per annum over the next five years. Given the low valuation the stock should continue to trade higher in the wake of another earnings beat. Analysts have an average price target of $54.90 on the stock and InvestorsObserver’s Stock Score report gives INTC an overall score of 73.