Five stocks that will usher in the new earnings season

 

With the holidays now in the rear view mirror it is once again time to gear up for a new earnings season. This week the fourth quarter earnings season will really pick up and feature a string of major financials.

Citigoup (C) Wells Fargo (WFC) and JP Morgan (JPM) will get a chance to set the stage early in the week, with plenty of big names to follow.

Overall market conditions remain volatile, but so far the start of the new year has been positive and the major indexes have all bounced nicely following December corrections. The ongoing government shutdown, a trade war between the U.S. and China, and uncertainty over how many rate hikes the Federal Reserve will do in 2019 continue to weigh on investor sentiment, making this a very important earnings season.

Earnings growth is slowing globally, and there is a real concern of a possible global recession on the horizon, so traders will react quickly and sharply to any negative news in the upcoming earnings reports. As a result of so much market uncertainty, it is important to stay on top of all the earnings reports this season, not just the quarterly reports for the stocks you hold in your portfolios. Each company’s quarterly report has the potential to send a ripple effect across its particular sector and the overall market as a whole, so each report carries a little extra weight this quarter.

Here are a handful of reports that have the potential to rattle or boost the market during the latter part of the week.

Goldman Sachs (GS)

Goldman Sachs (GS) is just one of many big banks scheduled to report earnings this week. Citigroup (C) was the first major bank to report, posting mixed results that beat estimates on the bottom line while falling short on the bottom line due to a drop in fixed-income trading. The stock originally sold off the report, but shares quickly rallied as the company stated that investors that stayed on the sidelines towards the end of 2018 due to market volatility had become more active and the bank was seeing a nice uptick in bond trading. Financial stocks, including GS, were hit hard in the latter part of 2018, and with so much negativity already priced into the sector there is a chance for a sector-wide rally this earnings season if we see more banks issue positive guidance statements like Citigroup’s. Goldman is expected to post earnings of $5.50 per share on revenue of $7.9 billion when it reports Thursday morning, versus $5.68 and $7.83 billion during the same period last year. Traders are looking for a small earnings beat for the quarter with a whisper number of $5.60. GS trades at $178.41 well below its $251.90 average price target.

American Express (AXP)

Credit card company American Express (AXP) reports its fourth-quarter numbers after the market close Thursday. Analysts expect the company to post earnings of $1.79 on revenue of $10.59 billion. During the same period last year, the company reported earnings of $1.58 per share and sales of $8.84 billion. American Express’s quarterly numbers are important to watch because they provide good insight into the overall state of the retail sector. Credit card stocks have been hot in recent years as consumer confidence remained high, but the sector sold off with the overall market in December on fears of a looming global recession and the impact it could have on consumer spending. AXP has already started to recover some of its recent losses as the overall market rebounded and a strong set of quarterly numbers would help shares build on their current momentum. The stock trades at a low forward P/E of 12, and with earnings forecast to rise 12.5% per annum over the next five years the stock should continue to recover barring earnings miss or another correction in the overall market. The street is looking for a small earnings beat with a whisper number of $1.82 for the quarter. AXP trades at $98.45 with an average price target of $115.07.

Netflix (NFLX)

Video streaming leader Netflix (NFLX) has started to regain strength after a tough second half of 2018 and the company will get a chance to build on its recent momentum when it reports fourth-quarter numbers after the market close Thursday. Netflix is a member of the FAANG stocks that drove market gains in recent years, but the stock hit a ceiling mid-2018 and while shares are well off their all-time high set during the summer of 2018 the stock’s valuation remains a concern. NFLX trades at 120 times current earnings and 81 times forward earnings, so the stock is definitely priced for perfection and the company needs to avoid any signs of weakness for traders to drive shares higher. Analysts expect earnings of 25 cents per share on revenue of $4.21 billion. During the same period last year the company earned 41 cents on revenue of $3.29 billion. Netflix’s top and bottom line numbers will be closely watched, but the company’s update on its number of global subscribers will be what really drives the stock following the report. Netflix has done a great job adding domestic subscribers with a strong lineup and original programming and its international expansion has moved quicker than expected. Wall Street will need to see that continue in order for the stock to move back to its previous higher. Netflix has forecast 9.4 million new subscribers for the quarter, and a miss on that metric could result in a big drop in the stock given its high valuation. NFLX is trading at $335.04 with an average price target of $391.55.

Alcoa (AA)

Aluminum giant Alcoa (AA) reports its fourth-quarter results after the market close Wednesday. While Alcoa is not considered the major bellwether stock it once was, the company’s reports are always closely watched and do offer a good insight into the state of the overall economy. Because aluminum is used in all the major manufacturing sectors, Alcoa’s performance paints a clear picture of what is happening in the overall market. Analysts expect the company to post earnings of 61 cents per share, but the street is less optimistic with a whisper number of just 56 cents for the quarter. Last year the company reported a much stronger profit of $1.04, and the expected earnings drop will be the second quarter in a row with a year over year decline on the bottom line. Sales are forecast at $3.39 billion, up from $3.2 billion during the same period last year. There is a lot of pessimism priced into the stock which is currently just above its 52-week low but with a forward P/E of just 8.2 there is a good chance for a quick rally on better than expected numbers. With the street’s whisper below the consensus, the stock could move higher following the report even on a small earnings miss as long as the actual number comes in above the lower whisper number. AA is trading at $28.57 with an average price target of $50.10.

United Continental (UAL)

Airliner United Continental (UAL) will report fourth-quarter earnings after the market close Tuesday. The company is expected to post earnings of $1.98 per share on revenue of $10.37 billion. During the same period last year the company had earnings of $1.40 on sales of $9.44 billion. The stock has a favorable valuation with a forward P/E of just 7.3 and earnings are expected to rise 25% next year which suggests there is a lot of upside in the stock as long as the company is able to hit its estimates. The stock traded lower in December in sympathy to the overall market and has yet to really rebound as overall market conditions improved as traders await the company’s quarterly results. The stock is trading at $80.10 with an average price target of $101.79 so analysts see a lot of upside potential and the stock could quickly move back to its all-time high set in November. The market is concerned over the sectors ability to handle economic volatility from a government shutdown, fluctuating oil prices, and a risk of a global recession on the horizon. Several major airlines are going to report this week, and with airline stocks battered over the last couple of months the market wants to see strong numbers for the sector to start participating in the market recovery. The company fell short on the bottom line last quarter, but its overall track record is good and the street expects a small beat this quarter with a whisper number of $2.02 for the quarter.

Symbols: AA AXP GS NFLX UAL

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