The current earnings season has gotten off to a strong start, but the market is under pressure due to rising death numbers from the coronavirus virus.
Rising death numbers have sparked concerns over a slowdown in transportation and manufacturing which has pushed the major indexes lower. While some argue the current drop is justified, others are arguing that the market is overreacting and the drop has created a good buying opportunity in the market.
Assuming China, and other countries, start to announce that the virus has come under control the market should quickly make back its recent losses. With the market currently in risk mode, companies that post strong quarterly numbers become more attractive, and here are this week's major earnings reports that could help drive the overall market higher.
Microsoft (MSFT)
Tech giant Microsoft (MSFT) is scheduled to release its fiscal second-quarter numbers after the market closes on Wednesday. The company is expected to report earnings of $1.32 per share, versus $1.08 during the same period last year. Cloud computing has been the fastest growing sector in technology, and Microsoft has carved out a leadership role in the sector which has helped to drive profit growth of 18% per annum over the last five years and the company is expected to show profit growth of 13.7% during the current year. The stock is trading just shy of its all-time high with a forward P/E of 26. The stock is certainly priced for perfection ahead of the quarterly report and the company will need to post numbers that are in-line or better than expected for the stock to build on its recent gains. Microsoft has posted better than expected top and bottom line numbers in the last three quarters, and traders expect another earnings beat for the recent quarter with a whisper number of $1.38. MSFT's earnings are important to the overall market as they will shine a light on the strength of the overall economy and business spending. MSFT trades at $162.85 with an average price target of $172.67.
Sherwin-Williams (SHW)
Paint maker Sherwin-Williams (SHW) is scheduled to release its fourth-quarter numbers before the market open on Thursday. The consensus calls for earnings of $4.40 per share with traders expecting a small earnings beat with a whisper number of $4.43. Sherwin-Williams is an important earnings report because it is considered a bellwether report for the overall housing market. When the housing market is strong, Sherwin-Williams shows strength because not only do homebuilders use its products, but current homeowners are also more likely to invest in upgrading their homes. The strong housing market in recent years has helped Sherwin-Williams grow earnings at an annual rate of 22% over the last five years and looking ahead profits forecast profit growth of 14% per annum for the next five years. The company has posted better than expected earnings in the last two quarters, with sales topping estimates last quarter. The stock is trading just shy of its all-time high with a forward P/E of 24. The stock's valuation is a little high but given the strong growth estimates shares can still trade higher as long as the company is able to keep pace with estimates. SHW trades at $584.95 with an average price target of $592.71.
Facebook (FB)
Social media leader Facebook (FB) is expected to report its fourth-quarter numbers after the market closes on Wednesday. Analysts expect earnings of $2.51 per share, up from $2.38 during the same period last year. Facebook reported better than expected numbers last quarter after two straight earnings misses, while revenues have top estimates four straight quarters. Facebook has emerged as the only real competitor to Google's (GOOGL) dominant position in online advertising, so its quarterly numbers are very important to the overall market. A strong set of quarterly numbers suggests that business owners remain upbeat on the overall economy and are willing to invest in marketing. FB is trading just shy of its all-time high with a forward P/E of 23. The company has shown strong earnings growth of 42% annually in the last five years. Looking ahead, analysts expect earnings growth to slow to an annual rate of 11.5% for the next five years. The street is looking for another earnings beat with a whisper number of $2.63. Analysts continue to see additional upside in the stock. FB trades at $215.15 with an average price target of $241.81.
