Wall Street has seen a good start to the fourth-quarter 2021 earnings season. Although we are in the initial stages of the reporting cycle, the results are better than expected. This week, the earnings season will gather pace as several corporate behemoths are slated to report their financial numbers.
Five S&P 500 companies — ExxonMobil Corp. XOM, PulteGroup Inc (NYSE:PHM). PHM, General Motors Co. GM, Advanced Micro Devices (NASDAQ:AMD) AMD and Ford Motor Co. F — are notable in this week’s earnings lineup. Their combination of a favorable Zacks Rank and positive Earnings ESP increase their chances of coming up with an earnings beat and make them attractive to investors.
S&P 500 in Q4 At a Glance
The S&P 500 Index – popularly known as the market’s benchmark – had an impressive 2021, rallying 26.9% despite being pandemic-ridden. Among all the major indexes of Wall Street, the S&P 500 was the best performer last year.
The availability of a number of COVID-19 vaccines, the government’s efforts toward nationwide vaccination, and the continuation of the fiscal and monetary stimulus resulted in an earlier-than-expected reopening of the U.S. economy.
In the fourth quarter, the S&P 500 jumped 10.7% as the termination of fiscal stimulus, soaring inflation and the resurgence of coronavirus had failed to derail the index’s northbound journey.
Importantly, in December, the broad-market index advanced 4.4% despite the Fed’s decision to speed up the tapering of the quantitative easing program and the central bank’s indication for a possible interest rate hike in the first half of 2022. The resurgence of the Omicron variant of COVID-19 was a concern too.
Strong Start to Fourth-Quarter Earnings
As of Jan 21, 64 S&P 500 companies reported fourth-quarter 2021 results. Total earnings of these companies are up 22.9% year over year on 13.6% higher revenues with 84.4% beating EPS estimates and 81.3% surpassing revenue estimates.
Total fourth-quarter earnings of the market's benchmark — the S&P 500 Index — are projected to climb 21.5% from the same period last year on 12% higher revenues, following 41.4% year-over-year earnings growth on 17.4% higher revenues in the third quarter, 95% year-over-year earnings growth on 25.3% higher revenues in the second quarter and 49.3% year-over-year earnings growth on 10.3% higher revenues in first-quarter 2021.
The first three quarters of last year were favorably impacted since the preceding quarters of the year before that were affected by pandemic-induced lockdowns and restrictions. However, the U.S. economy started reopening at a very slow pace since the beginning of the fourth quarter of 2020.
Our Top Picks
Five S&P 500 companies will report earnings next week. Each of these stocks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy) and has a positive Earnings ESP. You can see the complete list of today’s Zacks #1 Rank stocks here.
Our research shows that for stocks with the combination of a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, the chance of an earnings beat is as high as 70%. These stocks are anticipated to appreciate after their earnings releases. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
The chart below shows the price performance of our five picks in the last quarter.
Image Source: Zacks Investment Research
ExxonMobil made multiple world-class oil discoveries at the Stabroek Block, located off the coast of Guyana. XOM has raised the estimate for discovered recoverable resources from the Stabroek Block to approximately 10 billion oil-equivalent barrels.
ExxonMobil’s bellwether status and an optimal integrated capital structure, which have historically led to industry-leading returns make it a relatively lower-risk energy sector play. The integrated oil behemoth expects to reduce greenhouse gas emissions by 30% in its upstream business. By the same time, XOM expects to reduce flaring and methane emissions by 40%.
The Zacks Rank #1 ExxonMobil has an Earnings ESP of +5.51%. It has an expected earnings growth rate of 21.4% for the current year. The Zacks Consensus Estimate for current-year earnings improved 3.4% over the last 7 days.
XOM recorded earnings surprises in the last four reported quarters, with an average beat of 54.7%. ExxonMobil is set to release earnings results on Feb 1, before the opening bell.
Ford Motor raised its full-year 2021 guidance and dividend restoration. A strong vehicle mix supported by F-series trucks and SUV models is expected to bolster the company’s revenues. A collaboration with Google (NASDAQ:GOOGL) to bolster the development and delivery of connected vehicles also bodes well.
Ford Motor’s aggressive electrification push, with planned spending of around $30 billion by 2025 and the target of 40% of its global vehicle volume to become all-electric by the end of the decade, augur well. While Mustang Mach-E of F has already become a hit among consumers, the upcoming launches like F-150 Electric, Maverick hybrid pickup and E-Transit are set to further drive its top line.
The Zacks Rank #1 Ford Motors has an Earnings ESP of +6.83%. It has an expected earnings growth rate of 8.1% for the current year. The Zacks Consensus Estimate for current-year earnings improved 3.1% over the last 7 days.
F recorded earnings surprises in the last four reported quarters, with an average beat of 335.6%. Ford Motor is set to release earnings results on Feb 3, after the closing bell.
Advanced Micro Devices is riding on robust performance from the Computing and Graphics, and Enterprise Embedded and Semi-Custom segments. AMD is benefiting from the strong sales of its Ryzen and EPYC server processors, owing to the increasing proliferation of AI and Machine Learning in industries like cloud, gaming and supercomputing.
The growing clout of 7 nanometer products in the data center vertical, driven by work-from-home and online learning trends, is a key catalyst of Advanced Micro Devices. AMD has raised its 2021 guidance for revenues on the back of strong growth across all businesses.
The Zacks Rank #2 Advanced Micro Devices has an Earnings ESP of +3.47%. It has an expected earnings growth rate of 25.5% for the current year. The Zacks Consensus Estimate for current-year earnings improved 0.3% over the last 7 days.
AMD recorded earnings surprises in the last four reported quarters, with an average beat of 10.1%. Advanced Micro Devices is set to release earnings results on Feb 1, after the closing bell.
PulteGroup has been witnessing major disruptions as the manufacture and supply of building products have been extending overall build cycles. Also, higher costs for building homes along with rising land, labor and raw material costs are concerns for PHM.
Nonetheless, PulteGroup has been gaining on solid demand trends and higher pricing. Both home sales gross and operating margins were up 200 basis points year over year in the third quarter. Solid operating results and the resultant cash flow enabled PHM to invest $1.1 billion in land acquisition and development in the quarter. PulteGroup returned $261 million to its shareholders through share repurchases.
The Zacks Rank #2 PHM has an Earnings ESP of +1.88%. It has an expected earnings growth rate of 23.8% for the current year. The Zacks Consensus Estimate for current-year earnings improved 0.7% over the last 30 days.
PulteGroup recorded earnings surprises in three out of the last four reported quarters, with an average beat of 3.8%. PHM is set to release earnings results on Feb 1, before the opening bell.
General Motors faced challenges in the second half of 2021 due to semiconductor-driven plant downtime. While the plan to spend $35 billion through 2025 to launch gen-next EVs and self-driving vehicles augur well for GM, it would strain near-term margins.
Nevertheless, General Motors' hot-selling brands in America like Chevrolet Silverado and Equinox along with upcoming electric vehicle launches including GMC Hummer EV and Cadillac Lyriq EV are likely to boost its prospects. GM’s Ultium Drive system and collaborations with Honda and EVgo are likely to scale up its e-mobility prowess.
The Zacks Rank #2 General Motors has an Earnings ESP of +12.02%. It has an expected earnings growth rate of 2.8% for the current year. The Zacks Consensus Estimate for current-year earnings improved 2.9% over the last 30 days.
GM recorded earnings surprises in the last four reported quarters, with an average beat of 46.5%. General Motors is set to release earnings results on Feb 1, after the closing bell.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
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