Earnings season has just kicked off, so I thought it would be a good idea to show you how companies are feeling heading into what could be a critical quarter.
And we can do that by looking at S&P 500 earnings projections.
Here’s what I found:
S&P 500 companies have beaten expectations for earnings per share (EPS) in seven straight quarters.
That said, earnings projections have been on a consistent downtrend since the fourth quarter of 2024, even though companies have blown the doors off those expectations consistently.
The other thing I want to point out here is that if S&P 500 companies hit the projected 4.9% growth in the second quarter of 2025, it will be the lowest earnings growth reported since the fourth quarter of 2023 (4%).
I’ll hit on other earnings trends each Friday as the season continues, and I’m interested to see just where the biggest companies on the market land when it’s all said and done.
Now, before I get into the “bullish” and “bearish” earnings projections and what our Green Zone Power Rating system says about some companies reporting next week, I want to review some quarterly numbers that just dropped days ago…
Morgan Stanley Kills It Again … With Trading
One of the companies on our “bearish” earnings list last week was Morgan Stanley (MS).
This piqued my interest because the company was on a four-quarter hot streak of increasing its EPS.
I was perplexed as to why analysts would expect a $0.62 quarter-over-quarter drop in EPS.
As I mentioned last week, Morgan Stanley’s weaker lending due to perpetually high interest rates has been buoyed by increased activity in its sales and trading division.
Well, it happened again this quarter. Morgan Stanley reported earnings of $2.13 against analysts’ expectations of just $1.96. Net income jumped 15% and total revenue was up 12%.
The big reason was that the bank reported a nearly $1 billion increase in net revenue from institutional securities. The wealth management division also increased its net revenues by almost $1 billion year over year.
Non-traditional banking activities have kept Morgan Stanley investors happy … with a 10% rise in its stock year-to-date (before earnings). However, the $2.13 number is still lower than the previous quarter’s EPS of $2.60. A beat is always nice to see, but the bigger picture points to a softer outlook.
Now, let’s look ahead at companies with “bullish” earnings outlooks next week…
One Defense Stock Landed on the Bullish Earnings List
Stocks on this list are expected to beat their previous quarter’s EPS, thus could potentially trade higher if those expectations are met… or exceeded.
For this screen, stocks must meet four criteria:
- 10 or more analysts cover the stock.
- The average analyst recommendation is a “Buy.”
- It BEAT analysts’ EPS estimates for the previous quarter.
- The average analyst estimate for the current quarter’s EPS is greater than the previous one.
Here are the top 10 companies that made the list based on the size of the expected earnings beat:
The one to watch here is Northrop Grumman Corp. (NOC), a massive defense contractor based in Virginia.
This company works on everything from aircraft to space systems, and it should continue to benefit from defense spending in the U.S. and abroad.
The Trump Administration’s “One Big Beautiful Bill” will inject billions into defense spending, including money allocated for the Golden Dome missile defense system.
And that should be a boon for Northrop Grumman.
Analysts project a doubling of the company’s EPS. Meeting or beating that expectation could attract investors and propel the stock out of “Neutral” territory on Adam’s Green Zone Power Rating system.
Let’s switch gears to the bearish side of the earnings conversation…
2 Defense Stocks Are Bracing for a Bearish Outcome
For our “bearish” earnings screen, we’re only looking for two things:
- 10 or more analysts must cover the stock.
- The average analyst estimate for the current quarter’s EPS is less than the previous quarter’s.
We want companies that are covered by a sufficiently large group of Wall Street analysts who collectively expect the company to report a quarter-over-quarter decline in earnings.
Here are the Top 10 companies that passed this screen:
Lots of storylines here, from a large auto manufacturer in General Motors Co. (GM) to one of the biggest technology companies in the world with Alphabet Inc. (GOOGL).
However, I think I will stick with defense and focus on Lockheed Martin Corp. (LMT) and General Dynamics Corp. (GD).
You’re probably asking why these two companies are expected to report lower quarterly numbers when Northrop Grumman is the opposite.
Good question.
One big reason is that, recently, Northrop Grumman has inked memoranda of understanding with Korean-based Hanwha to support South Korea’s missile defense systems as well as with ROMARM of Romania to provide ground-based radars in that country.
Northrop is also adding to its arsenal (see what I did there) by expanding its space systems division to include robotics and payload delivery.
These are areas where both Lockheed Martin and General Dynamics seem to be lacking.
Despite that, I could see both LMT and GD beating expectations, which would provide a boost in their overall ratings on the Green Zone Power ratings system.
All three companies stand to benefit from the increase in defense spending in the U.S. and among NATO countries.
We’ll review how things shook out for these defense companies in next week’s Friday edition.
I hope you all have a great weekend!
Safe trading,
Matt Clark, CMSA®
Chief Research Analyst, Money & Markets