Welcome to the Friday earnings edition of What My System Says Today!
We are one week away from the Thanksgiving holiday, and so far, earnings have given investors plenty to be thankful for.
Today, before I jump into “bullish” and “bearish” earnings for next week, I want to focus on net profit margins.
In simple terms, the net profit margin is the amount of money left over after a company has paid all its expenses, including taxes and interest. It’s essentially pure profit for a company.
So far, in the third quarter, the S&P 500 is setting records for net profit margins.
Companies in the S&P 500 that have already reported quarterly earnings have averaged a net profit margin of 13.1%.
That’s the highest profit margin for the benchmark in the last 15 years.
The sectors increasing their year-over-year net profit margin include information technology, financials, utilities, industrials, materials and consumer discretionary.
Projected net profit margins for the S&P 500 are expected to range between 12.8% and 13.7% through the second quarter of next year.
Now, I want to look at one of the earnings calls I made last week, and how it played out…
The AI Trade Rolls On
One of the “bullish” earnings on our list last week was also one of the most anticipated quarterly earnings of the session.
Nvidia Corp. (NVDA) has been the driving force behind the recent run of the S&P 500.
In fact, NVDA accounts for 8% of the benchmark index.
That’s why Wall Street watches over its quarterly earnings with sharp eyes.
Projections said the company would surpass its EPS from the previous quarter by $0.17 to $1.25 per share.
My call went a little farther than that:
Nvidia will top the EPS estimate, but not by a significant margin.
Well, turns out, I was really, really close.
After the closing bell on Wednesday, Nvidia reported revenue of $57 billion versus analysts’ expectations of $55.2 billion.
Its earnings per share were reported at $1.30… slightly above projections of $1.25… so, a 3.3% earnings surprise.
What that earnings report also did was reignite the market, which had been stagnant for the last three days.
The S&P 500 advanced nearly 1.7% in Thursday morning trading, before retreating in the afternoon.
Now, let’s switch over to “bullish” and “bearish” earnings for next week (which I might remind you is a shorter week due to the Thanksgiving holiday)…
“Bullish” Earnings to Watch
These stocks are expected to beat their previous quarter’s earnings per share (EPS), and thus, if those expectations are met or exceeded, they could potentially trade higher.
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 seven companies that made this week’s list:
More tech companies are reporting earnings next week, but I want to focus on The J.M. Smucker Co. (SJM).
The large American food and beverage company is expected to increase its EPS by $2.51 over the previous quarter.
One thing to note is that in the same quarter a year ago, SJM reported its highest EPS of the year at $2.76.
That beat consensus estimates by nearly 10%.
Another thing to note is that the company has beaten EPS estimates in four of the last five quarters. However, the caveat is that the quarter it didn’t beat expectations was last quarter.
Things have been difficult for consumer staples stocks, but with little impact from tariffs, I believe SJM will beat expectations and could report an EPS as high as $2.15 per share.
That would do wonders for the stock’s “bearish” rating on Adam’s Green Zone Power Ratings system.
Now, let’s switch gears and look at potentially “bearish” earnings for next week.
“Bearish” Earnings to Watch
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 four companies that passed this screen:
I’m not entirely surprised to see the likes of Dick’s Sporting Goods Inc. (DKS), Kohl’s Corp. (KSS) and Urban Outfitters Inc. (URBN) on the list.
While tariffs may not have significantly impacted a company like SJM, they have affected these retailers.
Just like I mentioned last week with Target Corp. (TGT), Walmart Inc. (WMT) and Ross Stores Inc. (ROST), tariffs have significantly increased the costs these retailers incur when importing products from overseas.
I would not be surprised if any of these three potentially “bearish” earnings calls next week fall short of their estimates.
Even with a shorter week, there will still be some interesting earnings to watch.
That’s all from me today.
I hope you all have a great weekend.
Until next week…
Safe trading,
Matt Clark, CMSA®
Chief Research Analyst, Money & Markets