MW More companies than usual are downbeat on the end of the year - but Wall Street's profit estimates are still strong
By Bill Peters
Earnings Watch: Disney, Home Depot and Live Nation report quarterly results this week
After two mammoth weeks of earnings, most S&P 500 names have put their third-quarter results in the rearview. But as Wall Street's attention turns to the final three months of the year, more companies are downbeat, even as analysts remain upbeat about profit growth.
So far, of the 77 companies that have given profit forecasts during this round of earnings, 53 of them, or 69% of the total, have offered up more pessimistic forecasts, according to a FactSet analysis published on Friday. That percentage figure is higher than the average rate over both the past five and 10 years.
Still, Wall Street analysts at the moment still expect companies in the S&P 500 SPX to put up 12.2% per-share profit growth year over year for the fourth quarter overall, according to FactSet. However, analysts' estimates tend to get less optimistic over time.
The final three months of the year will cover the key holiday shopping season and potentially more recalibration from corporate America as President-elect Donald Trump prepares to take office next year.
Economists have worried that steeper tariffs, a centerpiece of Trump's economic agenda, will raise prices for consumers. However, markets rallied after Trump's presidential election victory last week, which lifted uncertainty about the race's outcome and raised hopes of a more favorable backdrop for businesses.
An interest-rate cut from the Federal Reserve also helped propel stocks higher, as the S&P 500 on Friday briefly crossed the 6,000-point barrier for the first time ever - an advance one strategist said was "a psychologically significant milestone."
After the Biden administration took a tougher stance on corporate consolidation, some analysts noted the tech industry - whose biggest players alone can drive market action - would likely be a massive beneficiary of a Trump White House and a Republican-controlled Congress. While the GOP has taken control of the Senate, the outcome for the House of Representatives as of Friday wasn't yet clear.
"We believe a Trump administration will have a dramatically reduced regulatory framework that will be a significant catalyst for accelerated tech M&A in the broader AI ecosystem and see a much more active Big Tech deal-hunting cycle with Lina Khan's days at the FTC now numbered in the views of the Street," Wedbush analysts, led by Daniel Ives, said in a research note last week.
Wedbush added later in that note: "We believe many innovative public and private tech players along with strategic financial buyers have been on opposite sides of the dance floor at the Tech Prom waiting to dance."
This week in earnings
The earnings season slows down this week, with only 12 S&P 500 companies, including three on the Dow Jones Industrial Average DJIA, set to report, according to FactSet.
Ticketmaster parent Live Nation Entertainment Inc. (LYV) will release results as it continues to face an antitrust lawsuit from the Justice Department, though signs are that concert demand remains strong - even if its pricing practices have at times irritated fans.
Earnings are also due from golf-equipment and entertainment company Topgolf Callaway Brands Corp. $(MODG)$, after management announced that they wanted to split up the company. Fast-casual restaurant chain Cava Group Inc. $(CAVA)$ reports following a massive run higher for its stock. And video platform Rumble Inc. (RUM) - which has attracted a conservative following - reports after an election night that set new records for its broadcasts and viewership.
Elsewhere, Tyson Foods Inc. $(TSN.AU)$, Instacart $(CART)$, Chegg Inc. (CHGG), BuzzFeed Inc. $(BZFD)$, Cisco Systems Inc. $(CSCO)$ and Advance Auto Parts Inc. $(AAP.AU)$ all report results.
The call to put on your calendar
Disney earnings: Walt Disney Co. $(DIS)$ reports quarterly earnings on Thursday. The last time around, the media and theme-park giant turned a profit in its streaming business, but it warned of a "moderation of consumer demand" at its parks as tourists continue to deal with higher costs. This time around, the company will report in the wake of an election, two powerful hurricanes - Milton and Helene - that tore through Florida, and an extended tougher stretch for the entertainment industry as studios pull back on production.
Still, shares of Disney are up 9.7% so far this year. And BofA analysts, in a note last month, said the company's biggest challenges heading into its next fiscal year were "largely known." Those analysts cited its parks, its ownership of ESPN, its vast reserves of intellectual property that can be converted into content and cash, and its more than 200 million subscribers all as strengths.
"However, following a strong recovery exiting COVID, theme-park demand has moderated and visibility remains limited on when trends improve," the analysts said. "This, coupled with a slower profitability ramp in [streaming] and mixed performance of the film slate over the last few years, has created near-term uncertainty surrounding consolidated company earnings growth and has led to significant share underperformance from the April highs."
They added, however, that "at current levels, we believe consensus forecasts have been recalibrated."
The number to watch
Home Depot sales: On Tuesday, quarterly results from home-improvement chain Home Depot Inc. $(HD)$ will kick off the third-quarter earnings season for the nation's largest retailers.
The company will report those results as interest rates are coming down but high home prices are still keeping many potential home buyers on the sidelines. During the third quarter, visits to Home Depot stores fell 3.1% year over year, according to Placer.ai, a firm that analyzes foot traffic at retailers.
Customers have shied away from big-ticket purchases. And with borrowing costs still elevated, they have put off more expansive and expensive home-improvement endeavors. Home Depot Chief Executive Ted Decker in August said that "extreme weather changes" had delayed spring-season projects and said it was difficult to pinpoint the "magical rate number" that might unlock more demand.
This time around, weather is likely be a factor in a different way. After hurricanes Helene and Milton battered the Southeast, executives could offer more details on the impact as people tried to prepare for the storms and rebuild after.
"We note Home Depot stores in Florida account for nearly 8% of its U.S. locations," CFRA analyst Ana Garcia wrote in a research note. "Georgia accounts for 4%, while North and South Carolina represent about 2% combined."
Still, she said the chain might have to keep running sales deals and other promotions to hold shoppers' interest.
"We think consumers, despite feeling more confident about future economic conditions, may need more motivation to transact now," Garcia said.
-Bill Peters
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November 10, 2024 10:01 ET (15:01 GMT)
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