INSIGHTS

Stefano Sciacca

Fri, Jul 19


KYLIN TALK | Stock Watch 19.07.19

Earnings Season Wrap-Up

 

We are finally back in the earnings season with all the excitement (and hopefully volatility) it brings. We believe this Q2 could start with more cautiousness, driven by warnings from businesses for worse or softer profit growth for this quarter. So far, we have seen the large majority of the S&P 500 companies beat expectations, which had been overly lowered amid general pessimism with slowing macro and “soft” data. Of the 43 of the companies included in the most-commonly known US index that have already reported we have seen a notable beat this week.

 

The overall S&P 500 earnings forecast for Q2 has been revised up from -0.3% to 0.4%, a number that might continue to rise. The index is up about 20% YTD, while for July it is already up 2%, after a 7% gain in the month of June. However, Chemicals, Metals and Industrials should bring pressure and volatility in the coming weeks.

 

As usual, the earnings season kicked off with the bank sector. JPMorgan, Morgan Stanley, Goldman Sachs and Bank of America all beat on EPS, while highlighting weakening iBanking and Sales & Trading revenues. Morgan Stanley’s institutional securities revenue fell 11% YoY, along with Investment Banking and Sales and Trading down 13% and 12%, respectively. JPM and BAML both underlined solid consumer credit-driven by positive activity across the board. What might be a long-term trigger is the tightening lending margin due to the upcoming rate cut (already mentioned by JPMorgan CEO).

 

Netflix has been a different story (chart below). The streaming services provider went down as much as 11% post-market due to an unexpected fall in subscribers count. The company was expected to add 5M additional users, but added “only” 2.7M, ending the quarter with 151.56M global paid memberships (22% growth YoY). The company mentioned price increases in certain regions as a potential cause for the subscriber's miss. Revenue grew 26%, in line with consensus, while Average Revenue Per User increased 3% (ex. FX impact). Operating margin expanded 2.5% to 14.3%. Interesting will be to see how the peers will come out during the season.

 

 

 
 
Philips Morris came out positive on earnings and raised EPS outlook. Eastern Europe, South & Southeast Asia and Latin America & Canada all up double-digit. Adjusted Operating margin improved 240bps to 41.4%. Cigarettes volume shipped also rallied 4%. Heated Tobacco products shipped up 37%. The stock reacted positively with a 3% rally premarket. The release lifted also British American Tobacco (+6%) and Altria (+2%).
 
 
 

Next week our macro spotlight will be on?

Tuesday:

  • US Existing Home Sales
  • UK CBI Trends Order

Wednesday:

  • French Markit Comp Flash PMI
  • French Markit Manufacturing Flash PMI
  • German Markit Manufacturing Flash PMI
  • US Build Permits
  • US New Home Sales
  • Eurozone Marking Comp Flash PMI
  • Eurozone Markit Manufacturing Flash PMI

 

Thursday:

  • Ifo Business Climate Index – Germany
  • Ifo Current Conditions New – Germany
  • Ifo Expectations New – Germany
  • ECB Refinancing Rate
  • US Durables ex-Transports
  • Spanish Unemployment Rate

Friday:

  • US GDP Advance
  • Japan CPI Tokyo
  • Italian Manufacturing Business Confidence
  • Italian Consumer Confidence
  • French Consumer Confidence

 

 Chart of the Week

 
 

Fact of the Week

Oil has lost 5% this week as the possibility of a renewed U.S-China trade conflict and struggling American consumption weaken the demand outlook.

Quote of the Week

“Identify the paradigm you’re in, examine if and how it is unsustainable, and visualize how the paradigm shift will transpire when that which is unsustainable stops”

Ray Dalio, Bridgwater Associates CEO, on selling stocks and buying gold.


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