The Coronavirus Impact on Corporate Earnings

Thursday, April 23, 2020

In addition to featuring new research reports on 16 major stocks, we have also provided here a real-time update on the ongoing Q1 earnings season. We also discuss below our assessment of the extent to which earnings estimates have come down as result of the Coronavirus pandemic.

Please note that the research reports featured here have been hand-picked from the roughly 70 reports published by our analyst team today. You can see all of today’s research reports here >>>

The Outbreak's Earnings Impact

Estimates have come down across the board as analysts have come to grips with the pandemic's full impact. The ongoing Q1 earnnings season is helping clarify matters as well, even though the lockdown conditions currently in force covered only the last few days of March and most management teams are simply withdrawing their previously issued guidance.

S&P 500 earnings in all four quarters of 2020 are currently expected to decline on a year-over-year basis, with Q2 earnings expected to decline the most at -29.5%. For Q1 whose reports are coming in these days, earnings are expected to decline -14.7%, with 2020 Q3 and Q4 currently expected to decline by -16.3% and -7.9%, respectively.

S&P 500 earnings for full-year 2020 are currently expected to decline by -17.1%. This is down from positive growth of +7.9% at the start of the year.

If we look at these estimates in absolute dollar terms, instead of changes from the previous year, aggregate (bottom up) net income for the index is currently expected to be approximately $1179 billion in 2020, down from approximately $1533 billion at the start of the year. This is a decline of $354 billion, almost all of which is because of the pandemic.

If you prefer to look at aggregate index earnings estimates on an 'EPS' basis, then the our data shows that the index is currently expected to earn $134.20 in 2020, which is down from the approximately $174.40 estimate at the start of the year or a decline of $40.25, primarily because of the pandemic. 

SAP shares have lagged the Zacks Computer Software industry over the past six months (-10.6% vs. +13.1%), but the Zacks analyst sees the company as benefiting from strong growth in cloud and software revenues, and expanding customer base.

Robust adoption of S/4HANA, Fieldglass, Concur and SuccessFactors Employee Central solutions is a key catalyst. Moreover, synergies from its acquisition of Qualtrics bodes well for the top-line growth. Additionally, strong demand for cloud solutions in the Europe, Middle East and Africa (EMEA) region holds promise.

However, increasing investments to enhance cloud-based offerings are likely to weigh on margins. Further, the coronavirus outbreak is weighing on software licenses & support revenues. Also, SAP trimmed 2020 guidance on account of uncertainty around coronavirus-led impact on business.

(You can read the full research report on SAP here >>>)

NIKE shares have outperformed the Zacks Shoes and Retail Apparel industry despite the hit to company's March quarter results because of store closures in China due to the coronavirus outbreak.

This resulted in lower sales mix in Greater China, which is its high margin geography, causing gross margin decline in the quarter.

The company retained its positive earnings track record, with earnings and sales beat in third-quarter fiscal 2020. The NIKE Direct business displayed strength backed by more than 30% digital revenue growth across all geographies and Converse. Notably, the use of its digital ecosystem as a key playbook to combat the COVID-19 crisis, has been receiving applause.

(You can read the full research report on NIKE here >>>)

Lockheed Martin’s shares have done better than the Zacks Aerospace Defense industry, for whcih the Zacks analyst credits the current U.S. administration's expansionary budgetary policies, a trend that will likely continue over the near- to medium-term.

Lockheed Martin ended the first quarter of 2020 with both earnings and revenues surpassing the Zacks Consensus Estimate. It enjoys strong demand for its high-end military equipment in domestic and international markets, being the world’s largest defense contractor.

However, the company’s higher debt-to-equity ratio shows that the stock is highly leveraged when compared with its industry. Lockheed Martin also faces intense global competition for its broad portfolio of products and services. Furthermore, forced cost reduction initiatives for the F-35 program might hamper its operating results.

(You can read the full research report on Lockheed Martin here >>>)

Other noteworthy reports we are featuring today include Netflix (NFLX), Danaher (DHR) and Regeneron Pharmaceuticals (REGN).

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Sheraz Mian

Director of Research

Note: Sheraz Mian heads the Zacks Equity Research department and is a well-regarded expert of aggregate earnings. He is frequently quoted in the print and electronic media and publishes the weekly Earnings Trends and Earnings Preview reports. If you want an email notification each time Sheraz publishes a new article, please click here>>>

Today's Must Read

Growth in S/4HANA Platform & Expanding Clientele Aid SAP

NIKE's (NKE) Digital Playbook to Help Steer Coronavirus Woes

Robust Demand Aids Lockheed (LMT), F-35 program's Cost Hurts

Featured Reports

Robust Content Aids Netflix (NFLX) Amid Stiff Competition

Per the Zacks analyst, Netflix's robust content portfolio is driving subscriber addition that is helping it steer away competition.

Inorganic Activities to Aid Danaher (DHR), COVID-19 to Drag

Per a Zacks analyst, Danaher is well positioned to gain from inorganic activities, including Biopharma buyout and divestiture of dental assets.

Label Expansions of Eylea, Dupixent Boost Regeneron (REGN)

Per the Zacks analyst, label expansions of key drugs like Eylea and Dupixent boost Regeneron.

Digital Transformation, AI Proliferation Aid Infosys (INFY)

Per the Zacks analyst, Infosys is benefiting from large deal wins and higher investments by clients in digital transformation, artificial intelligence and automation.

Balance Sheet Strength Boosts Suncor (SU), Pricing Woes Remain

The Zacks analyst believes that Suncor's modest leverage ratio of around 23.5% provides it financial flexibility to tap growth opportunities.

International Oil Service Business Aids Schlumberger (SLB)

Resilient international oilfield service operations amid coronavirus-hit energy market continue to aid Schlumberger. However, the firm's weak North American business concerns the Zacks analyst.

Digitalization to Aid Planet Fitness (PLNT), Coronavirus Ail

Per the Zacks analyst, Planet Fitness increased focus on digitalization, strategic partnership and international expansion bode well.

New Upgrades

High Gold Prices & Cobre Panama to Aid Franco-Nevada (FNV)

Per the Zacks Analyst, Franco-Nevada will gain from higher gold prices, focus on cost management, its healthy portfolio of streaming and royalty agreements particularly the Cobre Panama project.

Strength in Flagship Senza Platform Drives Nevro Corp (NVRO)

The Zacks analyst is bullish about strength in flagship Senza Platform of Nevro Corp.The recent commercial launch of Senza Omnia SCS system is encouraging.

InterDigital (IDCC) Rides on R&D Strength for Core Licensing

Per the Zacks analyst, InterDigital is likely to benefit from its core wireless licensing business, backed by innovative technological advancements and R&D capabilities.

New Downgrades

T-Mobile (TMUS) Hurt by Intense Competition, Pricing Pressure

Per the Zacks analyst, T-Mobile continues to struggle in a fiercely competitive U.S. telecom market. This limits the company's ability to attract and retain customers, which affects operating results.

Store Closures Amid COVID-19 a Woe for Ulta Beauty (ULTA)

Ulta Beauty (ULTA) has temporarily shut all its stores due to coronavirus outbreak. Per the Zacks analyst, this is likely to dent the performance in the first quarter.

NuStar (NS) Wrecked by Historic Crude Slump, High Debt

The Zacks analyst believes that the spectacular oil crash is set to impact NuStar by drastically lowering the volume of products delivered. The partnership's high debt level is also a concern.

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SAP SE (SAP) : Free Stock Analysis Report
 
Regeneron Pharmaceuticals, Inc. (REGN) : Free Stock Analysis Report
 
NIKE, Inc. (NKE) : Free Stock Analysis Report
 
Netflix, Inc. (NFLX) : Free Stock Analysis Report
 
Lockheed Martin Corporation (LMT) : Free Stock Analysis Report
 
Danaher Corporation (DHR) : Free Stock Analysis Report
 
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