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Coronavirus Starting to Weigh on 2020 Q1 Earnings Estimates

Sheraz Mian

Thursday, February 6, 2020

The Zacks Research Daily presents the best research output of our analyst team. In addition to giving you a real-time update on the ongoing 2019 Q4 earnings season and evolving impact of the virus outbreak on estimates for the current period, we present here new research reports on 16 major stocks, including Exxon Mobil (XOM), Chevron (CVX) and International Business Machines (IBM). These research reports 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 >>>

Q4 Earnings Season Scorecard (as of February 6th, 2020)

Including all of this morning's reports, we now have Q4 earnings reports from 305 S&P 500 members or 61% of the index's total membership. Total earnings for these 305 index members are up +0.5% from the same period last year on +4.1% higher revenues, with 71.8% beating EPS estimates and 67.5% beating revenue estimates.

This is better performance than we have seen from this same group of companies in the recent past, even though earnings growth remains anemic and a lower proportion of companies are beating EPS estimates. 

Looking at Q4 as a whole, combining the actual results that have come out with estimates for the still-to-come reports, total earnings are now expected to be up +0.5% on +4.2% higher revenues.

2020 Q1 Estimates Coming Down

Estimates for the current period (2020 Q1) have started coming down in a notable way over the last few days, with the Coronavirus impact a big driver for the estimate cuts. S&P 500 earnings in 2020 Q1 are now expected to be up +1.7%, sharply down from +3.4% last week.

Given the evolving nature of this headwind, it is reasonable to expect that 2020 Q1 estimates will come down further in the coming days.

For a complete look at the Q4 earnings season and expectations for the current and coming quarters, please check out our weekly Earnings Trends report here >>> Q4 Earnings Season Scorecard

Exxon Mobil shares have lagged the peer group lately, but the Zacks analyst likes the company for its bellwether status in the energy space and optimal integrated capital structure that has helped it come up with industry-leading returns.

The company owns some of the most prolific upstream assets globally, with a number of major projects slated to come online over the next few years. Notably, ExxonMobil has made 16 oil discoveries in offshore Guyana and estimates 750,000 barrels of oil production per day from the region by 2025.

However, the company’s downstream and chemical businesses significantly underperformed in 2019, resulting in lower-than-expected earnings. The units are unlikely to recover in the coming quarters owing to scheduled maintenance activities. As such, the stock warrants a cautious stance. 

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

Like all energy stocks, Chevron shares have struggled lately, but they have nevertheless done better than the peer group as whole. Driving this outperformance is Chevron's status as one of the best-placed global integrated oil companies to achieve sustainable production ramp-up.

America’s No. 2 energy company’s existing project pipeline is among the best in the industry, thanks to planned expansion in the lucrative Permian Basin. Chevron’s substantial Permian holdings of 2.2 million net acres realized production growth of 154 MBOE/d in 2019 with Chevron targeting output of 900,000 barrels per day in 2023.

Chevron’s well economics in the play also continues to improve as it has been able to achieve a 40% reduction in its expenses since 2015.

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

IBM’s shares have gained +13.5% over the past three months against the S&P 500's rise of +8.1%. The Zacks analyst believes that IBM’s improving position in the hosted cloud, security and analytics aided revenue performance.

Moreover, RedHat acquisition has helped IBM to enhance containerized software capabilities. Robust adoption of security solutions, including Resilient and QRadar, bodes well. Growing clout of Watson Health and growth in Payer, Provider, Imaging and Life Sciences domains are noteworthy.

Further, gains from z15 and high demand for data privacy and resiliency solutions across hybrid cloud are positives. However, stiff competition in the cloud computing market and high debt level pose concerns. Also, IBM’s time-consuming business model transition to cloud is a headwind.

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

Other noteworthy reports we are featuring today include Gilead Sciences (GILD), Illinois Tool Works (ITW) and Edwards Lifesciences (EW).

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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

ExxonMobil (XOM) Banks on Guyana Oil Finds, Downstream Hurts

Chevron (CVX) to Gain from Massive Permian Acreage

IBM Benefits From Cloud, Security & Analytics Adoption

Featured Reports

Strong HIV Franchise Drive Gilead (GILD) Amid Competition

Per the Zacks analyst, the HIV franchise maintains momentum for Gilead (GILD) driven by Biktarvy.

Test & Measurement Aids Illinois Tool (ITW), High Debt Hurts

Per the Zacks analyst, Illinois Tool's Test & Measurement segment's impressive traction, fueled by strength in electronic and Instron businesses will drive its sales. High debt level is a concern.

Edwards (EW) Rides on Solid TAVR Sales and Global Prospects

Per the Zacks analyst, Edwards' strong TAVR sales in the domestic and global markets is a major positive.

Allstate (ALL) Rides on Strong Property-Liability Segment

Per the Zacks analyst, premium growth in the Property-Liability Segment remains strong owing to pricing discipline and favorable claims management that has contributed to topline growth.

International Business Aids Prudential (PRU), High Costs Ail

Per the Zacks analyst, its strong international business that gives it more organic growth opportunities has led to significant growth. However, escalating expenses remain a concern.

TD Ameritrade (AMTD) Records Rise in DARTs; High Costs A Woe

The Zacks analyst believes TD Ameritrade is poised to growth through improving trading activities as DARTs expected to rise. However, increase in expenses is unfavorable.

Products to Aid Stanley Black (SWK), Weak Industrial Drags

Per a Zacks analyst, Stanley Black (SWK) will to gain from its products like Craftsman, Irwin and DEWALT. Also buyouts and cost-reduction actions will likely aid.

New Upgrades

Robust Product Portfolio & Bookings Aids Microchip (MCHP)

Per the Zacks analyst, Microchip's expanding product portfolio, solid demand for microcontrollers and bookings growth across industrial, data center, and automotive end markets are key catalysts.

Prudent Asset-Selection Efforts Aid AGNC Investment (AGNC)

Per the Zacks analyst, best-in-class asset selection and portfolio-repositioning moves aimed at hedging interest-rate risks and high prepayment speed support AGNC Investment.

Solid Wholesale Segment to Fuel G-III Apparel's (GIII) Sales

Per the Zacks analysts, G-III Apparel's wholesale segment is depicting a stellar show and driving the company's overall performance. Sales in the category rose 6.2% in third-quarter fiscal 2020.

New Downgrades

Weak Demand, Currency Weigh on Eastman Chemical (EMN)

Per the Zacks analyst, weak demand across automotive and consumer durables markets, especially in China, will hurt the company's volumes.

Competition & China Exposure to Hurt ON Semiconductor (ON)

Per the Zacks analyst, ON Semiconductor is affected by stiff competition and weakness in majority of end-markets. Further, the U.S.-China trade war and Huawei headwinds remain major concerns.

Pricing & Truck Volume Woes Impede Landstar's (LSTR) Growth

The Zacks analyst is worried about the below par performance of the truck transportation unit (2019 revenues down 12%). Lower truck volumes and unfavorable pricing are hurting results.

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Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
Illinois Tool Works Inc. (ITW) : Free Stock Analysis Report
International Business Machines Corporation (IBM) : Free Stock Analysis Report
Gilead Sciences, Inc. (GILD) : Free Stock Analysis Report
Edwards Lifesciences Corporation (EW) : Free Stock Analysis Report
Chevron Corporation (CVX) : Free Stock Analysis Report
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