Weekly Preview: Earnings To Watch This Week (AA, IBM, NFLX, TSLA)

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The stock market took a much-needed break on Friday in observance of Good Friday. But it wasn’t before equities finished lower Thursday, logging sharp declines for the second consecutive week. However, investors received confirmation on what they’ve known for several weeks each time they’ve pulled out their wallet — inflation picked up again in March.

Earlier in the week, the U.S. Department of Labor reported the consumer price index (CPI) surged 8.5% on the year in March — the hottest inflation reading since December 1981. The CPI measures the cost of a group of everyday items such as food and gas. It’s true that wages for many Americans have also risen over the past year. But for many workers, it hasn’t risen enough to keep up pace with inflation. And this will force households to make tough decisions on what they are willing to cut back on.

Evidenced by the market’s reaction during the abbreviated trading week, with all three major averages booking weekly declines, investors aren’t taking chances that things will immediately improve. The Dow Jones Industrial Average gave up 113.36 points, or 0.3%, to end Thursday’s session at 34,451.23. Among the Dow’s notable decliners were Apple (AAPL), Salesforce (CRM) and Walt Disney (DIS). The S&P 500 lost 54 points, or 1.2%, finishing at 4,392.59, while the tech-heavy Nasdaq Composite dropped 292.51 points, or 2.1%, to close at 13,351.08.

The Nasdaq was pressured by 3.66% decline in shares of Tesla (TSLA) which has been in the news lately, particularly because of CEO Elon Musk’s $43 billion takeover bid for social media giant Twitter (TWTR). Reports of supply chain disruptions was also a headwind for many technology companies, notably Apple which declined 3%. For the week, the Nasdaq Composite was the biggest decliner, falling 2.6%, while the S&P 500 gave up 2.1%. Recording a third straight week of losses, the Dow lost 0.8%.

These declines come despite what has been somewhat encouraging quarterly earnings results from banking heavyweights such as Goldman Sachs (GS), Morgan Stanley (MS) and Wells Fargo (WFC). While the results from the banks weren’t stellar in the broad sense, the group was facing tough year-over-year comparisons. Plus, estimates had called for year-over-year declines for the sector. Nevertheless, first quarter earnings season kicks into high gear with results expected from technology heavyweight Netflix.

Can earnings pull tech stocks out of the doldrums? Netflix is one of several names worth watching this week:

IBM (IBM) – Reports after the close, Tuesday, Apr. 19

Wall Street expects IBM to earn $1.39 per share on revenue of $13.87 billion. This compares to the year-ago quarter when earning were $1.77 per share on $17.34 billion in revenue.

What to watch: IBM has always been a great stock to buy for dividend investors, but has the company become more appealing to growth investors as well? The tech giant has struggled to grow revenues over the past decade and has not benefited in the massive economic expansion that saw cloud leaders such as Amazon (AMZN) and Microsoft (MSFT) produce double-digit revenue gains. But as it transitions away from its legacy businesses, IBM’s turnaround has seemingly begun. The company’s cloud ambitions have shown some promise in recent quarters and has provided ample revenue strength to support a higher multiple, thanks to its Red Hat acquisition, which modernized its cloud business. Citing the quality of IBM’s new leadership, namely CEO Arvind Krishna, Morgan Stanley analyst Erik Woodring recently raised his rating on the stock to Overweight from equal-weight, and inched the price target to $150 per share from $147. It appears the market is giving IBM more credit for the recent traction the company has made towards the cloud. But for the the shares to maintain their uptrend, the company on Tuesday will need to demonstrate continued operating leverage and revenue growth acceleration.

Netflix (NFLX) – Reports after the close, Tuesday, Apr. 19

Wall Street expects Netflix to earn $2.90 per share on revenue of $7.93 billion. This compares to the year-ago quarter when earnings were $3.75 per share on $7.16 billion in revenue.

What to watch: Netflix stock has underperformed the market significantly in 2022, falling 35% and 46% in the respective three and six months. The stock has also plunged 38% and 37% over the past nine months and 12 months, respectively. Is now a buying opportunity? Not according to Benjamin Swinburne, analyst at Morgan Stanley. Citing declining estimates for net subscriber additions, Swinburne recently trimmed estimates and his price target on Netflix to $425 per share, down from $450. Although he kept his Equal Weight rating intact, the analyst cut his Q1 estimate for global paid net new subscribers down from 2.5 million to 2 million. While the market broadly expects Netflix to remain a successful streamer in 2022, Swinburne said he doesn’t expect Netflix to grow new subscribers its pre-pandemic rate of about at the 25 million per year. This has prompted some investors to wonder whether the company can maintain its status as the king of streaming. That question will be answered when Netflix issues its guidance forecast for the next quarter and full year.

Alcoa (AA) – Reports after the close, Wednesday, Apr. 20

Wall Street expects Alcoa to earn $2.90 per share on revenue of $3.44 billion. This compares to the year-ago quarter when earnings came to 79 cents per share on revenue of $2.65 billion.

What to watch: Shares of the aluminum giant continues to shine, rising some 20% over the past month and more than 80% over the past six months. Not only is the stock up almost 50% year over date, compared with the 8% drop in the S&P 500 index, if you’ve bought and held Alcoa stock in the previous 52 weeks, you’re sitting pretty with a gain of 163%. During that span the S&P 500 is up just 6.5%. The rise in metal stocks have been driven by optimism surrounding infrastructure spending aimed at repairing the country’s airports, roads and bridges, among other projects. But this might be as good as it gets for Alcoa, according to analysts at Credit Suisse, who recently downgraded the stock from Outperform to Neutral. Analyst Curt Woodworth writes noted that “supply/demand balances will start to normalize” in the second half of the year. Aluminum is used in a broad range of industrial and consumer end markets, and while there appears to be support for higher aluminum prices in the near term, Alcoa on Wednesday must speak positively about the demand/supply outlook for the next several quarters to prevent Alcoa stock from losing its luster.

Tesla (TSLA) – Reports after the close, Wednesday, Apr. 20

Wall Street expects Tesla to earn $2.26 per share on revenue of $17.78 billion. This compares to the year-ago quarter when earnings came to 93 cents per share on revenue of $10.39 billion.

What to watch: Tesla shares have been one of the better performing stocks among tech, rising 30% over the past months and 20% in six months, besting the S&P 500 index in both spans. The market has applauded the company’s delivery totals in the most-recent quarter as Tesla enjoyed strong year-over-year growth. Tesla produced 305,000 vehicles and delivered 310,000 vehicles, for an annual production run-rate of roughly 1.2 million vehicles. Estimates suggests Tesla will exit 2022 with an annual run-rate of more than 2 million vehicles. This would be an impressive achievement given the increased competition not only from upstarts like Lucid (LCID) and Rivian (RIVN), but also from traditional manufacturing titans like General Motors (GM) and Ford (F). While Tesla’s increased focus on its growth strategy, namely production and profit margins, have been a major factor in the company’s recent success, the company’s production and delivery guidance for 2022 will be the main driver of the stock on Wednesday.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



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