Surprise
As we round out this earnings season, it's time to size up winners and losers. Stocks with the biggest upside are often the ones with the financial results no one expected.
Four times a year, U.S.-listed firms share their financial results. Investors pore over revenue, net income and the all-important earnings per share (EPS), treating those quarterly reports like scorecards to measure company performance.
But even if a company delivers record results or another billion-dollar quarter, it isn’t necessarily enough. It needs to beat Wall Street estimates. This season, 79% of S&P 500 companies have done just that – with the biggest beats coming from healthcare while most consumer discretionary stocks missed the mark.
Let’s start with the big one: Nvidia ($NVDA). The highly anticipated earnings release did not disappoint, with the firm reporting Q2 revenue of US$30.04b against US$28.68b expectations. Its EPS came in at US$0.68 vs. the US$0.65 consensus.
In addition, Nvidia announced a US$50b share buyback and shared Q3 revenue guidance of US$32.5b, also ahead of estimates. Despite the impressive numbers beating sky-high expectations, shares fell 6% in after hours trading.
As for the rest of the Magnificent Seven, the market really liked Alphabet’s ($GOOG) first-ever cash dividend announcement. Tesla’s ($TSLA) disappointing numbers? Not so much.
Amazon ($AMZN) shares surged to a near record after both earnings and revenue beat analyst expectations. Meta’s ($META) US$5.16 EPS also came in ahead of consensus and sent shares higher. And Apple ($AAPL) rewarded shareholders by not only beating EPS and revenue expectations, but also upping its dividend by 4% and announcing a US$110b share buyback – the largest on record.
Healthcare favourite Eli Lilly’s ($LLY) EPS of US$3.92 surpassed analyst calculations by 21%, and its stock price rose to an intraday record high. Sales of its moneymaker drug Mounjaro rose 215% YoY, prompting the firm to up its outlook for the year by US$3b.
Analysts weren’t expecting much from biopharma giant Bristol-Myers Squibb ($BMY) and revised EPS estimates down to US$1.59 for this quarter. That’s likely why the stock gained 8.2% after the firm reported an actual EPS of US$2.07.
On the other end of the spectrum, Starbucks ($SBUX) delivered financial results even lower than the Street’s bleak forecasts. The coffee shop chain reported a 6% decline in China sales along with a 6% dropoff in foot traffic. Unsurprisingly, it shed 16% off its share price the day after its earnings report.
Potato chips are no safer than coffee when household budgets get tight. PepsiCo ($PEP) reported 4% lower sales volumes for its Frito-Lays snacks over the quarter, which contributed to its mixed earnings report that sent shares lower on the day. French fry maker Lamb Weston ($LW) missed EPS estimates by 37.9%, attributing its FY24 challenges to a decreased frozen potato demand. Its shares tumbled 27% – the S&P’s worst performer after sharing its results.
And let's not forget Temu parent, PDD Holdings ($PDD). Only a slight revenue miss sent the stock down 28% on the day of its quarterly results. That’s after the firm reported a 86% YoY revenue growth to US$13.36b.
Earnings season is equal parts opportunity and volatility, and it's worth looking beyond the numbers to find out how sustainable those profits really are. But if there’s one thing that wasn't a surprise this time around, it's the fact that higher earnings were mostly driven by cost-cutting and not revenue. The picture could change quickly, though, in a scenario of lower rates. This quarter’s losers might just be the next one’s winners.
