84% of Q3 earnings reports exceed expectations

10/25/2021 | 10:21am

A flurry of corporate earnings, central banks, GDP announcements... Week 43 of the year is shaping up to be particularly dense in financial news. Equity markets are doing pretty well so far, even if they have gotten a little bogged down in recent weeks. In the background, inflation remains the focus. But as long as corporate earnings follow, investors are not overly alarmed.

US indexes are once again close to their records, except for the Nasdaq, which is still lagging a little behind.  In the middle of earnings season, it is customary to consult the weekly FactSet reports to judge the quality of the year. In their somewhat mechanical language, the analysts of the American research firm compare the results published by the companies of the S&P500 with the average analysts' expectation in terms of sales and results. They also compare the size of the gap between reported numbers and projections. Then they compare it to the data from previous quarters to determine the quality of the data.

Here's basically what it looks like on October 25: So far, 23% of the companies in the U.S. Broad Index have released their quarterly reports. 84% of them have outperformed analysts' expectations for earnings per share, for an average outperformance of 13.4%. With long-term averages of 76% and 8.4% respectively, the third quarter of 2021 is rather favorable. The trend on revenues is the same, although a little less pronounced.

Analysts are by nature cautious and their forecasts are skillfully directed downwards by the financial management of companies, which obviously prefer to surprise the market positively. Companies also have some levers at their disposal, such as share buybacks, to boost their performance.

This is a positive balance sheet for companies in the S&P500, which partly explains why US indices are once again flirting with records after suffering profit taking in September. The financial sector surprised most positively, along with technology - again - and healthcare. Results will continue to punctuate stock market sessions this week, as Facebook, Microsoft, Alphabet, Amazon, Visa or Apple are on the shelves in the US, as well as HSBC, Novartis, Samsung, CATL, Volkswagen, Sony or TotalEnergies elsewhere in the world.

Other important indicators will be released in the coming days, such as durable goods orders in the United States on Wednesday, and the Bank of Japan's monetary policy decision. The next day, the European Central Bank will be on deck to review its own policy, just before the US releases its first estimate of Q3 GDP. On Friday, the GDPs of the major European economies and the Eurozone will be unveiled, just before the U.S. inflation "PCE", which measures the evolution of prices at the household level.

In other news, China is considering deploying a tax arsenal to combat land speculation, but this could take some time to implement. Beijing has also said it wants to limit the share of fossil fuels to less than 20% of its energy mix by 2060. The resurgence of coronavirus in several parts of the country does not seem to be bothering investors at the moment. In the United States, the head of the central bank Jerome Powell acknowledged on Friday that inflation was a bit more problematic than expected. Meanwhile, Joe Biden is trying to save the financing of his stimulus plan: a tax on billionaires is being considered this time, which has not failed to revive internal dissension in the Democratic camp. On another note, the Turkish currency plunged after President Erdogan's latest outburst against the Western chancelleries in his country.

 

Economic highlights of the day:

In Europe, we have the German Ifo business confidence index for October and In the United States, the Chicago Fed's September activity index.

The dollar is up to USD 0.8614, while the ounce of gold is approaching the USD 1810 mark again. In the oil market, North Sea Brent crude rose to USD 86.33 per barrel, while U.S. light crude WTI reached USD 84.92. Bond yields were little changed over the weekend, with 10-year maturities paying 1.64% in the US and -0.11% in Germany. Bitcoin is back up 3% to USD 63,800.

 

On markets:

* Tesla is gaining 4.4% in pre-market trading and could open on an all-time high after a Bloomberg report of an order for 100,000 of the U.S. automaker's vehicles from rental group Hertz. Separately, the new version 10.3.1 of Tesla's autonomous driving software is being launched, Chief Executive Elon Musk announced on Twitter on Monday, a day after the previous update was pulled after reports of malfunctions by users. Morgan Stanley raised its price target from $900 to $1,200.

* Paypal has no plans to acquire Pinterest at this time, the payment services group said Sunday, refuting press reports of talks to buy the photo-sharing site for $45 billion. PayPal shares, which lost more than 10% last week, are listed up 6% in pre-market trading and Pinterest shares are down 13.2%.

* Bristol Myers Squibb is considering buying Aurinia Pharmaceuticals, a company that develops treatments for autoimmune diseases, Bloomberg reported Friday.

* Restaurant Brands reported lower-than-expected quarterly sales Monday due to the Delta variant of the coronavirus and staffing shortages at its Tim Hortons and Burger King restaurants.

 

Analyst recommendations:

  • American Express: RBC lifts price target to $195 from $185, maintains sector perform rating
  • Ameriprise Financial: RBC boosts price target to $325 from $295, maintains outperform rating
  • Ares Management: RBC lifts price target to $87 from $80, maintains outperform rating
  • AstraZeneca: JP Morgan maintains its Buy rating on the stock. The target price remains unchanged at GBp 10000.
  • Autoliv: RBC lifts price target to $110 from $98, outperform kept
  • Beyond Meat: Barclays adjusts beyond meat's price target to $80 from $90, reiterates underweight rating
  • Bilibili: Nomura adjusts price target to $99 from $90, maintains buy rating
  • Crown Castle International REIT: RBC cuts price target to $202 from $210, outperform kept
  • EasyJet: Stifel upgraded from sell to hold with a target of GBp 600.
  • eBay : Wedbush lifts price target to $74 from $63, neutral rating kept
  • Fortinet: KeyBanc adjusts price target to $370 from $324, keeps overweight rating
  • HubSpot: KeyBanc adjusts price target to $912 from $834, keeps overweight rating
  • Microsoft: KeyBanc adjusts price target to $365 from $342, keeps overweight rating
  • Olin: KeyBanc adjusts price target on olin to $64 from $59, keeps overweight rating
  • Oracle: KeyBanc adjusts price target on oracle to $104 from $100, keeps overweight rating
  • Weibo: Nomura adjusts price target to $65 from $70, maintains buy rating
  • WSFS Financial: Keefe Bruyette & Woods downgrades to market perform from outperform; price target is $56
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