For Immediate Release
Chicago, IL – January 31, 2022 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes Microsoft
MSFT
, Apple
AAPL
, Meta Platforms
FB
, Alphabet
GOOGL
and Amazon
AMZN
.
The Outlook for Tech Stocks in a Rising Rate Environment
Tech stocks have been under the gun lately, as sentiment has shifted on the group with the coming Fed policy change. Under this new monetary policy regime of shrinking liquidity and rising interest rates, high growth stocks in the Technology sector become less attractive. Or at least that is the received wisdom in the market and how these sectors are expected to behave.
You can see this play out in the chart below that shows the stock market performance of the Zacks Technology sector over the past year. For comparison, the chart also includes the S&P 500 index, the Zacks Finance sector, and Microsoft and Apple shares.
A couple of things really stand out from this chart. First, the Technology sector is at the bottom of the heap, likely a reflection of the aforementioned sentiment issue with these stocks in a tightening Fed cycle. Second, Apple and Microsoft have enjoyed notable rebounds after coming out with blockbuster quarterly results.
For the full year 2021, Apple earned $94.7 billion. Please note that we are describing earnings, not revenues. For revenues, Apple brought in $123.9 billion for Q4 and $365.8 billion for the full year.
We will see how the Q4 results from Meta Platforms, Alphabet and Amazon turn out to be, with Apple and Microsoft setting a high bar for them. What we do know is that these Big 5’ Tech players – Apple, Amazon, Alphabet, Facebook & Microsoft – are extremely profitable.
Current consensus expectations for this group for the coming periods in the context of what they were able to achieve in 2021 Q4 and the preceding period.
What we see here is that earnings growth is decelerating in a major way, even if we account for some upward revisions estimates in the coming days.
But notice how the revenues continue to remain strong; it is the cost pressures that are weighing on earnings expectations. This is actually the big takeaway from the current earnings picture; companies appear to be struggling to meet a historically high demand environment.
The sources of struggle are logistical bottlenecks that stopped Apple from selling more iPads and Levi’s from selling more jeans as a result of input shortages, logistical bottlenecks and rising costs. All of this is showing up in compressed margins.
Microsoft, Alphabet and Facebook aren’t as vulnerable to logistical bottlenecks as Apple and Amazon are, but they all have to pay up for those brainy engineers.
Whether the growth trend for these companies is decelerating or not is a function of your holding horizon. These companies are impressive growth engines in the long run.
Beyond the big 5 Tech players, total Q5 earnings for the Technology sector as a whole are expected to be up +14.2% from the same period last year on +10.6% higher revenues.
This big picture view of the ‘Big 5’ players as well as the sector as a whole shows a decelerating growth trend. That said, unlike this ‘quarterly view,’ the annual picture shows a lot more stability.
In total, this week brings results from more than 350 companies, including 109 S&P 500 members. By the end of this week, we will have seen Q4 results from 277 S&P 500 members or 55.4% of the index’s total membership.
Q4 Earnings Season Scorecard
Including all the results that came out through Friday, January 28
th
, we now have Q4 results from 168 S&P 500 members or 33.6% of the index’s total membership. Total earnings (or aggregate net income) for these 168 companies are up +30.6% from the same period last year on +16% lower revenues, with 79.8% beating EPS estimates and 78% beating revenue estimates.
For the
Technology sector
, we now have Q4 results from 54% of the sector’s market capitalization in the S&P 500 index. Total Q4 earnings for these Tech companies are up +18.4% from the same period last year on +6.3% higher revenues, with 87% beating EPS estimates and the same proportion beating revenue estimates.
Expectations for Q4 & Beyond
Looking at the quarter as a whole, combining the actual results that have come out with estimates for the still-to-come companies, total Q4 earnings for the S&P 500 index are expected to be up +24.2% from the same period last year on +13.1% higher revenues.
For the current period, total S&P 500 earnings are expected to increase +4.7% from the same period last year on +7.9% higher revenues.
For a detailed look at the overall earnings picture, including expectations for the coming periods, please check out our weekly Earnings Trends report
>>>> Earnings Picture Remains Strong Despite Market Downturn
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit
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