Wall Street Week Ahead: More U.S. companies offer earnings guidance despite pandemic

In this news, we discuss the Wall Street Week Ahead: More U.S. companies offer earnings guidance despite pandemic.

NEW YORK (Reuters) – As the earnings season is in full swing, more companies are offering earnings forecasts again, signaling investors that some companies are adjusting to uncertainty over a global pandemic that could extend until next year.

Overall, 73 companies in the S&P 500 Index have offered guidance this quarter so far, up from 65 earlier announcements last quarter, but well below the 170 companies that generally offer guidance, according to data from Refinitiv. The consulting firms give the most optimistic expectations for Refinitiv data dating back to 1997.

“If a company is able to offer advice, it shows that they can have a better idea of ​​what’s to come,” said Charlie Ripley, senior investment strategist at Allianz Investment Management.

The market has been shaken by cross currents related to the impending US presidential election on November 3, fiscal stimulus talks in Washington, and a resurgence of the pandemic. Still, investors seem more optimistic in recent months.

Fifty percent of wealthy US investors polled by UBS Global Wealth Management expressed optimism on the economy, up from 41% three months earlier, with 55% bullish on equities, down from 44%. The S&P 500 Index is up almost 7% since the start of the year, including a gain of 2.2% since the start of October.

So far this quarter, shares of AT&T Inc TN, Verizon Communications Inc VZ.N and Quest Diagnostics Inc DGX.N have rallied after each company gave investors updated guidance on the how they plan to behave over the next fiscal year.

“It’s no surprise that we’ve had so many beats this quarter because we entered the season with very few forecasts,” which led analysts to lower their estimates, said Katie Nixon, chief investment officer. at Northern Trust Wealth Management.

“Now we see how businesses expect to be able to overcome the challenges of the coming year,” she said.

Next week, investors will be going through the busiest part of the earnings season yet, with companies ranging from Beyond Meat Inc BYND.O and Microsoft Corp MSFT.O to Pinterest Inc PINS.N due to report their results.

Microsoft, in particular, is expected to outperform its cautious forecast thanks to strong PC shipments and the growth of its Azure cloud computing platform, said J. Derrick Wood, analyst at Cowen.

“The setup looks more compelling as the bar was reset last quarter and macro conditions improving,” he said.

Almost 86% of companies that have reported profits so far have beaten analysts’ expectations, a rate 20 percentage points higher than the average beat rate since 1994, according to data from Refinitiv.

Still, investors like Nixon say they are looking beyond top rates and focusing on companies that can improve or maintain measures like debt refinancing, raising liquidity, and controlling whatever costs. the trajectory of the pandemic or a breakthrough in stimulus talks.

The White House and Congressional Democrats remain in negotiations for another coronavirus relief bill, although Senate Majority Leader Mitch McConnell has signaled he could not introduce the bill before the elections.

Companies in the S&P 500 Index are expected to post average earnings growth rates of up to 25% next year, as they rebound from the previous year’s comparisons during the worst of economic lockdowns, said Steve Chiavarone, portfolio manager at Federated Hermes.

Companies that can offer positive advice despite the unknowns are also more likely to resist expected higher corporate taxes if Democratic challenger Joe Biden defeats President Donald Trump and Democrats take the US Senate, he said. he declares.

“We are seeing a lot of positive steps that show these companies can easily absorb any reduction in profits,” he said.

Reporting by David Randall; Edited by Ira Iosebashvili and David Gregorio

Original © Thomson Reuters

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