Earnings Outlook for 2023 and Featured Reports for Apple, JNJ, & Others
Friday, December 30, 2022
The Zacks Research Daily presents the best research output of our analyst team. Today’s Research Daily features an update on the evolving earnings picture for 2023 and new research reports on 16 major stocks, including Apple Inc. (AAPL), Johnson & Johnson (JNJ) and CSX Corporation (CSX). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.
You can see all of today’s research reports here >>>
Earnings Outlook for 2023
Multiple forces are at play in driving stock prices at any point in time. But the two biggest forces in the long run are interest rates and corporate earnings, with our focus in this note solely on the earnings part.
Aggregate bottom-up earnings for the S&P 500 index are currently expected to be up +2.2% in 2023 on +2.1% higher revenues. This would follow the +4.7% earnings growth in 2022 on +10.6% higher revenues.
Estimates for 2023 have been steadily coming down, after peaking in mid-April 2022. In the aggregate, S&P 500 earnings estimates have declined by -9.4% since mid-April for the index as a whole and -11.8% excluding the Energy sector.
Estimates have been cut for 12 of the 16 Zacks sectors, with the biggest cuts to estimates for the Construction (Negative revision of -29.6% since mid-April), Consumer Discretionary (-21.5%), Retail (-21.2%), Tech (-19.6%), Industrials (-13.8%), Aerospace (-13.7%), and Transportation (-10.2%). Estimates for Energy, Utilities, Autos and Basic Materials have modestly increased.
The future course of revisions will depend on how the underlying economic outlook unfolds in response to the Fed tightening cycle.
I am of the opinion that a relatively a benign outcome for the U.S. economy where it is able to dodge a nasty recession will be consistent with an earnings outlook that is roughly in-line with current earnings estimates.
I am not suggesting that estimates do not need to come down further. But rather that with aggregate estimates outside of the Energy sector already down by almost -12% since mid-April, there may not be a whole lot of further room to fall as long as the economic outlook doesn't materially deteriorate.
Today's Featured Research Reports
Shares of Apple have declined -27.9% over the past year against the Zacks Tech sector's decline of -37.3% and the S&P 500 index's -20.9% pullback. The Zacks analyst believes that Apple’s holiday season iPhone shipments are expected to suffer from disruptions at its Chinese partner Foxconn’s factory in Zhengzhou. We expect Apple to ship roughly 70 million iPhones in the first quarter of fiscal 2023.
The company expects year-over-year revenue growth to decelerate in the fiscal first quarter compared with the fiscal fourth quarter due to unfavorable forex. Mac revenues are expected to be negatively impacted by forex. Apple expects Mac revenues to decline substantially year over year during the December quarter.
Services revenue growth is expected to be negatively impacted by challenging macroeconomic conditions, unfavorable forex, as well as weakness in digital advertising and gaming. Nevertheless, a growing subscriber base in the Services business and a strong liquidity position are key catalysts.
(You can read the full research report on Apple here >>>)
Shares of Johnson & Johnson have gained +3.1% over the past year against the Zacks Large Cap Pharmaceuticals industry’s gain of +12.3%. The Zacks analyst believes that J&J’s sales in the MedTech unit are recovering and the company is focusing on growing this business through new products. J&J is making rapid progress with its pipeline and line extensions.
However, macroeconomic headwinds like inflationary pressure, rising input costs and negative currency impact are hurting margins. Headwinds like generic competition and pricing pressure continue. Stelara’s upcoming loss of exclusivity in 2023 is a concern. Though J&J has taken meaningful steps to resolve its talc and opioid litigation, they continue to remain an overhang on the stock.
(You can read the full research report on Johnson & Johnson here >>>)
CSX shares have outperformed the Zacks Transportation - Rail industry over the past six months (+6.5% vs. +3.5%). The Zacks analyst believes that CSX is benefiting from higher export coal volumes, domestic intermodal shipments and favorable pricing. With the demand scenario expected to remain strong, despite the current market bloodbath, management anticipates double-digit growth in operating income and revenues for 2022 from 2021's reported levels.
However, supply-chain disturbances are hurting CSX's operations. Weakness in the merchandise segment due to lower volumes of fertilizers is concerning. High costs, primarily due to escalating fuel expenses, pose a threat to CSX’s bottom line. High capital expenditures are also worrisome.
(You can read the full research report on CSX here >>>)
Other noteworthy reports we are featuring today include Halliburton Company (HAL), American International Group, Inc. (AIG) and CenterPoint Energy, Inc. (CNP).
Director of Research
Sheraz Mian
Note: Sheraz Mian heads the Zacks Equity Research department and is a well-regarded expert of aggregate earnings. He is frequently quoted in the print and electronic media and publishes the weekly Earnings Trends and Earnings Preview reports. If you want an email notification each time Sheraz publishes a new article, please click here>>>
Today's Must Read
Robust Portfolio, Services Strength to Benefit Apple (AAPL)
J&J (JNJ) Boasts a Solid Pipeline
CSX (CSX) Rides on Dividends & Buyback Amid Rising Expenses
Featured Reports
Investments Aid CenterPoint (CNP), Supply Chain Issue Woes
Per the Zacks analyst, CenterPoint Energy is expected to witness significant operations growth backed by its investment plan. Yet, supply chain issue may impact the company's operations.
Akamai (AKAM) Rides on Demand for Cloud Security Solutions
Per the Zacks analyst, Akamai is well poised to benefit from the increasing Internet and mobile data traffic and high demand for cloud security solutions with rising instances of cyberattacks.
Coty's (COTY) E-Commerce Sales Lift Top Line Performance
Per the Zacks analyst, Coty is gaining on solid online business. In fiscal first-quarter its online sales grew modestly year-on-year despite lock-down led weakness in key Chinese e-commerce platforms.
Electronic Focus & Low Costs Aid Interactive Brokers (IBKR)
Per the Zacks analyst, Interactive Brokers' continued focus on the Electronic Brokerage segment along with lower level of compensation costs and development of proprietary software will aid profits.
JAKKS Pacific (JAKK) Banks on Digitization Efforts, Costs High
Per the Zacks analyst, JAKKS Pacific's consistent focus on product expansions and digital initiatives bode well. However, increased freight expenses and a strained supply chain pose concerns.
AIG Benefits From Strong Revenues and Cost-Control Measures
Per the Zacks analyst, higher premiums combined with rate hikes in the Commercial lines business will drive revenues. Cost-saving efforts should aid margins.
Strength in Thrombectomy Portfolio Aid Surmodics (SRDX)
The Zacks analyst is upbeat about Surmodics' potential in its thrombectomy platform technology despite its operation in a highly competitive market.
New Upgrades
Halliburton (HAL) to Benefit from North American Exposure
The Zacks analyst believes that Halliburton can take advantage of the tight fundamentals of the North American land drilling space through its market-leading pressure pumping operations.
ProPetro (PUMP) to Benefit from Debt-Free Balance Sheet
The Zacks analyst likes ProPetro's strong balance sheet, which has got zero debt to go with $43.2 million in cash $155 million available in the form of total liquidity.
Reinsurance Group (RGA) Gains on Solid U.S. & Latin American Market
Per the Zacks analyst, solid performance at the U.S. and Latin American traditional market backed by organic growth and new sales have been driving premium growth at the company.
New Downgrades
C.H. Robinson (CHRW) Hit Hard by Operating Cost Challenges
The Zacks analyst is worried about the elevated operating expenses. High costs are hurting C.H. Robinson's bottom line. CHRW's liquidity position is bothersome too.
Supply-Chain Constraints Hurt Zebra Technologies (ZBRA)
Per the Zacks analyst, Zebra Technologies has been facing supply-chain issues related to component shortages, which might affect its bottom line. Also, foreign currency headwinds are concerning.
Soft Print Advertising Revenue a Worry for News Corp (NWSA)
News Corporation is grappling with soft print advertising demand. Per the Zacks analyst, the company needs to ramp up businesses in digital space to offset the same.
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Apple Inc. (AAPL) : Free Stock Analysis Report
Johnson & Johnson (JNJ) : Free Stock Analysis Report
Halliburton Company (HAL) : Free Stock Analysis Report
CSX Corporation (CSX) : Free Stock Analysis Report
American International Group, Inc. (AIG) : Free Stock Analysis Report
CenterPoint Energy, Inc. (CNP) : Free Stock Analysis Report
