Unlocking The Magnificent 7
Tesla marked the opening act of the Q3 earnings parade with a spectacular show of margin gains, hinting at a potential easing of competitive pressures. The distinctive challenges faced by Tesla do not necessarily foreshadow outcomes for the Big 7 peers lined up for their Q3 revelations.
This week presents a focal point in the Q3 earnings symphony, with over 800 companies unveiling their financial scores, including 168 S&P 500 constituents. Stepping into the limelight are Alphabet on Tuesday, October 29th, Meta, and Microsoft on Wednesday, October 30th, followed by Amazon and Apple on Thursday, October 31st.
Tesla’s bounce back in the market has offset the disappointment stemming from the Robo taxi announcement. Yet, the stock continues to trail behind its Mag 7 counterparts this year, as illustrated in the accompanying chart.
The spotlight in Tesla’s recent report is on its remarkable margin progress, raising hopes of sustained improvement. However, it might be premature to declare victory over margin challenges. Speculation abounds that a significant share of this quarter’s deliveries stemmed from the high-margin Shanghai plant. Additionally, gains could also be attributed to production tax credits linked to Tesla’s battery operations.
If Tesla’s Q3 margin expansion endures, prospects for similar trends in forthcoming quarters become plausible. The net margin comparison for the group, depicted in the table below, reflects Tesla’s Q3 2024 net margins climbing to 8.7% from the prior period’s 5.8% and the year-before’s 7.9%.
Alphabet faced a downturn in share value post the last earnings announcement on July 23rd, despite comfortably surpassing earnings and revenue forecasts. The subsequent performance from July 22nd, the eve of the Q2 earnings call, portrays a 9.3% downturn in Alphabet shares, contrasting the Zacks Tech sector’s 1.1% rise and the S&P 500 index’s 3.9% increase.
Given this tepid response to strong financials, market watchers anticipate a similar tepid reaction unless Alphabet’s management eloquently justifies their rising investments in AI. Concerns escalated following management’s remarks during the Q2 earnings call, emphasizing the preference for over-investing in capital expenditures rather than falling short.
The capex conundrum extends beyond Alphabet’s domain, encroaching upon Microsoft, Amazon, and Meta. Yet, for Alphabet, the dilemma holds heightened significance, with many viewing AI investments as a threat to the hallowed search monopoly. This narrative may elucidate the lag in Alphabet’s share performance vis-à-vis Microsoft and Amazon over the recent quarter, as depicted in the illustrative chart below.
Analyzing Growth Projections
Peering into consensus forecasts for the ‘Mag 7’ stocks casts a light on expected performance for the ongoing and upcoming periods compared to past achievements.
The collective outlook projects a 16.9% upsurge in earnings and a 13.3% rise in revenue for Q3 versus the equivalent period last year, as indicated in the visual representation below.
Assessing the group’s earnings and revenue evolution on an annual basis unveils the growth trajectory, hinting at a return to ‘regular/normal’ growth models post the extraordinary surge witnessed in 2021, which stemmed partly from accelerated future demand pulled into the preceding year.
Q3 Earnings Season Progress Report
As of October 25th, Q3 outcomes from 182 S&P 500 members – constituting 36.4% of the index – showcased a 2.1% dip in total earnings juxtaposed with a 4.5% revenue uptick. Among these companies, 75.8% surpassed EPS estimates, and 58.8% beat revenue projections, with 51.1% excelling on both fronts.
A historical context for Q3 earnings and revenue growth rates and EPS and revenue beat percentages is illustrated in the comparative snapshots below.
The broader outlook for the S&P 500 index anticipates a 1.5% earnings expansion in Q3 alongside a 5% revenue elevation, considering reported figures and forthcoming disclosures.
The interactive chart below portrays the Q3 earnings and revenue momentum against preceding quarters, painting a picture of the anticipated trends in the ensuing periods.
The Earnings Outlook: A Deep Dive
As the curtains close on the final act of the year, the earnings performances have gripped market watchers with a fervor akin to a theatrical crescendo. The S&P 500 has shattered records with an all-time quarterly high, painting the town with bullish strokes of financial success.
Analyze the Current
Unlike the turbulent waters preceding the third-quarter earnings season, tranquility reigns as we approach the fourth quarter. Forecasts suggest a +9% surge in total S&P 500 earnings compared to the previous year, accompanied by a respectable +5.3% uptick in revenues.
Charting Success
A visual masterpiece unfolds as we survey the earnings landscape on a calendar year spectrum. The artwork illustrates a +7.3% earnings growth this year, paving the way for double-digit expansions in 2025 and 2026. The projection is nothing short of a masterpiece, painted with the strokes of financial prosperity.
Please note that this year’s remarkable +7.3% earnings growth ascends to an even higher +9.2% on an ex-Energy basis, signaling a robust financial trajectory.
For a detailed look at the overall earnings picture, including expectations for the coming periods, please check out our weekly Earnings Trends report >>>> Mag 7 Earnings Loom: What Can Investors Expect?
Acclaim the Victors
Market experts have unveiled their selection of 7 best stocks for the upcoming 30 days, handpicking these gems from a pool of 220 Zacks Rank #1 Strong Buys. Hailed as the “Most Likely for Early Price Pops,” these stocks have outperformed the market since 1988 by more than 2X, boasting an impressive average gain of +23.7% per annum. Investors are encouraged to give these distinguished 7 their undivided attention.
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
Apple Inc. (AAPL) : Free Stock Analysis Report
Microsoft Corporation (MSFT) : Free Stock Analysis Report
Tesla, Inc. (TSLA) : Free Stock Analysis Report
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
Meta Platforms, Inc. (META) : Free Stock Analysis Report
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