Tesla, Netflix Grab Earnings Spotlight This Week As Analysts Divided On Q3 Reporting Season: What's On Investors' Radar?

The third-quarter reporting season starts in earnest this week, with some high-profile names from the financial and tech spaces in the earnings mix.

Mixed Expectations: S&P 500 earnings will likely increase for the first time in a year, according to FactSet. The blended year-over-year earnings growth for the S&P 500 companies is estimated at 0.4%, marking the first earnings growth for the index since the third quarter of 2022, the firm said in its weekly earnings insights released Friday.

With 6% of the S&P 500 earnings in so far, 84% of them have reported positive earnings per share upside, while 66% turned in a positive revenue surprise, it added.

LPL analysts Jeffrey Buchbinder and Quincy Krosby see “what has already been priced in” as the question in the mind of market participants. This offers an opportunity for the markets to react positively, they say. “Our best guess is we get the typical upside surprises and guidance reductions, giving this rally a convenient excuse to take a breather,” Buchbinder and Krosby said.

The views were echoed by Commonwealth Financial Network analyst Ron Swanke. “While companies may be able to beat the easy expectations for the third quarter, the guidance they provide for the future will be key to supporting S&P 500 valuations, which are still slightly above their long-term averages,” the analyst said.

Swanke said he will pay close attention to profit margins in the third quarter and beyond, as companies will likely find it more difficult to pass on cost increases to consumers amid rising interest rates, tight job market, and the continued cooling off of inflationary pressure.

The analyst expects net profit margins to fall from 11.9% a year ago to 11.7% in the third quarter. The key to achieving the 8.2% earnings per growth expected for the fourth quarter and 12.2% growth forecast for 2024 is whether companies can maintain high margins, he said, adding that revenue growth will likely be muted at 4.6% in the fourth quarter and 5.5% in 2024.

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Key Earnings To Watch:

Financial Sector Earnings Flow Continues: After Citigroup C, JPMorgan Chase & Co. JPM, and Wells Fargo & Co. WFC reported better-than-expected results last week, the spotlight shifts to their peers. Higher rates helped the banks earn more on their deposits and investment banking businesses also fared well.

Among the major banks reporting this week are Bank of America Corp. BAC, Bank of New York Mellon Corp. BK, and Goldman Sachs Group, Inc. GS, all on Tuesday. Morgan Stanley MS, State Street Corp. STT, U.S. Bancorp. USB and M&T Bancorp. MTB are all scheduled to report on Wednesday.

Major regional banks such as Zions Bancorp. ZION, and KeyCorp. KEY, East West Bancorp, Inc. EWBC and Fifth Third Bancorp FITB are also due to report this week.

Among financial services companies, Charles Schwab Corp. SCHW is due to report on Monday, Discover Financial Services DFS and Travelers Companies, Inc. TRV on Wednesday. Blackstone Inc. BX on Thursday and American Express Company AXP on Friday.

Transportation Companies Chime In: Earnings from road, railroad, and airline companies also trickle in this week.

JB Hunt Transportation Services, Inc. JBHT, United Airlines Holdings, Inc. UAL(Tuesday) and Alaska Air Group, Inc. ALK, Knight-Swift Transportation Holdings Inc. KNX and Union Pacific Corporation UNP (all on Thursday) are among those reporting this week.

Tech Rumble: Communication services companies Netflix, Inc. NFLX, AT&T Inc. T, Ericsson ERIC, and Nokia Oyj NOK will release their quarterly results this week.

Those pureplay tech stocks reporting this week are from across the Atlantic. They include SAP SE SAP and ASML Holding N.V. ASML.

Tesla In Spotlight: Electric vehicle pioneer Tesla, Inc.‘s TSLA report is the most awaited earnings of the week, with the company all set to announce its results Wednesday after the market close. Analysts are wary of margin erosion as the company has persisted with its downward price adjustments.

Other noteworthy names reporting this week include Albertsons Companies, Inc. ACI. Johnson & Johnson JNJ and Lockheed Martin Corp. LMT (all on Tuesday), Alcoa Corp. AA, Procter & Gamble Company PG, Las Vegas Sands Corp. LVS, Abbott Laboratories ABT, Schlumberger Limited SLB and Steel Dynamics, Inc. STLD (all on Wednesday) and Philip Morris International Inc. PM (Thursday).

Valuation Reasonable? Factset said the forward 12-month p/E ratio for the S&P 500 Index is 18.1, below the five-year average of 18.7 but above the 10-year average of 17.5.

The SPDR S&P 500 ETF Trust SPY, an exchange-traded fund that tracks the performance of the S&P 500 Index, ended Friday’s session down 0.50% at $431.50, according to Benzinga Pro. It has gained 14.08% for the year-to-date period but was down 3.22% in the third quarter.

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