Key earnings this week and Buffett’s hint of India opportunities

If we look at revenue growth QoQ then Nasdaq 100 companies stand out with 8% revenue growth QoQ compared to 1.8% for European companies and 2.9% for US companies in general. Zooming out to the MSCI World Index earnings growth has been flat for a while as falling operating margin has eroded gains on revenue. As the chart below shows, the MSCI World operating margin is slowly coming back towards its historical average and we expect the headwinds on margins to continue for the foreseeable future. While global earnings have been stagnant over the past year, expectations for future earnings have been rising steadily reflecting analysts are projecting the stagnant earnings growth to continue. The Q1 earnings season is supporting this view based on the observed growth rates on revenue.

The week’s most important earnings are listed below, but if we were to highlight the most important ones to watch, then they are Palantir (tonight after the US close), Walt Disney (tomorrow, bef-mkt), Infineon Technologies (tomorrow), BP (tomorrow), Airbnb (Wed, aft-mkt), Uber (Wed), Shopify (Wed), and ARM (Wed). Of these companies the most hold stocks among Saxo clients are Palantir, Walt Disney, and Airbnb, so below we have highlighted the key expectations ahead of their earnings releases.

• Palantir: Analysts expect revenue growth of 17% YoY and EBITDA growth of 53.4% YoY driven by strong demand for its US commercial offering driven by its AI platform efforts. Tensions in the Middle East might provide an upside surprise to its government business segment.
  
  
• Walt Disney: Analysts expect revenue growth of 1% YoY and a decline in EBITDA of 7% YoY on a comparable basis reflecting tough comparisons due to 50^th anniversary of Walt Disney World. Investors will focus less on the previous quarter and more towards guidance on revenue as recent price hikes on its streaming service should begin adding to revenue growth and the positive momentum in its parks business should continue as well. Free cash flow generation is expected to get back to $8.4bn in FY24 (ending 30 September 2024) which is the highest since FY18 as Walt Disney is finally getting back to normal profitability.
  
  
• Airbnb: Analysts expect revenue growth of 13% YoY and EBITDA growth of 24% YoY, but underneath the high growth there might be signs of revenue pressure despite Olympics this year. Short-term rental regulations in various cities remain a headwind for Airbnb.

Key earnings this week:

• Monday: Westpac, Vertex Pharmaceuticals, Palantir Technologies
• Tuesday: UBS Group, Siemens Healtineers, Nintendo, BP, Duke Energy, Arista Networks, McKesson, Walt Disney, Ferrari, TransDigm, UniCredit, Suncor Energy, Coloplast, Sampo, Infineon Technologies, Leonardo, Geberit, Datadog, Coupang, Rockwell Automation 
• Wednesday: Itochu, Toyota, BMW, Airbnb, Uber Technologies, Anheuser-Busch InBev, Shopify, Emerson Electric, Verbund, Munich Re, ARM 
• Thursday: Enel, SoftBank, Brookfield, 3i Group 
• Friday: NTT, Honda, KDDI, Tokyo Electron, Enbridge, Li Auto 

Is Warren Buffet hinting of emerging markets as the next frontier for Berkshire?

Berkshire Hathaway held its annual meeting over the weekend announcing operating income up 32% QoQ and a new record cash position as the conglomerate fails to find new investments. Warren Buffett regretted his Paramount investment and even commented on AI, but the most interesting comments were on a different topic such as India.

Warren Buffett answered a question about opportunities in India with “…there are loads of opportunities there, but the question is whether Berkshire has an advantage or insights into those businesses.” The Indian equity market has been in focus in recent years as China has lost its former glory among global investors, but despite the good story about India the equity market has not been able to outperform the MSCI World Index in EUR terms since early 2010. The MSCI World Index has returned 400% while Indian equities have delivered 176% (we are comparing the Amundi MSCI India II UCITS ETF with the iShares Core MSCI World UCITS ETF). Since December 2020 the story has been a bit different with Indian equities up 52% while the MSCI World is up 29% suggesting that the post pandemic era with more focus on commodities and friend-shoring from China to other countries has changed the dynamics for India and its equity market. We have highlighted below some of the key reasons why Indian equities are interesting for the long run.

• Positive demographics will provide long run tailwind for consumption and GDP growth
  
  
• Accelerating compounding effects in its middle class which will drive impressive growth rates for companies in India
  
  
• Strong equity market performance post pandemic
  
  
• Equity market is dominated by old economy sectors and digital transformation of India means that many new IPOs are technology companies and the index will in the future be driven by technology companies
  
  
• Structural reforms are being carried out in India and this will keep the economy growing at a healthy pace in the future
  
  
• Western companies looking to reduce their supply chain reliance on China will increasingly mean more market share in manufacturing to India

Some of the key risks to consider about India is that the country is ranking low on press freedom, have capital controls, has historically had high inflation, the political risk is higher in emerging markets, and currency risks are also something to be aware of.

Recent notes on equities