US earnings scorecard: Strong revenue growth will support equities

US earnings scorecard: Strong revenue growth will support equities

Equities 5 minutes to read
Peter Garnry

Chief Investment Strategist

Key points

  • Tesla faces challenges: Tesla experienced significant pressure with a 53% drop in EPS and a 9% decline in revenue year-over-year, highlighting issues with falling demand and increased competition.

  • Strong growth in AI: Alphabet and Microsoft reported robust growth driven by AI demand in the cloud, with Alphabet announcing its first dividend and a $70 billion share repurchase.

  • Mixed results across sectors: While tech companies like Alphabet and Microsoft showed strong growth, other sectors had mixed results, with companies like Caterpillar and Exxon Mobil facing challenges, reflecting broader economic conditions. Overall, Q1 results have been to the positive side.

Takeaways from technology earnings this next week

This week delivered the first batch of technology earnings from Tesla (can we even call technology any longer?), Meta, Alphabet, and Microsoft. From the physical worlds we also got results from Caterpillar, Exxon Mobil, and Chevron. Below are our key takeaways:

  • Tesla is an EV maker under immense pressure from falling demand and intense competition forcing pricing and margin compression. Tesla is the one US large cap company that missed estimates the most with EPS falling 53% YoY and revenue declining 9% YoY. Read our take on Tesla Q1 result.

  • Meta was punished for increasing the lower end of its capital expenditures guidance for 2024 and guiding Q2 revenue a bit to the weak side relative to estimates. In our view, the negative reaction from investors is overblown and Meta is still high quality compounding company.

  • Alphabet and Microsoft both showed last night strong growth due to demand for AI workloads in the cloud. Alphabet grew revenue by 15% YoY and earnings by 57% YoY while Microsoft grew revenue by 17% YoY and earnings by 21% YoY. Microsoft is guiding strong Azure growth of 30-31% YoY in the current quarter suggesting demand is not tapering off anytime soon for AI workloads. Alphabet is firing on all cylinders across all business lines and rewarded investors with $70bn in additional share repurchases and announced its first dividend ever of $0.20 per share.

  • Caterpillar was punished for its Q1 results despite better-than-expected earnings as the guidance for Q2 of zero growth compared to last year disappointed investors. The machinery equipment maker said Europe’s economy to continue being weak and Asia-Pacific ex China is slowing. From a macro perspective this is not a good sign.

  • Exxon Mobil and Chevron have both reported Q1 results today showing a decline in both revenue and profits. Exxon is surprising positively on revenue but missing on earnings per share which is seen in pre-market trading as a disappointment. Exxon also expects its Pioneer acquisition to be approved in Q2. Chevron is surprising negatively on revenue while surprising positively on earnings. Chevron is showing strong oil-production growth and still has one of the best capital return yields (buybacks + dividends) in the energy sector.

Strong revenue growth and upside surprises bode well for equities

Our US earnings scorecard for Q1 2024 shows the Q1 results so far from the largest US companies in each sector. The average revenue growth among those that have reported is 6% YoY and the average EPS growth is 19% YoY. There is nothing in the Q1 earnings so far that makes us negative on US equities from an execution and outlook perspective. The issue with US equities is valuation which is higher compared to European equities which makes the latter more interesting despite a lower future growth potential.

As the scorecard shows the three biggest revenue and earnings surprises have been:

  • Absolute revenue surprises: NextEra Energy (-7.7%), Tesla (-4.5%), and Merck (+3.6%)

  • Absolute earnings surprises: Alphabet (+27.4%), General Electric (+25.4%), Freeport-McMoRan (+22.6%)

Earnings estimates are rising rapidly reflecting 12% earnings growth

The robust underlying growth in the US economy that we expect will continue throughout the rest of the year is supporting revenue and earnings growth among companies. Sell-side analysts have consistently increased their earnings estimates this year with the 12-month forward EPS estimate on S&P 500 now at $250 per share compared to the actual 12-month EPS of $223 reflecting expected 12% earnings growth over the next year. The forward estimate on earnings means that the S&P 500 is valued at 20.2x forward earnings.

Quarterly Outlook

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...
Disclaimer

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000
Australia

Contact Saxo

Select region

Australia
Australia

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.