Earnings Watch: US bank earnings and focus on ASML and Tesla
Head of Equity Strategy
Summary: The Q3 earnings season kicks into gear today ahead of a more busy earnings calendar next week. Today's results from JPMorgan Chase and Wells Fargo have lifted sentiment in equities as both US banks surprised to the upside on net revenue and EPS lifting shares in pre-market trading. However, JPMorgan CEO Jamie Dimon comments and higher than estimated credit provisions are suggesting darker clouds are forming at the horizon. We also cover next week's earnings with a focus on ASML that is being hit by weakening demand for semiconductors and Tesla that is facing intense input cost pressures and potentially lower demand from high electricity prices.
A good Q3 earnings start from US banks
JPMorgan Chase and Wells Fargo are both surprising to the upside on net revenue and both are also beating on net interest margin but posting bigger than estimated credit provisions in maybe an early sign that credit is getting weaker faster than estimated by analysts. JPMorgan’s investment banking activities were better than feared during the quarter and FICC sales & trading was in particularly strong vs estimates. JPMorgan Q3 EPS is $3.13 down 17% y/y. While JPMorgan and Wells Fargo both benefited from their commercial banking activities, Morgan Stanley had a more challenging Q3 with net revenue missing estimates.
JPMorgan CEO Jamie Dimon says that the impact on regulatory capital requirements is still uncertain (US banks are holding large unrealized losses on their bond portfolio worrying regulators) and he hopes the bank can resume buybacks early next year. Dimon is also reiterating his recent points from an interview that the US economy is strong right now but facing imminent headwinds. JPMorgan and Wells Fargo shares are up 2% in pre-market.
While it is early days for S&P 500 earnings the current updated Q3 EPS figure is behind the estimate and the estimates for Q4 are still a high bar in terms of expectation to exceed for companies. As we have written in many updates ahead of Q3 earnings the pressure on wages will be key for where earnings go in the next couple of quarters. Q3 earnings will face headwinds from lower earnings from financials and energy, and there are still big question marks over earnings in the technology sector.
Next week’s focus is ASML and Tesla
The semiconductor industry has been focus all year as a slowdown in consumer electronics and the crypto industry (mining of Bitcoin) have put downward pressure on pricing of memory chips and graphics cards. As a result our semiconductor theme basket is down 40% this year. But the problems have extended beyond the demand picture with the US ramping up the pressure on exports of semiconductors and equipment to China as the US wants to avoid technology transfer and semiconductors being used in military applications. Part of the US strategy is export restrictions but also its recent enacted US CHIPS Act which aims to significantly reshore the global supply chain of semiconductors back to the US.
ASML is one of those semiconductor equipment companies that is impacted by the US decisions and the company reports earnings on Wednesday with analyst estimates on Q3 EPS down 34% since mid-July due its negative surprise in its Q2 earnings report. The Chinese market has been an important market for ASML so there is naturally a downside risk to its outlook from the recent US export restrictions and analysts estimate that revenue growth has declined to just 1% y/y and EPS down 17% y/y.
Tesla is probably the most important earnings release next week due to its market value but more importantly its impact on sentiment in the entire market and especially the growth part of the market. Tesla recently missed on Q3 deliveries and analysts have also reduced Q3 EPS estimates by 3.6%. This might seem too little as Tesla is facing enormous input pressure from very high lithium prices and high electricity prices may also have had an impact on demand for electric vehicles. Analysts expect revenue growth of 61% y/y and EBITDA of $5.1bn.
Next week’s most important earnings releases are listed below. Besides ASML and Tesla our focus is on Johnson & Johnson and Lockheed Martin on Tuesday with the latter being interesting given the ongoing war in Ukraine. P&G reports earnings on Wednesday and is one of the largest consumer staples companies in the world and thus making it very important to watch in order to get insights on consumer goods inflation. On Thursday the industrial companies ABB and Danaher are worth watching for getting a sense of the outlook for industrial goods. On Friday, investors should pay attention to CATL (the world’s largest battery maker), American Express, and Schlumberger with the latter being the first energy company to report Q3 earnings. Schlumberger is an oil & gas services provider and thus is a good leading indicator on capital expenditures and future production in the oil & gas industry.
- Monday: Bank of America, Sandvik
- Tuesday: Charles Schwab, Johnson & Johnson, Goldman Sachs, Intuitive Surgical, Lockheed Martin, Truist Financial
- Wednesday: ASML, Elevance Health, Tesla, IBM, Lam Research, P&G, Abbott Laboratories, Atlas Copco
- Thursday: China Mobile, China Telecom, ABB, Danaher, Investor, Philip Morris, Union Pacific, CSX, AT&T, Blackstone, Marsh & McLennan, Yara International, Nordea, Volvo, Ericsson, Freeport-McMoRan, Dow
- Friday: CATL, American Express, Schlumberger, Verizon Communications, HCA Healthcare, Sika
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