This year’s historic stock market drop into a bear market seems to already be old news. Through Thursday’s close ahead of the Good Friday holiday, the S&P 500 has rallied about 26% from the low it reached on March 23.
Investor optimism, which is driving this comeback, is being fueled by an improving outlook on the coronavirus outbreak, massive government monetary and fiscal stimulus, and hopes that oil-producing nations will be able to strike a deal on cutting their output.
Nevertheless, this rally is still on very shaky ground given the uncertainty related to COVID-19 and its impact on corporate earnings. Some of the U.S.’s largest companies are scheduled to report first quarter earnings beginning this coming week, even as fears of colossal economic damage and an earnings recession continue to weigh on sentiment.
When the earnings reports are released, investors will be eager to find out whether these U.S. megacaps are able to forecast an immediate future direction as well as what their worst case scenarios might be if global lockdowns are prolonged. Below, three large cap companies we’re monitoring: each is from a different sector and each is releasing results in the coming week:
1. Johnson & Johnson
Global healthcare giant Johnson & Johnson (NYSE:JNJ) will report first quarter earnings before the market opens on Tuesday, April 14. The stock has been under pressure during the past one year on concerns the increasing number of legal disputes related to its baby powder could damage earnings as well as future growth potential.
But the coronavirus pandemic has brightened the outlook for solid healthcare stocks which are showing resilience as investors turn to them for their safe dividends. And the New Jersey-based company fits that bill.
JNJ Weekly TTM
Shares of J&J are down just 3% this year. They closed at $141.23 on Thursday, versus the 14% plunge in the S&P 500 Index during the same period. The drugmaker is expected to post $2.05 a share profit on sales of $19.86 billion for the period, according to analysts’ average estimate.
We believe Johnson & Johnson will slowly overcome the litigation challenges and could prove a good bet for patient investors whose focus is earning steadily growing dividends. The company has an amazing pipeline of new drugs and stellar history of raising its payout for 55 years in a row. It currently delivers a quarterly dividend of $0.95 a share, which has grown 7% per year over the past five years, for an annual yield of 2.69%.
One of the biggest global banks based in the U.S., Citigroup (NYSE:C), will report first quarter earnings before the market opens on Wednesday, April 15. The lender’s earnings and its upcoming guidance are important for markets, in order to judge the health of consumer finances as well as the economy in general, both of which have been hit by the coronavirus.
Citigroup shares have benefited from the New York-based lender’s sustained cost-cutting during the past decade and its portfolio re-balancing.
C Weekly TTM
But the stock has lost 40% of its value this year amid the virus-induced sell-off, as economists see the economy slipping into a deep recession. Shares of the company were strong participants in the comeback rally. They rose more than 7% on Thursday to close at $47.41. Citigroup may post $1.90 a share profit on sales of $19 billion, according to analysts’ average forecasts.
Along with the bottom line numbers, investors will also focus on Citigroup’s efficiency ratio, or expenses as a percentage of revenue. This metric has come in at less than 60% for the past four years, making Citi the only major global bank able to maintain such a winning streak.
With the oil market in total disarray on plunging prices and a production glut resulting from a price war in tandem with a massively shrinking global economy, it’s not hard to see what’s in store when oil and gas services giant Schlumberger (NYSE:SLB) reports first quarter earnings on Friday, April 17, before the open.
Schlumberger operates in more than 120 countries, supplying the oil and gas industry’s most comprehensive range of products and services, from exploration through production. But its business is likely to see a steep decline for the rest of the year as major oil companies cut back on spending in order to preserve cash during this period of collapsing oil prices.
SLB Weekly TTM
Due to these fears, SLB shares have lost about 60% of their value this year. The stock closed on Thursday at $16.47, after falling about 5% on the day. Analysts on average expect $0.26 a share profit on sales of $7.6 billion.
The company’s future guidance could provide some insight into the extent of damage caused by the price war in oil markets and the future of the company’s currently whopping 11.57% dividend yield, which amounts to $2 a share annually.