Bank of America, Alcoa, CSX, JPMorgan, Delta Air Lines – Stocks To Watch This Week by Estimize
The season starts off slowly this week with Alcoa reporting, and a handful of other names in the Industrials and banking sector.
Monday, April 11
Tuesday, April 12
Wednesday, April 13
Thursday, April 14
Materials – Metals & Mining | Reports April 11, after the close.
The first quarter 2016 earnings season unofficially kicks off after tomorrow’s closing bell when Alcoa reports. After a dismal 2015 in which share prices plunged nearly 40%, things have been improving slightly year-to-date. Even so, the aluminum company is poised for another disappointing quarter as they begin to shift resources to a corporate restructure. The Estimize community expects EPS of $0.03, a penny higher than the Wall Street consensus, and revenues of $5.276 B, in-line with the Street. This projects the third consecutive quarter of growth declines for both metrics, with profits expected to fall 89% and sales by 9%.
What to watch: At the moment, the state of aluminum industry is at the mercy of China which accounts for a majority of metals production and exports in the world. Alcoa has fallen victim to economic headwinds in China and is unfortunately expected to close the biggest active aluminum smelter in the U.S. That being said, Alcoa is planning to split itself up into two companies to preserve the profitability of its value-adding operations. After years of building up its value-added and upstream operations, Alcoa believes the two have the strength to run as stand alone entities. The upstream component will continue to produce materials like aluminum while the value-added piece will continue to make things that use upstream materials like engine parts. By eliminating vertical integration, the value-added business will benefit from cheaper metals elsewhere.
CSX Corp (CSX)
Industrials – Road & Rail | Reports April 12, after the close.
The Estimize consensus is calling for EPS of $0.39, just two cents higher than the Street. Revenues of $2.708B are actually below the sell-side estimate of $2.732B, indicating a 10% drop in sales YoY, and the fourth consecutive quarterly decline.
What to watch: All eyes will be on cyclical names such as CSX this reporting season, mainly because the transportation sector is seen as a leading economic indicator. We already know that industrial conditions are not pretty, judging by an ISM reading that has stayed below 50 for four of the last five months. Expectations for CSX appear to confirm this weakness, with both EPS and sales growth estimated to decline on a year-over-year basis. Lower U.S. coal production is having a negative impact as it is an important end market and revenue generating commodity for the railroad names. Like many other multinational companies, the strong US dollar will continue to take it’s toll on the top line, as will low oil prices in the form of lower revenues from fuel surcharges.
JPMorgan Chase (JPM)
Financials – Diversified Financial Services | Reports April 13, before the open.
Chase kicks things off for banks this earnings season when they report first quarter earnings this Wednesday. This quarter, the Estimize community is expecting JPM to make modest revenue gains. The consensus data is calling earnings per share of $1.36 on $24.5 billion in revenue, almost 10 cents higher than Wall Street on the bottom line and $600 greater on the top. However, our Select Consensus, a weighted averaged of our most accurate analysts and recent estimates, is expecting a more modest beat of 6 cents on earnings and $330M on sales. This number has been falling lately, with per share estimates cut by 14% in the past three months. By comparison, earnings are projected to decline 6% on a year over year basis.
What to watch: The bank is coming off a better than expected fourth quarter where it beat on both the top and bottom line by a wide margin. This marked the third quarter Chase topped expectations in fiscal 2015. Unfortunately, shares haven’t tracked earnings and are now down 4.16% in the past 12 months. Following the lead of the Federal Reserve, banks have decided to increase lending rates. Granted this has been a slow process, Chase is expected to see net interest income rise by about $2 billion for fiscal 2016. Moreover, total loan growth has been very strong and is expected to be a large revenue driver. This should help offset the losses in its trading and energy divisions. Trading is tracking negative year-over-year growth on the lows in the energy market. JPM expects to build up reserves in excess of $750 million to cover its energy loans. Chase also faces ongoing threats of litigation which resulted in over $100 million in losses last quarter. On the bright side, the modest gains the market has made in the past month have put the banks in a better position.
Bank of America (BAC)
Financials – Diversified Financial Services | Reports April 14, before the open.
For Bank of America, the Estimize community is expecting per share earnings of $0.25, two cents higher than Wall Street, on $20.87 billion in revenue, about $28M ahead of the sell-side. Estimates have been feverishly cut ahead of its earnings, falling 18% in the past 3 months. That said, Bank of America is still projecting favorable year over year growth of 4% on the bottom line.
What to watch: Bank of America might be in the worst position of the retail banks. The stock has been in a tailspin lately, falling 22.9% since the start of the year. Even though the bank topped its earnings expectations in Q4, they managed to miss revenue expectations by approximately $500 million. This is a troubling trend that is anticipated to continue as Bank of America has forecasted further weakness in its trading and investment banking revenues. Projected year-over-year declines in these segments outpace the losses of its peers. Meanwhile, a deteriorating energy sector, along with Bank of America’s volatile net interest income, increased expenses and larger capital deployment will all hamper earnings this quarter.
Delta Airlines (DAL)
Industrials – Airlines | Reports April 14, before the open.
The Estimize consensus calls for EPS of $1.30, 1 cent above Wall Street, with revenue expectations of $9.27 billion, about $35 million above the Street. However, our Select Consensus, a weighted average of our historically most accurate analysts and recent estimates, is expecting a more modest beat of $25 million on the top line. The Estimize community is optimistic in regards to Delta’s profitability, raising its EPS estimate 12% in the past 3 months. Compared to the same period last year this represents a projected 188% on the bottom line. It’s not surprising that Delta often tops expectations, beating Estimize in 56% of report quarters.
What to Watch: Delta was one of of the top performing U.S. airlines in 2015, despite mixed earnings in the past 2 years. Last quarter, Delta reported better-than-expected results on the bottom line but missed its sales target, consistent with a year long trend of falling short on the top line. Revenue has clearly been the airline’s biggest problem, continually coming in flat or negative on a year-over-year basis. Choppy domestic pricing on top of weaker business travel trends had a material impact on results in fiscal 2015. Moreover, key metrics including PRASM (passenger revenue per available seat mile) continue to fall short of expectations. This past week Delta announced that PRASM would be on the lower end of its guidance, likely falling -4.5% in the first quarter. Most international airlines have seen significant demand headwinds due to currency fluctuations and the terror attacks in Paris and Brussels. Still, share prices for DAL have remained strong and are up 11.95% in the last 12 months. Throughout this volatility, Delta has maintained a sound balance sheet, reducing its net debt to $6.7 billion from $15 billion at the end of 2015. This has helped drive strong free cash flow and is expected to continue as air travel demand is likely to improve. For the remainder of 2016, revenue is projected to grow 1% on a 2 to 4% capacity increase.
Be sure to get your estimates in for all of the companies reporting this week!