With Alcoa’s report only a few weeks away, the start of fourth quarter earnings season is almost underway. Analysts expect earnings to outperform the prior year by 5% on the bottom line and 3% on the top, according to the Estimize consensus data. Revisions activity continues to edge higher across the board with some of the biggest jumps coming from sectors most impacted by the forthcoming Trump administration. One of those includes Bank of America which saw shares and estimates shoot up along with the rest of the financial sector. Some other names trending higher in the past 3 months include NVidia, Tesla, Big 5 Sporting Goods, and Netflix. Research shows that earnings and revenue revisions activity leading up to a report is indicative of a beat and pop in the share prices.
Bank of America (BAC) Financials – Diversified Financial Services
A string of favorable events in the past 2 months helped lift the financial sector out of its year-long rut. Trump’s shocking election victory prompted the initial ascent with many investors believing the President Elect will break the shackles of Dodd Frank. It only got better when the Federal Reserve decided to raise interest rates to close out 2016. Apart from the announcement, the Fed claimed it would be raising rates three times or more in 2017. The prospect of less regulation and higher interests makes investors optimistic about the earnings outlook of the financial sector. As one of the largest retail banks, Bank of America should see a significant boost from the recent string of events. Earnings estimates for Q4 increased 12% in the past 3 months to 41 cents, 3 cents higher than Wall Street’s estimates. Revisions on the top line look muted by comparison, jumping only 2% over the same time frame.
NVidia (NVDA) Information Technology – Semiconductors
Nvidia posted one of the largest percentage beats this earnings season amongst all the companies in the S&P 500, so it seems fitting to find them on a list of potential Q4 winners. Earnings for the third quarter topped analysts’ estimates by over 50% while sales trumped those very same expectations by 18%. Management credited strong growth on the continued success of its core GPU business and significant progress made in VR, self driving cars and data center computers. NVidia has left very little reason to believe that any of these businesses will take a step back in future quarters. The biggest concern might be analysts’ and investors’ unreasonably high expectations given recent gains. Nevertheless analysts continue to ramp up forward estimates to unprecedented levels. In the past 3 months, Q4 earnings estimates increased 53% to 0.93 cents per share with revenue increasing by about 30% to $2.12 billion.
Netflix (NFLX) Consumer Discretionary – Internet & Catalog Retail
If not for NVidia, analysts would be touting Netflix as one of the best Q3 earnings plays. The video streaming service pulled out quite the surprise in the third quarter, beating analysts’ expectations on both the top and bottom line. Most of the gains came from a blowout subscription number which gained 370,000 net members in the U.S. and 3.2 million internationally, handily beating the 2.3 million management forecasted. Netflix’s steady stream of original content and new initiatives like an offline option will continue to provide support to the top line, but the cost of rolling out new content will put pressure on the bottom line. Revisions activity following the report edged higher for the fourth quarter. Bottom line estimates increased by 40% to 15 cents per share with revenue forecasts up 2% in the past 3 months
Tesla (TSLA) Consumer Discretionary – Automobiles
Tesla surprised pretty much everyone last quarter after not only delivering a profit for the first time ever but one as large as 71 cents per share. Revenue made equally impressive strides, growing by 85% on a record number of car deliveries and production. With the Model 3 set to be released in Summer 2017, Tesla should see a new and quite possibly the biggest layer of support to the top line. Even though fourth quarter deliveries fell short of its own forecasts, the electric carmaker appears headed in the right direction. The Estimize community still believes the electric car maker can turn a profit of 25 cents for the fourth quarter with earnings estimates climbing 135% in the past 3 months. Top line estimates dropped by 7% over the same time frame to $2.26 billion, but still reflect a 37% increase from a year earlier.
Big 5 Sporting Goods Corp (BGFV) Consumer Discretionary – Leisure Equipment & Products
Big 5 Sporting Goods continues to make remarkable gains despite a challenging retail environment. In the third quarter, the company posted a 41 cent gain on the bottom line on about $280 million in revenue, exceeding the Estimize consensus data by a wide margin. The company’s impressive growth strategies, financial strength and solid surprise history benefits investors looking to stock up on BGFV ahead of earnings season. Meanwhile revisions activity following the third quarter indicate analyst’s optimism that the company can put up a repeat performance. Earnings estimates jumped by 49% to 30 cents with revenue up to $274.24 million, 4% higher than 3 months ago.
How do you think these names will report? Be included in the Estimize consensus by contributing your estimates here!
Photo Credit: SpaceX