Earnings will take center stage in the week ahead as some of the largest U.S. companies from different sectors release Q1 2021 earnings.
As the U.S. economic recovery accelerates after the successful rollouts of COVID vaccines, investors will focus on inflationary pressures and whether they are squeezing corporate margins.
So far, just one week in, companies are beating earnings estimates by a wide margin—more than 84%, according to Refinitiv. Profit growth for the S&P 500 is 30.2% for the quarter so far, based on actual reports and estimates. That makes it the best three-month period since the third quarter of 2010, according to FactSet.
Riding on earnings optimism, all three major U.S. indices continued their upward trajectory last week. The S&P 500 ended the week at a record high, the Dow gained for a fourth week, and the NASDAQ rose 1.1% for the week.
Below, we've short-listed three stocks from different sectors which we’re monitoring as Q1 earnings season ramps into full swing:
1. Netflix
Streaming entertainment giant Netflix (NASDAQ:NFLX) will report Q1 earnings on Tuesday, Apr. 20 after the market close. Analysts are expecting $2.97 a share profit on sales of $7.14 billion.
After rebounding strongly during the COVID-19 pandemic, Netflix stock is losing some steam as subscriber growth slows and competition in the streaming market heats up.
As of Friday's $546.54 close, Netflix's shares are up a little over 1% this year, compared with the tech-heavy NASDAQ’s 9% expansion over the same period. This coming week’s earnings report will be crucial if the stock is to break this sluggish cycle and move higher.
The Los Gatos, California-based company has to show it’s well-positioned to defend its dominance at a time when Disney's (NYSE:DIS) streaming service is receiving an overwhelming response from subscribers and additional competitors—including Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), and NBCUniversal (NASDAQ:CMCSA)—are slowly gaining traction.
2. Johnson & Johnson
Global healthcare giant Johnson & Johnson (NYSE:JNJ) will also be reporting Q1 earnings before the market opens on Tuesday. According to analysts’ consensus forecast, the company may report $2.34 EPS on sales of $22 billion for the period.
Besides the quarterly numbers, investors will be eager to know more about the side effects of the drugmaker’s COVID-19 vaccine whose rollout was paused this month in the U.S., following reports that a small number of recipients developed life-threatening blood clots. On Friday, the company's scientists released a refutation of the assertions, in a letter published in the New England Journal of Medicine.
The Advisory Committee on Immunization Practices, or ACIP, said Wednesday it doesn’t have enough information yet about the risk of these unusual side effects to determine whether the vaccine should be continued, discontinued or recommended only for certain groups of the population, according to Wall Street Journal.
Despite the vaccine setback, J&J’s underlying business remains strong as the U.S. is set to reopen and hospitals gradually increase elective surgeries after the COVID-19 disruption, which hurt the company’s device business in 2020. Shares of J&J are up 3% this year. They closed at $162.24 on Friday.
3. Coinbase
After its successful direct listing last week, which provided the cryptocurrency exchange Coinbase Global (NASDAQ:COIN) with an opening valuation of USD $86B, the stock has now slipped lower.
Still, it has become a key barometer in the rapidly-expanding cryptocurrency market. Shares of the biggest U.S. exchange to trade digital currencies ended their first week as a publicly traded company in the green.
The stock closed on Friday at $342 after surging 6% for the day. At that level, shares are more than 30% above the reference price of $250, but much lower than the $429.54 peak hit during the stock's first few minutes of trading on Wednesday Apr. 14.
The exchange, with a current market cap of $68 billion, continues to get favorable ratings from some Wall Street analysts. Loop Capital Markets analyst Kenneth Hill advised clients to buy shares of the exchange, highlighting there's “lots of runway” for the company ahead of its “takeoff.”
Despite the risks, ranging from growing competition to Bitcoin's’s volatility, some investors see opportunity in Coinbase. Bloomberg reported that Cathie Wood’s ARK funds have bought about $352 million worth of shares over two days amid expectations that the company could become a staple in money managers’ portfolios.