Yahoo Finance Zacks Earnings Trends Highlights: Target and Walmart
For Immediate Release
Chicago, IL – May 30, 2024– Zacks Director of Research Sheraz Mian says, "What we saw in the Q1 earnings season was a resilient and steadily improving profitability picture, both in terms of the growth rate as well as the revisions trend."
Taking Stock of the Current Earnings Picture
Note: The following is an excerpt from this week's Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>
Here are the key points:
What we saw in the Q1 earnings season was a resilient and steadily improving profitability picture, both in terms of the growth rate as well as the revisions trend. Positive revenue surprises were a bit less commonplace relative to other recent periods, but margins expanded at a better-than-expected rate.
Total earnings for the 481 S&P 500 members that have reported Q1 results are up +7.0% from the same period last year on +4.4% higher revenues, with 78.2% beating EPS estimates and 60.7% beating revenue estimates.
For 2024 Q1, 'Magnificent 7' earnings are up +51.2% on +14.0% higher revenues. Excluding the Mag 7 contribution, 2024 Q1 earnings for the rest of the index would be down -1.5% from the year-earlier period (vs. +6.8% growth otherwise).
Looking at the calendar year picture, total S&P 500 earnings are expected to grow by +9.0% this year after last year's modest decline. Excluding the hefty Tech sector contribution, whose 2024 earnings are expected to be up +16.0%, earnings for the rest of the index would be up only +6.2%.
In recent days, the earnings focus has been on the Retail sector, with Target (TGT) once again coming up short in its quarterly report. Unlike Walmart (WMT), which handily beat estimates on the back of continued market share gains in higher-income households for its grocery-weighted merchandise, Target has to deal with the backdrop of anemic demand for its discretionary merchandise.
Target is making efforts to make its grocery offerings more attractive through price cuts, but its grocery offerings lack its rival's heft. Target management flagged signs of stabilization for its discretionary offerings, and relatively easier comparisons to the year-earlier period should help the retailer's same-store sales results in the current period. Still, the company's stock price underperformance relative to Walmart is unlikely to reverse any time soon.
We have discussed the Retail sector's earnings scorecard and how the sector's Q1 results stack up relative to the other recent periods in section 1 of this report.
The Earnings Big Picture
For 2024 Q2, total S&P 500 earnings are currently expected to be up +8.8% on +4.6% higher revenues. Earnings estimates in the aggregate have ticked down over the last couple of weeks but still remain above levels at the start of the quarter.
While the Energy sector has contributed significantly to the strength in estimates, the revisions trend outside of the Energy sector has also been favorable.
As we have noted in this space all along, the Tech sector is firmly in growth mode and is a significant contributor to this year's growth pace. Had it not been for the +16.0% earnings growth for the Tech sector, total earnings for the index would be up only +6.2%.
The Energy sector is a modest drag on this year's growth pace, with the earnings growth rate improving to +9.9% on an ex-Energy basis. Excluding both the Energy and Tech sectors, 2024 earnings for the rest of the index would be up +12.7%.
As we have been flagging here all along, the Tech is enjoying a favorable revisions trend.
A big contributing factor to the Tech sector's positive earnings outlook is the sector's margins outlook.
We are already in record territory with Tech sector margins, with 2024 margins expected to exceed last year's record level. The expectation is for some more gains next year and the year after, with the ever-growing share of higher-margin software and services in the overall Tech earnings pie explaining the favorable trend. Part of this likely also reflects optimism about the impact of AI on the sector's productivity.
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