Investing

Earnings Previews: Alphabet, Microsoft, Texas Instruments, Visa

All three major U.S. equity indexes closed lower on Friday. Dow Jones Industrial Average slipped 0.43%%, the Standard & Poor’s 500 closed down 0.93%, and the Nasdaq Composite fell 1.87%. Eight of 11 sectors, led by communications services (down 4.34%) and technology (down 1.38%) while utilities (up 1.37%) was the leading gainer. This week we’ll get earnings reports from the largest U.S. tech companies and a rate hike (or not) announcement from the Fed. The report on personal consumption expenditures (PCE) comes out Friday. In premarket trading Monday, all three major indexes trade about half a point higher.

Before markets opened Monday morning, copper and gold miner Newmont missed the consensus earnings per share (EPS ) estimate and lowered its outlook on production which, in turn, raised its production costs per ounce. Shares traded down about 3%

NXP Semiconductors and Range Resources will report quarterly results after markets close Monday. Before markets open Tuesday morning, Coca-Cola, General Electric, McDonald’s, and 3M Company.

Here’s a look at four companies set to report results before markets open Tuesday morning.

Alphabet

Over the past 12 months, the parent of Google, Alphabet Inc. (NASDAQ: GOOGL), has posted a share price decline of more than 15%. Since early April, the shares are down more than 25%. The company’s 20-for-1 stock split took effect Monday morning, dropping the per-share price to about $108.00 from more than $2,100.00. While the split places Alphabet on the short list of companies that might be added to the Dow (along with Amazon, which completed a similar split in April), investors will pay more attention to comments regarding ad spending and regulation. Ad spending is projected to be 3% to 4% lower in the second half of the year, and regulation, particularly in Europe, is tightening.

Analysts, however, remain universally bullish on the stock. Of 50 ratings, 48 give the stock a Buy or Strong Buy rating, and the other two have a Hold rating on the shares. At a recent split-adjusted price of around $107.90, the upside potential based on a median price target of $150.00 is 39%. At the high price target of $205.90, the upside potential is nearly 91%.

Second-quarter revenue is forecast at $69.95 billion, up 2.8% sequentially and up 13% year over year. Adjusted earnings per share (EPS) are pegged at $1.29, up 5.2% sequentially and down 5.1% year over year. For the full 2022 fiscal year, current consensus estimates call for EPS of $5.48, down 2.3%, on revenue of $294.51 billion, up 14.3%.

Alphabet stock trades at a multiple of 19.7 times expected 2022 EPS, 16.7 times estimated 2023 earnings of $6.47, and 14.8 times estimated 2024 earnings of $7.29. The stock’s split-adjusted 52-week range is $101.88 to $151.55. The company does not pay a dividend and the total shareholder return for the past 12 months is negative 16%.

Microsoft

Over the past 12 months, shares of Microsoft Corp. (NASDAQ: MSFT) have dropped 6.7% from their share price. Since late December, the stock is down more than 23%. Microsoft’s net income in the previous quarter was about $16.7 billion ($20.4 billion in operating income), and free cash flow totaled more than $20 billion. The company is sitting on more than $100 billion in cash and short-term investments. Microsoft’s outlook for the rest of this year will probably be more important to investors than the quarter’s numbers. The $68 billion Activision-Blizzard acquisition could be approved by U.S. regulators next month but continues to face headwinds from the U.K. competition agency.

 

Sentiment for the stock is virtually all positive. Of 47 analysts covering Microsoft, 46 have given the shares a Buy or Strong Buy rating; the lone dissenter rates the stock a Hold. At the current share price of around $260.40, the potential upside based on a median target of $345.00 is about 32.5%. At the high target of $411.00, the implied gain is 57.8%.

For its fourth fiscal quarter of 2022, revenue at the Dow 30 component is forecast at $52.37 billion, up about 6.1% sequentially and up 13.5% year over year. Adjusted EPS is forecast at $2.29, up 3.3% sequentially and up 5.5% year over year. For the full 2022 fiscal year, current consensus estimates call for EPS of $9.36, up 17.4%, on revenue of $198.57 billion, up 18.3%.

Microsoft stock trades at a multiple of 27.8 times expected 2022 EPS, 24.5 times estimated 2023 earnings of $10.62, and 21.1 times estimated 2024 earnings of $12.36 per share. The stock’s 52-week range is $241.51 to $349.67. Microsoft pays an annual dividend of $2.48 (yield of 0.95%). Total shareholder return over the past year was negative 8.3%.

Texas Instruments

Chipmaker Texas Instruments Inc.(NASDAQ: TXN) has dropped about 13.5% from its share price over the past 12 months. In 2021, the stock rose by nearly 15%. It is the country’s sixth-largest semiconductor manufacturer by market cap ($151.1 billion) and probably the world’s largest supplier of analog and embedded microprocessors. While these chips are not the most advanced, they are ubiquitous and cheap to make. The company’s payout ratio is nearly 49%, and its chips are expected to remain in high demand from its 100,000 customers.

Analysts are mixed on the company’s prospects. Of 32 brokerages covering the company, 17 have put a Hold rating on the stock, and 11 have given the shares a Buy or Strong Buy rating. There are also four Sell or Strong Sell ratings mixed in. At a current price of around $163.90, the upside potential at a median price target of $175.00 is 6.8%. At the high price target of $230.00, the upside potential is 40.3%.

For the company’s second quarter, analysts expect to see revenue of $4.65 billion, down about 5.3% sequentially and up 1.5% year over year. Adjusted EPS is forecast to total $2.15, down 11.2% sequentially and up about 2.4% year over year. For the full 2022 fiscal year, EPS is forecast to rise 7% to $9.08, and revenue is expected to increase by 5.4% to $19.33 billion.

TI’s stock trades at around 18.1 times expected 2022 EPS, 18.6 times estimated 2023 earnings of $8.79, and 18.1 times estimated 2024 earnings of $9.06 per share. The stock’s 52-week range is $144.46 to $202.26. The company pays an annual dividend of $4.60 (yield of 2.81%). Total shareholder return for the past year was negative 8.6%.

Visa

Another Dow 30 component reporting after markets close Tuesday is credit card issuer Visa Inc. (NYSE: V). Over the past 12 months, the stock price has declined by about 11.7%. Since a 52-week low was posted in mid-June, shares have gained 12.5%. The share price increase is likely because of the relative strength shown by other financial services companies that have already reported and a rising interest rate regime that may continue for several months.

Analysts are strongly bullish on the stock with 32 of 36 brokerages rating the shares a Buy or Strong Buy. The other four have a Hold rating. At the current price of around $213.70, the implied gain based on a median price target of $263.00 is about 23.1%. At the high price target of $292.00, the upside potential is 36.6%.

For Visa’s second fiscal quarter of 2022, revenue is forecast at $7.06 billion, down 1.8% sequentially and up 15.2% year over year. Adjusted EPS is forecast at $1.74, down 2.6% sequentially and up 16.8% year over year. For the full 2022 fiscal year, current consensus estimates call for EPS of $7.17, up 21.3%, on revenue of $28.73 billion, up 19.2%.

Visa stock trades at a multiple of 29.8 times expected 2022 EPS, 25.5 times estimated 2023 earnings of $8.38, and 21.8 times estimated 2023 earnings of $9.83 per share. The stock’s 52-week range is $185.91 to $252.67. Visa pays an annual dividend of $1.50 (yield of 0.7%). Total shareholder return for the past 12 months was negative 11.9%.

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