First-quarter earnings season starts to heat up this week. Among the notable names on the earnings calendar are electric carmaker Tesla (TSLA, $986.01), pharmaceutical giant Johnson & Johnson (JNJ, $180.05) and streaming name Netflix (NFLX, $343.38).
Results from JPMorgan Chase (JPM) last week underscored how macro factors are impacting publicly traded corporations. "The firm cited higher probabilities of downside risks driven by the war between Russia and Ukraine as well as elevated inflation," says Dan Eye, chief investment officer at asset manager Fort Pitt Capital Group.
"It feels like there is more uncertainty heading into this quarter's earnings season than there has been in some time," says Michael Reinking, senior market strategist at the New York Stock Exchange.
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While Reinking expects first-quarter earnings to remain strong, guidance will likely fall on the conservative side.
"Investors will be looking to conference calls for a better understanding of how the environment is shaping up," Reinking adds. "The margin story will remain a focal point with the main questions centered around whether price increases have been tolerated, are they impacting demand and has that changed in the back half of the quarter as the consumer is now getting hit on multiple fronts."
Tesla Earnings to Show Strong YoY Growth
Oppenheimer analyst Colin Rusch (Outperform) thinks Tesla's ability to pass on higher supply-chain costs to consumers will help drive margins for the automaker. The company has "substantial pricing power," Rusch says, "as demonstrated on recent price increases across models and commentary that the company is sold out through the end of the year in certain geographies."
It's already been a busy news cycle for Tesla. In addition to headlines signaling a potential second TSLA stock split in just two years, CEO Elon Musk followed up reports that he took a sizable stake in Twitter (TWTR) with an offer to buy out the microblogging site.
But this week, attention will be back on Tesla's fundamentals, with the company scheduled to report its first-quarter results after Wednesday's close.
Earlier this month, the company said it delivered more than 310,000 in the first three months of the year. "TSLA's growth stands in stark contrast to other automakers who posted steep declines in U.S. sales in Q1," says CFRA Research analyst Garrett Nelson. He adds that the startup of the company's new factories in German and Texas will accelerate deliveries going forward.
The analyst also believes that "supply agreements signed with mining companies position the company to navigate battery raw materials shortages more successfully than competitors." Nelson has a Buy rating on TSLA stock, saying the company's "first-mover and cost of capital advantages, as well as future demand from the rental car and commercial truck markets, remain underappreciated by investors."
For TSLA's first quarter, analysts, on average, are targeting earnings of $2.26 per share – a marked improvement over the 93 cents per share it reported in Q1 2021. On the top line, the consensus estimate is for $17.8 billion, up 71.2% year-over-year (YoY).
Johnson & Johnson Earnings Could Get Hit By Forex Headwinds
Inflation will certainly be in focus when Johnson & Johnson reports its first-quarter earnings report ahead of Tuesday's open.
In JNJ's fourth-quarter earnings call, Chief Financial Officer Joe Wolk acknowledged that the company was "experiencing the impact of inflationary pressures, including higher input costs across our business and more significantly with respect to consumer health." According to Wolk, this included the "availability and cost of certain commodities, labor and transportation."
To counter these cost pressures, the executive said JNJ was initiating price increases across its consumer health portfolio in 2022.
Meanwhile, "The 'macro' has engulfed the med tech narrative and added to the near-term uncertainty," writes Raymond James analyst Jayson Bedford. However, he still sees plenty of demand for the industry.
Bedford has an Outperform (Buy) rating on the Dow Jones stock. He believes the company's "growth profile" is supported by gains in both its pharmaceutical and medical technology segments, as well as the spinoff of its consumer health business.
But he recently lowered his first-quarter revenue and adjusted earnings per share (EPS) estimates (to $23.7 billion and $2.50 per share, respectively) due to forex-related headwinds. Consensus estimates are for Johnson & Johnson to report revenue of $23.7 billion (+7.7% YoY) and earnings of $2.61 per share (+0.8% YoY).
Netflix Price Hikes Could Offset Slowing Subscriber Growth
It's been a rough year for communication services stocks and Netflix is no exception. Shares are off around 43% so far in 2022 to erase all of their pandemic-related gains.
In addition to broad-market headwinds, Netflix has been hampered by slowing subscriber growth. In late January, NFLX stock plunged almost 22% the day after reporting lower year-over-year subscriber additions in the fourth quarter and guiding for even slower growth in the first quarter.
And this metric was likely pressured even more so after Netflix joined the growing list of companies pulling out of Russia by suspending service in the country.
Still, Netflix's "first-mover advantage and large subscriber base provides the company with a nearly insurmountable competitive advantage over its streaming peers," says Wedbush analyst Michael Pachter (Neutral). He adds that the firm's mid-January price hikes on U.S. plans will offset slowing user growth.
NFLX will unveil its first-quarter earnings report after April 19 close. Analysts, on average, are looking for earnings of $2.90 per share (-22.3% YoY) and revenue of $7.9 billion (+10.7% YoY).
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