Tag: Earnings

United Airlines says travel demand is stronger than recession pressures; shares rally

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United Airlines Holdings Inc. stock rallied after hours Tuesday after the airline said it expected the travel rebound to weather a shakier economy in the months ahead and reported third-quarter results that beat expectations.

“Looking forward through the end of the year, the airline expects the strong COVID recovery trends to continue to overcome the recessionary pressures in the macroeconomic environment,” company executives said in a statement.

That backdrop — along with tighter flight networks and changes in how people work — helped justify the airline’s more upbeat forecast for the fourth quarter. United Airlines
UAL,
+3.19%
said it expected adjusted fourth-quarter operating margin of around 10%, the first time the figure would end above pre-pandemic 2019 levels.

United also forecast adjusted fourth-quarter earnings per share of between $2.00 and $2.25, well above FactSet forecasts for 98 cents per share. The carrier also said it expected a 24% to 25% gain in total fourth-quarter unit revenue — a much-watched industry metric that measures sales as spread out across an airline’s flight capacity — when compared to the same period in 2019.

Adjusted fourth-quarter unit costs were seen up between 11% and 12%, and roughly 15% for the full year, when compared to the respective periods in 2019.

For the third quarter, United reported net income of $942 million, or $2.86 per share, compared with $473 million, or $1.44 per share, in the prior-year quarter.

On an adjusted basis, the company earned $2.81 per share, compared with a $1.02 per-share loss in the quarter a year ago and $4.07 in 2019. Revenue was $12.877 billion, compared with $7.75 billion a year ago and $11.38 billion in 2019.

Analysts polled by FactSet expected adjusted earnings of $2.28 per share, on revenue of $12.743 billion.

Shares jumped 7% after the market’s close. American Airlines Group Inc.
AAL,
+3.79%,
which reports earnings on Thursday, rose 3.6% after hours.

United, in its earnings release, also called out three demand trends that it said were “more than fully offsetting any economic headwinds.” It said that “Air travel is still in the COVID recovery phase, hybrid work gives customers the freedom and flexibility to travel for leisure more often, and external supply challenges will limit industry supply for years to come.”

The carrier said it expected total flight capacity, a measure of available seats on flights, to be down between 9% and 10% for the fourth quarter and down around 13% for the full year, when compared to 2019 levels.

United reported as analysts look for cracks in the travel industry’s rebound and holiday demand, after eager travelers this summer ran into flight delays and cancellations, insufficient staffing and severe weather. Airfares and fuel costs are more expensive — a function of strong demand and thinner supplies. Aircraft supply is tight, some executives have said. Airlines have also tried to bulk up flight crews, particularly pilots, after encouraging buyouts in 2020, as the pandemic left the industry without passengers and burning through cash.

Delta Air Lines Inc.
DAL,
+3.34%
last week said it expected fourth-quarter sales to grow from pre-pandemic levels, as demand for travel, after two years of pandemic-related restraint, holds up against rising prices.

“The travel recovery continues as consumer spend shifts to experiences and demand improves in corporate and international,” Delta CEO Ed Bastian said in its earnings release.

Raymond James analyst Savanthi Syth, in a research note last week, said she expected United to see similar momentum, helped by corporate travel and international demand.

She said American and JetBlue Airways Corp.
JBLU,
+1.90%
should benefit to a lesser degree, “due to large corp and transatlantic exposure at the former and large coastal-city exposure at the latter.” JetBlue reports earnings on Oct. 25.

Delta’s international-unit revenue growth outpaced that in its domestic business for the first time since the pandemic started. Leisure travel to Europe helped propel results, as did strong demand for Delta’s premium-class seats. Bastian said he expected Delta’s flight network to be fully restored by summer next year.

“Demand has not come close to being quenched by a hectic summer travel season,” he said on Delta’s earnings call. “At the same time, industry supply is constrained by aircraft availability, regional pilot shortages and hiring and training needs.”

Delta rose 3% after the bell on Tuesday.

United Airlines stock is down 15% so far this year. By comparison, the S&P 500 Index
SPX,
+1.14%
is down 22% over that time.

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October 18, 2022
Netflix snaps streak of subscriber declines and beats on earnings, stock jumps 15%

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Netflix Inc. added more than 2 million subscribers in the third quarter after stumbling into 2022 with two consecutive quarterly declines, a rebound that sent shares more than 15% higher in after-hours trading Tuesday.

Netflix
NFLX,
-1.73%
reported a net gain of 2.41 million subscribers in the third quarter, while analysts on average were forecasting 1.1 million net additions, according to FactSet. That follows a decline of roughly 200,000 subscribers in the first quarter and nearly a million in the second quarter, which has led the company to plan massive changes, including a cheaper, ad-supported streaming tier set to arrive in the fourth quarter.

In a letter to shareholders, Netflix executives said they expect 4.5 million new subscribers to join in the fourth quarter, with revenue forecast to grow to $7.78 billion from $7.71 billion a year ago. Analysts on average were estimating revenue of $7.97 billion and a net subscriber gain of 4 million for the fourth quarter, according to FactSet.

“After a challenging first half, we believe we’re on a path to reaccelerate growth,” executives wrote in the letter.

The news sent Netflix shares up about 15% in after-hours trading following the release of the results, after closing with a 1.7% drop at $240.86. The stretch of subscriber declines has filleted Netflix shares, which have swooned 60% so far this year while the broader S&P 500 index
SPX,
+1.14%
has declined 22.8%.

The streaming-video giant’s downturn after a pandemic-boosted surge has only intensified pressure from rival streaming services at Walt Disney Co.
DIS,
+1.18%,
Apple Inc.
AAPL,
+0.94%,
Amazon.com Inc.
AMZN,
+2.26%,
Warner Bros. Discovery Inc.
WBD,
+4.55%,
Comcast Corp.
CMCSA,
-0.23%
and Paramount Global
PARA,
+1.56%.

That didn’t stop Netflix executives from taking a pot shot at streaming rivals over profitability. “Our competitors are investing heavily to drive subscribers and engagement, but building a large, successful streaming business is hard — we estimate they are all losing money, with combined 2022 operating losses well over $10 billion, vs. Netflix’s $5 to $6 billion annual operating profit,” Netflix executives said in the shareholder letter.

A dramatic shift in the video-streaming climate, one in which Disney surpassed Netflix as market leader in July, has prompted a radical makeover at Netflix. Last week, the company announced its long-awaited advertising-supported tier, which debuts Nov. 3 in the U.S. for $6.99 a month. Another 11 countries, including Canada and Mexico, will get the service by Nov. 10. The company has also vowed a crackdown on shared accounts, and is pushing forward on gaming.

The advertising-supported tier directly acknowledges competition and the necessity of Netflix “adapting to the streaming landscape’s new normal,” Insider Intelligence analyst Ross Benes said in a note late Tuesday.

For more: Netflix lost its streaming crown to Disney. Here’s how execs expect to win it back.

Netflix announced third-quarter earnings of $1.4 billion, or $3.10 a share, down from $3.16 a share a year ago. Netflix revenue improved to $7.93 billion in the quarter from $7.48 billion in the same period a year ago, but missed diminished expectations. Analysts polled by FactSet expected earnings of $2.14 a share on sales of $7.84 billion, estimates that had dipped in recent days.

Tuesday’s results follow some serious self-reflection among Netflix executives on how to stanch a decline in visits among subscribers that has led to cancellations. Co-CEO Reed Hastings has consulted with staff to find ways to make subscribers visit the platform more frequently, according to reports by The Wall Street Journal and Bloomberg News.

One such strategy is cracking down on multiple users sharing the same account. In the shareholder letter, Netflix said it has “landed on a thoughtful approach to monetize account sharing and we’ll begin rolling this out more broadly starting in early 2023.”

“After listening to consumer feedback, we are going to offer the ability for borrowers to transfer their Netflix profile into their own account, and for sharers to manage their devices more easily and to create sub-accounts (‘extra member’), if they want to pay for family or friends,” the letter said. “In countries with our lower-priced ad-supported plan, we expect the profile transfer option for borrowers to be especially popular.”

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October 18, 2022
J&J sales grow, but strong dollar tugs at expectations

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Johnson & Johnson topped third-quarter expectations thanks to growth in pharmaceutical sales, but the health care giant continued to tread cautiously with its outlook due to the strong dollar.

J&J on Tuesday stuck to the midpoint of its 2022 forecast after lowering expectations the previous two quarters due to the impact of currency exchanges. The company now expects adjusted earnings to range between $10.02 and $10.07 per share.

That’s a narrower forecast than the $10-to-$10.10 range the company predicted in July.

For the full year, analysts expect, on average, earnings of $10.07 per share, according to FactSet.

J&J brings in nearly half of its sales from outside the United States. A strong U.S. dollar, which is now worth more than a euro for the first time in 20 years, can affect sales for companies that do a lot of international business.

They have to convert those sales into dollars when they report earnings. The stronger dollar decreases the value of those sales. It also gives foreign products a price edge in the United States.

In the third quarter, J&J’s profit climbed 22% to $4.46 billion. Revenue rose 2% to $23.79 billion, and adjusted earnings totaled $2.55 per share.

Analysts were expecting earnings of $2.48 per share on $23.36 billion in revenue, according to FactSet.

Revenue from the company’s biggest segment, pharmaceutical, climbed 2.6% — or 9% without the impact of foreign exchange — to $13.2 billion. That business was charged by sales of the blood cancer treatment Darzalex, which soared nearly 30% to $2.06 billion.

The company recorded no U.S. sales in the quarter from its one-shot COVID-19 vaccine, which brought in $489 million in revenue from international markets.

J&J’s vaccine was one of three initially authorized by U.S. regulators more than a year ago to protect against COVID-19. But the government has since strictly limited who can receive the shot due to a small risk of rare but serious blood clots.

The company also has had to trash millions of doses of the shots due to manufacturing trouble at a Baltimore factory operated by a contractor.

Shares of New Brunswick, New Jersey company rose 2% before the opening bell.

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October 18, 2022
Microsoft Lays Off Employees After Slowdown in Earnings Growth
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Tech

The software giant said earlier this year that it planned to reduce staff by less than 1%
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October 17, 2022
Bank of America tops estimates on better-than-expected bond trading, higher interest rates
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Bank Of America CEO Brian Moynihan is interviewed by Jack Otter during “Barron’s Roundtable” at Fox Business Network Studios on January 09, 2020 in New York City.

John Lamparski | Getty Images

Bank of America said Monday that quarterly profit and revenue topped expectations on better-than-expected fixed income trading and gains in interest income, thanks to choppy markets and rising rates

Here’s what the company reported compared with what analysts were expecting, based on Refinitiv data:

Earnings per share: 81 cents vs. 77 cents expected

Revenue: $24.61 billion adjusted vs. $23.57 billion expected

Bank of America said in a release that third-quarter profit fell 8% to $7.1 billion, or 81 cents a share, as the company booked a $898 million provision for credit losses in the quarter. Revenue net of interest expense jumped to $24.61 billion, on a non-GAAP basis.

Shares of the bank rose 6.1%.

Bank of America, led by CEO Brian Moynihan, was supposed to be one of the main beneficiaries of the Federal Reserve’s rate-boosting campaign. That is playing out, as lenders including Bank of America, JPMorgan Chase and Wells Fargo are producing more revenue as rates rise, allowing them to generate more profit from their core activities of taking in deposits and making loans.

“Our U.S. consumer clients remained resilient with strong, although slower growing, spending levels and still maintained elevated deposit amounts,” Moynihan said in the release. “Across the bank, we grew loans by 12% over the last year as we delivered the financial resources to support our clients.”

Net interest income at the bank jumped 24% to $13.87 billion in the quarter, topping the $13.6 billion StreetAccount estimate, thanks to higher rates in the quarter and an expanding book of loans.

Net interest margin, a key profitability metric for bank investors, widened to 2.06% from 1.86% in the second quarter of this year, edging out analysts’ estimate of 2.00%.

Fixed income trading revenue surged 27% from a year earlier to $2.6 billion, handily exceeding the $2.24 billion estimate. That more than offset equities revenue that dropped 4% to $1.5 billion, below the $1.61 billion estimate.

Like its Wall Street rivals, investment banking revenue posted a steep decline, falling about 46% to $1.2 billion, slightly exceeding the $1.13 billion estimate.

Of note, the bank’s evolving provision for credit losses showed the company was beginning to factor in a more harsh economic outlook.

While Bank of America released $1.1 billion in reserves in the year-earlier period, in the third quarter the firm had to build reserves by $378 million. That, in addition to a 12% increase in net charge-offs for bad loans to $520 million in the quarter, accounted for the $898 million provision.

Analysts have said that they want to see bank executives factor in the possibility of an impending recession before investors return to the beaten-down sector. Bank of America shares hit a new 52-week low last week and have fallen 29% this year through Friday, worse than the 26% decline of the KBW Bank Index.

Last week, JPMorgan and Wells Fargo topped expectations for third-quarter profit and revenue by generating better-than-expected interest income. Citigroup also beat analysts’ estimates, and Morgan Stanley missed as choppy markets took a toll on its investment management business.
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October 17, 2022
‘Material risk’ looms over stocks as investors face bear market’s ‘second act,’ warns Morgan Stanley

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Stock-market investors have been adjusting to the jump in interest rates amid high inflation, but they have yet to cope with profit headwinds faced by the S&P 500, according to Morgan Stanley Wealth Management.

“While a rate peak may solidify estimates for the equity risk premium and valuation multiples, equity investors still face the bear market’s second act — the earnings outlook,” said Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, in a note Monday.

“They have been slow to recognize that pricing power and operating margins, which hit all-time highs in the past two years, are unsustainable,” she said. “Even without a recession, the mean reversion of profits in 2023 translates to a 10%-to-15% decline from current estimates.”

MORGAN STANLEY WEALTH MANAGEMENT NOTE DATED OCT. 17 2022

Unprecedented monetary and fiscal stimulus during the throes of the pandemic had led to the largest U.S. companies booking record operating margins that were 150 to 200 basis points above norms seen in the past decade, according to Shalett.

See: Stock market’s wild gyrations put earnings in focus as inflation crushes Fed ‘pivot’ hopes

She said that company profits may now be imperiled by slowing growth, with “demand skewing toward services” after pulling forward toward goods earlier in the pandemic, and a likely reversal in “extremely strong” pricing power as the Fed fights surging inflation with interest-rate hikes.

“Such risks are not discounted in 2023 consensus yet, constituting a material risk to stocks for the remainder of the year,” Shalett said.

While many sectors have discounted the potential drop in 2023 profits from current estimates that could stir headwinds even with no recession, “the megacap secular growth stocks that dominate market-cap indexes have not,” she warned. “And those indexes are where risk gets repriced in the bear market’s final stages.”

Morgan Stanley’s chief U.S. equity strategist Mike Wilson estimates as much as 11% downside from consensus estimates, with his base-case, earnings-per-share forecast for the S&P 500 for 2023 being $212, according to Shalett’s note.

U.S. stocks were bouncing Monday, with major stock benchmarks trading sharply higher in the afternoon, after sinking Friday amid inflation concerns as earnings season got under way. The S&P 500
SPX,
+2.65%
was up 2.7% in afternoon trading, while the Dow Jones Industrial Average
DJIA,
+1.86%
gained 1.9% and the technology-heavy Nasdaq Composite surged 3.5%, FactSet data show, last check.

In the bond market, Treasury rates were trading slightly lower Monday afternoon, after the 2-year yield hit a 15-year high and the 10-year yield notched a 14-year high on Friday, according to Dow Jones Market Data. Two-year yields ended last week at 4.507%, the highest level since August 8, 2007 based on 3 p.m. Eastern time levels, while the 10-year rate climbed to 4.005% for its highest rate since Oct. 15, 2008.

The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.992%
was down about 1 basis point Monday afternoon at around 4%, while two-year yields
TMUBMUSD02Y,
4.439%
fell about five basis points to around 4.45%, FactSet data show, at last check.

Meanwhile, as investors capitulated to higher inflation, “peak policy rates moved up aggressively in the fed funds futures market, with the terminal rate now at nearly 5%, an aggressive stance that smacks of ‘peak hawkishness,’” according to the Morgan Stanley note.

“Critically, although the market is still pricing 1.5 cuts in 2023, the January 2024 fed-funds rate is estimated at 4.5%, a comfortable 100 basis points above our forecast” for core inflation measured by the consumer-price index, Shalett wrote.

“Consider locking in solid short-term yields in bonds and shoring up positions in high growth, dividend-paying stocks,” she said. “Short-duration Treasuries look attractive, especially because the yield is more than 2.5 times that of the dividend yield on the S&P 500.”

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October 17, 2022

These 11 stocks can lead your portfolio’s rebound after the S&P 500 ‘earnings recession’ and a market bottom next year

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This may surprise you: Wall Street analysts expect earnings for the S&P 500 to increase 8% during 2023, despite all the buzz about a possible recession as the Federal Reserve tightens monetary policy to quell inflation.

Ken Laudan, a portfolio manager at Kornitzer Capital Management in Mission, Kan., isn’t buying it. He expects an “earnings recession” for the S&P 500
SPX,
+2.78%
— that is, a decline in profits of around 10%. But he also expects that decline to set up a bottom for the stock market.

Laudan’s predictions for the S&P 500 ‘earnings recession’ and bottom

Laudan, who manages the $83 million Buffalo Large Cap Fund
BUFEX,
-2.86%
and co-manages the $905 million Buffalo Discovery Fund
BUFTX,
-2.82%,
said during an interview: “It is not unusual to see a 20% hit [to earnings] in a modest recession. Margins have peaked.”

The consensus among analysts polled by FactSet is for weighted aggregate earnings for the S&P 500 to total $238.23 a share in 2023, which would be an 8% increase from the current 2022 EPS estimate of $220.63.

Laudan said his base case for 2023 is for earnings of about $195 to $200 a share and for that decline in earnings (about 9% to 12% from the current consensus estimate for 2022) to be “coupled with an economic recession of some sort.”

He expects the Wall Street estimates to come down, and said that “once Street estimates get to $205 or $210, I think stocks will take off.”

He went further, saying “things get really interesting at 3200 or 3300 on the S&P.” The S&P 500 closed at 3583.07 on Oct. 14, a decline of 24.8% for 2022, excluding dividends.

Laudan said the Buffalo Large Cap Fund was about 7% in cash, as he was keeping some powder dry for stock purchases at lower prices, adding that he has been “fairly defensive” since October 2021 and was continuing to focus on “steady dividend-paying companies with strong balance sheets.”

Leaders for the stock market’s recovery

After the market hits bottom, Laudan expects a recovery for stocks to begin next year, as “valuations will discount and respond more quickly than the earnings will.”

He expects “long-duration technology growth stocks” to lead the rally, because “they got hit first.” When asked if Nvidia Corp.
NVDA,
+6.14%
and Advanced Micro Devices Inc.
AMD,
+3.69%
were good examples, in light of the broad decline for semiconductor stocks and because both are held by the Buffalo Large Cap Fund, Laudan said: “They led us down and they will bounce first.”

Laudan said his “largest tech holding” is ASML Holding N.V.
ASML,
+3.79%,
which provides equipment and systems used to fabricate computer chips.

Among the largest tech-oriented companies, the Buffalo Large Cap fund also holds shares of Apple Inc.
AAPL,
+3.09%,
Microsoft Corp.
MSFT,
+3.88%,
Amazon.com Inc.
AMZN,
+6.63%
and Alphabet Inc.
GOOG,
+3.91%

GOOGL,
+3.73%.

Laudan also said he had been “overweight’ in UnitedHealth Group Inc.
UNH,
+1.77%,
Danaher Corp.
DHR,
+2.64%
and Linde PLC
LIN,
+2.25%
recently and had taken advantage of the decline in Adobe Inc.’s
ADBE,
+2.32%
price following the announcement of its $20 billion acquisition of Figma, by scooping up more shares.

Summarizing the declines

To illustrate what a brutal year it has been for semiconductor stocks, the iShares Semiconductor ETF
SOXX,
+2.12%,
which tracks the PHLX Semiconductor Index
SOX,
+2.29%
of 30 U.S.-listed chip makers and related equipment manufacturers, has dropped 44% this year. Then again, SOXX had risen 38% over the past three years and 81% for five years, underlining the importance of long-term thinking for stock investors, even during this terrible bear market for this particular tech space.

Here’s a summary of changes in stock prices (again, excluding dividends) and forward price-to-forward-earnings valuations during 2022 through Oct. 14 for every stock mentioned in this article. The stocks are sorted alphabetically:

Company	Ticker	2022 price change	Forward P/E	Forward P/E as of Dec. 31, 2021
Apple Inc.	AAPL, +3.09%	-22%	22.2	30.2
Adobe Inc.	ADBE, +2.32%	-49%	19.4	40.5
Amazon.com Inc.	AMZN, +6.63%	-36%	62.1	64.9
Advanced Micro Devices Inc.	AMD, +3.69%	-61%	14.7	43.1
ASML Holding N.V. ADR	ASML, +3.79%	-52%	22.7	41.2
Danaher Corp.	DHR, +2.64%	-23%	24.3	32.1
Alphabet Inc. Class C	GOOG, +3.91%	-33%	17.5	25.3
Linde PLC	LIN, +2.25%	-21%	22.2	29.6
Microsoft Corp.	MSFT, +3.88%	-32%	22.5	34.0
Nvidia Corp.	NVDA, +6.14%	-62%	28.9	58.0
UnitedHealth Group Inc.	UNH, +1.77%	2%	21.5	23.2
Source: FactSet

You can click on the tickers for more about each company. Click here for Tomi Kilgore’s detailed guide to the wealth of information available free on the MarketWatch quote page.

The forward P/E ratio for the S&P 500 declined to 16.9 as of the close on Oct. 14 from 24.5 at the end of 2021, while the forward P/E for SOXX declined to 13.2 from 27.1.

Don’t miss: This is how high interest rates might rise, and what could scare the Federal Reserve into a policy pivot

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October 17, 2022

Bank of America Reports Earnings Monday. What Wall Street Is Watching.

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Bank of America Reports Earnings Monday. What Wall Street Is Watching.

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October 17, 2022
JPMorgan profit falls but beats estimates while Wells Fargo misses

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JPMorgan Chase & Co. shares rose Friday after the megabank beat analyst targets for third-quarter profit and revenue and said it would top forecasts for its net interest in come in the coming quarter.

In a busy day for bank earnings, Wells Fargo & Co.
WFC,
+4.62%
fell short of earnings target but its stock rose in premarket trades as it beat revenue estimates.

Morgan Stanley
MS,
+3.55%
shares fell after it missed Wall Street’s targets for earnings and revenue.

Citigroup Inc.
C,
+5.17%
shares rose after beating its profit mark, although revenue fell 1% after breaking out the impact of divestitures.

Overall, banks benefited from higher interest rates and strong trading volumes, but investment banking deal activity fell sharply. Banks also channeled more capital into reserves and away from their collective bottom lines to prepare for a potential economic downturn.

As the largest bank in the U.S. and a bellwether for the sector, JPMorgan Chase
JPM,
+5.56%
turned in a “solid performance” in the latest quarter, in the words of Chief Executive Jamie Dimon.

The bank said it expects to meet its capital requirements under the international Basel III banking guidelines and resume stock buybacks early in 2023.

“In the U.S., consumers continue to spend with solid balance sheets, job openings are plentiful and businesses remain healthy,” Dimon said. “However, there are significant headwinds immediately in front of us – stubbornly high inflation leading to higher global interest rates, the uncertain impacts of quantitative tightening, the war in Ukraine, which is increasing all geopolitical risks, and the fragile state of oil supply and prices.”

Dimon said the bank remains “prepared for bad outcomes” so it can continue to operate even in the most challenging times.

Dimon’s prepared statement comes a day after the oft-quoted CEO said the U.S. consumer sector remains strong currently, but inflation will start weighing on people by 2023.

Also Read: JPMorgan CEO Dimon says inflation hasn’t dampened consumer spending yet but give it time

JPMorgan Chase’s stock rose 2.4% ahead of Friday’s open after it said its third-quarter net income fell 16.7% to $9.74 billion, or $3.12 a share, from $11.69 billion, or $3.74 a share, in the year-ago quarter.

Third-quarter revenue at the megabank rose to $32.72 billion from $29.65 billion in the year-ago quarter.

Wall Street analysts expected JPMorgan Chase to earn $2.90 a share on revenue of $32.12 billion, according to estimated compiled by FactSet. T

The bank said a net credit reserve build of $808 million ate into its net income for the latest quarter, compared with a net reserve release of $2.1 billion in the prior year.

Net interest income climbed 34% to $17.6 billion and net interest income excluding its Markets unit rose 51% to $16.9 billion on higher interest rates.

JPMorgan Chase’s total assets under management fell 13% to $2.6 trillion in the face of losses in the equities market and difficult conditions in the bond market.

Looking ahead, JPMorgan Chase said it expects fourth-quarter net interest income of about $19 billion, ahead of the $18.2 billion analyst estimate.

Octavio Marenzi, CEO of management consultant company Opimas said the bank’s results were “surprisingly solid” and if you strip away its payments for loan reserves, its profit is basically unchanged.

“Individual lines of business, such as investment banking and mortgages did predictably badly, but this was more than compensated for by strength in other areas of lending and in trading,” Marenzi said.

Shares of JPMorgan Chase have lost 30.9% in 2022 compared with a 17.3% drop by the Dow Jones Industrial Average
DJIA,
+2.83%
and a 23.0% loss by the S&P 500
SPX,
+2.60%.

Wells Fargo misses profit target but share rise

Wells Fargo & Co. shares advanced 2% in Friday’s premarket after the bank posted net income of $3.528 billion, or 85 cents a share, for the quarter to end September, down from $5.122 billion, or $1.17 a share, in the year-earlier quarter.

The megabank fell short of the earnings-per-share target of $1.09 a share.

Wells Fargo’s revenue rose to $19.505 billion from $18.834 billion a year ago, ahead of the $18.775 billion FactSet consensus.

Chief Executive Charlie Scharf said performance was “significantly impacted” by $2 billion, or 45 cents a share, in operating losses “related to litigation, customer remediation, and regulatory matters primarily related to a variety of historical matters.”

However, the bank is seeing historically low delinquencies and high payment rates, and the “timing of deterioration in those measures due to high inflation remains unclear. “

The bank set aside $784 million in provisions for loan losses, after reducing them by $1.395 billion a year ago.

Net interest income rose 36%, while noninterest income fell 25%, as mortgage banking income declined.

Citi analyst Keith Horowitz said Wells Fargo turned in a “good” quarter overall, although larger-than-expected one-time charges and a reserve build reduced profits. But Wells Fargo also raised its outlook for net interest income “and we still see upside to 2023 consensus,” Horowitz said.

Shares of Wells Fargo have declined 12% in the year to date.

Morgan Stanley shares fall on results

Morgan Stanley fell 2.6% in premarket trades after the investment bank missed Wall Street’s targets for earnings and revenue amid a drop in deal activity.

Morgan Stanley said its third-quarter net income fell to $2.49 billion, or $1.47 per share, from net income of $3.7 billion, or $1.98 per share in the year-ago quarter.

Third-quarter revenue dropped to $12.99 billion from $14.75 billion.

Wall Street analysts were looking for earnings of $1.52 a share and revenue of $13.29 billion, according to FactSet data.

“Firm performance was resilient and balanced in an uncertain and difficult environment, delivering a 15% return on tangible common equity,” said CEO James Gorman. “Wealth Management added an additional $65 billion in net new assets and produced a pre-tax margin of 28%, excluding integration-related expenses, demonstrating scale and stability despite declining asset values.”

Morgan Stanley shares have lost 19.2% in 2022.

Citi beats targets but shares lose ground

Citigroup shares fell 1.3% in premarket trades Friday after the bank posted stronger-than-expected profit, but revenue fell 1% after breaking out divestiture-related impacts, as growth in net interest income was more than offset by lower non-interest revenue.

Citi said its third-quarter net income dropped to $3.5 billion, or $1.63 per share, from $4.6 billion, or $2.15 a share, in the year-ago quarter.

Excluding divestiture-related impacts, earnings were $1.50 a share.

Total revenue increased to $18.5 billion from $17.4 billion.

Analysts were looking for earnings of $1.42 a share and revenue of $18.26 billion for Citigroup, according to a FactSet survey.

Citi said it continues to shrink its operations in Russia, and expects to end nearly all of the institutional banking services offered in the country next quarter. “To be clear, our intention is to wind down our presence in this country,” Chief Executive Jane Fraser said.

Shares of Citigroup have dropped 28.9% in 2022.

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October 14, 2022
Royal Mail may lay off up to 6,000 after loss in first half

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International Distribution Services PLC said Friday that its U.K. division Royal Mail swung to an adjusted operating loss for the first half of fiscal 2023, mostly due to the effect of three days of industrial action.

The company
IDS,
-13.14%
said that Royal Mail’s adjusted operating loss for the six month period ended in September was 219 million pounds ($248.1 million) compared with an adjusted operating profit of GBP235 million for the first half of fiscal 2022. This included a GBP70 million of direct negative impacts stemming from three days of industrial action, it said.

Royal Mail might require between 5,000 to 6,000 redundancies by the end of August, 2023, IDS said.

The company said that it expects Royal Mail to post full-year adjusted operating loss–a metric which strips out exceptional and other one-off items–to be around GBP350 million. The company said this estimate includes the direct and immediate effect of eight days of industrial action which have taken place or been notified to Royal Mail, but excluding any charges for voluntary redundancy costs.

“This may increase to around a GBP450 million loss if customers move volume away for longer periods following the initial disruption,” it said.

The company said that the loss for the full year would materially increase and it might require “further operational restructuring and headcount reduction” if the Communication Workers Union proceeds with the 16 days of industrial action announced.

Write to Anthony O. Goriainoff at anthony.orunagoriainoff@dowjones.com

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October 14, 2022
Taiwan chipmaker TSMC says quarterly profit $8.8 billion

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TAIPEI, Taiwan — Taiwan Semiconductor Manufacturing Co., the biggest contract manufacturer of processor chips for smartphones and other products, said Thursday that its quarterly profit rose 79.7% over a year earlier to $8.8 billion amid surging demand.

Quarterly revenue rose 47.9% over a year ago to $19.2 billion, the company reported.

TSMC, headquartered in Hsinchu, Taiwan, makes processor chips for brands including Apple Inc. and Qualcomm Inc. Many of their products are assembled by factories in China, which has exposed TSMC to the possible impact of U.S.-Chinese tension over technology and security.

TSMC’s U.S.-traded shares fell 14% in value after Washington on Friday tightened restrictions on Chinese access to advanced computer chips. Those controls are based on limiting the ability of TSMC and other suppliers to use U.S. chip or manufacturing technology for Chinese customers.

The American Embassy in Beijing didn’t immediately respond to a question about whether TSMC had received an exemption that might allow normal supplies to Chinese factories to continue.

TSMC’s chip supplies to China already were restricted under a 2020 order by then-President Donald Trump that prohibits vendors from using U.S. technology to manufacture for Huawei Technologies Ltd., a maker of network switching gear and smartphones. Washington says Huawei is a security risk and might facilitate Chinese spying, which the company denies.

Chipmakers are benefiting for demand for next-generation telecoms, high-performance computing and chips for use in products from cars to medical devices.

TSMC announced plans last year to invest $100 billion over the next three years in manufacturing and research and development.

Most semiconductors used in smartphones, medical equipment, computers and other products are made in Taiwan, South Korea and China.

That has prompted concern among American officials about reliance on supplies that might be disrupted by conflict between China and Taiwan. They are lobbying TSMC and other chipmakers to set up factories in the United States.

TSMC announced plans last year to build its first chip factory in Japan. The company and Sony Corp. later said they would jointly invest $7 billion in the facility.

TSMC operates a semiconductor wafer fabrication facility in Camas, Washington, and design centers in San Jose, California, and Austin, Texas.

The company has announced plans for a second U.S. production site in Arizona.

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October 13, 2022
Philips warns of 5% fall in like-for-like sales due to supply-chain woes

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Royal Philips NV said Wednesday that its performance for the third quarter was hurt by stronger-than-anticipated supply-chain challenges, and adopted a more pessimistic view on its sales through the end of the year.

The Dutch health-technology company
PHIA,
-8.01%

PHG,
-0.80%
said that it expects to record a 1.3 billion euro ($1.26 billion) impairment charge in the period. The company said that this is an impairment of goodwill of Philips Respironics, its sleep and respiratory care business, and that it is due to revisions to the business’s financial forecast.

This compares with adjusted Ebita of EUR512 million, or 12.3% of sales, a year earlier.

Analysts had seen the metric at EUR336 million, according to a consensus estimate provided by the company.

Philips expects to book a EUR1.3 billion impairment charge on its sleep and respiratory care business after revising its financial forecast for the unit, it said.

Group comparable sales for the quarter fell around 5%.

For the last quarter of the year, Philips now expects a mid-single-digit decline in comparable sales, it said.

In late July, Philips had guided for 6%-9% growth in comparable sales over the second half of the year.

“Philips still expects a better second half of the year, compared to the first half of 2022. However, the company sees prolonged supply chain disruptions and a worsening macro-environment,” it said.

The company said it expects adjusted Ebita margin to be in the range of a high single to double digit for the last quarter of the year.

Write to Anthony O. Goriainoff at anthony.orunagoriainoff@dowjones.com and Cristina Roca at cristina.roca@wsj.com

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October 11, 2022
WSJ News Exclusive | Peloton Co-Founder John Foley Faced Repeated Margin Calls From Goldman Sachs as Stock Slumped

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John Foley, the co-founder and former chief executive of Peloton Interactive faced repeated margin calls on money he borrowed against his Peloton holdings before he left the fitness company’s board last month, according to people familiar with the situation.

As Peloton’s shares slumped over the past year, Goldman Sachs Group asked Mr. Foley several times to provide fresh funds or additional collateral for personal loans the bank had extended to him, the people said. The company’s share price has fallen nearly 95% from its $160 peak in December 2020.

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October 11, 2022

This industry could be worth $180 billion by 2040. Citigroup offers four stock names to play it, and a few more to think about.

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Investors are bracing for some choppiness on Wall Street, with oil prices falling as growth worries rattle around the globe. That’s as the clock ticks down to CPI and the start of a earnings season later this week, and in the backdrop a war is intensifying in Europe.

Tough times don’t last, but tough investors do right? Maybe, hopefully. In any case, focusing on the distant future might offer some comfort right now.

And that’s where we’re headed with our call of the day from Citigroup, whose strategists have stock ideas to play what they expect will be one of the ten fastest-growing markets through 2040.

They are talking about the global fuel cell industry, a direct play on the green energy debate, and “reaching the part that batteries cannot.”

“Fuel cells enable both de-carbonization and energy resilience, and we see them as crucial in harder-to-abate sectors like commercial vehicles and marine,” a Citi team led by research analyst Martin Wilkie told clients in a note on Tuesday.

Their base case sees this market reaching 50 gigawatts (GW) and $40 billion by 2030, offering a compound average growth rate of more than 35% in dollar terms, with further acceleration to 500GW/$180 billion by 2040.

They admit they’re on the bullish side with these projections, and note fuel cell stocks are on average down around 70% since their January 2021 peaks .

“The fuel cell equity story has had false starts before, but we see the impetus from emissions policy as well as announced hydrogen plans as creating attractive opportunities,” said the Citi analysts, highlighting policies such as the U.S. Inflation Reduction Act, which aims at beefing up renewable energy and a recent EU move to offer more green-energy research and development subsidies.

While passenger cars were a big source of demand for the growing fuel cell market in 2021, they don’t think it can be a big competitor to battery electric. However, stationary power, such as distributed and backup power generation and heavy-duty transport, think commercial vehicles, off-road and later marine are set to become key fuel-cell markets.

U.K.-based Ceres Power
CWR,
-1.69%,
Plug Power
PLUG,
-0.25%,
Belgium’s Umicore
UMI,
-1.69%,
and Japan’s Toyota
7203,
-0.96%

TM,
-0.73%
are Citi’s buy-rated stocks with high exposure to the fuel-cell theme.

Other names they mention, include Daimler Truck
DTG,
+1.32%
and Volvo
VOLV.B,
+0.21%

VOLV.A,
+0.12%,
which are working with Germany’s Traton
8TRA,
-2.09%
on a joint venture called Cellcentric that aims to develop that technology for trucks, with a production goal of 2025. Others are outsourcing fuel-cell tech, such as Italy’s Iveco Group
IVG,
+0.10%,
which has teamed up with South Korea’s Hyundai
005380,
-4.27%,
and U.S.-based Paccar
PCAR,
+0.23%
with Toyota
TM,
-0.73%.

The markets

Stock futures
ES00,
-0.38%

YM00,
-0.22%

NQ00,
-0.46%
have pared some losses, while bond yields
TMUBMUSD10Y,
3.927%

TMUBMUSD02Y,
4.307%
are mixed, and the dollar
DXY,
-0.14%
has turned lower. Oil prices
CL.1,
-1.42%
are also pressure.

The buzz

Shares of the world’s biggest chip maker, TSMC
2330,
-8.33%,
fell 8% in Taiwan
Y9999,
-4.35%,
where stocks dropped more than 4% following new limits by the U.S. imposed on exports of semiconductors and chip-making equipment to China.

The Bank of England made the second move this week to calm jittery markets, saying Tuesday it will expand its bond purchases to index-linked U.K. bond. But the program still ends Friday, something the pensions fund industry wants to see extended. Those yields
TMBMKGB-10Y,
4.448%
TMBMKGB-30Y,
4.718%,
meanwhile, continue to creep higher.

The National Federation of Independent Business small-business index showed confidence rising in September, but inflation a nagging problem. At noon Eastern we’ll hear from Cleveland Fed President Loretta Mester.

Subscription-based private aviation company Flexjet plans to go public through a merger with SPAC Horizon Acquisition
HZON,

valuing it at $3.1 billion.

The U.S.’s third-biggest railroad union will be back at the negotiating table with employers on Tuesday, after rejecting a deal and raising the possibility of crippling strikes.

The Kremlin’s war hawks were thrilled at the devastating strikes across Ukraine on Monday. Now they want more. G-7 leaders are holding an emergency meeting to discuss the ramping up of the war.

Amazon’s
AMZN,
-0.78%
second Prime-Day like event kicks off Tuesday.

Best of the web

U.K. spy chief says Russians are starting to realize the cost of Putin’s war in Ukraine

India’s biodegradable bags are in demand, and reviving its industry

We are not at peace. The world needs to get ready for more sabotage

One of the greatest transfers of intergenerational wealth is coming, says head of TIAA

The chart

This graphic by Visual Capitalist’s Truman Du, shows Disney’s
DIS,
-2.06%
streaming empire — Disney+, Hulu, ESPN+ — is “giving Netflix
NFLX,
+2.33%
a run for its money.”

Visual Capitalist, Disney, Netflix quarterly reports

The tickers

These were the top searched tickers on MarketWatch as of 6 a.m. Eastern Time:

Ticker	Security name
TSLA, -0.05%	Tesla
GME, -1.38%	GameStop
AMC, -2.76%	AMC Entertainment Holdings
AAPL, +0.24%	Apple
NIO, -3.49%	NIO
BBBY, -2.21%	Bed Bath & Beyond
APE, -6.53%	AMC Entertainment Holdings preferred shares
NVDA, -3.36%	Nvidia
TWTR, +2.40%	Twitter
AMD, -1.08%	Advanced Micro Devices

Random reads

Everyone hail to this 2,560-pound pumpkin.

“Where’s Tony gone?” Supply-chain woes hit (shudder) Frosted Flakes.

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.

Listen to the Best New Ideas in Money podcast with MarketWatch reporter Charles Passy and economist Stephanie Kelton.

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October 11, 2022

Ford stock is now a ‘sell’ at UBS as an oversupply problem looms

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Shares of Ford Motor Co. were hit hard Monday by UBS analyst Patrick Hummel’s recommendation that investors sell, as the auto industry is facing a worrisome U-turn from undersupply to oversupply.

Hummel also cut his ratings on several other global auto makers, including General Motors Co.
GM,
-5.59%,
saying that as a recession concerns grow, “demand destruction is no longer a vague risk.”

In addition to all of the data suggesting the economy is slowing, Hummel said growing U.S. dealer inventories, weak used-car pricing, used-car dealer profit warnings and signs indicating deteriorating orders and shorter delivery times make him more cautious on the overall auto industry.

Don’t miss: CarMax stock suffered biggest selloff since the year 2000, as inflation, low consumer confidence lead to big profit miss.

“We think it will only take 3-6 months for the auto industry to end up in oversupply, which will put an abrupt end to a 3-year phase of unprecedented OEM [original equipment manufacturer] pricing power and margins,” Hummel wrote in a note to clients.

As part of his negative industry outlook, he cut his rating on Ford
F,
-7.38%
to sell from neutral and his stock price target to $10 from $13, with the new target implying about 11% downside from current levels.

Ford’s stock sank 7.6% in morning trading. It was trading up just 0.6% month to date, after plunging 26.5% in September to suffer its worst monthly performance since it plummeted 30.6% during pandemic-stricken March 2020.

Hummel noted that Ford has already warned about having more vehicles in inventory than expected, and above payments to suppliers running about $1 billion higher than projected, so he sees little margin left for negative surprises in terms of fourth-quarter deliveries and supply costs.

Hummel cut his 2023 adjusted earnings-per-share estimate by 61% to 52 cents a share, to reflect a $6.5 billion drop in price and sales mix. The compares with the current 2023 FactSet EPS consensus of $1.87.

“This sounds very negative, but Ford gains $19 billion in price alone since the beginning of 2020,” Hummel wrote.

Also read: Ford again raises price of F-150 Lightning electric pickup.

Read more: Ford September sales fall as drop in trucks offsets near tripling in EVs.

Meanwhile, GM’s stock dove 6.9% in morning trading toward a three-month low, and shares have shed 2.5% so far this month after tumbling 16% last month.

Hummel downgraded GM to neutral from buy, and dropped his price target by 32%, to $38 from $56.

The rating remains above Ford’s, because unlike its rival, Hummel noted that GM has had “no hiccups” in its third-quarter production schedule and therefore a “solid” quarterly report is expected. However, the downgrade reflects the fact that GM is “not immune” to a downturn in the industry.

Separately, Hummel also cut his stock-price target on Tesla Inc.
TSLA,
-0.16%
to $350 from $367, saying that following a third-quarter volume report that was below expectations, it will be “more challenging” for the electric-vehicle maker to meet its 2022 delivery growth target.

However, Hummel reiterated his buy rating on Tesla, as he believes the EV maker is best positioned to use pricing as the tool to fill its factories.

“Overall, the recession outlook should result in moderately lower margins for Tesla than previously expected, but we’re highly confident that by keeping the top line [revenue] momentum, Tesla will even widen the gap vs. competitors in terms of profitability,” Hummel wrote.

Ford’s stock has fallen 3% over the past three months, while GM shares have lost 3.1% and Tesla’s stock has dropped 11.8%. In comparison, the S&P 500 index
SPX,
-1.08%
has declined 7.5% the past three months.

Among other auto makers, he also downgraded both Renault SA
RNO,
+2.41%

RNLSY,
+1.17%
and Volkswagen AG
VOW,
-3.29%
to neutral from buy. He also downgraded auto parts makers Continental AG
CON,
+0.10%
and Faurecia SE
EO,
-3.77%

FURCF,
-3.67%
to neutral from buy.

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October 10, 2022
2 Regional Banks With Sector-Beating Price Performance

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Large-cap financials such as JPMorgan Chase (NYSE: JPM), Bank of America (NYSE: BAC) and Wells Fargo (NYSE: WFC) rallied early this week along with the broader market, while some smaller bank stocks, like First Citizens Bancshares (NASDAQ: FCNCA), have been outpacing the wider sector.

MarketBeat.com – MarketBeat

First Citizens, like its entire industry, has seen net interest income and margins expand as interest rates increase. That typically occurs in an environment of rising rates.

Regional banks can fly beneath the radar as investment opportunities. Unless you live in an area where one of these banks operates, they aren’t obvious candidates that fall under the famous Peter Lynch “buy what you know” category of investment ideas. But a screener, such as the one you’ll find on MarketBeat.com, can help you identify some not immediately obvious names.

First Citizens is a North Carolina-based regional bank that operates 529 branches and offices in 19 states and Washington, DC. It has a market capitalization of $13.48 billion, making it the largest company within the southeast/regional bank sub-industry.

The stock has been outperforming not only the financial sector as a whole, but also its regional banking peers. Shares are up 5.78% in the past month and 25.47% in the past three months.

MarketBeat analyst data for the stock shows a “moderate-buy” rating with a price target of $925, a potential upside of 9.67%.

The stock staged a cup-with-handle breakout on September 12, but chopped along with the broader market volatility. It’s been unable to sustain the breakout, and closed below its 50-day moving average the week ended September 30, but regained that price line. It’s currently trading above its 10- and 21-day moving averages.

The company reports third-quarter earnings on October 27, with Wall Street eyeing net income of $19.77 per share on revenue of $1.02 billion. Those would be increases of 62% and 110%, respectively.

For the full year, analysts expect the company to earn $69.33 per share, up 29% over 2021. Next year, that’s seen rising an additional 31% to $91.05 per share.

Other banks, of course, will benefit from a rising-rate environment, and some are already showing share-price appreciation reflecting strong fundamentals.

Currently, Pennsylvania-based Fulton Financial (NASDAQ: FULT) is also outperforming financials as a whole. The stock is up 5.94% in the past month and 15.43% in the past three months.

Fulton has a market capitalization of $2.635 billion, putting it either the higher end of the small-cap categorization or lower end of mid-cap.

It’s currently forming a cup-with-handle pattern, with a potential buy point above $17.67. It’s been languishing below that point since mid-August.

According to MarketBeat earnings data on the stock, Fulton topped earnings views in five of the past six quarters. In the quarter ended in December 2021, the company met views of $0.37 per share.

Fulton is due to report its third quarter on October 18, after the closing bell. Analysts expect the company to earn $0.44 per share on revenue of $198.64 million. Both would be lower than the year-earlier results, but often, positive guidance can offset declines in revenue or earnings, and send the stock higher.

Fulton is categorized as a super-regional bank, meaning it has significant operations in several states.

Larger, more familiar super-regional banks include PNC (NYSE: PNC). This Pittsburgh-based bank has a large presence in the northeast, with more than 2,600 branches. The stock has been in a correction since January, but so far, has been finding a floor between $146 and $147.

Another large-cap super-retional is U.S. Bancorp (NYSE: USB), which is down 24.37% year-to-date. It’s also been correcting since January. Unlike PNC, it’s not clear that it’s found its price floor yet.

It’s not always the largest, most familiar names that offer the best opportunity at any given time. While it’s true that the traditional advice to “buy low, sell high” is correct in any market cycle, it’s not necessarily best to identify the most beaten-down stocks, when a stock that’s holding up better than the broader market may present more opportunity.

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Kate Stalter

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October 7, 2022
AMD stock drops as $1 billion shortfall blamed on even weaker-than-expected PC sales

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Advanced Micro Devices Inc. shares fell in the extended session Thursday after the chip maker cut its already conservative forecast because a drop in PC sales after two years of pandemic-driven sales appears worse than feared.

AMD
AMD,
-0.13%
shares fell as much as 4% after hours, following a 0.1% decline in the regular session to close at $67.85.

Late Thursday, the company forecast third-quarter revenue of about $5.6 billion with adjusted gross margin of 50%.

“The PC market weakened significantly in the quarter,” said Lisa Su, AMD’s chair and chief executive, in a statement. “While our product portfolio remains very strong, macroeconomic conditions drove lower-than-expected PC demand and a significant inventory correction across the PC supply chain.”

AMD expects a 40% drop in client sales to about $1 billion, compared with Wall Street’s consensus estimate of $2.04 billion.

In early August, AMD held firm on its revenue forecast of $26 billion to $26.6 billion for the year, and forecast third-quarter revenue of $6.5 billion to $6.9 billion, which at the time fell below the Wall Street consensus, and gross margins of 54%.

Analysts polled by FactSet currently forecast third-quarter revenue of $6.71 billion, and annual sales of $26.13 billion. AMD is scheduled to report quarterly earnings on Nov. 1.

“The gross-margin shortfall to expectations was primarily due to lower revenue driven by lower client processor unit shipments and average selling price,” AMD said. “In addition, the third-quarter results are expected to include approximately $160 million of charges primarily for inventory, pricing and related reserves in the graphics and client businesses.”

Last week, after Micron Technology Inc.
MU,
-0.20%
reported an “unprecedented” oversupply problem, analysts debated whether this supply glut was worse than the one in 2019 that the industry has tried to avoid this time around, following two-years of COVID-19-related demand and supply-chain difficulties.

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October 6, 2022

21 dividend stocks yielding 5% or more of companies that will produce plenty of cash in 2023

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When the stock market has jumped two days in a row, as it has now, it is easy to become complacent.

But the Federal Reserve isn’t finished raising interest rates, and recession talk abounds. Stock investors aren’t out of the woods yet. That can make dividend stocks attractive if the yields are high and the companies produce more cash flow than they need to cover the payouts.

Below is a list of 21 stocks drawn from the S&P Composite 1500 Index
SP1500,
+3.12%
that appear to fit the bill. The S&P Composite 1500 is made up of the S&P 500
SPX,
+3.06%,
the S&P 400 Mid Cap Index
MID,
+3.18%
and the S&P Small Cap 600 Index
SML,
+3.80%.

The purpose of the list is to provide a starting point for further research. These stocks may be appropriate for you if you are looking for income, but you should do your own assessment to form your own opinion about a company’s ability to remain competitive over the next decade.

Cash flow is key

One way to measure a company’s ability to pay dividends is to look at its free cash flow yield. Free cash flow is remaining cash flow after planned capital expenditures. This money can be used to pay for dividends, buy back shares (which can raise earnings and cash flow per share), or fund acquisitions, organic expansion or for other corporate purposes.

If we divide a company’s estimated annual free cash flow per share by its current share price, we have its estimated free cash flow yield. If we compare the free cash flow yield to the current dividend yield, we may see “headroom” for cash to be deployed in ways that can benefit shareholders.

For this screen, we began with the S&P Composite 1500, then narrowed the list as follows:

Dividend yield of at least 5.00%.
Consensus free cash flow estimate available for calendar 2023, among at least five analysts polled by FactSet. We used calendar-year estimates, even though fiscal years for many companies don’t match the calendar.
Estimated 2023 free cash flow yield of at least double the current dividend yield.

For real-estate investment trusts, dividend-paying ability is measured by funds from operations (FFO), a non-GAAP figure that adds depreciation and amortization back to earnings. Adjusted funds from operations (AFFO) takes this a step further, subtracting cash expected to be used to maintain properties. So for the two REITs on the list, the FCF yield column makes use of AFFO.

For many companies in the financial sector, especially banks and insurers, free cash flow figures aren’t available, so the screen made use of earnings-per-share estimates. These are generally considered to run close to actual cash flow for these heavily regulated industries.

Here are the 21 companies that passed the screen, with dividend yields of at least 5% and estimated 2023 FCF yields at least twice the current payout. They are sorted by dividend yield:

Company	Ticker	Type	Dividend yield	Estimated 2023 FCF yield	Estimated “headroom”
Uniti Group Inc.	UNIT, +7.36%	Real-Estate Investment Trusts	8.33%	25.25%	16.92%
Hanesbrands Inc.	HBI, +5.56%	Apparel/ Footwear	8.33%	17.29%	8.96%
Kohl’s Corp.	KSS, +5.80%	Department Stores	7.68%	16.72%	9.04%
Rent-A-Center Inc.	RCII, +10.40%	Finance/ Rental/ Leasing	7.52%	17.26%	9.73%
Macerich Co.	MAC, +8.18%	Real-Estate Investment Trusts	7.43%	18.04%	10.60%
Devon Energy Corp.	DVN, +5.72%	Oil & Gas Production	7.13%	14.47%	7.33%
AT&T Inc.	T, +1.19%	Major Telecommunications	6.98%	14.82%	7.84%
Newell Brands Inc.	NWL, +5.16%	Industrial Conglomerates	6.59%	17.42%	10.82%
Dow Inc.	DOW, +2.96%	Chemicals	6.18%	15.63%	9.45%
LyondellBasell Industries NV	LYB, +3.64%	Chemicals	6.09%	16.07%	9.99%
Scotts Miracle-Gro Co. Class A	SMG, +5.01%	Chemicals	6.04%	12.68%	6.65%
Diamondback Energy Inc.	FANG, +5.23%	Oil & Gas Production	5.56%	13.63%	8.08%
Best Buy Co. Inc.	BBY, +5.86%	Electronics/ Appliance Stores	5.53%	14.08%	8.55%
Viatris Inc.	VTRS, +5.62%	Pharmaceuticals	5.50%	28.95%	23.45%
Prudential Financial Inc.	PRU, +5.66%	Life/ Health Insurance	5.38%	13.30%	7.91%
Ford Motor Co.	F, +7.76%	Motor Vehicles	5.23%	15.95%	10.72%
Invesco Ltd.	IVZ, +6.76%	Investment Managers	5.23%	14.95%	9.73%
Franklin Resources Inc.	BEN, +4.37%	Investment Managers	5.17%	13.21%	8.04%
Kontoor Brands Inc.	KTB, +0.73%	Apparel/ Footwear	5.17%	14.15%	8.98%
Seagate Technology Holdings PLC	STX, +4.09%	Computer Peripherals	5.11%	13.19%	8.07%
Foot Locker Inc.	FL, +1.35%	Apparel/ Footwear Retail	5.03%	15.52%	10.49%
Source: FactSet

Any stock screen has its limitations. If you are interested in stocks listed here, it is best to do your own research, and it is easy to get started by clicking the tickers in the table for more information about each company. Click here for Tomi Kilgore’s detailed guide to the wealth of information for free on the MarketWatch quote page.

For the “estimated FCF yields,” consensus free cash flow estimates for calendar 2023 were used for all companies except the following:

For the REITs, (Uniti Group Inc.
UNIT,
+7.36%
and Macerich Co.
MAC,
+8.18%
), consensus AFFO estimates were used.
Consensus EPS estimates were used for Prudential Financial Inc.
PRU,
+5.66%,
Invesco Ltd.
IVZ,
+6.76%
and Franklin Resources Inc.
BEN,
+4.37%.

Don’t miss: Dividend yields on preferred stocks have soared. This is how to pick the best ones for your portfolio.

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October 4, 2022

Tesla’s Deliveries Missed the Mark. Why Analysts Aren’t Worried.

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Tesla

stock dropped on Monday after the electric-vehicle company disclosed delivery figures that fell short of Wall Street forecasts, but at least some analysts see reason for optimism.

On Sunday,

Tesla

(ticker: TSLA) reported that it delivered 343,830 cars and produced 365,923 in the third quarter. The deliveries were a jump compared with the 254,695 vehicles

Tesla

handed over to customers in the second quarter, but still below Wall Street estimates. The company said that deliveries have historically been skewed toward the end of each quarter, and that as “production volumes continue to grow, it is becoming increasingly challenging to secure vehicle transportation capacity and at a reasonable cost during these peak logistics weeks.”

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October 3, 2022
Intel files for Mobileye IPO, creating a share structure that will keep the chipmaker in control

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After nearly a year’s wait, Mobileye is on the highway to Wall Street.

Intel Corp.
INTC,
-2.31%
-owned Mobileye Global Inc. launched its drive to an initial public offering in a Securities and Exchange Commission filing late Friday, leaving the size of the offering blank for now on what is expected to be one of the largest IPOs of the year.

Intel executives were targeting mid-2022 as of late last year, and filed confidentially with the SEC in March for the IPO of its self-driving-car unit, but the IPO market has been dry amid a decline for stocks, especially those that went public in a 2021 rush.

Mobileye plans to trade Class A shares of common stock on the Nasdaq exchange under the symbol “MBLY,” the same symbol the company had before Intel acquired Mobileye in 2017 for $15.3 billion in cash. While selling shares in Mobileye, Intel will retain official control of the company, keeping class B shares that carry 10 votes apiece while selling class A shares that have only one vote.

Mobileye also plans to have four Intel-affiliated members on its board, including Chief Executive Pat Gelsinger serving as chairman of Mobileye’s board.

Intel will also get paid from the offering: Mobileye issued Intel a dividend note for $3.5 billion, and expects to pay that off with proceeds from the sale, according to the filing; there was an initial payment of $336 million, leaving more than $3 billion still owed to Intel. Earlier reporting suggested Intel would seek a $30 billion valuation for Mobileye in the IPO, though the initial filing Friday did not include targeted prices for the shares.

The filing did include financial information, though: Mobileye reported revenue of $1.39 billion in 2021, well ahead of Nvidia Corp.
NVDA,
-0.66%,
which reported fiscal-year revenue of $566 million in auto chip sales in January. Mobileye reported a loss of $70 million last year, compared with a $196 million loss in 2020 and $328 million in 2019. Revenue in the first half of this year hit $854 million, growing 41% in the second quarter from the year before.

The filing lists a whopping 24 underwriters for the deal including Goldman Sachs, Morgan Stanley, Evercore ISI, Barclays, Citigroup, and B of A Securities.

Shares of Intel were up 0.5% after hours Friday, following a 2.3% decline in the regular session to close at $25.77.

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September 30, 2022

Tag: Earnings

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