Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BofA Securities equity and quantitative strategist Ohsung Kwon predicts that the trough for U.S. earnings is imminent,
“While a potential recession in 2H (house view) could put some pressure on the consensus 2H earnings recovery, we believe the downside risk will be mitigated given companies’ cost cuts ... We thus raise our 2023 EPS forecast to $215 (down 1 per cent year-over-year) from $200. We now expect 2Q to be the trough on a quarterly basis (-8% YoY) and 3Q to mark the trough on a trailing 12-mo. basis (-4% peak-to-trough) … Our $235 forecast for 2024 represents 9% growth YoY after -1% in 2023. Compared to 2022, our forecast implies +8% 2-yr growth, in line with expected nominal GDP growth … Earnings typically recover stronger than they fall and we expect 2024 to be a better profit environment after companies’ focus on efficiency and productivity …We are coming out of the best 20-year period for earnings growth, which began with China joining the WTO in 2001. De-globalization is a big secular risk, which drove most of the margin improvement over the past 20 years”
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No company is going to get more attention Thursday than semiconductor maker Nvidia Corp. for reasons Citi strategist Atif Malik details,
“NVDA stock was +25% after hours after reporting 18% EPS beat on the Apr-Q and guiding Jul-Q to a huge $11B sales vs. Citi/Street $7.2B expectations or a 90% implied EPS beat. While we had raised our target price and estimates into the earnings, Generative AI upside was bigger than we expected. Nvidia expects data center sales to roughly double in the Jul-Q driven by Gen AI demand … consumer internet companies, and accelerated computing in enterprises. Nvidia estimates only ~4% of the $1 trillion data center CPU installed base over the last four years has been GPU accelerated, implying AI adoption remains in early innings. We raise our FY24/25/26 forecast EPS by 78%/41%/19% and lift target price 16% to $420 on consistent 35x P/E times revised CY25 earnings power.”
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Goldman Sachs strategist Seshaphani expects that high yielding U.S. equity stocks will soon recover,
“High dividend paying stocks (DVY) are down -7% year-to-date in stark contrast with the broader market where S&P 500/NASDAQ are up +9%/+26%. Our proprietary macro model indicates DVY has significantly underperformed its normal relationship with macro assets by -33% since 2018 and by -16% since the start of the year despite only slight ETF outflows. While the DVY has 50%+ exposure to Utilities (-6% YTD) and Financials (-5% YTD), it does not fully explain the weakness of high dividend stocks. From an options market perspective, option prices are below median levels and skew is in bearish territory relative to the past year for the average DVY stock. While taking no view on the direction of the market, we see potential for catch-up trades in DVY stocks where free cash flow yield is above dividend yield and see value in buying calls on these names. In the note, we highlight 10 such call-buying ideas including VZ, PM and IBM.”
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Diversion: “Substance use while working from home surged during the pandemic — and employers are starting to take notice” – Bloomberg
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