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As of last Friday, 69% of S&P 500 companies have reported a positive EPS surprise and 71% of S&P 500 companies have reported a positive revenue surprise. That’s below the 5-year and 10-year averages of 77% and 73%, respectively. Given the challenges facing the global economy, the results aren’t bad indeed. Yes, there is a decline in indicators, but not as significant as some may have predicted…
Overall, even the retail sector did not disappoint. For Q3, Walmart Inc. revenue jumped 8.7% (YoY) to $152.8 billion. Comparable sales in the U.S. rose 8.2%, versus analysts’ expectations of 3.5%. In addition, the company agreed to pay $3.1 billion to settle opioid lawsuits. Looking ahead, the company expects adjusted earnings per share to decline by 3-5% in Q4 and consolidated net revenue to increase by about 3%.
In the case of The Home Depot, Inc., net income rose 5.1% to $4.34 billion, or $4.24 per share. Analysts at Zacks Investment Research had expected to see EPS around $4.1. Home Depot’s total revenue rose 5.6% to $38.87 billion, which was also above forecasts. Overall, despite rising costs and the threat of a recession, there was no change in consumer behavior.
The only exception was the weak report of Target Corporation. According to the company’s CEO, rising interest rates and inflation are affecting buying behavior. Whether the economy slides into recession or the rate of interest rate hikes continues to rise will cause companies’ profit margins to fall even further. It won’t be easy for other industries, either.
Against this background, Morgan Stanley analysts still advise investors to maintain a “defensive stance.” According to them, the “heat” in the corporate sector will begin next year – amid falling profit margins, the S&P 500 could fall to the 3,000-3,300 mark. No wonder, companies are so focused on cutting costs. The good news is that a further slowdown in inflation would allow the Fed to abandon its hawkish agenda.
