Article / 03 February 2017 at 13:19 GMT

Earnings Watch: Monster week ahead for frothy corporates — #SaxoStrats

Head of Equity Strategy / Saxo Bank
  • Biggest week in corporate earnings for Q4 starts February 6
  • Strong US growth setting the bar for lagging Europe
  • Europe likely to catch up with US performance in 2017
  • Rio Tinto, NVIDIA and BNP Paribas the big three next week

m Next week will be a monster for corporate earnings reports. Photo: Shutterstock

By Peter Garnry

Next week is the busiest of the fourth-quarter earnings season with 325 companies reporting among our universe of 1,200 large companies across the world. With growth coming back among US companies and growth around the corner for European companies, optimism is growing among global investors.

In this week's Earnings Watch, we zoom in on the Q4 earnings season so far and the most important companies reporting next week.

Growth is back

Halfway through the US earnings season, a clear picture is emerging that growth is back following two years with headwind from a stronger USD and lower commodity prices. Although US earnings and revenue have rebounded through 2016, consensus estimates expect further pickup with earnings per share expected to 20.4% over the next 12-months and revenue per share by 8.1% in the same period.

Unless commodity prices continue to climb, this forecast seems a bit unrealistic and it is much more realistic that we will see 4-6% revenue growth through 2017.

Growth is back after a two-year headwind
Revenue growth
EBITDA growth

The trend among US companies is also present in Europe although growth is lower. 12-month trailing revenue growth is still minus 2% year-on-year in Europe but the current environment is improving fast.

Bank of Italy's real-time euro area GDP tracker stands at 2.75% annualised as of January up from 1.1% in May 2016. We expect this expansion in economic growth to follow through into positive revenue growth among European companies in 2017.

Europe lagging US by perhaps a quarter
Revenue growth

EBITDA growth is also around the corner for European and 2017 is likely to be the first full year with positive EBITDA growth since 2011.
EBITDA growth

The big three

Among the 325 companies reporting next week, the three most important are Rio Tinto, NVIDIA and BNP Paribas.

Rio Tinto reports its second-half result on Wednesday with analysts expecting EPS at $1.79 up 100% y/y and revenue of $18.7 billion, up 11% y/y as the global mining industry continues to recover in tandem with leading indicators and China growth pickup.

Rio Tinto generates 42% of its revenue from iron ore and 28% from aluminium and the remaining split between copper (13%), diamonds & minerals (10%) and energy (7%) making it the most diversified global mining company and thus an important indicator for global economic outlook.

NVIDIA reports Q4 earnings on Thursday (aft-mkt) with consensus looking for EPS at $0.94 up 80% y/y and revenue at $2.1bn, up 50% y/y as the company continues to be the centre of the massive revolution and disruption withing self-driving cars, AI, virtual-reality, datacenter and gaming.

On January 20, we issued a buy recommendation on NVIDIA based on realistic growth assumptions for its auto and datacenter divisions which are currently growing at 60% and 120% y/y.

NVIDIA weekly share price since 2012
Nvidia share price
Source: Saxo Bank 

BNP Paribas reports Q4 earnings on Tuesday with analysts expecting EPS of €1.38, up 9% y/y and revenue of €7.7bn up 1% y/y. Given the results from other European financials, we expect strong results driven by lower loan provisions, loan growth and increased client activity across its capital market division.

In general, financials have performed strongly in Q4 and the sector has outperformed which we expect will continue throughout 2017 based on stronger drivers such as lower loan provisions, loan growth and higher capital market activity due to rising rates which also leads to higher net interest income.

The 30 largest companies on market value reporting next week.

Next week's earnings
Source: Bloomberg and Saxo Bank

— Edited by Martin O'Rourke

Peter Garnry is Saxo Bank's head of equities strategy
Could you post all the companies reporting next week as you did past year? Thank you


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