Second quarter earnings season kicks off this week with several major financial companies – including JPMorgan Chase (JPM, $ 114.67) – set to report. Other notable names on the earnings calendar include airlines Delta Air Lines (DAL, $ 29.94) and insurance giant UnitedHealth Group (UNH, $ 524.45).
“For Q2 2022, the estimated earnings growth rate for the S&P 500 is 4.3%,” says John Butters, senior earnings analyst for FactSet. “If 4.3% is the real growth rate for the quarter, it will be the lowest earnings growth rate reported by the index since Q4 2020 (4.0%).”
And this estimate of 4.3% is lower than the estimated earnings growth rate of 5.9% on March 31, with seven sectors expected to report lower earnings in the second quarter than projected at the end of Q1. This is led by a 20.9% reduction in earnings expectations for consumer discretionary stocks, according to Butters. Energy stocks, on the other hand, saw a 42.2% increase in their earnings estimates.
“The energy sector will be closely monitored throughout the reporting period,” said Ross Bramwell, principal at investment advisory firm Homrich Berg. “As overall earnings estimates for the second quarter are in the mid-single digits range, it is likely that without the energy sector overall earnings growth would be negative.”
Bramwell adds that trends show that negative earnings guidance is being issued by more S&P 500 companies for the second quarter and full financial year compared to recent averages. “It is therefore quite possible that earnings estimates will continue to move lower throughout the reporting period,” he says.
JPMorgan Chase to post a sharp drop in Q2 earnings
While quarterly results from energy companies will start coming in later this month, this week’s focus will be on how financial companies performed in the second quarter.
“This year was supposed to benefit banks with economic recovery, but the Fed’s rate hike regime to suppress inflation has hurt investor and lender sentiment,” said Kenneth Leon, analyst at CFRA Research.
The analyst does not expect large banks to achieve annual EPS growth, but believes that some firms – including JPMorgan Chasewhich announces its results for the second quarter before Thursday’s opening – will report an increase in revenue over the period of the year ago.
Consensus estimates from Wall Street forwards seem to agree with this outlook. Analysts, on average, expect JPM to report second-quarter earnings of $ 2.94 per share, down 22.2% year-on-year. Revenue is expected to reach $ 32.0 billion (+ 6.7% year-on-year).
“K2 2022’s results are ready to take advantage of rising rates, continued loan growth and modest credit losses,” said Jeffery Harte, analyst at Piper Sandler, which has an Overweight (Buy) rating on JPM. But, “investors are more focused on a potentially looming recession.” As such, he expects outlook comments to “steal the show”, with “credit (when and by how much losses could increase), the prospects for continued loan growth and the potential for investment banking activity levels to recover” among the “primary areas” of concern. “
Delta probably saw strong demand in Q2
Delta Air Lines will announce its second-quarter earnings report ahead of the July 13 opening.
Andrew Didora (Buy), analyst at BofA Global Research, believes that DAL’s results will be at the bottom of the ladder due to recent operational issues (which include rising fuel costs and pilot shortages).
But even with these issues, “U.S. airlines recently reported that their earnings recovery accelerated in Q2,” says Colin Scarola, CFRA Research Analyst (Strong Buy).
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“In May, US jet fuel prices averaged $ 3.90 per liter, which was 123% year-on-year and 107% higher than the 2019 average price of $ 1.88,” adds Scarola. “Nevertheless, U.S. airlines have seen their earnings prospects improve, as a post-pandemic demand increase drives revenue growth that counteracts more than the rapid rise in spending.”
For DAL’s second quarter, analysts average earnings per share of $ 1.64 – compared to last year’s share loss of $ 1.07 – and revenue of $ 13.3 billion (+ 87% year-on-year; + 6.4% over the second quarter of 2019).
UnitedHealth Group is expected to show solid growth in Q2
UnitedHealth Group is one of a handful of Dow Jones equities trading in positive territory in 2022, with equities rising more than 4% for the year to date.
Not surprisingly, Wall Street benefits are optimistic about the insurance stock. Of the 26 analysts who follow UNH tracked down by S&P Global Market Intelligence, 15 say it’s a strong buy and six call it a buy. That compares to four strokes and only one sale.
“We recommend buying UNH based on the stock’s bullish trend… and portfolio tailwinds of a relatively strong Managed Care sub-industry,” says Oppenheimer analyst Ari Wald (Buy).
As for UnitedHealth’s second-quarter earnings report – which will be released before Friday’s opening – the benefits are expected to average earnings of $ 5.20 per share (+ 10.6% on an annualized basis) and revenue of $ 79.7 billion ( + 14.7% on an annual basis).
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