Q2 Earnings Season Preview and Featured Analyst Reports for J&J, AMD and Union Pacific – June 27, 2022

Monday, June 27, 2022

Zacks Research Daily presents the best research results of our analyst team. Today’s Research Daily features current 2022 Q2 consensus expectations for the S&P 500 index and new research reports on 16 major stocks, including Johnson & Johnson (JNJ), Advanced Micro Devices, Inc. (AMD), and Union Pacific Corporation (UNP). These research reports were selected from approximately 70 reports published by our analyst team today.

You can do it view all research reports today here >>>

Q2 Earnings Season Preview

Total revenue in Q2 for the S&P 500 index is expected to increase +2.3% from the previous quarter of the year to +9.8% higher earnings, with strong growth in the Energy sector offsetting declines in Finance and Tech sectors.

Excluding the strong contribution from the Energy sector that revenues in Q2 are expected to increase by +187.5%, total revenue for the rest of the S&P 500 index will be down -5% from the same period last year.

The strength of the Energy sector has also been a factor in the trend of cumulative changes, with positive changes in the Energy sector helping to offset estimates elsewhere.

In other words, the strength of the Energy sector helps cover up the weakness in most other sectors, resulting in a seemingly solid consolidated picture of the revisions. This trend played out for 2022 Q2 as well as throughout the year 2022.

For the full year 2022, current expectations are for S&P 500 earnings to rise +9.1% to +9.4% higher earnings. Excluding the Energy sector, revenues in 2022 for the rest of the index will increase by only +3.7%.

In relation to the trend of changes, the cumulative estimate of revenues in 2022 is actually +3.4% since the beginning of the year. But it is the record of upward changes in the Energy sector that keeps the cumulative trend changes in positive territory. Excluding the positive changes in Energy, which have risen +72.7% since the beginning of the year, the 2022 cumulative revenue for the rest of the index has dropped -9.8% since the beginning of the year.

Consequently, it is misleading for market participants to say that earnings estimates have not yet dropped. It is likely that there will be more downward adjustments to the estimates if the bearish macroeconomic projection yields. But on a base-case outlook, earnings estimates adjusted less.

For more details on Q2 estimates and emerging expectations for the coming season, please see our weekly Earnings Trend report here >>> Will revenue estimates finally fall?

Featured Analyst Reports

Johnson and Johnson shares moderately outperformed the Zacks Large Cap Pharmaceuticals industry on a year-to-date basis ( +7.9% vs. +7.5%), due to the company’s diversification making it relatively resilient amid macroeconomic turmoil . Its Pharma unit performs at levels above the market, supported by its blockbuster drugs, Darzalex and Stelara, and contributions from newer drugs, Erleada and Tremfya. MedTech unit sales recovered in Q1 and the company is focused on growing this business through new products.

However, Consumer unit sales are hurt by external supply constraints. J&J is making rapid progress on its pipeline and line extensions. Some important data readings are expected in 2022. Headwinds such as generic competition and pricing pressure will continue. Although J&J has taken significant steps to resolve its talc and opioid litigation, they continue to remain an overhang in stock.

(You can do it read the full Johnson & Johnson research report here >>>)

AMD shares dropped -1.7% last year against Zacks Electronics -The Semiconductors industry dropped -3.5%, with the company benefiting from strong demand for its Ryzen and EPYC server processors, due to growing proliferation of Artificial Intelligence (AI) and Machine Learning (ML) in industries such as cloud, gaming and data centers. The growing influence of 7 nanometer (nm) products on the data center vertical, driven by work-from-home and online learning trends, is a major catalyst.

AMD has provided strong guidance in 2022 for revenues supported by steady growth across all businesses. Higher server and client processor revenue is likely to lead to successive increases. The Xilinx and Pensando acquisition will strengthen AMD’s data center business. Alliances with Amazon, Microsoft, Baidu and JD.com are boosting business prospects.

(You can do it read the full AMD research report here >>>)

Union Pacific shares fell -0.5% last year against Zacks Transportation -The railroad industry’s decline of -3.4%. Rising fuel costs as oil prices move north resulted in a 16% increase in operating costs in the March quarter. Costs are likely to be high in the June quarter as well. Detailed results will be released on Jul 21. The high debt/EBITDA ratio is another concern. Increasing the capex can also be bothersome.

However, the company’s efforts to reward its shareholders even in the current uncertain scenario are pleasing to us. The company’s dividend doubled in 2021. In May 2022, UNP increased its quarterly dividend by an additional 10%. The rail operator was also active in the face of the buyback. Management expects share repurchases in 2022 to be in line with 2021 levels of $ 7.3 billion. UNP’s strong free cash flow supports the ability to make its activities shareholder-friendly. The increase in freight revenue as economic activity strengthens is an additional positive.

(You can do it read the full Union Pacific research report here >>>)

Other notable reports we now feature include Novartis AG (NVS), Anheuser-Busch InBev SA/NV (BUD), and ServiceNow, Inc. (NOW).

Sheraz Mian

Director of Research

Note: Sheraz Mian heads the Zacks Equity Research department and is a well-known expert on consolidated earnings. He is frequently quoted in print and electronic media and publishes weekly Revenue Trends at Revenue Preview reports. If you want an email notification every time Sheraz publishes a new article, please click here >>>


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