Monday, July 14, 2014

Tech Earnings To Take Centre Stage

EARNINGS from some of the biggest United States technology companies will take centre stage this week, giving investors a chance to re-evaluate the sector’s health.

Big tech names set to report this week include Intel Corp and Yahoo Inc tomorrow; eBay Inc on Wednesday and Google Inc on Thursday. 

The tech sector has the highest projected earnings growth rate among the 10 S&P sectors for the second quarter at 12.3 per cent, its best quarter since the first quarter of 2012. This forecast marks a sharp rebound from a drop of 3.2 per cent just a year ago, according to a Thomson Reuters poll. 

Goldman Sachs analysts wrote in a note that the information technology sector “appears to be the most undervalued sector”, giving investors more reasons to be bullish on tech stocks. 

The implied earnings-per-share growth for the tech sector has been 5.4 percentage points above the S&P 500 on average over the past 10 years, but it is now just 1.0 percentage point above the benchmark index, according to the Goldman Sachs note.

 While the Dow Jones industrial average and the S&P 500 have hit record highs recently, the tech-heavy Nasdaq is still more than 700 points away from its all-time intraday high on March 10, 2000, suggesting to some investors that the sector may have more room to the upside. 

The tech sector’s earnings are “going to certainly be important because the market started to gain momentum as economic data got better”, said Quincy Krosby, market strategist at Prudential Financial, which is based in Newark, New Jersey. 

“We want to hear good solid numbers and if we get that from tech names, it will help.” 

Nine of the 13 sub-industries in the tech sector are expected to report higher earnings than a year ago, with semiconductors and semiconductor equipment having the highest growth rates within the sector, according to Thomson Reuters data. 

The Nasdaq is up 5.7 per cent for the year, while the semiconductor index is up 20.3 per cent. 

Among the 10 S&P 500 sectors, financials have the worst earnings forecast with a decline of 3.5 per cent from a year ago, according to Thomson Reuters data. Nine of the sector’s 21 sub-industries are expected to post a drop in earnings. 

Earnings from some of major banks this week will include JPMorgan Chase & Co and Goldman Sachs Group Inc tomorrow; Bank of America Corp on Wednesday and Morgan Stanley on Thursday. 

Analysts are expecting subdued results because a slowdown in revenue from mortgage refinancing and trading is offsetting gains from other areas like investment banking and money management. Higher legal, regulatory and compliance costs are also weighing on results. 

Wells Fargo & Co underscored some of those problems last Friday as the largest US mortgage lender reported a 39 per cent decline in revenue from that business. 

In addition to keeping a close watch on earnings, Wall Street will also tune in this week to what Federal Reserve chair Janet Yellen says when she makes a couple of trips to Capitol Hill. 

She is scheduled to testify on the US central bank’s monetary policy in a semi-annual appearance before the Senate Banking Committee tomorrow and the House Financial Services Committee on Wednesday. 


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