stocks bonds ETFs straight out of downtown Chicago. This is Zach's Market Edge. Welcome to Zach's Market Edge, the podcast about investing in your life. I'm your host, Tracy Rinek.
And this week I'm joined by Zach's director of research, Shiraz Mian, for an update on what's happening with the first quarter earning season. So we're still kind of in the beginning stages. But the week I'm recording this, the week of April 25th is one of the biggest weeks for the S&P 500. So Shiraz, what are the trends so far?
And bigger question is energy really going to be the blockbuster everybody thinks this quarter. Absolute energy is a huge factor. And after a long time, we are seeing energy becoming big enough that it's moving the needle in the aggregate for the index. Back in the day, energy used to have that down up sway.
But if you've had fun on a hot time, then if that's coming back. So you want to be one burning season, Tracy. It's better than what most of us fear would be. In this worst case scenario, many of us taught that perhaps companies will use these headlines about supply chain issues and inflation and wage pressures.
And everybody will take a big bath and use this opportunity to become a little tentative about the outlook and things like that. And we are seeing a number of these companies do that. Even this morning, 3M and GE apparently are discussing that. But we have not seen that across the board.
And many companies, including ones that you would expect would be at the receiving end for higher expenses, the Coca-Cola's of the world, the Procter and Gamble's of the world, are not saying that. And not only that, but they are actually saying good stuff about the outlook, about the margins and their ability to raise prices. So on and off, given the headwinds and given the fears, the earnings picture is fairly good. Yeah, I feel the same way, having listened to just a few of the conference calls so far.
But I have been surprised at the consumer oriented companies. And they keep saying that the consumer remains strong, that they're still having pricing powers, you mentioned with Procter and Gamble and Coke and some of these companies. They're still able to push through price increases. And the consumers so far, accepting of those.
So that's kind of the biggest surprise to me, because there's all those doom and gloomers out there who think we're in a recession like right now, like we're in it, but we're not. We're absolutely not. And in fact, this was one of the things, you guys are really good points. This was one of the things that I've been really looking for, some early signs on these calls where one could interpret the common, the management common, even if it's not quant and data centric, that one could see that down the road in Q2, Q3 perhaps, second half management sees trouble ahead.
And there's no sign of that. In fact, the PNG management were saying on the call that there was a direct question about this, that typically they would see consumers trade down to store branded products ahead of periods when they are anxious about the outlook and they are in the process of conserving cash. And they're saying we are actually gaining share in a whole bunch of categories with higher prices. And there's just simply no sign of what you like referred to as the do-man groom.
So it's reasonable to be a little bit concerned about the outlook and to be watchful of the outlook given how aggressive the fellas planning to do things and all, but it's clearly no sign of a downturn or even a significant slowdown in consumer spending, at least in these reports at this age. Okay, so where does that leave us on the earnings outlook so far with the data with those companies that have reported? So if they're not coming out and lowering guidance in big numbers like we thought they might have been, have the analysts been too conservative on their full year earnings estimates on these companies? Are the analysts having to correct cores, raise their estimates and what's going on out there with that?
So it's a mixed bag. And in fact, the analysts as well as management teams appear to be struggling, come to grips with what's happening on the inflation front. The one good metric from which one could interpret that, but I just explained that these guys, the analysts as well as management don't really have a very clear view of what's going on is with the Beats percentages. So typically companies beat with wide margins.
Most of the companies would be consensus estimates. That's been the last year again for a long time. And that continues for Q1. We have most of the companies beat estimates.
So 80% are beating UPS estimates. So we 1.9% are beating revenue estimates. And as good as those numbers are, they are the lowest during COVID-19. So in fact, this is the second lowest reading for these beats percentages since the second quarter of 2020.
And you would remember the second quarter of 2020, when we were in pitch dark in terms of visibility. So this tells me that management's analysts are neither aggressive nor conservative. They're out trying to come to grips with it, but there is a lot of strength on the top line. So revenues are strong.
And that's letting these companies absorb part of the inflationary pressures. And then the other part they're able to offset two price increases, but even then margins are under pressure. That was my next question, whether or not those near record margin levels are gonna hold. No margins are under pressure.
In fact, if there's one area that I see on the negative side, with respect to the earnings outlook, it's the outlook for margins. When we extrapolate from current consensus estimates for earnings and revenues and aggregate that to the index level bottom up, the expectation is that margins on a year over year basis remain under pressure in Q2 as well. But then from the second half, they started proving. I'm not sure that sinks in with the ground reality that we are hearing from a lot of these companies.
I think many of these expenses are here to say the supply chain issues that we've taught should have been healing and getting better are more endemic. We hear about all these problems in China and lockdowns and what have you. The Ukraine situation is still problematic. So I think expectations for margins will be the area that we'll be driving this earnings outlook for the second half and next year.
And it will be to the downside, not in a huge way because the top line outlook is still so strong, but it will be at that negative. Yeah, the supply chain issue is an interesting one this quarter, I feel, because we've been hearing from the companies just the last couple quarters. As you mentioned, that, oh, there'll be improvement. It was always like six months away.
There will be improvement in the second half of 2021. And then, oh, no, the first half of 2022. But now on the calls, if they're even getting a question about the supply chain anymore, the companies I've been listening to have basically said, the supply chain is still terrible. We don't expect any improvement.
If we got some, it would actually help our numbers a lot, but we're not getting it. And we don't expect it to, you know, they don't even mention when anymore. They're just like, yeah, this is the new reality, is that it's in chaos. And but they've been managing it for all these quarters already.
So they're just going to keep managing it. That's right. Yeah, it's the big, it's the big unknown that these companies had to deal with as a result of COVID. Now that they have been dealing with, with the problem for more than two years, most of them are used to it.
We, like they're receiving and also used to it, both as analysts as well as consumers. You are right. When we all consume the news and headlines coming out of China, that partly answers whatever questions we may have in terms of the timelines for when supply chains will heal. And it doesn't look like the China situation is heading towards settling down or improving anytime soon.
Oh, right. Okay, let's talk about a few industries, but let's start with financials because a lot of the banks have already reported, and I know that financials also include insurance companies and the credit card companies and various other people, but we've heard from a lot of the banks and a lot of us had high hopes for the banks here in 2022, because they've really not been that great over the last 13, 14 years since the Great Recession. So I thought maybe this year might be the turnaround, we have the Fed raising rates, everybody gets excited about banks when that happens, but this earnings for Q1 seems pretty lackluster. And then even the analysts response to it or the full year estimates on some of these companies.
So I took a look at JP Morgan because it's one of the top of the big banks. JP and Zat Ticker, we have five estimates higher, three are lower since they reported, but they're only expecting to make 11, 18 this year versus 15, 36 they made last year. So that's a decline of 22%. That's really not what I was expecting to see when I look at it, but that's one of the big banks.
Then I did notice that there is a difference when you start going down to regional and community banks, but a couple of big regionals that I like to follow PNC, they have the exact same, it's probably the same amount, I was five higher, three lower since they reported, but they're about expected to make about the same earnings as they made last year. And then I look at Wind Trust, which is WTFC, it's a big Chicago bank, and it's in my insider trader portfolio and six are higher there, none have lowered for 2022. And so those analysts a little more bullish, maybe a little too conservative there, but their earnings are expected to be about the same as 2021 as well. So what happened to that story about, booming bank earnings as the Fed raises, or is that still to come?
So there's a whole bunch of stuff in there tracing that, there needs to be unpacked, but the switch to the big players, the JP Morgan's off the wall, these as you know, are essentially financial conglomerates. These are huge brokers, huge money managers, and then huge community banks. And while the global entities, they're a big chunk of their business is still US, but they still have exposure abroad, Europe in particular, and then the outlook for Europe has really come down because of the Ukraine war. So accounting rules and statutory requirements force these guys to take charges and reserves.
When they see something on the horizon, which may not be clear, which may not be expense today, but they have to reserve for that. And that's part of the normal operations. It's a direct hit to earnings. If you make reserves for known losses in the future, many times, if the situation turns out to be better, then what was initially expected then those reserves come out, and it's a boost to earnings.
And we saw that last year for a lot of these banks too. So the big guys in the core banking business were held down by the servers, and the whole core banking businesses, healthy margins are improving again, because of the interest rates rises. But the brokerage, the capital markets side of the business was really down in Q1. Last year was really blockbuster, whether it was for deals, whether it was for M&A activities, the IPOs, trading activities, everything was off the charts.
And now they are up against everything is right up. Trading is still decent, but there are no IPOs, there aren't that many M&A activities going on, not extending Elon Musk's Twitter purchase, nobody else is doing that kind of stuff. So that's going on with the big guys. The regionals are in a pretty good position.
The economy is good, the core businesses, whether it's consumers or commercial, it's humming along. If there's any problem with them, it's the concern and fear about the outlook. If the economy is heading into a recession, as people are putting odds on for early 2023, then that's the limiting factor. The stock market performance and also the respect to estimates.
Other than that, the core business is for these smaller regional players is healthy and strong. Good. We'll stick with the regionals and the communities on that. Okay, so let's switch over to Energy, which we talked about at the start of the podcast.
And I just want to say, I have never seen an industry where in one quarter, the revisions have been like this. It's pretty stunning when you just take a look at some of the EMPs, which will be the biggest beneficiaries of WTI over 100. But I took a look at Pioneer, for example, Pioneer Natural Resources, to your PXD. I own it in the Value Investor and in my own personal portfolio.
And for a higher one is lower in just the last week. They haven't reported earnings yet, they report on May 4th. So all these analysts are raising into these earnings reports, which is also somewhat unusual. But Fullyear now expect to make $31 versus just $22.90 days ago, so up almost $10.
That's right. So that's pretty stunning. They only made $13.26 last year. So that is also incredible about what is expected.
For the quarter, it's up big there as well, not surprising. Six are higher, one is lower as they're, they know they're behind on some of these estimates. But Pioneer, it's dirt cheap right now because these earnings are surging. But I also took a look at one of the other big EMPs, Occidental.
A lot of people are kind of following that one since Warren Buffett added to his position and in a couple of weeks ago, ticker OXY. Is that ticker? Three are higher, one is lower in seven days, so similar to Pioneer. But over the last 90 days now for the Fullyear, expected to make $920 versus $3.56 just 90 days ago.
And they only made $2.55 last year. So that's incredible. They report on May 10th for anyone interested. So this is all just bullish ahead of these reports.
And then I did take a look at Big Oil because they're going to be reporting on April 29th. So if you're listening to this podcast in May, they've already reported, go check out what they did. But Chevron, ticker, CVX, and ExxonMobil, XOM, they have similar, the analysts just upgraded or whatever they were doing on both names. So two are higher, one or lower for both in the last week.
But Chevron again, similar, huge gains in earnings for the Fullyear 1683 versus 1047 just in the last three months. And they only made $8.13 last year. Exxon, not quite as dramatic, but 984 versus 648 in the last three months. But they made 538 last year.
So some of these for Big Oil even are seeing a doubling for the year. So what does it look like just even for the entire industry? Is it, it's got to be just insane, right? It's totally off the charts, Tracy.
In fact, as I touched on earlier, it's after a long time that energy by itself is moving the needle for aggregate earnings from the S&P 500. In fact, if we look at what's happening to estimates in the aggregate for 2022, they are modestly up since the beginning of the year. And practically all of that increase is a result of what's happening to energy sector estimates. To give you one example, in the aggregate, at the beginning of the year, the ZACs energy sector was expected to earn $84.5 billion in 2022.
As of today, that number has increased to $172.4 billion. Wow. So it's totally off the charts. And it is this momentum and energy sector estimates that is camouflaging a whole bunch of cross currents at the sector levels elsewhere.
In fact, outside of energy, they're just a couple of other sectors that has positive estimations. Construction is one, Oros is another medical a little bit. But those are modest positive revisions. Practically every other sector is to vary in degrees, experiencing negative estimate revisions.
So energy is totally off the charts. And as you know, I used to cover the space back in another incarnation. And in 2008 was the blockbuster year for the space back then, which was a lifetime record. We are comfortably overtaking it.
And 2022 is turning out to be a lifetime record in terms of earnings and cash flows and free cash flow. The sector is practically flush. And these stocks have run up. And I just can't help accounting under stock prices.
If we dodge a recession, then all of these stocks represent values, the PXDs, the dev and the EOGs, the accidentals are even stigy, excellent. So that's the big bet that all of us have to make, because estimates for 2023 and 2024 have plenty of room to go, assuming the economy is able to dodge a major downturn. OK. Wow.
Well, that was certainly bullish. And it's good to know that there's something bullish going on in this kind of way this earnings season. So I'm going to be keeping to watch on all of those energy reports as they come in. And we'll see what else happens this earnings season.
So let me recap the tickers again that we talked about. We had Wind Trust Financial, WTFC, PNC Financial, PNC, JP Morgan Chase, JPM. Talked about Pioneer, Natural Resources, PXD, and Occidental Petroleum, OXY. And then there was Chevron, CVX, and ExxonMobil, XOM.
And as always, you want to be sure to subscribe, so you get all of our podcasts and make sure you're getting the value investor podcast, too. A lot is going on there, and I do that one weekly as well. So you can get either one on Apple Podcasts and Spotify, and you can get both the shows on SoundCloud. But be sure to get us somewhere, and I'll see you again next week with some more stocks.
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