Q3 Earnings Season Scorecard and Analyst Reports for Merck, Bank of America & AMD

Thursday, November 2, 2023

The Zacks Research Daily presents the best research output of our analyst team. Today’s Research Daily features a real-time update on the ongoing Q3 earnings season and new research reports on 16 major stocks, including Merck & Co., Inc. (MRK), Bank of America Corporation (BAC) and Advanced Micro Devices, Inc. (AMD). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.

You can see all of today’s research reports here >>>

Q3 Earnings Season Scorecard

Including all the results that came out the morning of Thursday, November 2nd, we now have Q3 results from 377 S&P 500 members or 75.4% of the index’s total membership. Total earnings for these companies are up +1.1% from the same period last year on +1.6% higher revenues, with 82% beating EPS estimates and 61.8% beating revenue estimates.

This is better earnings growth for these 377 index members relative to what we have seen from this group in the last four quarters. The EPS beats percentage at 82% is the highest for this group of 377 index members since 2021 Q2 and above the average for the preceding 20 quarters of 77.4%.

The picture is different on the revenues side, with the Q3 revenue growth rate of +1.6% above the preceding period’s +0.9%. but otherwise representing a decelerating growth trend.

A much smaller proportion of companies have been able to beat consensus revenue estimates. In fact, the 61.8% revenue beats percentage for Q3 for these 377 index member is the lowest for this group of companies since 2020 Q1 when Covid got underway. The Q3 revenue beats percentage remains above the 20-quarter low of 58.9% but otherwise remains well below the 20-quarter average of 69.9%.

Looking at Q3 as a whole, combining the actuals for the 377 S&P 500 members with estimates for the still-to-companies, total earnings are expected to increase +2% from the same period last year on +1.5% higher revenues.

This is the first time quarterly earnings growth has turned positive after three back-to-back quarters of declines.

Today’s Featured Analyst Reports

Merck share have gained +7.0% over the past year against the Zacks Large Cap Pharmaceuticals industry’s gain of +15.2%. Company’s products like Keytruda and Gardasil have been driving sales. With continued label expansion into new indications, particularly earlier-stage launches, Keytruda is expected to remain a key top-line driver.

Animal health and vaccine products are core growth drivers. Merck boasts a strong cancer pipeline, including Keytruda, which should drive long-term growth. Merck is investing in M&A activity to strengthen its pipeline.

However, generic competition for several drugs and rising competitive pressure, mainly on the diabetes franchise, will continue to be overhangs on the top line. There are concerns about Merck’s ability to grow its non-oncology business ahead of Keytruda’s loss of exclusivity later in the decade.

(You can read the full research report on Merck here >>>)

Shares of Bank of America have underperformed the Zacks Banks – Major Regional industry over the past six months (-3.7% vs. +0.8%). Because of inflationary pressure, overall costs are expected to remain elevated. The current tough macroeconomic outlook might weigh on the company’s investment banking (IB) business.

This, along with the volatile nature of the capital markets, might hurt non-interest income growth. Despite these headwinds, we believe that higher rates and decent loan demand will keep aiding the company’s net interest income (NII) growth. The opening of financial centers and improving digital capabilities is expected to further aid the top line.

(You can read the full research report on Bank of America here >>>)

AMD shares have outperformed the Zacks Electronics – Semiconductors industry over the year-to-date period (+66.8% vs. +40.1%). The company’s strong adoption of Ryzen and fourth-generation EPYC CPU drove Data Center and Client revenues sequentially in third quarter. AMD expects to witness year-over-year growth in the Data Center and Client segments by double-digit percentage for the current quarter.

Sequentially, Data Center segment revenues are expected to grow on a double-digit percentage. However, AMD’s third-quarter 2023 results suffered from weak Gaming and Embedded revenues. Gaming declined due to lower semi-custom revenues while Embedded segment suffered from lower performance in the communications market.

AMD expects weakness in the Gaming and Embedded segment to hurt revenues in the current quarter. Gaming and Embedded segment revenues are expected to decline by a double-digit percentage on a sequential basis.

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

Other noteworthy reports we are featuring today include Netflix, Inc. (NFLX), Union Pacific Corporation (UNP) and Eaton Corporation plc (ETN).

Director of Research

Sheraz Mian

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

Today’s Must Read

Keytruda to Remain Merck’s (MRK) Key Top-Line Driver

Higher Rates Aid Bank of America (BAC) Amid Fee Income Woes

AMD Rides on Strong Adoption of EPYC & Ryzen Processors

Featured Reports

Netflix (NFLX) Benefits from Paid Sharing & Robust Portfolio
Per the Zacks analyst, Netflix’s robust content portfolio and paid sharing initiative are driving subscriber addition that is helping it to maintain market share.

Union Pacific’s (UNP) Dividends Aid Amid Volume Woes
The Zacks analyst is encouraged by the company’s efforts to boost shareholder value. However, lackluster overall volumes are worrisome.

New Product Development, Wide Market Reach Aid Eaton (ETN)
Per the Zacks analyst Eaton’s operations in 175 countries across the world and development of new products through ongoing R&D investments will continue to drive demand and boost profitability.

Public Spending Aids Martin Marietta (MLM), Market Risks Ail
Per the Zacks analyst, increased infrastructure spending, business-mix portfolio and strategic initiatives are aiding Martin Marietta. Yet, economic risks and soft private demand hurt prospects.

Strong Demand & Acquisitions Aid Fortive’s (FTV) Performance
Per the Zacks analyst, Fortive’s performance is gaining from strong customer demand trends and synergies from the acquisitions. However, stiff competition and leveraged balance sheet remain concerns.

EQT Corp (EQT) to Gain From Rising Demand for Clean Energy
Per the Zacks analyst, EQT Corp is poised to capitalize on the rising clean energy demand due to its top position as a natural gas producer in the Appalachian Basin. Yet, its rising debt is a concern.

Align (ALGN) Rides on Innovation, Macroeconomic Woes Ail
The Zacks analyst is hopeful about Align’s strong rollout of new Invisalign products. Yet, macroeconomic headwinds leading to decreased patient visits and increased patient cancellations dent growth.

New Upgrades

Arch Capital (ACGL) Set to Grow on Solid Premium Growth
Per the Zacks analyst, Arch Capital is set to grow on solid Insurance and Reinsurance business driving improvement in premium growth which is backed by diverse product & service portfolio.

Rollins (ROL) Gains from Strong Demand Environment and Buyouts
Per the Zacks analyst, Rollins is poised to benefit from a strong demand environment while strategic acquisitions improve its market presence.

High-quality, Low-cost Coking Coal Aid Arch Resources (ARCH)
Per the Zacks analyst, Arch Resources will gain from the production of high-quality, low-cost coking coal at the new Leer South longwall mine. Its initiative to expand operations will boost margins.

New Downgrades

Lower Volumes, Higher Expenses Hurt Silgan’s (SLGN) Margins
Per the Zacks analyst, lower volume and mix have been impacting Silgan’s top-line. Higher interest expenses are also concerning.

Dull Demand & Tight Inventory Ails Newell’s (NWL) Performance
Per the Zacks analyst, Newell has been witnessing tight inventory, normalization of category trends and muted demand for discretionary and durable products. This led to sales decline of 9.1% in Q3.

Mounting Costs, Weakening Asset Quality Hurt Wafd (WAFD)
Per the Zacks analyst, elevated operating expenses are likely to hamper WaFd’s bottom-line growth. Worsening economic outlook and commercial loan exposure may hurt its asset quality in the near term.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report