.png)
Happy Friday and the weekend ahead! Welcome to this 22nd post of investing, not rocket science! Investing Doesn't Have to Be Rocket Science: this is our Non-Expert Guide to Portfolio Management.
A quick recap of this series so far:
In the 1st post: I defined a basic portfolio framework. The objective of this million dollar portfolio is beat inflation and an equity index. The investment style presented here is active portfolio management, without the use of leverage and a time horizon greater than 5 years. The benchmark index is the MSCI ACWI IMI. Typically, there are two posts a week (Mondays and Fridays).
From posts 2 to 22: I have evaluated 67 stocks and 4 potential bond additions. The portfolio is long 15 stocks, 1 Bond and short 1 stock. You can read all about it in the previous posts here: https://www.claritech.app/blog
There is no remuneration received to evaluate specific companies or to add to the portfolio or the watch-list. The Amazon adverts you see are the source of revenue for this free blog (subject to purchases or subscriptions).
Today, we look at a summary of recent Q1-2023 earnings announcements. Before we dive into it, a few questions that need to be answered:
What are quarterly earnings?
Quarterly corporate earnings refer to the financial results of a company over a period of three months. These results typically include revenue, expenses and net income. These are reported by publicly-traded companies to their shareholders and the public.
Is it important?
Importance of quarterly corporate earnings depends on the context. For shareholders, these earnings can be a key metric for evaluating a company's financial health and growth potential. Positive earnings reports can lead to increased investor confidence and a rise in a company's stock price, while negative reports can cause the opposite effect.
It can be an important indicator of broader economic trends. For example, if multiple companies in a particular industry report strong earnings, it may suggest that the industry as a whole is performing well.
While it may not not be the only metric to consider when evaluating a company or the broader economy, it is an important factor in decision-making for investors, analysts, and other stakeholders.
What does it mean when a company beats or misses or meets expectations?
This refers to the company's actual financial performance for a given period compared to the expectations of financial analysts. This is usually measured in terms of Revenue, Earnings per share (EPS) or other financial metrices.
For example, if a company was expected to report earnings of $1 per share for a quarter, but instead reports earnings of $1.20 per share, it would be considered to have "beaten expectations." This can be seen as a positive sign for investors, as it suggests that the company is performing better than expected.
Conversely, if a company was expected to report revenue of $10 million for a quarter, but instead reports revenue of $8 million, it would be considered to have "missed expectations." This can be seen as a negative sign for investors, as it suggests that the company may be underperforming or facing challenges.
10 terms used to understand corporate earnings:
· Revenue: The sum of all income included for a company's operating activities
· Revenue Growth: Percentage growth in revenue in period compared to a prior period
· Operating Income: Income after reducing operating expenses.
· Operating Income Margin: Operating Income as a percentage of Revenue.
· Net Income to Common Excl Extra Items: Profit or Loss available to shareholders after adjusting for preferred dividends.
· Shareholder Yield: measures the return shareholders receive from a company in the form of cash dividends, stock buybacks, and debt reduction.
· P/E Ratio: Market Capitalization of the Company divided by its Earnings. It represents the earnings multiple an investor is willing to pay for one share of the company.
· Earnings Yield: The inverse of P/E ratio.
· Levered Free Cash Flow: Sum of Cash from operations and capital expenditures.
· Free Cash Flow Yield: measures the amount of free cash for each dollar of market capitalization.
Q1 2023 Earnings Summary (Monday to Thursday) – From the Portfolio or Watch List - In Pictures (Trends in financials are Trailing Twelve Months period)
Bank of America posted earnings of US$ 0.94 per share and Revenue of US$ 26.3B beating analyst expectations on both. Trends in financials show improving revenues, net income, revenue growth, operating income margin and earnings yield. Shareholder Yield and Free cash flows have declined.
“Every business segment performed well as we grew client relationships and accounts organically and at a strong pace,” CEO Brian Moynihan said in a statement. “Our results demonstrate how our company’s decade-long commitment to responsible growth helped to provide stability in changing economic environments.” (quote from CNBC)
Goldman Sachs posted earnings of US$ 8.79 per share and Revenue of US$ 12.2B beating analyst expectations on EPS but missing on Revenues. The trends in financials show improving revenue growth and shareholder yield. Net income, operating income margin, earnings yield and free cash flow yield sees a declining trend.
Most of its revenues are driven by trading and investment banking. Both of which have fallen from Q1 of last year. While Fixed Income trading fell 17% YoY, Investment Banking revenues have fallen 26% YoY. The company also took a loss of US$ 470 million on the partial sale of its personal loan book (Marcus Loan).
Morgan Stanley posted earnings of US$ 1.7 per share and Revenue of US$ 14.5B. Beating analyst expectations on both. Trends in financials see declines in Operating income margin, earnings yield, revenues, net income and free cash flow. Shareholder yield sees improvement and Revenue growth is flat compared to the previous quarter.
While income from Investment banking dipped, it saw a growth of 11% from its wealth management business. Stock trading revenue and fixed income revenue fell 14% and 12% respectively. "The outlook for the remainder of this year is difficult to predict," Chief Financial Officer, Sharon Yeshaya said. "We are keenly aware that opening and functioning markets and economic stability are integral in aiding confidence moving forward." (quote from Reuters)
ASML Holding NV posted earnings of US$ 4.96 per share and Revenue of US$ 6.74B. Beats on EPS and misses on Revenues. Trends in financials see growth in Revenues and Net Income. Shareholder yield and Free Cash flow see declines. Operating income margin and Earnings yield similar to the previous quarter.
The company sees adjustments to client orders, but maintained its positive outlook. CEO Peter Wennink; “The overall demand still exceeds our capacity for this year and we currently have an order backlog of over 38.9 billion euros.” (quote from Reuters)
Rio Tinto group announced its first quarter production data. While the company saw increase in production compared to Q1 last year, it saw production declines in iron ore production and shipments, bauxite, mined copper and titanium dioxide compared to the last quarter (Q4 2022). The company also reduced its total production outlook for copper for this year.
Although not a part of this portfolio or watch list, but needs mention: Netflix posted earnings of US$ 2.88 per share and Revenue of US$ 8.16B. Results were mixed, beats analyst expectations on EPS but missed on Revenues and subscriber growth. Trends in financials show improving Revenues and Free Cash flow yield. It sees declines in Net Income, Revenue Growth, Operating income margin, Earnings Yield and Shareholder yield.
The firm is expected to roll out its password sharing crackdown in Q2. Canada is likely to serve as a template, where the company has seen growth in its subscriber base and Revenues after launching paid sharing. Netflix is also winding down its DVD mailing business, the segment that began the company, in which the company would mail discs to customers in red envelops. Netflix also intends to begin an ad supported plan.
What about Tesla?
Tesla posted earnings of US$ 0.85 per share and Revenue of US$ 23.3B, missing analyst estimates on both (although not by much). The stock closed lower by nearly 10% yesterday bring its market cap to US$ 516B from US$ 572B.
Trends in financials show improvements in Revenues and Earnings yield. Net Income and Shareholder yield remains flat compared to the previous quarter. Trends see decline in Revenue Growth and a slight dip in Operating income margin. Free cash flow while positive also sees a decline in this quarter.
In other financials, while TTM revenues have increased quarter on quarter, inventories have also increased (the silver lining: at a lower rate). Total Debt on the other hand has come down compared to the previous quarter.
What investors see as concerning is revenues, margins, net income and free cash flow have dipped QoQ. Although Vehicle deliveries have increased for Model 3 (which accounts for over 95% of deliveries) compared to Q4 2022, which could mean recent price reductions is improving sales. What does the company say about the perceived trade off between sales and margins?
“Although we implemented price reductions on many vehicle models across regions in the first quarter, our operating margins reduced at a manageable rate. We expect ongoing cost reduction of our vehicles, including improved production efficiency at our newest factories and lower logistics costs, and remain focused on operating leverage as we scale." the company said in a statement. (quote from Yahoo! Finance)
The company maintains its outlook of 1.8 million vehicles this year and long term delivery growth rate of 50%. The Cyber-truck is expected to be rolled out this year as well. Tesla currently trade at a PE of 43, up from 34 last quarter. Down from a peak of 1024 in Jan 2021. In continuation from this post about the company's Q4-2022 earnings, Tesla is a Growth stock and cannot be seen with the same lens as a Value stock. While the stock is expensive, this could a tactical buy at 150. More on this next week.
If you or someone you know is interested in receiving a free remote consultation on their investment portfolio, regardless of location, please don't hesitate to contact us.
This series is for information purposes only without regard to any particular investment objective, financial situation, suitability or means. It is not be construed as a recommendation, or any other type of encouragement to act, invest or divest in a particular manner (whether explicit or implicit). We recommend that you are familiar with the terms of use.
Thanks for your time! See you in the next post!
Visit our social media pages and please subscribe, follow, like!
Comments