Market Overview

27 January 2021

Boeing Disappoints As Microsoft and J&J Inject Hope

While the reaction of some assets to the corresponding corporate earnings reports is very positive and eloquent, the major S&P500 broad market index looks frozen in the vicinity of a 3850 point milestone. Thus, funds are likely to be redistributed between different segments of the stock market: for example, from the previously overvalued banking sector with worse-than-expected financial performance to some high-tech leaders which are collecting most of the gains.

On Tuesday evening, Microsoft stock price rose by another 5.1% during an extended after-hours trading, in addition to the previous 8.5% growth, which already happened since the beginning of last week, on expectations of a robust Q4 earnings report. Real numbers even beat hopes, with the fresh EPS (equity per share) record of $2.03 on $43.08 billion revenue, which is the highest value since Q4 2015.

Consensus forecasts of analysts at Reuters poll amounted to $1.64 of profit per share on $40.2 billion of revenue, which was also high as the revenue of the giant software and electronics producer ranged $30 to $38 billion for the last two years. The price of Microsoft shares is expected to officially update the historical record during today's regular session. It is remarkable that Azure cloud computing services of Microsoft grew 50% in the quarter and became the main source of extra profit, which may also inspire confidence in the assets of many other big tech companies, as it confirms that the trend to digitisation gathers pace. As for Microsoft in particular, it is expanding its market share to flourish into new areas of the digital economy while still keeping its strong position with customised software products, such as, Windows and Microsoft Office, which makes it a reliable stock in the long term too. 

Other whole-heartedly welcomed releases today after the bell will be the quarterly earnings of Apple, Facebook and Tesla. Elon Musk's "hype" brainchild has doubled in price again since November and touched the incredible $900 mark on Monday. It is extremely difficult to predict whether the shares of Tesla are still able to add a significant value in price as the electric-vehicle maker’s performance sent its stock soaring more than 700% last year. For the sake of this achievement, it was enough for the company to record its first full year-cycle of profitability. However, Tesla’s Q4 earnings need at least to justify its already mega jump in stock price.

Tesla delivered around half a million vehicles last year, up more than a third from a year earlier, even as worldwide auto sales plunged roughly 14%, according to researcher LMC Automotive. Wall Street expects such resilience to help Tesla generate around $1.3 billion in 2020 annual profit on sales of about $31.1 billion. That compares with an $862 million loss in 2019 on sales of $24.6 billion. "Tesla delivered quarterly profits during the pandemic despite the temporary shutdown of the company’s lone U.S. car plant because of the health crisis. To manage the impact, Chief Executive Elon Musk battled with local authorities to reopen the factory, temporarily reduced salaries, furloughed workers and sought rent breaks," WSJ wrote in an article. This allowed Tesla to finally secure a spot in the S&P 500 index since December 2020, which also greatly contributed to the company's capitalisation as algorithmic index funds are now keeping Tesla in their portfolios.

Facebook is also going to release its Q4 report today after the bell, and its price has fully recovered, from $245 area to $285 on today's pre-market, after some costs in its public image after the most popular social network in the world banned a lot of accounts and posts during election woes, which many users felt was a kind of censorship. All those considerations probably should not have a significant impact on the financial report for the last quarter of 2020. Wall Street expects the company to report fourth-quarter sales up 25% to $26.4 billion, according to IBES data from Refinitiv, as Facebook clearly bet on e-commerce to drive advertisement sales. But whether the social platform will sustain attractiveness for advertisers in 2021 remains questionable to some extent. As well as the point of whether Facebook's value growth would be long-lasting if a strong report is released today, or the immediate desire to take profits may prevail, as investors may consider this day of reporting as a payday.

Many resonant remarks have already been made by the expert community on the allegedly amazing Apple Inc report. Since then the value of Apple has risen on expectations by almost 5%, and now only the report itself will sort the wheat from the chaff and finally make the sense of it. Google's report is still almost a week away, on February 2, but its shares have risen more than 10% since January 15 with no particular hint of a reason in the news feeds at all. "Those [big] tech firm shares have been in a bit of the doldrums since August but they are likely to lead the market again, given their solid outlook," said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ.

However, the stock growth spectrum is not limited to tech companies. Johnson & Johnson (J&J) rose 8.33% since the beginning of January including 2.71% in one trading session on Tuesday after the company's fourth-quarter sales rose to $22.48 billion from $20.75 billion, helped by higher demand for cancer drugs. J&J runs a worldwide medical device business in addition to its pharmaceuticals unit, forecasting also an adjusted profit for 2021 of between $9.40 and $9.60 per share, compared with analysts' estimates of $8.99 per share, according to IBES data from Refinitiv. Separately, J&J chief financial officer told CNBC that the company was expecting its coronavirus single-dose vaccine trial data sometime next week and was optimistic that it would be safe and effective. Public health authorities are increasingly counting on single-dose vaccines like the one being tested by J&J, as it needs fewer resources to distribute and administer than already authorised shots of other producers, which require second shots several weeks later.

Nevertheless, not all the issuers that inspired hopes were able to report successfully. Boeing posted its record annual loss today, and also announced delaying a new 777X jet production again while booking a $6.5 billion pre-tax charge for the program. The pre-market price for Boeing is around $195 already vs $202.06 at yesterday's close, and vs a high of $244.08 in December after the news on 737MAX permission to resume flights. Boeing said it delivered 13 additional 737MAX only in January so far from its stored inventory, adding to the 27 aircrafts it shipped in December after the U.S. cleared the jet to fly again following a 20-month ban. The Q4 revenue was good at $15.3 billion, even a little bit above market consensus, but it was accompanied with a very disappointing $15.25 loss per share. It almost doubled a gross loss for the previous three quarters of 2020 altogether. A pandemic year with airplane orders trouble added to long-existing problems after 737MAX crashes before.

A corona slump in air travel hurt shipments of Boeing’s 787 Dreamliners to airlines, causing the aircraft to pile up in dozens, further weighing on a giant company which already has a stored inventory of about 450 items of 737 MAX jets. "Deliveries of the 787s slumped nearly 70% to 53 planes in 2020 and are not expected to recover to 2019 levels until at least 2024, according to analysts," Reuters commented in its article today.

The new Boeing 777X is going to be the world's largest and most efficient twin-engine jet, unmatched in every aspect of performance. With new breakthroughs in aerodynamics and engines, the 777X may deliver 10% lower fuel use and emissions and 10% lower operating costs than its peers. But that's all plans for the future, which could be taken into account and included into the price again later after the current price correction. Boeing said it expects the 777X to enter service by late 2023, delaying the jet’s launch for the third time.


Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.

Lysakov Sergey
Market Focus

Material posted here is solely for information purposes and reliance on this may lead to losses. Past performances are not a reliable indicator of future results. Please read our full disclaimer.

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