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3 Sectors To Avoid Ahead Of An Expected Plunge In Q2 2020 Earnings

By Investing.com (Jesse Cohen/Investing.com)ETFsJul 08, 2020 03:57AM ET
www.investing.com/analysis/3-sectors-to-avoid-ahead-of-an-expected-plunge-in-q2-2020-earnings-200530042
3 Sectors To Avoid Ahead Of An Expected Plunge In Q2 2020 Earnings
By Investing.com (Jesse Cohen/Investing.com)   |  Jul 08, 2020 03:57AM ET
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With less than a week until the unofficial start of Wall Street's second-quarter earnings season, investors are bracing for what may be the worst reporting season since the depths of the 2008-09 global financial crisis.

FactSet data shows analysts anticipate Q2 S&P 500 earnings will plummet by a jaw-dropping 43.8% when compared to the same period last year. If confirmed, this will mark the largest YoY decline in earnings reported by the index since the fourth quarter of 2008, when earnings dropped by 69.1%.

All 11 sectors are projected to report a YoY drop in earnings, led by the Energy, Consumer Discretionary, Industrials, and Financials sectors.

Revenue expectations are equally unsettling, with sales growth predicted to slip 11.1% YoY, which would be the biggest tumble since Q3 2009. Nine of the 11 sectors are anticipated to report a YoY drop in revenues, led once again by the Energy, Industrials, and Consumer Discretionary sectors.

Below we break down 3 sectors whose earnings are projected to take the deepest dives:

1. Energy: Lower Oil Prices To Hammer Results

  • Q2 EPS Estimate: -148.3% YoY
  • Q2 Revenue Forecast: -42.2% YoY

The Energy sector is forecast to print the most colossal YoY earnings losses, with a staggering -148.3% slide in second-quarter EPS from a year earlier, according to FactSet. Energy, like the other sectors on this list, is facing the largest YoY drop in earnings since FactSet began tracking this data in Q3 2008.

With low crude oil prices weighing, revenue for the sector is also anticipated to sink -42.2%, which would be the largest YoY decline in revenue for the sector since Q2 2009 when it fell -45.3%.

Two energy companies projected to record earnings declines: Marathon Petroleum (NYSE:MPC), and Exxon Mobil (NYSE:XOM).

Marathon Petroleum is set to see a loss of -$1.41 per share, compared to earnings of $1.73 per share in the year-ago period, while Exxon Mobil, is projected to report a loss of -$0.55 per share, compared to EPS of $0.61 in the same period a year earlier.

Another notable name set to suffer a substantial reduction in Q2 earnings is Chevron (NYSE:CVX), which expects a loss of -$0.81 per share, compared to earnings per share of $2.28 in the same period in 2019.

XLE Daily Chart
XLE Daily Chart

Since March 31 this sector has witnessed the fourth largest increase in price compared to other sectors, rallying more than 25%.

2. Consumer Discretionary: COVID-19 Impact To Hit Earnings

  • Q2 EPS Estimate: -119.0% YoY
  • Q2 Revenue Forecast: -19.6% YoY

The Consumer Discretionary sector is expected to report the second largest YoY earnings slump at a dismal -119%.

Ten of the 11 sub-industries within the segment are forecast to post a YoY dip in earnings, with seven of those on track to suffer a decline of more than 60%, led by auto stocks, which are to see their collective EPS nosedive -319% from a year ago. Stocks in the Hotels, Restaurants and Leisure group meanwhile are projected to see their earnings tumble -192% from the same period a year earlier.

Revenue is also anticipated to contract -19.6%, with the Hotels, Restaurants and Leisure sub-industry likely leading the dive. This group is expected to post a 60% plunge in sales.

The most hard-hit companies in the sector could include Wynn Resorts (NASDAQ:WYNN), (to -$4.57 from $1.44), Norwegian Cruise Lines (NYSE:NCLH), (to -$2.18 from $1.30) and Royal Caribbean Cruises (NYSE:RCL), (to -$4.56 from $2.54), all reeling from the impact of the COVID-19 crisis.

Automakers will also see earnings stumble. General Motors (NYSE:GM), (to -$1.76 from $1.64) and Ford Motor (NYSE:F), (to -$1.25 from $0.28) are two to monitor.

Surprisingly, Amazon (NASDAQ:AMZN) also makes the list. The online retail and cloud computing giant is set to report a 73% YoY drop in EPS to $1.37, compared to $5.22 in the year-ago period. A major driver for this probable downswing: the company's plan to spend about $4 billion on pandemic-related expenses.

XLY Daily Chart
XLY Daily Chart

Despite the decline in expected earnings, this sector has witnessed the largest increase in price of all sectors since March 31, climbing almost 35%.

3. Industrials: Airlines Will Pressure Sector

  • Q2 EPS Estimate: -89.0% YoY
  • Q2 Revenue Forecast: -27.4% YoY

Industrials are projected to report the third-highest YoY earnings slump, an astonishing -89%.

Of the 12 industries in the sector, 11 are expected to report a decline in earnings. Indeed, four of them are projected to report a drop of more than 50%: Airlines (-351%), Industrial Conglomerates (-71%), Machinery (-66%), and Electrical Equipment (-51%).

The Industrials sector is also anticipated to report the second largest YoY revenue decline of at -27.4%, which would be the biggest revenue drop seen since Q3 2008. The Airlines industry is once again forecast to be the largest contributor to the YoY decline in revenue for the sector, at -87%.

At the company level, earnings from Delta (NYSE:DAL), (to -$4.43 from $2.35), Southwest (NYSE:LUV), (to -$2.77 from $1.37), and Alaska Air (NYSE:ALK), (-$3.94 from $2.17) are predicted to be the largest contributors to the decline.

XLI Daily Chart
XLI Daily Chart

In spite of the negative earnings outlook, the Industrials sector has gained 15.8% in price since March 31.

3 Sectors To Avoid Ahead Of An Expected Plunge In Q2 2020 Earnings
 

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3 Sectors To Avoid Ahead Of An Expected Plunge In Q2 2020 Earnings

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Comments (10)
Jesse Mulliniks
Jesse Mulliniks Jul 12, 2020 7:11PM ET
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I am buying everhrhing that the Mainstream Media tells me not to buy.
Hugo Pepin
Hugo Pepin Jul 08, 2020 11:23PM ET
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Gold and oil
James Holmgren
James Holmgren Jul 08, 2020 1:52PM ET
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But Larry Kudlow,the famous history major from Princeton U., claims a 'V' recovery is taking place He also has claimed happy talk on several occasions claiming the virus is contained.
Bernard Tan
Bernard Tan Jul 08, 2020 1:52PM ET
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He will be sacked if he says otherwise.
Nick Passarella
Nick Passarella Jul 08, 2020 1:52PM ET
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Hey I like Larry!
The Dictator Turtle
The Dictator Turtle Jul 08, 2020 1:52PM ET
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It will not be a v-shaped recovery. Trump has done too little containing the virus and is burning money with little reason due to it. There will br a banktrupcy wave soon from SMEs that will make waves through the financial system
John Dyess Sr
John Dyess Sr Jul 08, 2020 1:09PM ET
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In my opinion: Volatility is with us until we reach herd immunity either through, infection recovery or inoculation.  Therapies have improved with a number of existing drugs resulting in fewer deaths.  My guess is we will achieve herd immunity in early 2021.  There is always the possibility that Covid-19 could simply just disappear.
me ish
me ish Jul 08, 2020 1:09PM ET
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the population hasn't reached herd immunity from other coronaviruses such as the common cold or influenza - why are you so sure, we'll obtain herd immunity with this coronavirus? The WHO has just in the last 24 hours made a statement that both the HIV and malaria drugs that have been trialled for covid 19 have neither resulted in fewer deaths or less time recovering in hospital - which existing drugs are you referring to? Remdesivir has not shown any signs of doing much use either. And yes, there is absolutely a possibility that it could just disappear - Trump told us all come Spring when it gets a little warmer, it would just magically disappear - his words - and yet, it's pretty warm in Florida and the Southern States right now and they're having a right good ol' pandemic party all to themselves! So, the answer is it may, or may not just disappear - or disappear and then come back as a new strain in the Autumn - good luck with that!
Bernard Tan
Bernard Tan Jul 08, 2020 1:09PM ET
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Fewer desths now but more infections today that will lead to more deaths in the coming months. There is no vaccine for virus infection and neither is there any herd immunity. This is the new world order.
FFH Hassu
FFH Hassu Jul 08, 2020 1:09PM ET
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yes based on NYC experience increasing deaths lagged around 1 to 2 months...worse to come in August to September
Taylor Huddlestun
Taylor Huddlestun Jul 08, 2020 11:30AM ET
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All of this is bring priced in. Markets will hold or go down over the next 2 weeks. Then individual companies will dip as their earnings are released to start climbing back up.
Fabio falec
falec Jul 08, 2020 11:30AM ET
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Remind you ... in ATH or thereabouts. I think, with the current uncertainty, someone priced in far too many things which are unknowns ATM. Go long and good luck!
Bernard Tan
Bernard Tan Jul 08, 2020 11:30AM ET
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Why prices climb back up? 3Q2020 or 4Q2020 could be worse
Matthew Mover
Matthew Mover Jul 08, 2020 11:22AM ET
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Energy wont be shut down again and now record levels if rigs are shut in with levels reduced to 2008 levels. This is not the same as it was in march when opec pumped out boat loads of oil. Energy will be the winner all summer.
me ish
me ish Jul 08, 2020 11:22AM ET
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you still need a lot more buyers! How palatable for the electorate for so many more people to fall seriously ill to the virus - even if they recover - many are badly affected for months afterwards and unable to work. Those that have it for two to four weeks will be told to stay at home and not shop and not work - this all still has a massive effect on the economy.
Matthew Mover
Matthew Mover Jul 08, 2020 11:22AM ET
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me ish Stop drinking the democrat fakenews coolaid. Whats next, will you stop driving for risk of death? Will you stop having coitus for risk of HIV? Will you stop eating high fat food for risk of diabetes and atherosclerosis? Will you stop eating out for risk of hepatitis? Will you wear a mask forever to prevent the flu, sars, mers? Do You feel like a donkey yet? Thats how bad you sound and how quickly that fake fear goes away when you relaize how false it is.
me ish
me ish Jul 08, 2020 11:22AM ET
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Matthew Mover  same old, same old - never engage the debate by challenging each individual point - instead, use the old  blame the Dems (I don't support the Dems - they are just as corrupt as GOP), fake news - the person or organisation that has been shown to not tell the truth more than any other organisation person - is the White House staff and Trump - so again, it's just some dumb term - then play the man, not the ball - yet again - just throw insults at people who have a different viewpoint than yourself - but heaven forbid, you actually engage in attempting to dispute the points that I have made - These are the signs of an automaton that does not think for themselves and that blindly believes the Narcisist-in- Chief. I have lived a life and continue to live a life that is probably far more risk taking than anything you have ever done, but yes, I love life, so I take calculated risks and I avoid unnecessary risks where the cost benefit analysis works for me - that's good common sense!
me ish
me ish Jul 08, 2020 11:22AM ET
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Matthew Mover  what are you on about - tens of millions of more people ill for a few weeks has a deletrious effect on the economy - that is a fact, whether you like it or not - your argument is non existent and really only shows you level of ability to think straight by critcising the person and making assumptions about them, rather than debating the facts - you do yourself a disservice and to use the old fake news banner is not very clever - I wouldn't want to have any of my speech related to a pathologic lying narcisist.
Santi CBudlong
Santi CBudlong Jul 08, 2020 11:22AM ET
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me ish   U said u dont support the Dems-good ,because the dems support BLM marxist, Anarchist and other crazy things, but you are repeating their talking point from watching CNN or other MSM. Have U tried listening to Mark Levin?  By the way there are different Malaria drugs safe and not safe, and i know famous people with health conditions recovered from covid using the doctor prescribed Malaria drugs.
Phillip DuVall
Phillip DuVall Jul 08, 2020 11:18AM ET
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What about REITs? They have been hammered, you think there is hope for a short term rebound?
Roko Horvat
Roko Horvat Jul 08, 2020 11:18AM ET
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I wanted to ask the same question :) I invested into IVR so this is quite important for me.
Hunt Richardson
Hunt Richardson Jul 08, 2020 11:09AM ET
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priced into the crash in March. W-shaped recovery. if virus continues then pharmacist and food and delivery companies will do well. precious metals will follow the influx of trillions of Central Bank cash
Talala Rus
Talala Rus Jul 08, 2020 9:11AM ET
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Buy energy
Sven Berg
Sven Berg Jul 08, 2020 4:25AM ET
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I agree with you on the fact that energy stocks are quite unpredictable at the moment. With low demand and high supply during the last quarter, they should totally be avoided
 
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