The second-quarter earnings season is officially off and running after Alcoa (AA) and the big banks reported their quarterly results earlier this week. And so far, so good. We talked last week about the banks and whether I saw them as good buys ahead of their results, so, today, we’re going to talk about another important sector: industrials.
The industrials’ earnings are important because they can serve as a “tell” for the economy. This is a cyclical sector, which means that there’s less demand for them in a weak economy and more demand for them in a strong economy. So, we want to see industrials report strong results. Three of the big industrials that I like to watch are Honeywell International, Inc. (HON), Caterpillar, Inc. (CAT) and Halliburton (HAL).
HON reported its second-quarter earnings on Thursday, and HAL and CAT are scheduled to release their quarterly results next Monday and Wednesday, respectively. So, let’s start with HON and see how it stacks up in Portfolio Grader.
Honeywell International, Inc.
Honeywell International, Inc. is a diversified technology and manufacturing company. It has four segments: Aerospace, Honeywell Building Technologies, Performance Materials and Technologies, and Safety and Productivity Solutions.
On Thursday, the company reported a mixed quarter. Revenue of $9.2 million missed the expected
$9.4 million, with the top line decreasing 15.3% year-over-year. Earnings were a bit better, with the $2.10 per share topping the estimated $2.08. So, HON posted a 1% earnings surprise. However, this still represented a decline from the $2.12 earned in the second quarter of 2018.
On the bright side, though, company management increased the lower end of its full-year earnings guidance from $7.90 to $8.15 per share to $7.95 to $8.15. All in all, this topped Wall Street estimates for full-year earnings of $8.10.
Now, let’s see how HON stacked up in my Portfolio Grader heading into its earnings report.
The Fundamental Grade was a C. Earnings were okay — but as my Growth Investor subscribers can tell you, I like to see sales growth first…and there wasn’t any. However, the Quantitative Grade, which measures buying pressure, was a strong A. So, the stock earned a B-rating for its Total Grade, making it a solid buy.
Now, Halliburton is up to bat on the earnings deck first next week, so let’s start here.
For those who don’t know, the company provides a range of services and products to oil and natural gas companies worldwide. For the second quarter, consensus is for earnings of $0.30 per share, a 48.3% year-over-year decrease from $0.58 per share. Sales are also expected to slow from $6.2 billion last year to $5.97 billion. This represents a 2.9% decrease.
Here’s what my Portfolio Grader has to say about that:
Given the weakening earnings momentum and extremely low buying pressure, it’s no surprise that HAL’s Total Grade is a D, so you might want to stay away from this stock ahead of its earnings report.
And last, but certainly not least, we have Caterpillar, Inc. This company manufactures and sells construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. Analysts are looking for earnings of $3.12 per share, a 5.1% year-over-year increase, on a 3% bump in revenues to $14.4 billion.
Here’s how my Portfolio Grader rates it:
Despite the increase in earnings, the fundamentals are still a little weak, so it receives a C-rating here. In addition, there’s been a decrease in buying pressure, so its Quantitative Grade gets a C, too. Tally it all up, and CAT gets a C for its Total Grade, making it a hold right now.
It will be interesting to see if HAL and CAT are able to beat earnings expectations next week, so if these are stocks you own or are considering adding to your portfolio, I encourage you to keep an eye on my Portfolio Grader for any ratings changes after the earnings are out.
In the meantime, there will be plenty of other companies rolling out their results. In fact, 21 of my Growth Investor stocks will be reporting their quarterly numbers next week. So far, three of my Growth Investor companies released results, and all three beat analyst estimates. I remain laser-focused on companies with strong forecasted sales and earnings growth – and that’s exactly what my Growth Investor service is filled list. My Buy List is characterized by 65% annual earnings growth and 16.5% annual sales growth. So, I expect my Growth Investor companies to benefit from wave-after-wave of positive earnings in the upcoming weeks.
So, if you want to get in before these stocks take off on their results, sign up for my Growth Investor service now. You definitely don’t want to miss out on the next big moves to the upside.