We’re now a few weeks into the third-quarter earnings season, and companies continue to report positive results. In fact, according to FactSet, 84% of S&P 500 companies have topped analysts’ earnings estimates and 75% of S&P 500 companies have bested analysts’ revenue expectations.
Not only that, but it’s clear that we remain in a healthy earnings environment. Fundamentally superior companies that post strong earnings results are being rewarded by Wall Street while companies that release disappointing earnings take it on the chin.
For example, Alcoa Corporation (AA), which “officially” kicked off the third-quarter earnings season with its most-recent results on Thursday, October 14, saw its stock soar as high as 17% on Friday. Come Monday, the stock reached a new 52-week high of $57.57.
On the flip side, Facebook (FB), which reported mixed third-quarter earnings results yesterday, slipped more than 4% today.
Now, earnings aren’t just working for stocks, they’re boosting the broader market, too. Just today, the S&P 500 and Dow hit new intraday highs, thanks in part to strong results from General Electric Company (GE) and United Parcel Service, Inc. (UPS) this morning. GE’s earnings rose 18.8% year-over-year to $0.57 per share, up from $0.48 per share in the same quarter a year ago. Analysts were calling for earnings of $0.43 per share, so the company posted a 32.6% earnings surprise. However, revenue of $18.4 billion missed analysts’ expectations for revenue of $19.29 billion.
UPS rallied to a new 52-week high today after announcing results that beat on the top and bottom lines. Earnings increased 18.9% year-over-year to $2.71 per share, up from earnings of $2.28 per share in the same quarter a year ago. The analyst community expected earnings of $2.54 per share, so UPS topped earnings estimates by 6.7%. Revenue of $23.18 billion also beat the analyst community’s expectations for $22.56 billion by 2.7%.
I should add that both companies revised their full-year earnings estimates higher despite being negatively impacted by the supply chain shortage. So, this has me even more excited for the high-quality companies that are expected to benefit from supply chain shortage.
UMC Expected to Benefit from the Semiconductor Shortage
One such company is United Microelectronics Corporation (UMC).
Founded back in 1980, UMC played a key role in establishing the semiconductor industry in Taiwan. It was the nation’s first company to provide foundry services and the very first semiconductor company to be listed on the Taiwan Stock Exchange.
United Microelectronics is most well-known for its foundry business. The company develops and manufactures integrated circuits (ICs), with a specific focus on logic and specialty technologies. As a result, its wafers are utilized by every corner of the electronics industry. It has 12 fabrication facilities throughout Asia and manufactures more than 750,000 eight-inch wafers monthly.
In late April, the company said that it plans to invest $3.6 billion to expand its production capacity over the next three years to meet the demand for wafers and chips associated with smartphones, digital TVs and set-top boxes.
UMC Co-President Shan-Chieh Chien said in July 2021 that the global chip shortage could last into 2023, with the demand for 8-inch and 12-inch wafers predicted to be the most severe.
For the second quarter, announced on July 28, UMC reported earnings of $0.17 per ADS on $1.83 billion in revenue, which represented 89% year-over-year earnings growth and 8% year-over-year revenue growth. The consensus estimate called for earnings of $0.13 per share on $1.78 billion in revenue, so UMC posted a 30.8% earnings surprise and a slight revenue surprise.
UMC shipped 2,440 wafers during the second quarter, which was up from 2,218 wafers in the same quarter last year. For the third quarter, UMC expects wafer shipments to rise between 1% and 2% quarter-over-quarter.
The company is up to bat with its third-quarter earnings results tomorrow, after the market close. Thanks to the ongoing semiconductor shortage, UMC’s earnings are forecast to surge 280% year-over-year to $0.19 per share, up from $0.05 per share in the same quarter a year ago. Sales are expected to come in at $1.99 billion. Analysts have revised their earnings estimates 35.7% higher in the past three months, so a fourth-straight earnings surprise is likely. I should add that UMC tends to move higher on strong results. Following the company’s second-quarter earnings results, the stock rallied 7.6%.
Thanks in part to the semiconductor shortage, UMC has had a good year so far. It’s up more than 32% year-to-date, but folks following my Accelerated Profits service have enjoyed the stock’s ride much longer. My Project Mastermind system flagged UMC back in March 2020, when the stock was trading around $2.
I’m excited to say that my Project Mastermind system found another fundamentally superior stock that is well-positioned to start firing on all cylinders. I will be releasing the name on Thursday, after the market close. If you’re interested, sign up here to get all the details.
The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
Alcoa Corporation (AA), Facebook (FB), United Microelectronics Corporation (UMC)