And that's despite a long string of positive reports and upside surprises. As of last Friday, 14% of S&P 500 companies had reported earnings results – with a full 74% of that group reporting positive earnings-per-share (EPS) surprises for the quarter.
At least the S&P 500 Index (SPX) finally managed to snap its six-day losing streak on Monday. While there's still a disconnect between quarterly earnings results and market performance, this could be the start of a positive change:
Today after the close, we'll see tech giants Microsoft (MSFT) and Google (GOOG) deliver Q1 reports. These "Magnificent" mega-caps have a tendency to drive market sentiment with their earnings reports, so notably positive results could be just what Wall Street needs to shake off its "buyer's strike." Then again, Facebook parent Meta Platforms (META) easily beat analyst estimates on the top and bottom line, yet the stock slumped 10% after offering mixed guidance on future results.
In the meantime, though, reports are starting to come in from members of our Ultimate Income portfolio. Let's dig in and see how they performed – and how fresh news from Cisco (CSCO) gives us more to look forward to in the coming weeks.
Positive News from HAL, NVS, and MAT
Halliburton (HAL) delivered its Q1 report Tuesday morning, in which the oil services giant beat analyst estimates for both revenues and earnings per share (EPS) by about 2%. Specifically, HAL reported $0.76 earnings per share (versus $0.74 expected) and revenues of $5.8 billion (versus $5.68 billion expected).
A 12% increase in international revenue has the company confident in demand moving forward. While the news hasn't had much of an effect on our share position in HAL, we'll likely keep the shares: With HAL trading at about $38.50, we'll expect to take full profits on our HAL 26 Apr 24 $41 covered call expiring Friday.
Speaking of open options in the Ultimate Income portfolio, though... Novartis (NVS) smashed Wall Street's expectations in its own Q1 report on Tuesday, and Barbie brain-trust Mattel (MAT) delivered a solid report of its own.
Big pharma giant Novartis reported $1.80 earnings per share (versus $1.68 expected) and a solid $11.83 billion in quarterly revenue (versus $11.5 billion expected). Those are 6.99% and 2.88% beats, respectively. On top of that, the company raised its 2024 guidance, another maneuver that tends to have investors cheering.
With a net sales gain of 11% over the prior quarter, a 39% increase in operating income, and four in-development treatments getting closer to full approval, NVS shares spiked 3.6% in pre-market, before settling at a 2.27% gain for the day. Which means we may need to roll our NVS 17 May 24 $90 Put option to a lower strike price if the timing is right. Stay tuned.
Mattel cleared expectations on EPS but missed revenue targets – an EPS loss of -$0.08 per share beat the expected loss of -$0.12 – but while the $810 million in net sales announced for the quarter didn't clear the $832.9 million bar Wall Street expected, Mattel increased its gross margins by 8% and improved its operating losses by $80 million. Go Barbie!
MAT shares opened over 5% higher yesterday before pulling back some today, but there's plenty of time left before our MAT 19 Jul 24 $18 Put option expires. We'll have to keep an eye on Mattel, and plan accordingly.
CSCO's Latest Acquisition Opens New Doors
Looking beyond earnings, there's more good news from the Ultimate Income portfolio by way of classic 1990s tech company Cisco (CSCO).
On Thursday, Cisco launched a new product, named "HyperShield," to offer new security architecture services to data centers as they continue their AI integrations. This new product builds off the company's ongoing partnership with market darling Nvidia (NVDA) – and is the first result of their acquisition of cybersecurity company Splunk, which wrapped last month.
The $28 billion deal, announced last September, strengthens the company's already-solid position in the AI support sector. And while we won't see the results of HyperShield's debut until next quarter, analysts are already looking forward to Cisco's Q1 report due on May 15.
Just after Cisco closed the Splunk deal, Piper Sandler declared in an investor note that acquiring Splunk acquisition could bring Cisco an estimated $5 billion of additional revenue by 2026.
For now, though, analysts expect Cisco to report weaker earnings in May. Wall Street expects EPS of $0.81, with revenues coming in at $12.61 billion, down about 17% from a year ago. With CSCO shares down 2.7% over the last month as the AI boom weakens, a positive surprise plus the benefits from closing the Splunk deal could be just what the stock needs to turn around.
Until then, I'll keep you updated as earnings news continues. Look out for more Ultimate Income updates this week as more earnings reports hit the tape – and we continue to earn instant income from the season's higher volatility.
Good investing,
Mike Burnick Senior Analyst, Ultimate Income
P.S. If you have any questions or concerns, please reach out to me at emailmikeburnick@tradesmith.com and include "Ultimate Income" in the subject line.
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