Q4 Earnings Season Predictions: Biggest Winners and Losers

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Source: FactSet

According to FactSet, the Energy sector is expected to report the largest YoY gain in earnings of all eleven sectors, with a +62.7% surge in Q4 EPS. With higher oil and natural gas prices benefitting the sector - the average price of WTI crude in Q4 2022 was $82.64 per barrel, roughly 7% above the average price in the same quarter a year earlier - it is also projected to record the highest year-over-year (YoY) increase in revenue at +11.5%.

The Industrials sector is expected to report the second highest YoY gain in earnings of all eleven sectors, with a notable +38.5% increase in Q4 EPS, led by the Airlines and Aerospace & Defense groups. The industry is also expected to report the second biggest jump in YoY revenue growth, with Q4 sales set to rise +9.1%.

In contrast, the Materials sector - which includes companies in the metals and mining, chemicals, construction materials, and containers and packaging industry - is projected to report the worst YoY earnings slump of all eleven sectors, with EPS set to tumble -26.3% from a year earlier, per FactSet. With lower prices of metals - such as gold, copper, nickel, platinum, palladium, and aluminum - weighing on the sector, it is also expected to report the second largest YoY decline in revenue, with sales forecast to fall -3.7%.

Meanwhile, with an anticipated decline of -20.3% in Q4 EPS, the Consumer Discretionary sector - which is perhaps the most sensitive to economic conditions and consumer spending - is projected to suffer the second worst YoY earnings drop as shoppers reduce purchases of discretionary items and divert more spending into basic needs.

Another group to watch will be the Communication Services sector - which includes telecom companies as well as media, entertainment, and online media services providers - is forecast to report the third largest YoY earnings slump, with EPS for the group set to decrease -19.0% from a year earlier, per FactSet.

Elsewhere, the Utilities sector - which usually tends to outperform in low interest rate environments - is expected to report the biggest YoY sales decline of all eleven sectors, at -18.5%, as the group faces a difficult operating environment due to the Federal Reserve’s aggressive rate hikes.

At the company level, Marathon Petroleum (NYSE:MPC) (up 349.5% to $5.84 from $1.30), Valero Energy (NYSE:VLO) (up 175.7% to $6.81 from $2.47), and Hess (NYSE:HES) (up 112.9% to $1.81 from $0.85) are expected to be the largest contributors to the YoY spike in earnings for the Energy sector.

Two other notable names in the group that are set to enjoy significant improvements in their Q4 financial results are ExxonMobil (NYSE:XOM), which is projected to post EPS of $3.29, up 60.5% from a profit of $2.05 in the year-ago period, and Chevron (NYSE:CVX), which is anticipated to record a 73.4% YoY increase in EPS to $4.44/share.

In the Industrials sector, Delta Air Lines (NYSE:DAL), United Airlines (NASDAQ:UAL), and Southwest Airlines (NYSE:LUV) are a few to watch amid the ongoing rebound in air travel. My preferred pick is Delta, which is forecast to post Q4 EPS of $1.32, soaring 500% from last year.

In addition to the airlines, Raytheon Technologies (NYSE:RTX), Northrop Grumman (NYSE:NOC), and Boeing (NYSE:BA) are some of the other notable names in the Industrials group enjoying robust upward revisions to their Q4 EPS estimates as the geopolitical conflict between Russia and Ukraine drags on.

On the downside, Amazon (NASDAQ:AMZN) (from $0.38 to $0.20) and Target (NYSE:TGT) (from $3.33 to $1.39) are among several stocks in the Consumer Discretionary sector which are expected to post disappointing results due to their heavy reliance on the strength of the U.S. consumer.

MGM Resorts (NYSE:MGM) (from $0.17 to -$1.47), Wynn Resorts (NASDAQ:WYNN) (from -$0.38 to -$1.19), Las Vegas Sands (NYSE:LVS) (from -$0.03 to -$0.09), and Royal Caribbean (NYSE:RCL) (from -$0.68 to -$1.30) are a few more names I think you should stay away from as they prepare to report their Q4 earnings.

Meanwhile, Google-parent Alphabet (NASDAQ:GOOGL) (from $1.41 to $1.19), Meta Platforms (NASDAQ:META) (from $2.67 to $2.26), and Walt Disney (NYSE:DIS)(from $1.29 to $0.80) are the largest contributors to the decrease in expected earnings for the Communication Services sector in Q4.

In addition, Netflix (NASDAQ:NFLX), Warner Bros. Discovery (NASDAQ:WBD), and Paramount (NASDAQ:PARA) have also seen their estimates slashed sharply amid the current economic environment.

In the Information Technology sector - which is perhaps the most vulnerable to rising interest rates and elevated inflation - Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), and Qualcomm (NASDAQ:QCOM) are the most significant contributors to the decline in expected earnings for this sector.

Intel (NASDAQ:INTC), and Seagate Technology (NASDAQ:STX), which are anticipated to report YoY profit declines of 80.7% and 94.6%, respectively, are two more names getting their EPS estimates cut lately.

Elsewhere, LyondellBasell Industries (NYSE:LYB) (from $2.77 to $1.21), Corteva (NYSE:CTVA) (from $0.15 to $0.07), Celanese (NYSE:CE) (from $3.31 to $1.66), and Dow Inc (NYSE:DOW) (from $1.08 to $0.57) have been the biggest contributors to the expected decrease in Q4 earnings for the Materials sector amid the uncertain global outlook.

Beyond the top-and-bottom-line numbers, I will pay close attention to announcements on forward guidance for the months ahead, given the uncertain macroeconomic outlook, which has seen recession fears mount lately.

The ongoing strength of the U.S. dollar will also be of major importance as it creates significant headwinds for companies with international revenue exposure, mainly those in the Information Technology, Materials, and Communication Services sectors.