Early Earnings Reports Fail to Impress Wall Street
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
The Dow Jones Industrial Average has fallen and risen through the day, and was still down 0.32% at 3:37 p.m. EST.. Earnings season is in full swing this week, with eight of 30 Dow components reporting, and the early reaction is less than positive.
Verizon Communications' stock fell 1.4% after the wireless carrier reported quarterly earnings this morning. Revenue was up 3.5% to $31.1 billion and net income was $5.07 billion, or $1.76 per share. Excluding one-time items earnings were $0.66 per share, beating expectations by a penny.
The earnings beat and the fact that Verizon Wireless gained 1.6 million customers during the fourth quarter wasn't enough to push the stock higher, because investors are still worried a price war will break out in wireless. We're also seeing some of the aftereffects of a great year on the stock market that saw P/E multiples rise but very little earnings growth. Higher multiples means higher expectations, so even a solid quarter like Verizon reported today may not be enough for investors.
There's a similar situation playing out at Johnson & Johnson today. The stock is down 1.3% despite fourth-quarter sales of $18.36 billion beating estimates and earnings of $1.23 per share matching expectations.
The hurdle the health care giant didn't clear was matching full-year guidance expectations. Management said earnings would be between $5.75 and $5.85 per share in 2014, which would be up from $5.52 per share last year but not as high as the $5.86 estimate from analysts. At the low end, that's only 4% earnings-per-share growth, which isn't very strong for a stock trading at 17 times earnings.
What we should take away from the market's reaction to Verizon and Johnson & Johnson today is that even beating estimates may not be sufficient this year. High stock prices mean everything from revenue to guidance will be scrutinized heavily, something to keep in mind as companies you own report over the next few weeks.
Our top stock pick of 2014
There are still great opportunities on the market and The Motley Fool's chief investment officer has selected his No. 1 stock for 2014. The good thing for you is that it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.
The article Early Earnings Reports Fail to Impress Wall Street originally appeared on Fool.com.Fool contributor Travis Hoium manages an account that owns shares of Johnson & Johnson and Verizon Communications. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.