3 Can’t Miss Q3 Earnings Reports

Key Points

• With recent news flow decidedly skewed to the bearish side, investors will look for Q3 earnings reports to provide a spark.
• When American Airlines reports, it will provide valuable insights into the health of the airline industry overall.
• With Tesla sentiment low, even a seventh straight earnings beat may not be enough to stave off the selling pressure.
• The Street’s current estimate is at the high end of the range for PayPal.

The stock market will limp into third-quarter earnings season with a host of concerns. Negative inflation readings, a hawkish Fed and expectations of a prolonged economic recession are just the headliners.

Last week the S&P 500 slipped below the 3,500 level for the first time since November 2020. Put another way, we’ve returned to where the market had eclipsed its pre-Covid peak.

Along the way, it’s been impossible for momentum to take hold. It's been over a year since the S&P has moved higher in back-to-back months. 

With the news flow decidedly skewed to the bearish side, investors will look for Q3 earnings reports to provide a spark. There’s reason to be bullish.

First, the bar is set low. According to Factset, analysts are expecting just 2.8% profit growth for S&P 500 companies. Second, with the benchmark trading below its average historical P/E, bargain hunters should lend support to oversold names. 

Some of the biggest surprises could come from companies that have provided fireworks in recent weeks. These three reports will play a key role in setting the Q3 earnings stage.

When Does Tesla Report Q3 Results? 

Tesla, Inc. (NASDAQ:TSLA) rides a six-quarter earnings beat streak heading into its October 19th afternoon release. The only problem is estimates have gone in reverse since the start of 2022. That is expected to change, however, with Wall Street anticipating EPS of $1.01. This would represent a significant acceleration from last quarter and 63% year-over-year growth.

Earlier this month, the EV leader announced Q3 production and delivery stats that underwhelmed. Tesla’s ability to deliver Model S and Model 3 vehicles were hampered by transportation challenges that are compounding the industry’s supply chain struggles. And while the Shanghai factory shutdown capped production in China, speculation is swirling around a potential demand slowdown in the all-important region.

Recent volatility in Tesla shares has also stemmed from Elon Musk’s $44 billion Twitter buyout which (for now) appears to be back on. With a lengthy court process expected, the deal will likely be a cloud over the stock for a while — and could make this week’s report somewhat irrelevant. 

Since Tesla enacted a 3-for-1 split on August 25th, it's been a splitting headache for shareholders who have seen the stock slide from roughly $300 to $200. With Tesla sentiment low, even a seventh straight earnings beat may not be enough to stave off the selling pressure. 

Will American Airlines Offer a Positive Q4 Outlook?

Before the open on October 20th, American Airlines Group Inc. (NASDAQ:AAL) will release its Q3 numbers. The performance and management’s outlook for the holiday travel season will provide valuable insights into the health of the airline industry.

Although the big four airliner is expected to post its second straight quarterly profit, the Street’s $0.53 estimate implies a 31% sequential decline from Q2. Elevated fuel costs will likely once again weigh on the bottom line, offsetting an uptrend in leisure and business travel demand. So too will rising labor costs as American and its peers move to alleviate worker angst and pilot shortages.

Complicating the cost pressures is American’s heavy debt burden, which exceeds that of competitors. The company ended last quarter with $35 billion in long term debt, approximately three-times its cash position. Addressing this leverage in a higher cost environment will be especially difficult and could therefore remain a deterrent for investors.

The airline’s projections for Q4 revenue and expenses will probably dictate where the beaten down stock goes. Better than feared costs and holiday booking trends could ignite a rally while the opposite could keep the stock grounded. Once a popular reopening play, American Airlines has made a bumpy return trip to early pandemic levels.

Will PayPal Beat Q3 Earnings Estimates?

When PayPal Holdings, Inc. (NASDAQ:PYPL) reports after the close on November 3rd, we’ll learn if last quarter’s gap up truly set a floor for the stock. Last time around, the digital payments innovator posted better than expected earnings and raised its full-year guidance after payment volume increased 9%. The stock also got a boost from activist investor Elliott Management’s disclosure of a $2 billion PayPal stake, which the market interpreted as a powerful vote of confidence.

Lately, however, the market swoon and social media backlash over PayPal’s revised Acceptable User Policy have dragged the stock back to summer 2022 levels. The fine print stated users could be fined as much as $2,500 if they use the platform to promote misinformation. Management later retracted the language and the issue seems to be in the rear view mirror now.

What’s coming down the road for Q3 is 10% revenue growth and adjusted EPS of $0.94 to $0.96 according to management. The Street’s current estimate is the high end of the range—which is exactly where it was in Q2 when PayPal beat by 7% and the stock gapped up 9%. If the consumer can again prove resilient and payment volumes exceed expectations, it could be deja vu for PayPal earnings traders.