The S&P 500 closed at an all-time high on June 20, recouping all of its losses from the steep sell-off in May. The index is still on pace to potentially reach 3,200 in 2019, which is about 8.5% higher than its current level. The markets are having their best month since January but those gains have also pushed the S&P 500′s price-to-earnings ratio close to 17 times forward earnings, a valuation level that marked the top in May and last fall.
The strong index growth comes after the end of the first quarter reporting season, which gave a pleasant surprise for the markets. More than three quarters (75.6%) of the S&P 500 enterprises beat expectations, with Q1 earnings now expected to increase by 1.6%.
For the second quarter, S&P 500 companies are expected to report a decline in earnings of -2.5% and growth in revenues of 3.9%. The growth picture is not expected to improve in the June quarter, which would follow the roughly flat finish in Q1. Driving this growth challenge, which is expected to persist through Q3, is a combination of tough comparisons and moderating economic growth. For the second half of 2019, analysts see no growth in earnings in the third quarter and high single-digit growth in earnings in the fourth quarter. For the first half of 2020, analysts are predicting double-digit earnings growth.
Last week was pretty poor from earnings reports with the focus of the markets turned to technology giants Oracle, Adobe, and Red Hat, all of them being surprisingly strong.
Oracle’s revenue outperformed Wall Street’s forecast
The US company Oracle reported higher-than-expected sales revenue and exceeded its profit targets for the fourth fiscal quarter after the emerging new business ventures managed to offset the downturn.
Oracle, a 40-year-old pioneer in the database management business, is struggling to stay competitive while customers put more and more of their data online, using cloud services instead of their own servers.
Microsoft, Amazon, and Salesfroce.com are enjoying rapid growth in sales of cloud services and software. Earlier this month Salesforce said its revenue jumped 24% in the fourth quarter.
Oracle reported that in its fourth fiscal quarter, its earnings have risen 1% from a year earlier to 11.14 billion USD, surpassing the consensus forecast of analysts for 10.93 billion USD.
Over the quarter, Oracle’s licensed software business recorded a 12% jump on an annual basis to 2.52 billion USD. Cloud Services and Licensing Support, the largest unit of the company, enjoyed a 0.5% revenue growth of 6.79 billion USD, while the hardware revenue shrank by 11% to 1.12 billion USD.
The company expects the revenues for the current quarter to remain unchanged or to increase by up to 2%. For the fiscal year that began this month, the forecast is that revenue growth will exceed 3% compared to the previous year.
The adjusted profit margin was 47% in the quarter ended May 31. That’s the highest level in five years.
The earnings rose to 3.74 billion USD, or 1.07 USD per share, from 3.28 billion USD, or 79 cents per share, a year earlier. After adjustments, the gain was 1.16 USD per share or 9 cents more than expected on Wall Street.
Adobe reported better-than-expected earnings for the second quarter
Adobe posted revenue of $2.74 billion in the fiscal second quarter, which ended on May 31, up by 25% from a year earlier and slightly better than the company’s forecast of 2.70 billion USD. The non-GAAP earnings were 1.83 USD per share, ahead of both the company’s forecast of 1.77 USD per share and the Wall Street consensus at 1.78 USD per share.
Adobe’s largest business segment, Digital Media, which includes the Creative Cloud and Document Cloud products, produced 1.89 billion USD in revenue, up 22% and above the 1.86 billion USD consensus estimate among analysts. The Digital Experience segment, which contains Magento and Marketo, had revenue of 783.5 million USD, over the consensus estimate of 777.2 million USD. Meanwhile, the Publishing segment contributed by 70.6 million USD in revenue.
In the quarter Adobe reported 7.47 billion USD in annualized recurring revenue for its Digital Media business.
Adobe said that for the fiscal third quarter, it expects 1.95 USD in earnings per share, excluding certain items, on 2.80 billion USD in revenue. Analysts polled by Refinitiv had been looking for 2.05 USD in earnings per share, excluding certain items, and 2.83 billion USD in revenue for that period.
Red Hat beat analysts expectations for earnings in Q2
Red Hat came out with quarterly earnings of 1 USD per share, beating the analysts’ consensus estimates for 0.85 USD per share. This compares to earnings of 0.72 USD per share a year ago. These figures are adjusted for non-recurring items.
A quarter ago, it was expected that this open-source software company would post earnings of 1.01 USD per share when it actually produced earnings of 1.16 USD.
Over the last four quarters, the company has surpassed consensus EPS estimates four times.
Red Hat posted revenues of 934.11 million USD for the quarter ended May 2019, surpassing the analysts’ consensus estimates. This compares to year-ago revenues of 813.53 million USD. The company has topped consensus revenue estimates just once over the last four quarters.