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Biggest Winners From Late Q2 Earnings Season – What Do They Tell Us About The Markets?

justin freeman
Justin Freeman trader
Updated 5 Sep 2022

This year’s Q2 earnings reports have been eagerly awaited by investors looking for signs that depressed stock prices could be about to rebound. The quarterly reports released by big corporations are normally crucial milestones of the investing calendar and have a track record of acting as the starting gun of a new trend.

biggest winners from late q2 earnings season

Those looking to pick the bottom of the market have been treated to a range of earnings season winners, as stocks from diverse sectors post quarterly performances above analyst expectations. The below stocks could be leading the way to the next bull run. The good news for investors is that there is still time to catch the ride.

What Is An Earnings Estimate?

An earnings estimate is the forecast made by financial analysts regarding a particular firm's earnings per share (EPS), and total earnings figure over a calendar quarter. These are then compared to the official reports released by big US corporations, which shed light on whether a business is performing in line with expectations.

These groups of analysts derive from investment banks, institutional investment funds and specialist third-party research firms. Their individual predictions are amalgamated by specialist agencies into an averaged-out single figure, which is then compared to the actual number released by a firm.

The process of compiling estimates involves analysts conducting their own independent research, and also taking on ‘guidance’ from the reporting firms. This guidance is offered so that reports don’t include too many surprises as that can result in excessive share price volatility. Despite extensive efforts to manage expectations, there are still earnings season beats when firms outperform and that can be seen as a signal to step into the market and buy a stock.

Q2 Earnings Report Beats – SunPower Corp (SPWR)

Solar stocks are notoriously volatile, but the positive news found in SunPower Corporation’s Q2 earnings report suggests that this time things could be different. The prospect of solar playing a more important role in the energy sector appears to be feeding through to the bottom line of SunPower’s balance sheet and, as a result, the stock is on a roll.

Immediately after SunPower released its earnings on 2nd August 2022, the share price surged by 4.9%. The EPS (Earnings Per Share) reported by SPWR came in at $0.03, which beat the $0.01 Zacks Consensus Estimate. Top line revenue of $414m also came in above the estimated figure of $363m.

The total revenue was the main news for the firm. Not only did the actual figure surpass the estimate by 14%, but revenue in the same quarter last year was only $254m. The ability of the firm to turn its adjust its top line to 62.9% suggests that SPWR has reached a tipping point where its potential will be converted into hard cash and a higher stock price.

Digging into the granular detail, SunPower’s CEO Peter Faricy shared that the firm added 19,700 new customers in Q2, a 51% increase year-on-year and a record all-time quarter high. Those stellar numbers confirm why SunPower is included in the AskTraders list of Best Solar Energy Stocks To Buy.

SunPower Corp – Daily Price Chart – 2021 – 2022 – Earnings Beat on 2nd August

sunpower corp daily price chart eanings beat august 2022

Source: IG

All of this success was achieved even before the Inflation Reduction Act was signed into the statute book. That additional support from government budgets will offer the SunPower stock price considerable support.

The one potential slip-hazard is the firm’s weighting towards new builds. SunPower focuses on the residential market and in Q2 it recorded 19,000 retrofit sales, whereas new home customers totalled 34,000. A slow-down in the US housing market could scupper growth plans, but rising energy costs at the same time appear to be an increasingly important factor for homeowners, many of whom will be considering a switch to solar.

SunPower Corp – Daily Price Chart – 2020 – 2022 – Breakout Pattern

sunpower corp daily chart 2022 breakout pattern

Source: IG

There is also support for a decision to buy SunPower from a technical analysis perspective. There is strong base-line support in the region of the $13.70 price level, which marks the low of May 2022. Another bullish indicator is the break of the long-term downwards trendline, which dates back to February 2021. Going all-in in solar stocks might not be recommended, but now could be the time to allocate a percentage of your capital to one of Q2’s earnings season winners.

Q2 Earnings Report Beat – Walmart (WMT)

Retail giant Walmart Inc saw its share price pop after it posted impressive earnings figures on 16th August. It might not have been one of the biggest earnings season winners, but its position as a bellwether of the economy means its outperformance will be broadly welcomed by the markets.

In 2022, it has been a tough year for stocks and Walmart was, in mid-July, showing a year-on-year loss of more than 16%. Confirmation in July that the US had entered a recession makes Walmart’s ability to prosper even more remarkable.

Adjusted EPS for WMT stock was $1.77, which was $0.15 higher than consensus estimates. Top line revenue also beat analyst expectations by about $2bn, with that figure coming in at $152.9bn. Same-store sales also showed growth and beat estimates. In the US they added 6.5% in revenue, which beat the estimate of 5.9%.

Some caution should be applied to the Walmart earnings beat due to the company reducing guidance in the run-up to the announcement. But the resilience the firm has shown in difficult circumstances is a reason to be bullish on Walmart stock. There are few retailers managing to show the same strength and investing in the Consumer Staples sector is one recognised way of how to trade stocks in a recession.

Walmart Inc – Daily Price Chart – 2021 – 2022 – Price Consolidation and Bounce

walmart inc daily price chart 2022 price consolidation and bounce

Source: IG

Investing in Walmart is very much about creating a well-diversified portfolio. The dividend yield of 1.6% represents a way to tap into passive income from a firm with a proven track record of being able to navigate economic ups and downs. Any short-term weakness in the WMT share price represents a buying opportunity in a stock with a P/E ratio of 21.8 and strong technical support in the region of $119.

Walmart Inc – Daily Price Chart – 2021 – 2022 – Technical Support

walmart inc daily price chart 2022 technical support

Source: IG

Q2 Earnings Report Beats – Tesla Motors Inc (TSLA)

TEV manufacturer Tesla has posted its sixth successive earnings beat. The failed buyout of Twitter appears to have done little to dampen the enthusiasm Elon Musk has for his EV firm. The impressive figures in the Q2 announcement point towards the firm beginning to be able to convert its high profile into bottom-line profits.

The headline EPS figure for Tesla released on 20th July 2022 didn’t disappoint the army of retail investors who have already backed the stock. Adjusted EPS came in at $2.27, which blew away the $1.81 consensus of analysts polled by Refinitiv. Headline revenue of $16.93bn missed the analysts forecast of $17.1bn, but a lot of the good news, which explained the 5% rally in TSLA stock, was found in the detail of the report.

The lead time on new orders was stable, despite the EV manufacturer raising prices on its models by between 25–30% earlier in the year. That sticky demand for Tesla-branded cars helped answer the key question of how the firm will manage to compete with the influx of Tesla competitors. This news comes at an opportune time. The firm is seemingly able to shift its stock easily, and that bodes well for the firm after management, in their guidance for the rest of the year, repeated their aim of 50% year-on-year growth in vehicle deliveries.

Tesla Inc – Daily Price Chart – 2022 – Earnings Beat and Stock Price Bounce

tesla inc daily chart 2022 earnings beat and stock price bounce

Source: IG

Supply-side problems and an increase in the price of Lithium has weighed on Tesla stock through the first half of 2022. Before the earnings announcement, it was down more than 34% on a year-to-date basis. But signs that the management team is focussing on its day job extend to the decision to sell 75% of its Bitcoin holding, which released $1bn in cash.

Why Do So Many Firms Post Earnings Beats?

One feature of earnings season that new investors soon pick up on is that there tends to be a distinct impression that lots of stocks are posting ‘beats’. This is backed up by the statistic that over a five-year average, 77% of firms in the S&P 500 stock index beat consensus EPS forecasts of analysts. During the earnings season of Q2 2022, that number slipped to 68%, which reflects the economic headwinds facing businesses but is still some way above the possibly expected 50% level.

The natural bias towards forecasts being lower than actual readings can be partly put down to analysts wanting to protect their professional reputation and not wanting to disappoint their clients. There is also the self-interest of firms to consider. The ‘guidance’ they offer in the build-up to the official announcement can encourage analysts to downgrade their forecasts. For both parties, there is some benefit in a reporting firm being able to clear the bar, even if it is unrealistically low.

Historical data on the size of beats posted by earnings season winners offers another insight into how a stock price might react to an announcement. While the Q2 ratio of beats is in line with historical trends, 2022 has been a year when the size of the overshoot is relatively small. During the Q1 earnings season, companies reported earnings that were on average 4.9% above estimates, which is below the five-year average of 8.9%.

Why Firms React Differently To Earnings Beats

When trying to calculate how a stock might react to its earnings announcement, it’s also worth factoring in its existing shareholder base. Some stocks have a higher degree of ‘sticky’ investors who are less likely to react to one quarter of bad or good news. This results in their stock price reaction being smaller than a stock that is popular with ‘hot-money’ speculators.

The rapid price surge by SunPower reflects that the solar sector is a natural home for day-traders who are looking to scale up on risk-return. They can be expected to rotate from one stock into another in an effort to make a quick turn. Walmart’s stock did bounce on the back of its own good news, but nothing like the extent SPWR did, which reflects a greater number of buy-and-hold investors already having positions in the grocery chain.

If your trading strategy leans towards sensible investing, then buying stocks with sticky ownership can take some of the noise out of trading, particularly during earnings season. Historical data of stocks in the S&P 500 index shows that the stickiest names, such as Johnson & Johnson, which also beat its Q2 earnings, tend to rise by only 0.5% whereas the average for the index is 0.7%. The other side of the coin is that the share price of the same firms reacts to a lesser extent when there is an earnings miss. When that happens, the average price fall for the index is 2.3%, but sticky stocks on average only fall by 1.4%.

Navigating earnings season with an eye on risk management can involve taking positions in these other stocks, which have a high percentage of their free float owned by retail and passive fund managers. Apple Inc tops the list with more than its stock owned by sticking investors (passive funds 20%, retail 41%), followed by Amazon (passive 17%, retail 40%), Ford (passive 22%, retail 47%), and Exxon Mobil (passive 24%, retail 43%).

Final Thoughts

Earnings season can open up trading opportunities for all types of traders. Whether you’re a long-term investor, day-trader, or a complete beginner, the noise and excitement in the market at quarter end can create price moves to suit every type of trading strategy.

Whatever your investment aims, one golden rule to follow is to ensure your broker is reliable. This shortlist of trusted brokers includes firms that have been reviewed by the AskTraders team to ensure they offer the T&Cs and client support needed to tilt the odds in your favour. There’s never a bad time to start trading the market and making your cash work harder for you, but if you pick an earnings season winner, you could be off to the best possible start.

justin freeman
Justin is an active trader with more than 20-years of industry experience. He has worked at big banks and hedge funds including Citigroup, D. E. Shaw and Millennium Capital Management.