This has been a huge week for investors in the Magnificent Seven, with five of the world’s seven largest companies releasing reports.
We received Tesla’s (TSLA) earnings last week, with analyst Seth Goldstein explaining the reasons behind the economic slowdown concerns and how that will affect the company’s short- and long-term profits. I explained what could be given. He recommended waiting until the stock price provides a solid margin of safety before considering entry points. That’s even after the recent decline in stock prices.
While not joining the Magnificent Seven, Netflix (NFLX) also reported fourth-quarter results last week. To complete our list of top stocks, we’ll have to wait another month until Nvidia (NVDA) releases its earnings at the end of February.
(The Magnificent Seven includes Tesla, Meta, Alphabet, Amazon, Apple, Microsoft, and Nvidia.)
Of the stocks announced this week, investors were more excited about some than others. Here’s what happened and which companies lived up to expectations.
Epic 7 Stocks – Full Earnings
Meta – Dividend declared and fair value raised
Morningstar Meta Key Indicators
Fair value estimate: $400.00
Morningstar Rating: 3 stars
Morningstar Economic Moat Rating: Wide
Morningstar Uncertainty Rating: High
On Thursday, as U.S. markets closed, three major companies withdrew their fourth-quarter earnings reports, and one of the highlights was META. The owner of Facebook, Instagram and WhatsApp paid out a dividend for the first time in conjunction with share buybacks, a move praised by our analyst Ali Mogharabi. Total revenue for the quarter was $40 billion, up 25% from last year, driven by both advertising revenue (up 24%) and Reality Labs (up 54%). This was supported by strong holiday sales for the Quest 2 and Quest 3 VR headsets. . Operating profit margin expanded to 41% from 20% in the previous year.
The stock is up 16% in pre-market trading, exceeding the company’s new fair value estimate.
After considering the results, Morningstar became more optimistic about Meta’s margin expansion and raised its fair value from $322 to $400. However, Mogarabi believes his stock is still overvalued.
“We expect Meta’s advertising growth in 2024 to likely benefit from ease of comparability and political ad spending, but to slow from 2025 to 2028 as economic growth slows.” Online Users Traditional drivers of growth in digital ad spending, such as mobile and mobile expansion, are less influential. Innovations like artificial intelligence have the potential to improve advertising effectiveness and efficiency, but they are We don’t think it will accelerate significantly.”
Amazon.co.jp – Retail profits are strong
Amazon’s Morningstar Key Metrics
Fair value estimate: $185.00
Morningstar Rating: 3 stars
Morningstar Economic Moat Rating: Wide
Morningstar Uncertainty Rating: High
Widemoat Amazon (AMZN) reported strong fourth-quarter results, but gave a mixed outlook compared to Morningstar’s expectations, including improved inline revenue and profitability. Profitability was excellent, with operating income of $13.2 billion versus the high end of guidance of $12.0 billion, resulting in an operating margin of 7.8% (1.8% a year ago), at least the best fourth quarter on record. was recorded. 10 years. Retail profitability is stronger than expected, and Morningstar sees positive developments on the demand side in areas such as Amazon Web Services and advertising. But while margins were strong across the segment, Morningstar analyst Dan Romanoff believes there is still room for further improvement.
The results appear to have been well-received by investors, with stock prices soaring in pre-market trading.
After reviewing the fourth-quarter numbers, Romanoff raised its fair value estimate for Amazon to $185 from $155. This is primarily based on a 160 basis point increase in operating margin guidance for 2024 and similar margin expansion in the coming years. Compared to Morningstar’s model, similar to last quarter, online stores, third-party seller services (3P), and advertising drove most of the upside. Subscription services led the way, with AWS and others in line, and physical stores were slightly below Morningstar’s expectations.
Apple’s earnings – iPhone sales stagnate
Apple’s Morningstar Key Indicators
Fair value estimate: $160.00
Morningstar Rating: 2 stars
Morningstar Economic Moat Rating: Wide
Morningstar Uncertainty Rating: Medium
Apple (AAPL) is the only company reporting this week where analysts maintained the same fair value estimate. Analyst William Kerwin said this was due to lower near-term earnings forecasts commensurate with higher expectations for profitability. Sales in the December quarter rose 2% year over year to $119.6 billion. Growth was driven by iPhone and Apple services, up 6% and 11% year over year, respectively. The company’s wearables division was down 11% year over year, likely due to patent issues with Apple’s Watch lineup that caused its newest products to temporarily disappear from shelves during the quarter.
Apple shares fell about 3% following the results, likely due to poor performance in China and lower expectations for the iPhone, but Morningstar continues to view the stock as overvalued.
The headwinds in China are the result of longer personal device replacement cycles (i.e. when people trade in their old smartphones) and more aggressive domestic substitution, Kerwin said. He also said that while Apple’s December quarter iPhone sales and gross profit margins were better than expected, he still believes this year’s iPhone adoption cycle will be gradual, which is why he has made a modest change to his fiscal 2024 iPhone sales forecast. The company has revised the forecast downward to reflect a decline. However, its gross margin of 45.9% is impressive, driven by record gross margins on both products and services.
Microsoft’s earnings – AI steals the show
Alphabet Morningstar Key Indicators
Fair value estimate: $420.00
Morningstar Rating: 3 stars
Morningstar Economic Moat Rating: Wide
Morningstar Uncertainty Rating: Medium
Microsoft (MSFT) announced its financial results after the market closed on Tuesday, with results exceeding expectations across the board. Artificial intelligence was once again the star of the show, according to Microsoft, which contributed 600 basis points to the growth of its cloud business Azure (double his in the previous quarter). In the December quarter, the company posted revenue of $62 billion, an 18% increase from the same period last year. Productivity and business processes increased by 13%, intelligent cloud by 20%, and personal computing by 19%.
Despite this, the company’s stock price fell as investors expected. flat You will get better results.
After the earnings, Morningstar equity analyst Dan Romanoff raised the company’s fair value to $420 from $370, calling the outlook encouraging. ” he says. Morningstar also raised its revenue growth and profit margin estimates for the next five years by about 1 percentage point each. Despite this increase, Romanoff still thinks the stock is a good value.
Read Dan Romanoff’s full story in this article.
Alphabet’s Revenue – Google, YouTube Growth
Alphabet Morningstar Key Indicators
Fair value estimate: $171.00
Morningstar Rating: 3 stars
Morningstar Economic Moat Rating: Wide
Morningstar Uncertainty Rating: High
Alphabet (GOOGL) also reported a decline in its fourth quarter results on Tuesday. Google’s parent company reported total revenue of $86.3 billion in the fourth quarter, an increase of more than 13% year over year. ‘Network effects’ were the big winners, driving his Google Search and YouTube’s continued growth in Q4. And increased demand for artificial intelligence has accelerated cloud revenue growth. However, continued weakness in Google’s advertising technology business, or Google Network, put some pressure on overall advertising growth.
Alphabet’s stock price fell following the results.
Morningstar equity analyst Ali Mogharabi said accelerating cloud revenue growth, further monetization of YouTube, and continued steady growth in search could more than offset the impact of the network segment’s revenue decline. Morningstar said it has revised upward its earnings forecast for Alphabet because of the high The model adjustments result in a fair value estimate of $161 to $171.
Read Ali Mogharabi’s review of Alphabet.