Chief Investment Strategist
Summary: The upcoming week promises a packed schedule of earnings releases, with companies across various sectors in Europe and the US reporting their Q4 results. Caterpillar, the world's leading machinery equipment company, might encounter headwinds in 2024 due to rising interest rates impacting the construction industry. Their earnings report could offer valuable insights into broader economic trends. Eli Lilly, on the other hand, is capitalizing on the boom in obesity drugs with their GLP-1 medication Zepbound. Investors will be particularly interested in their future revenue guidance for this drug, especially compared to competitor Novo Nordisk. Siemens' upcoming report will reveal if the global industrial sector is showing signs of recovery. Wage pressures could temporarily affect their operating margin, but overall growth figures are crucial for investor confidence.
Last week, US technology companies stole the show on earnings with generally strong results to show, while this week will keep the pace on earnings but from a wider range of companies in both Europe and the US. While Q4 earnings have overall been strong and in particular in the technology and communication services sectors, stocks have rallied much more the past six months than earnings have improved. This has expanded our valuation measure on the MSCI World Index (see chart below) which means that expectations might be running a bit too high setting the bar too high for companies in the Q1 earnings season which starts in mid-April.
The list below highlights the most important earnings to track this week for equity investors, and our key focus is in particular on earnings from Caterpillar, Eli Lilly, and Siemens.
Caterpillar: Headwinds to materialize in 2024 on impact from higher interest rates
Caterpillar reports Q4 earnings today at 11:30 GMT with analysts expecting revenue of $16.5bn flat compared to a year ago, and EBITDA of $3.6bn up from $3.4bn a year ago. The world’s largest machinery equipment company is likely facing a transition year in 2024 as the impact from higher interest rates is finally hitting the global construction industry with orders and the backlog expected to decline in 2024. So why is it worth to watch Caterpillar earnings? The reason is that global construction and mining are important cyclical parts of the economy and any pickup will be seen in Caterpillar’s orders and thus the company’s outlook gives clues to economic growth.
Eli Lilly: Riding the wave in obesity drug boom
Eli Lilly reports Q4 earnings tomorrow before the US market open with analysts expecting revenue of $9bn up 23% y/y and EBITDA of $2.5bn unchanged from a year ago. While Mounjaro, the GLP-1 approved for treating diabetes, will dominate the figures for Eli Lilly, investors will focus on Zepbound, the GLP-1 drug approved for obesity treatment, because this is where the future growth will come from. Especially, guidance on Zepbound revenue for 2024 will be key for investors in order to compare equity valuations against that of Novo Nordisk which is so far leading the initial growth wave in obesity drugs. Analysts expect FY24 revenue growth of 17% for Eli Lilly and 22% for Novo Nordisk.
Siemens: Is the global industrial sector turning a corner?
Siemens reports FY24 Q1 (ending 31 Dec) earnings on Thursday before the market open in Europe with analysts expecting revenue €18.8bn up 4% y/y and EBITDA of €3.2bn unchanged compared to a year ago. The key question for investors is whether the headwinds in orders and destocking ended in the previous fiscal quarter and the quarters ahead would see improving growth figures. Siemens’ operating margin may also be under pressure for some quarter due to wage pressures until productivity initiatives flow through the business group.
Since the pandemic broke out impacting global supply chains and commodity markets for the key materials used in wind turbines the wind turbine industry has been plagued by lower growth compared to the growth years 2012-2019. Higher project installation costs have negatively impacted the competitiveness of wind power relative to solar. Recently the lower natural gas prices in the US, and less so in Europe, have further eroded the competitiveness in the short-term. Last year, Siemens Energy also revealed design errors on its newest onshore turbine models which further painted a picture of an industry in a deep crisis. Finally, cheaper Chinese manufacturers are pressuring wind turbine manufacturers in the US and Europe, and industrial policies of slapping tariffs on imported Chinese turbines might come in the future.
On Wednesday, the three giants in the wind industry, Siemens Energy, Vestas, and Orsted, will report earnings and while sentiment has shifted for the better for Siemens Energy and Vestas, investors are super nervous about Orsted’s results and especially business outlook. For investors interested in renewable energy earnings releases from these three companies are a must watch.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
