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Deep Dive: Which tech stock is best? Here’s how the ‘big five’ companies stack up as they report earnings

January 28
03:52 2020

The five biggest U.S. tech companies will report their quarterly results over the next week.

The group, led by Apple AAPL, -2.94%, has propelled the stock market over the past year. Let’s see how some of their numbers compare heading into Tuesday, when Apple kicks off the round of earnings reports.

Sales and earnings

Rather than focus on quarterly “earnings beats,” here are annual sales and earnings-per-share estimates for calendar 2020 and 2019 (since not all have fiscal years that end Dec. 31).

Tables in this article are sorted by the companies’ market capitalization, with Alphabet’s being the sum of the market values for its Class A GOOGL, -2.35%  and Class C GOOG, -2.24%  shares. Together, these stocks have a combined market cap of $ 5.05 trillion, or 18% of the S&P 500 Index SPX, -1.57%.

Earnings per share for Alphabet’s Class A and Class C are the same, but Class A shares have voting rights, while Class C shares don’t, so the Class A shares trade at a slight premium. The Class B shares aren’t publicly traded, and have 10 votes apiece, where the Class A shares each have one vote. If the class B shares are added in, Alphabet is still the third-largest company among the S&P 500, with a combined market value of $ 1.01 trillion, according to FactSet.

The sales estimates for 2019 are impressive across the board, except for Apple, which suffered a decline in iPhone sales stemming from the U.S.-China trade conflict. Looking ahead to calendar 2020, analysts expect double-digit EPS growth for all.

Microsoft MSFT, -1.67%  is expected to post the strongest earnings growth for calendar 2019. In 2020, Facebook FB, -1.41%  and Amazon.com AMZN, -1.79%  are expected to continue posting the best revenue growth among the “big five.”

Here are quarterly previews for Apple, Microsoft and Facebook.

Profit margins

A company’s gross profit margin is its sales, less the cost of goods sold, divided by sales. It doesn’t reflect overhead or extraordinary expenses. However, it gives an indication of the direction of a company’s pricing power for its products and services. A narrowing gross margin may not indicate a problem if it isn’t prolonged. An expanding margin, while sales are growing, is always a good sign.

Here are gross margins for the big five for the third quarter of calendar 2019, as well as for the past 12 reported months through that quarter:

Only Microsoft improved gross margins for the past 12 reported months and the most recent reported quarter.

Forward P/E ratios

Here are price-to-earnings ratios for the big five, based on consensus earnings estimates for the next 12 months among analysts polled by FactSet. Total returns (with dividends reinvested) for the past 12 months are also shown:

CompanyTickerTotal return – one year through Jan. 24Forward P/E ratioForward P/E ratio – year ago
Apple Inc. AAPL, -2.94% 112%23.812.6
Microsoft Corp. MSFT, -1.67% 58%29.522.9
Alphabet Inc. Class A GOOGL, -2.35% 35%27.324.2
Alphabet Inc. Class C GOOG, -2.24% 37%27.324.0
Amazon.com Inc. AMZN, -1.79% 12%79.769.8
Facebook Inc. Class A FB, -1.41% 49%24.219.8
S&P 500 Index SPX, -1.57% 27%18.515.5
Source: FactSet

That’s a massive return for Apple over the past year, and a consequential increase in the stock’s P/E valuation that has taken it out of the S&P 500 Value Index.

Keep in mind that Apple’s stock has tended to pull back after massive increases, before resuming its long-term upward climb. Here’s a split-adjusted 10-year chart through Jan. 24:

Apple’s long-term upward climb has come in cycles, including large pullbacks.

Wall Street’s opinion

Here’s a summary of sell-side analysts’ ratings and price targets for the big five:

CompanyTickerShare ‘buy’ ratingsShare neutral ratingsShare ‘sell’ ratingsClosing price – Jan. 24Consensus price targetImplied 12-month upside potential
Apple Inc. AAPL, -2.94% 58%28%14%$ 318.31$ 296.22-7%
Microsoft Corp. MSFT, -1.67% 91%9%0%$ 165.04$ 176.437%
Alphabet Inc. Class A GOOGL, -2.35% 89%11%0%$ 1,466.17$ 1,533.115%
Alphabet Inc. Class C GOOG, -2.24% 89%11%0%$ 1,466.71$ 1,533.885%
Amazon.com Inc. AMZN, -1.79% 94%6%0%$ 1,861.64$ 2,196.2718%
Facebook Inc. FB, -1.41% 88%8%4%$ 217.94$ 246.8113%
Source: FactSet

You can click on the tickers for more about each company.

Don’t miss: This money manager says growth stocks are still your best play, and he has the math to back it up

Create an email alert for Philip van Doorn’s Deep Dive columns here.

Philip van Doorn covers various investment and industry topics. He has previously worked as a senior analyst at TheStreet.com. He also has experience in community banking and as a credit analyst at the Federal Home Loan Bank of New York.

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