The stock market has gotten off to a strong start early in 2021, with the S&P 500 index climbing roughly 2.8% so far and the Nasdaq Composite index up roughly 5.2% in the year's trading. Strong performance for tech companies has continued to play an outsize role in shaping the market's run, and leading industry players are under the microscope as we head into the thick of earnings season.
Read on for a look at three technology companies that are set to report earnings before the month is over and look primed to deliver wins for shareholders.
1. Microsoft
Microsoft's (MSFT -2.45%) pivot to a subscription and cloud-focused model has been a huge success, and the business looks poised for more wins. While some of the company's operating units face challenges due to the pandemic, others benefited from elevated demand. The company is scheduled to report second-quarter earnings on Jan. 26, and there's a good chance it will post another period of encouraging results.
Image source: Getty Images.
Management is guiding for second-quarter sales to come in between $39.5 billion and $40.4 billion, representing growth of roughly 8% year over year at the midpoint. This guidance underwhelmed the market when it was issued back in October. But evidence of continued tailwinds for companies that are at the heart of enabling businesses' digital transformations points to Microsoft topping its estimate.
The company's Office software is performing well under the subscription model, and its Azure cloud computing service is still posting impressive momentum. Azure revenue grew 48% year over year last quarter, and Microsoft's upcoming quarterly report will likely show another strong quarter for the cloud computing unit.
Execution under CEO Satya Nadella has generally been top-notch, and Microsoft still has room for growth in consumer software, cloud services, and artificial intelligence. This tech leader also pays a dividend. The stock's yield may look small at roughly 1%, but the company has boosted its payout by 250% over the last decade.
Shareholders of record at the start of trading on Feb. 18 will qualify for a dividend paid on March 11, and the company will likely continue to deliver payout and earnings growth that help push its share price higher.
2. AT&T
AT&T (T -1.37%) occupies a leadership position in the telecommunications industry and has great assets that could power future performance, but it's not hard to see why the stock has posted disappointing performance in recent years. Painful subscriber losses at DIRECTV have made it clear that the telecom giant significantly overpaid for its satellite television business, and the company's massive growth bet on Time Warner has also been hamstrung by pandemic-related conditions.
In addition to pandemic challenges, the telecom's turnaround has been hindered by confused execution on some fronts. Supporting a wide range of poorly differentiated streaming services resulted in the company falling behind in the streaming space, and the rollout for its HBO Max service has been underwhelming. The upside is that there's still a lot to like about the company's core strengths in communications services and content, and shares continue to trade at attractive levels.
AT&T is priced at roughly 9.2 times this year's expected earnings and pays a dividend that yields 7.1%. This is a company that trades at conservative earnings multiples, pays a big dividend, and has growth avenues that could top expectations. It will report quarterly earnings on Jan. 27, and investors may get more insight about whether the company will divest DIRECTV.
AT&T's missteps in satellite television are well documented at this point, but the company is at the outset of seeing benefits from the expansion of 5G technologies. Its entertainment resources also remain underappreciated.
Expecting the company to replicate what Disney has achieved with its Disney+ streaming service may not be realistic in the short term, but unfolding opportunities in streaming and 5G mean that AT&T stock still offers attractive upside.
3. Amazon
Last quarter was a blockbuster for Amazon (AMZN -1.65%). Coronavirus-related conditions helped drive surging demand for the company's e-commerce and cloud computing services, and total revenue climbed 37% year over year in the period. The company's earnings per share surged 192% compared to the prior-year period to reach $12.37, and it's fair to say that the business has never looked stronger.
Now, the company is preparing to release its fourth-quarter results on Jan. 28, and many investors and analysts will be taking a close look at the e-commerce and technology bellwether's business update. Amazon is guiding for another strong performance in the fourth quarter, targeting revenue growth between 28% and 38%.
Operating income for the quarter is projected to be between $1 billion and $4.5 billion after factoring in roughly $4 billion in adverse impacts from the coronavirus pandemic, while operating income for the prior-year period came in at $4 billion. The potential for unexpected expenses and growth investments makes the operating-income picture more difficult to predict, but there's a good chance that the company's sales for the period will come in at the top of management's guidance.
Amazon's e-commerce and cloud computing businesses are firing on all cylinders, and its digital advertising is also picking up steam and becoming a meaningful performance catalyst. Amazon has been on an incredible hot streak and shown that it's better at innovating on a large scale than just about any other company under the sun, and it looks like the growth story is just getting started.
