Earnings playbook: How to trade some of the biggest reports this week, including Apple

Published Mon, Jul 31 202312:32 PM EDTUpdated Mon, Jul 31 20232:02 PM EDT

This could be a make-or-break week for second-quarter earnings season. When all is said and done, about 160 S & P 500 companies will have reported their latest quarterly results — making this the busiest week of the entire reporting period. Through Monday's open, more than 250 names had already reported, with 81% exceeding analyst expectations, according to FactSet. There have been some high-profile earnings beats thus far. Netflix on July 19 posted a better-than-expected profit, driven in part by higher subscriptions and its crackdown on password sharing. Other names haven't fared as well, however, including Goldman Sachs, which posted weaker-than-expected earnings . Now take a look at some of the key companies scheduled to release their results this week, including Merck and Apple, and what to expect from them. Tuesday Merck is set to report earnings before the bell, followed by a call at 8 a.m. between analysts and management. Last quarter: MRK earnings topped estimates even after a sharp decline in Covid antiviral treatment sales . This quarter: Analysts polled by FactSet expect Merck to post a loss for the first quarter. What CNBC health reporter Annika Kim Constantino is watching: "Merck has been under pressure to reduce its dependence on its blockbuster antibody cancer treatment Keytruda, which is slated to lose patent protection in 2028. The medicine will likely continue to show robust growth in the second quarter, but investors are eager for strategic updates on several experimental drugs that could cushion Keytruda's patent cliff if they gain approval. Investors will also be looking for signs about whether Merck's M & A spree will continue through 2023. Analysts note that the company's $10.3 billion acquisition of Prometheus Biosciences will be reflected in research and development costs during the second quarter. During the conference call, executives will likely be asked about the company's lawsuit seeking to halt Medicare drug price negotiations, a key provision of President Joe Biden's Inflation Reduction Act. That policy can't be shrugged off since it will likely curb pharmaceutical industry profits in the long run." What history shows: Merck beats earnings expectations 75% of the time, according to Bespoke Investment Group. However, the stock is typically flat on earnings day. Starbucks is set to report earnings after the bell, with management slated to hold a call at 5 p.m. ET. Last quarter: SBUX posted an earnings beat as same-store sales reversed in China . This quarter: Analysts expect the coffee chain to report double-digit earnings growth from the year-earlier period, according to FactSet. What CNBC is watching: Starbucks shares have lagged the broader market this year, rising just 2.1%. But the upcoming quarterly report could show signs of a turnaround, according to Bank of America's Sara Senatore. "Daily subway rides were up +128% in 2Q23, returning to 2019 levels and suggesting that mobility has largely normalized post-Covid," Senatore said, pointing to mass transit use in New York as an example of higher street traffic. What history shows: Starbucks beats earnings expectations just 54% of the time, according to Bespoke. However, the stock averages a gain of 0.5% after the company posts results. Pfizer is set to report earnings before the open. Management is slated to hold a conference call at 10 a.m. ET. Last quarter: Despite a decline in Covid vaccine sales, PFE earnings and revenue topped analyst estimates . This quarter: Analysts forecast a steep year-over-year earnings drop for the pharmaceutical giant, FactSet data shows. What CNBC health reporter Annika Kim Constantino is watching: "The company is working to pivot away from its blockbuster Covid products as demand wanes. Some analysts expect Covid vaccine and treatment sales to drop to their lowest during the second quarter as governments worldwide pull back on contracted deliveries of those products. The conference call on Tuesday will likely provide an update on several near-term drug launches, which CEO Albert Bourla has said will help grow non-Covid revenues 'at a faster rate' during the second half of the year. Executives are likely to face questions about Pfizer's RSV vaccine and updated Covid shot — both of which are slated to roll out during the third quarter. They're also likely to be asked about the tornado that hit Pfizer's major plant in Carolina after the company told hospitals last week that more than 30 drugs may see new supply disruptions due to the damage." What history shows: Pfizer exceeds earnings expectations 87% of the time, Per Bespoke. However, the data also shows Pfizer shares fall by an average of 0.32% on earnings day. Thursday Amazon is set to report earnings after the bell, with management scheduled to hold a call with analysts at 5:30 p.m. ET. Last quarter: AMZN posted first-quarter sales that beat expectations, but the company also issued guidance pointing toward weakness in its cloud business . This quarter: Analysts polled by FactSet expect double-digit earnings growth quarter over quarter. What CNBC tech reporter Annie Palmer is watching: "Investors will be focusing on whether Amazon's cloud unit can return to the rapid growth they've become accustomed to. In April, revenue from Amazon Web Services expanded 16%, which was slightly higher than analysts had projected, but a slowdown from the fourth quarter, when AWS sales grew 20%. For the current quarter, analysts surveyed by FactSet are looking for AWS revenue to grow just 10%. Expect Wall Street to press Amazon leadership on the conference call about when they see cloud growth reaccelerating. Other topics that will be in focus are Amazon's plans around AI, whether retail margins are improving, and the company's progress on rolling out one- and same-day delivery." What history shows: Bespoke data shows Amazon earnings exceed earnings expectations 62% of the time. The stock also rises an average of 0.69% after the results are released. Apple is set to report earnings after the close, followed by a call at 5 p.m. ET. Last quarter: AAPL's better-than-expected results were driven by strong iPhone sales . This quarter: On a year-over-year basis, the iMac maker is expected to report a small earnings decline, according to FactSet. What CNBC is watching: Apple shares have been on a monster run this year, popping 50% through Friday's close. But can the stock keep that momentum? Morgan Stanley analyst Erik Woodring thinks the tech giant will exceed estimates when it reports earnings. "IDC disclosed that Apple shipped 42.5M iPhones in the June quarter, down 6% Y/Y. We currently forecast 40.5M iPhone shipments in the June quarter, meaning IDC is pointing to 5% upside vs. our shipment forecast. If we flow the incremental 2M unit upside through our model, we land at $38.8B of iPhone revenue vs. our current $37.0B forecast," he said in a note. What history shows: Data compiled by Bespoke shows Apple beats earnings estimates 89% of the time. The stock also averages a 1.37% gain on earnings day. Correction: Pfizer reports its second-quarter earnings before the bell on Tuesday. An earlier version mislabeled the day. — CNBC's Michael Bloom contributed reporting.