But the long-term return over 10 years on these stocks is expected to exceed that of the overall equity market

By Peter Garnry, Head of Equity Strategy at Saxo

The cyber security industry is still growing fast with revenue up 26% from a year ago, but this week's earnings releases from cyber security firms have been an ugly affair with the outlook disappointing.

A nasty week for cyber security stocks as earnings focus fades

The past week has been brutal for cyber security stocks, one of our most popular equity theme baskets, down 11% despite Q3 earnings hitting estimates and maybe a slight hint of growth slowing. Our cyber security basket is down 38% from the peak compared to only 22.5% for the MSCI World as higher equity valuations have made cyber security stocks more vulnerable to higher interest rates.

However, since 2015 the returns on cyber security stocks have still been much better and we expect the long-term return over 10 years to exceed that of the overall equity market. Our expectation is based on high demand for cyber security services and products amid the ongoing war in Ukraine and rising geopolitical tensions.

The Q3 earnings season has been bad relative to expectations with S&P 500 earnings missing estimates (see chart) as margin pressures have been more intense than expected by analysts offsetting the higher revenue growth. The most intense margin pressure has been observed in industries such as media & entertainment, banks, utilities, semiconductors, and real estate, while industries such as energy, insurance, transportation, retailing, and software have all maintained or expanded their operating margin.

Next week’s earnings releases

The Q3 earnings season is shifting into a lower gear now but next week will still offer plenty of interesting earnings releases. On Monday our focus is Activision Blizzard which is struggling with negative top line growth like the rest of the gaming industry as the pandemic boom is over. Analysts are expecting revenue growth of -17% y/y and EPS of $0.50 down 39% y/y. Walt Disney is next week’s biggest earnings release scheduled on Tuesday with analysts expecting Q4 (ending 30 September) revenue growth of 15% y/y but EBITDA at $3bn down from $3.86bn in Q3 highlighting the ongoing margin pressure. Adidas , reporting on Wednesday, is also key due to its size in consumer goods but also because of its costly partnership breakup with Ye; analysts estimate revenue growth up 13% y/y but EPS at €1.24 down 47% y/y due to one-off items. On Thursday, we will focus on ArcelorMittal , because Europe’s largest steelmaker is an important macro driver, and analysts are getting increasingly negative on the steel industry expecting ArcelorMittal to announce a 14% drop in Q3 revenue and 66% drop in EPS. The week ends with Richemont expected to see revenue growth coming down fast to just 7% y/y in Q3.

Monday: Westpac Banking, Coloplast , Ryanair , Activision Blizzard , BioNTech, Palantir Technologies, SolarEdge Technologies
Tuesday: Bayer , Deutsche Post , KE Holdings, Nintendo, Walt Disney , Occidental Petroleum , Lucid Group, DuPont
Wednesday: National Australia Bank, KBC Group, Genmab , Siemens Healthineers , E.ON , Adidas , Honda Motor, Coupang, Rivian Automotive, Roblox, D. R. Horton , Trade Desk
Thursday: Brookfield Asset Management, Fortum , Engie , Credit Agricole , Allianz , Merck KGaA , Hapag-Lloyd , RWE , SMIC, Nexi, AstraZeneca, ArcelorMittal , Siemens Gamesa Renewable Energy, Becton Dickinson , NIO
Friday: Richemont