The Week Ahead: Delta, Johnson & Johnson, and Morgan Stanley Among Companies to Kick Off Third-Quarter Earnings

Following the conclusion of the third quarter, we are looking forward to a strong start of another earnings season with reports on Tuesday from Delta Air Lines DAL and Johnson & Johnson JNJ as well as a report from Morgan Stanley MS on Thursday. While every industry felt the fury of the pandemic’s wrath, airlines have suffered some of the sharpest declines in history. Airport traffic has slowly increased, and we anticipate more consumers will be comfortable flying again once a coronavirus vaccine is available. Our near-term outlook for Delta remains gloomy, but we expect the airline to recover from the coronavirus. With its product segmentation and credit card partnerships, we see Delta as the highest-quality legacy carrier and believe the company has the potential to expand its higher-margin business after the pandemic. However, we think the airline will still feel the pressure from its lower-cost competitors in the leisure business. President Donald Trump’s updates to the administration’s healthcare policy have increased uncertainty surrounding the drug industry. The updates include new drug benefit cards for seniors, executive orders supporting insurance protection for pre-existing conditions, and increased clarity around medical billing. We predict that implementing these updates could be challenging, but we don’t plan on making monumental adjustments to our fair value estimates and Morningstar Economic Moat Ratings for the drug manufacturers we cover, including Johnson & Johnson. This past week, narrow-moat Morgan Stanley acquired narrow-moat Eaton Vance in a $7 billion deal. The two firms complement each other and have less overlap in products, and we think this is a strategic deal for the bank that could lead to meaningful revenue synergies. We also have an eye out for financial giants Citigroup C, JPMorgan Chase JPM, and BlackRock BLK to report earnings on Tuesday, followed by Wells Fargo WFC and Bank of America BAC on Wednesday. In the healthcare sector, we expect an earnings report from UnitedHealth Group UNH on Wednesday.