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  • GOLDMAN: Halfway Through Earnings Season, Here's How Corporate America Is Looking (SPX, SPY, DIA, DJI, QQQ)

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  • Business Insider
    The S&P 500 is trading at all-time highs.
    And halfway through third quarter earnings reporting season, it looks like the underlying fundamentals — earnings per share — are set to post new records as well.
    "At $26.85, 3Q 2013 EPS is on track to establish a new quarterly and trailing four-quarter high," says Goldman Sachs strategist Amanda Sneider. "Trailing four-quarter EPS totals $102.13. Despite more sales misses than usual, aggregate sales results are in line with expectations."
    Sneider outlines the three biggest takeaways from Q3 earnings reporting so far in a note to clients: "(1) 3Q earnings positively surprise, driven by Financials and higher than expected margins; (2) Revenues have been in line with expectations and trailing four-quarter margins remain stable despite positive surprises in 3Q; (3) Negative revisions to 4Q EPS estimates."
    Consensus S&P 500 earnings estimates by quarterThe chart at right shows that while consensus fourth-quarter estimates among Wall Street analysts are deteriorating as companies guide expectations downward, the upside surprise to third-quarter estimates so far more than makes up for worse Q4 numbers.
    Despite the strong showing for Q3 earnings so far — and the fact full-year earnings are now expected to be better than previously thought as a result — guidance for Q4 earnings has not been pleasant.
    "Company guidance has been more negative than usual with 42 of 51 companies (82%) guiding down 4Q expectations," says Sneider. "In a typical quarter, 70% of guidance is negative. Bottom up consensus estimates for next quarter fell 1% in recent weeks."
    Q4 S&P 500 earnings revisions by sectorAnd cyclical sectors are taking the brunt of the damage — especially industrials and energy — as the table at left shows.
    Meanwhile, in response to Q3 earnings, the market has been more likely to punish a stock that misses expectations than one that beats estimates.
    "59% of stocks that beat on earnings outperformed the market on the next trading day, while 70% of stocks that missed earnings underperformed," says Sneider.
    And that first number has been coming down.
    Page 2 of 2 - "The market has been less likely to reward sales and earnings beats in 2013 compared to 2011 and 2012," she writes. "Between 2011 and 2012, 62% of stocks that beat earnings estimates and 63% of stocks that beat sales estimates outperformed the market on the next trading day. This compares to 59% and 54% this quarter."
    In the coming week, we should get a better look at how everything will eventually shake out.
    "Next week is the last major earnings week of the 3Q 2013 season," Sneider says. "27% of equity cap, 126 companies, is set to report. Half of Energy and Utilities market cap will announce results next week. 30% of the Health Care, Materials, and Info Tech sectors will also report."
Follow earnings reports throughout the week LIVE on Business Insider »
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