Earnings Sentiment
Weekly Market Commentary 1-23-12
Tim Phillips, CEO – Phillips and Company
There appears to be no shortage of earnings pessimism this quarter. According to the Wall Street Journal, analysts now expect earnings to grow 7.8% year-on-year, down from their expectations of 15% at the start of the fourth quarter.
Bespoke has also noticed the trend in downward revisions in earnings over the last few weeks. You can see from the graph below EPS revisions continue to decline.
While the trend has been lower, the revisions are not nearly as negative as they were for the last quarter. This could be a sign that earnings and the economy are starting to turn the corner.
After the first week of earnings season, Bespoke noted 55% of the S&P 500 companies that already reported have beat analyst forecasts. This might appear to some as a positive sign, however, in the context of historical rates over the past few years this number is still relatively low. From the graph below, you can see that this number has been averaging closer to 70% in recent quarters leading up to 2012.
Not to worry, there are still plenty of companies that need to report this quarter. Some of the major companies reporting this week include: McDonald’s Corp (MCD), Apple Inc. (AAPL), The Boeing Co. (BA), ConocoPhillips (COP), AT&T (T), and Altria Group (MO). In theory, with all the negative revisions so far during this earnings season many companies should have an easier time beating expectations. We wouldn’t be surprised to see the 55% number Bespoke reported end up higher by the finish of earnings season.
Full Year Earnings Growth
Below is a table provided by FactSet which shows expected earnings growth for Q3 2011 through Q3 2012. Looking closer at the 4th quarter of last year, the biggest winner (excluding financials) appears to be energy with industrials and information technology tied for second
For 2012, the consumer sectors, industrials and information technology are forecasted to have consistent earnings growth throughout the year. Positive earnings growth in these sectors are usually consistent with an improving macro economy and a consumer that is looking to spend (at least in the short term).
Equity markets might still be looking a bit extended from a technical standpoint, but the fundamentals of the macro economy in United States appear to be improving and equity valuations are still looking attractive.
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Tim Phillips, CEO – Phillips & Company
Research Provided by:
Adam Gulledge, Associate – Phillips & Company