For Immediate Release
Chicago, IL – November 11,2019 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes Wal-Mart WMT, Cisco Systems CSCO, Nvidia NVDA, Ford F and Hasbro HAS.
Were Q3 Earnings Estimates Too Low?
The popular narrative about the Q3 earnings season is that the actual results look better only relative to the very low levels to which estimates had fallen. In other words, consensus EPS and revenue estimates were too easy to beat.
But had that been the case, the beats percentages should have been a lot higher than what we actually saw. With results from 447 S&P 500 members or 89.4% of the index’s total membership already out, we have the numbers to speak for themselves.
For the 447 S&P 500 members that have reported results through Friday, November 8th, 72.5% are beating EPS estimates and 57.9% are beating revenue estimates.
Over the last 12 quarters, the low EPS beats percentage for these 447 index members was 66.9% (2018 Q4) and the high was 79.9% (2018 Q2), with an average EPS beats percentage of 75%. The EPS beats percentage in Q3 started out very high, but currently remains towards the high end of this 12-quarter range.
On the revenues side, the beats percentage for this group of 347 index members has been as low as 48.3% (2015 Q3) and as high as 75.4% (2018 Q1) over the preceding 12-quarter period. As is the case with the EPS beats percentage, the Q3 revenue beats percentage remains within this historical range, though admittedly towards the lower end of that range.
What this means is that Q3 estimates were likely just about right; neither too low, nor too high.
With only 53 S&P 500 members still to report Q3 results, these conclusions about Q3 estimates will likely carry through to the end of this reporting season.
We have almost 450 companies on the docket reporting results this week, including 15 S&P 500 members. This week’s docket includes Wal-Mart, Cisco Systems, Nvidia and others.
So, what explains the market’s favorable reaction to Q3 results?
Many in the market appeared to fear a notable uptick in negative guidance for Q4 and beyond, in the wake of renewed signs of deceleration in the global and U.S. economy. Weak guidance from a number of companies like Ford, Hasbro and others reflect this reality.
But a preponderance of negative guidance from across all major sectors has failed to materialize. In other words, there is no material deterioration in the earnings picture relative to what was expected earlier; Q3 results and guidance for the current and coming quarters has been better than ‘feared.’
That said, estimates for the current and coming quarters has been coming down since the Q3 earnings season got underway.
Even more significant on the revisions front is how estimates for full-year 2020 are shaping up. There has been no growth in 2019, but the market has been banking on growth resuming next year.
The above negative revisions trend for full-year 2020 is still within historical ranges, but a significant acceleration in estimate cuts will likely be a major negative for market expectations.
S&P 500 Scorecard (as of Friday, November 1st, 2019)
We now have Q3 results from 447 S&P 500 members or 89.4% of the index’s total membership. Total earnings (or aggregate net income) for these 447 companies are down -1.5% from the same period last year on +4.2% higher revenues, with 72.5% beating EPS estimates and 57.9% beating revenue estimates.
Looking at Q3 as a whole, combining the actual results from the 447 index members with estimates for the still-to-come companies, total earnings (or aggregate net income) is expected to be down -1.9% from the same period last year on +4.2% higher revenues.
Tough comparisons to last year when growth was boosted by the tax cut legislation were all along expected to weigh on earnings growth in 2019. Moderating U.S. economic growth and notable slowdowns in other major global economic regions are having a further negative impact. Uncertainty about the global trade regime and growing resort to tariffs are not helping matters either.
My sense is that the final Q3 earnings growth rate will be the vicinity of what we saw in the first half of the year.
For an in-depth look at the overall earnings picture and expectations for Q3 and beyond, please check out our weekly Earnings Trends report >>> The Evolving Earnings Picture
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Click to get this free report Cisco Systems, Inc. (CSCO) : Free Stock Analysis Report Ford Motor Company (F) : Free Stock Analysis Report Walmart Inc. (WMT) : Free Stock Analysis Report Hasbro, Inc. (HAS) : Free Stock Analysis Report NVIDIA Corporation (NVDA) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research