For Immediate Release
To see more earnings analysis, visit http://at.zacks.com/?id=3207.
Every day, Zacks.com makes 4 stock picks available, free of charge. To see them, go to http://at.zacks.com/?id=3567.
Into the Heart of Q1 Earnings Season
There is an air of disappointment in the market about the ongoing Q1 earnings season. Some of it is justified. After all, what else should investors think when companies like IBM (IBM) and GE (GE) come up short? Results from the Technology sector have been underwhelming and the revenues overall have been on the weak side.
That said, the reality is that Q1 results aren’t materially weaker than what we saw in the 2012 Q4 earnings season. The market seemed satisfied, if not exactly thrilled, with Q4 results, as its strong momentum in January and February this year shows.
What this means is that the excessive hand-wringing may not solely be due to Q1 results, but rather what these results tell us about the coming quarters. Consensus expectations for the first half of 2013 appear quite reasonable, with total earnings for companies in the S&P 500 expected to increase by only +1.2% from the same period in 2012. But estimates for the back half of the year represent a significant growth ramp up -- +10.8% over the 2012 period.
Consensus estimates then extrapolate the expected second-half 2013 growth recovery into 2014, resulting in further gains of +11.7%. Recent economic data from home and abroad is likely prompting a reassessment of these earnings growth expectations. The earnings miss from IBM and GE’s reference to Europe bring home this issue.
We are hardly being premature in drawing these conclusions from the Q1 results we have seen thus far. After all, the 104 S&P 500 companies that have reported results already (as of Friday, April 19th) represent 1/3rd of the total market capitalization of the index. We will get a deluge of earnings reports this week, with a total of 665 companies coming out with Q1 results, including 162 S&P 500 members. This includes a host of industry leaders from Apple (AAPL) to DuPont (DD) to Ford (F).
The Q1 Earnings Scorecard
The Scorecard for the 104 companies that have reported results show total earnings growth of +4.6%, with 69.2% of the companies beating earnings expectations with a median surprise of +3.2%. Revenues are up +3.4%, with only 35.6% of the companies coming ahead of top-line expectations, with a median surprise of (negative) -0.3%.
The earnings growth rate and earnings ‘beat ratio’ (% of companies coming out with positive surprises) for these 104 is better than what these same companies reported in 2012 Q4. But the revenue growth rate and ‘beat ratio’ is lower, with the beat ratio particularly weak in the current period.
Technology results have been on the weak side thus far. We will find out more this week as Apple and Amazon report results, but the Tech companies that have reported already account for 46% of the sector’s total market capitalization. Only 64.3% of the Tech companies have beaten Q1 earnings expectations thus far, weaker than the earnings ‘beat ratio’ for the S&P 500 as a whole of 69.2% and the 78.6% ‘beat ratio’ for the same group of companies in Q4.
The revenue side is even weaker, with only 35.7% of Tech companies coming ahead of top-line expectations, roughly in-line with the S&P 500 as whole, but materially weaker than the group’s revenue ‘beat ratio’ in Q4.
Zacks "Profit from the Pros" e-mail newsletter offers continuous coverage of the industries and the stocks poised to outperform the market. Subscribe to this free newsletter today by visiting http://at.zacks.com/?id=4988.
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Len Zacks. As a PhD from MIT Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros by going to http://at.zacks.com/?id=3568.
Follow us on Twitter: https://twitter.com/zacksresearch
Join us on Facebook: https://www.facebook.com/ZacksInvestmentResearch
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.
Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.
Contact: Sheraz Mian
More From Zacks.com