Since Zacks collects all the earnings estimates and revisions from the Street, we get to compile the data in some unique ways so we can get a good look at big picture trends.
One way we do this is through Earnings Estimate Revisions (EER) aggregated and then broken down by sector every week. I thought that since we may be in a period of peaking corporate profits, it would be a good time to look at some of the trends.
The table below displays what we call the EER Ratio, which is simply upward EER vs downward ones. I have picked three broad sectors that represent some of the highest investor interest and sensitivity to the economic cycle. And I threw in Consumer Staples (XLP - ETF report) for a base of comparison since it has been one of the strongest performing sectors.
Obviously, an EER Ratio over 1.0 means more estimates have gone up than down. Below 1.0 means more negative revisions than positive. I am comparing early July data from this year and last, and have taken the average of the 3 reported weeks for each. In the middle column, I show the interim peak ratio and when it occurred.
Clearly, the downward EER continue to dominate. And they are more dominate than this time last year. Is this a sign of peak earnings or will the S&P continue to shoot for its first year over the elusive $100 EPS mark?
Honestly, I don't know. But I am watching these revision trends closely now. And I am reading Sheraz Mian's excellent updates every week. Here's his latest summary from last Friday, A Very Weak Start to 2Q Earnings Season, but look for a new piece soon on the home page.
Now, for some bright spots, Construction and Transportation sectors are sporting very positive EER Ratios at 1.4 and 1.0 respectively. Zacks breaks the market/economy into 16 sectors vs the traditional 9-10 of Standard & Poors.
And, for clarity's sake, let me emphasize that the bulk of EER will come next month. February, May, August, and November are usually the height of earnings season and so are the center of EER activity where you can see anywhere from 12,000 to 17,000 revisions. Yep, that's counting every single quarterly or yearly adjustment by analysts.
The total market EER ratios so far for July have averaged just under 6,000 total in July. The next few weeks will be critical in determining if US corporation can maintain their advances -- and not just in cutting costs that stretch weaker top lines into record bottom ones.
Kevin Cook is a Senior Stock Strategist with Zacks.com