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Note: The following is an excerpt from this week’s Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>
Here are the key points:
The Q3 earnings season is now effectively behind us, with results from 488 S&P 500 members out already. Total earnings for these companies are up +25.5% from the same period last year on +8.4% higher revenues, with 78.7% beating EPS estimates and 64.3% beating revenue estimates.
This is better earnings growth than what we have seen from this group of companies in other recent periods, though revenue growth represents a deceleration relative to the recent past. Positive EPS surprises are about in-line with historical periods for earnings, but materially on the lower side for revenues.
Looking at Q3 as a whole, total earnings for the index are expected to be up +25.4% from the same period last year on +8.3% higher revenues, the 6th time in the last 7 quarters of double-digit earnings growth. The overall earnings picture remains solid, though some pockets of weakness have showed up.
For the small-cap S&P 600 index, we now have Q3 results from 561 index members or 93.3% of its members. Total earnings for these small-cap companies are up +36.3% on +7.4% higher revenues, with 59% beating EPS estimates and 62% beating revenue estimates.
For the small-cap index as a whole, total Q3 earnings are expected to be up +33.9% from the same period last year on +7.1% higher revenues. The Finance sector, which is an even bigger earnings contributor to the small-cap index compared to the S&P 500 index, is expected to see +36.8% higher earnings on +7.1% higher revenues.
Estimates for the current period (2018 Q4) have been coming down, with the current +12.9% earnings growth expected for the period down from +15.9% at the start of the quarter. Estimates have come down for all 16 Zacks sectors, with the biggest cuts in the Conglomerates, Construction, Consumer Discretionary, and Utilities sectors.
For full-year 2018, total earnings for the S&P 500 index are expected to be up +20.9% on +6.7% higher revenues. For full-year 2019, total earnings are expected to be up +8.3% on +5.4% higher revenues, with 2019 estimates steadily coming down.
The implied ‘EPS’ for the index, calculated using current 2018 P/E of 16.9X and index close, as of November 27th, is $158.29. Using the same methodology, the index ‘EPS’ works out to $171.40 for 2019 (P/E of 15.6X) and $188.23 for 2020 (P/E of 14.2X). The multiples for 2018, 2019 and 2020 have been calculated using the index’s total market cap and aggregate bottom-up earnings for each year.
The Q3 earnings season has come to an end for 11 of the 16 Zacks sectors, with the bulk of the results out for the remaining sectors as well. Here are the three takeaways from this reporting cycle.
First, while Q3 earnings growth turned out to be as strong as we saw in the first half of the year, revenue growth has decelerated modestly. The chart below compares the growth pace for the 488 S&P 500 members that have reported results already.
If we look at Q3 as a whole by combining the actual results for the 488 index members with estimates for the still-to-come companies, total earnings for the quarter are expected to be up +25.4% from the same period last year on +8.3% higher revenues. This would compare to +25.4% earnings growth in 2018 Q2 and +24.6% in 2018 Q1.
Second, positive revenue surprises have not been as numerous in the Q3 earnings season as has typically been the trend in other recent periods, as the comparison chart below shows.
The 64.3% revenues beats proportion in Q3 is the lowest that we have seen for this group of 488 index members since the fourth quarter of 2016, with even top-line bellwethers like Nvidia (NVDA - Free Report) , Amazon (AMZN - Free Report) , Alphabet (GOOGL - Free Report) and Facebook coming up short on this count.
Third, some chinks have started showing up in the overall corporate earnings picture, with a number of industry leaders guiding lower due to factors like the impact of the strong U.S. dollar, cost inflation (particularly freight) and trade tariffs. Questions about the international economic growth backdrop represents an additional headwind to corporate earnings.
This is showing up in the revisions trend for current-quarter (2018 Q4) estimates, as the chart below shows.
The bigger issue on the earnings front pertains to expectations for full-year 2019 when earnings are expected to increase by a further +8.3% after the tax-cut driven +20.9% jump in 2018. Estimates for full-year 2019 have started coming down already and it is reasonable to expect this negative revisions trend to accelerate going forward. The chart below shows the expected deceleration in earnings and revenue growth in the coming quarters.
As low as the growth pace in the coming periods appears to be, particularly relative to what we have been seeing in the recent past, this will still represent a favorable corporate earnings backdrop for stocks. After all, we have come a long way since this earnings cycle got underway back in 2010.
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Q3 Earnings Season Scorecard
Note: The following is an excerpt from this week’s Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>
Here are the key points:
The Q3 earnings season has come to an end for 11 of the 16 Zacks sectors, with the bulk of the results out for the remaining sectors as well. Here are the three takeaways from this reporting cycle.
First, while Q3 earnings growth turned out to be as strong as we saw in the first half of the year, revenue growth has decelerated modestly. The chart below compares the growth pace for the 488 S&P 500 members that have reported results already.
If we look at Q3 as a whole by combining the actual results for the 488 index members with estimates for the still-to-come companies, total earnings for the quarter are expected to be up +25.4% from the same period last year on +8.3% higher revenues. This would compare to +25.4% earnings growth in 2018 Q2 and +24.6% in 2018 Q1.
Second, positive revenue surprises have not been as numerous in the Q3 earnings season as has typically been the trend in other recent periods, as the comparison chart below shows.
The 64.3% revenues beats proportion in Q3 is the lowest that we have seen for this group of 488 index members since the fourth quarter of 2016, with even top-line bellwethers like Nvidia (NVDA - Free Report) , Amazon (AMZN - Free Report) , Alphabet (GOOGL - Free Report) and Facebook coming up short on this count.
Third, some chinks have started showing up in the overall corporate earnings picture, with a number of industry leaders guiding lower due to factors like the impact of the strong U.S. dollar, cost inflation (particularly freight) and trade tariffs. Questions about the international economic growth backdrop represents an additional headwind to corporate earnings.
This is showing up in the revisions trend for current-quarter (2018 Q4) estimates, as the chart below shows.
The bigger issue on the earnings front pertains to expectations for full-year 2019 when earnings are expected to increase by a further +8.3% after the tax-cut driven +20.9% jump in 2018. Estimates for full-year 2019 have started coming down already and it is reasonable to expect this negative revisions trend to accelerate going forward. The chart below shows the expected deceleration in earnings and revenue growth in the coming quarters.
As low as the growth pace in the coming periods appears to be, particularly relative to what we have been seeing in the recent past, this will still represent a favorable corporate earnings backdrop for stocks. After all, we have come a long way since this earnings cycle got underway back in 2010.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>