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Zacks Earnings Trends Highlights: Wells Fargo and JPMorgan

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For Immediate Release

Chicago, IL – March 26, 2018 – Zacks Director of Research Sheraz Mian says, "Total Q1 earnings for the S&P 500 index are expected to be up +15.9% from the same period last year on +7.3% higher revenues."

Handicapping Q1 Earnings Season

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:

•    Total Q1 earnings for the S&P 500 index are expected to be up +15.9% from the same period last year on +7.3% higher revenues. This would follow +13.5% earnings growth on +8.5% revenue growth in the preceding period.
 
•    Earnings growth is expected to be in double-digit territory from the year-earlier level for 11 of the 16 Zacks sectors, including the Technology and Finance sectors. Only two sectors (Autos & Conglomerates) are expected to show earnings declines in Q1.

•    Energy sector earnings are expected to be up +60.8% from the same period last year on +15.7% higher revenues. Excluding the Energy sector, total S&P 500 earnings growth drops from +15.8% to +14.4%.  

•    The Q1 earnings season wouldn’t take the spotlight till the big banks come out with results in mid-April, but the reporting cycle has actually got underway already, with results from 13 S&P 500 members with fiscal quarters ending in February have reported results already.

•    Earnings estimates for Q1 and the following quarters have gone up in a notable way, with tax law changes as the most notable reason for the positive revisions. The positive revisions are broad-based, with estimates for 13 of the 16 Zacks sectors going up.

•    In percentage terms, estimates have gone up the most for the Basic Materials, Energy, Industrials and Aerospace sectors. In absolute terms, the positive revisions to the Finance and Technology sectors account for more than half of all estimate upgrades since the quarter got underway.

•    This positive revisions trend is the most drastic change on the earnings scene in recent years and will be closely watched whether estimates for Q2 would follow a similar favorable trend as the Q1 earnings season unfolds.

•    For the S&P 600 index, total Q1 earnings are expected to be up +13.8% from the same period last year on +7.2% higher revenues. This would follow +15.2% earnings growth on +6.8% revenue growth in the preceding quarter.

•    For full-year 2018, total earnings for the S&P 500 index are track to be up +18% on +5.6% higher revenues, with full-year 2019 earnings and revenues for the index expected to be up +9.5% and +4.1%, respectively.

•    The implied ‘EPS’ for the index, calculated using current 2018 P/E of 18.1X and index close, as of March 22nd, is $160. Using the same methodology, the index ‘EPS’ works out to $175.32 for 2019 (P/E of 15.1X). The multiples for 2018 and 2019 have been calculated using index’s total market cap and aggregate bottom-up earnings for each year.   

We are still a few weeks away from big bank earnings results that now serve as the unofficial starting point of the reporting cycle since Alcoa relinquished that role following its split. Officially, however, the reporting cycle has gotten underway, with results from 13 S&P 500 members already out at this stage. All of these companies that have reported results already follow fiscal quarters that end in February. We will have Q1 results from almost two dozen S&P 500 members by the time JPMorgan (JPM - Free Report) and Wells Fargo (WFC - Free Report) kick-off the earnings season on April 13th.

The most profound change on the earnings scene lately is the unusually positive revisions trend for Q1 and following quarters. The chart below shows how 2018 Q1 earnings growth expectations have evolved since mid-December 2017.

This is a sight that we haven’t seen in a very long time; definitely not in the last 6 years.

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