Are Earnings Expectations Too Low?
by Sheraz MianJanuary 10, 2012 | Comments : 7 Recommended this article: (0)
This page is temporarily not available. Please check later as it should be available shortly. If you have any questions, please email customer support at email@example.com or call 800-767-3771 ext. 9339.
Alcoa’s results essentially matched their lowered guidance, but the market has still been able to see some glimmers of hope there. It appears that the market was bracing itself for a much worse Aluminum demand picture in 2012 than what the company provided.
Is this a sign of things to come in the fourth quarter? In other words, are expectations so low that exceeding them would not require much of an effort?
Earnings estimates have consistently been moving in only one direction for a while now – Down. Aggregate earnings in the fourth quarter are expected to be up in the low single digits from the year-earlier level. Compared to the third quarter, earnings are expected to be down; a fairly unusual trend for the last quarter of the year.
There is definitely no shortage of reasons behind this negative downtrend in earnings estimates. Corporate margins have reached prior cyclical peak levels and the international growth backdrop (Europe + China) has become a lot less supportive. Add to that increasingly more difficult comparisons and you have all the ingredients for the impressive earnings growth run to decelerate, if not come to an end.
But has the downtrend in estimate revisions gone too far already? Judging from the market’s reaction to Alcoa’s numbers, it may not be unreasonable to argue that the market may have been pricing in a far weaker earnings picture than is warranted by ground realities.
Or is Alcoa a bad proxy to help us reach such conclusions? Alcoa aside, the bigger question of whether earnings expectations are too low still matters. What do you think?
They're hand-picked from the list of Zacks Rank #1 Strong Buys. Our experts predict that their prices will jump the soonest. Today, you can see them free.
Please login to Zacks.com or register to post a comment.