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What Will the Q1 Earnings Season Bring?

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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 actuals and estimates for the current and following periods, please click here>>>

The Q1 earnings season will follow a strong showing in the preceding reporting cycle, with growth reaching its highest level in two years and the overall quarterly earnings tally reaching a new quarterly record. The market will be looking for continuation of these favorable trends in the Q1 reporting cycle as well, which has (officially) gotten underway already but wouldn’t be in the spotlight for another four weeks.

Total Q1 earnings are expected to be up +6.4% from the same period last year on +6.5% higher revenues. This would follow +7.1% earnings growth in 2016 Q4 on +4.4% top-line gains, the highest growth pace in two years.

Estimates for Q1 came down as the quarter unfolded, with the current +6.4% growth down from +10.4% at the end of December. The chart below shows how Q1 earnings growth expectations have evolved over the last three months.

Please note that while Q1 estimates have followed a well traversed path that we have been seeing consistently over the last few years, the magnitude of negative revisions compares favorably to other periods. In other words, Q1 estimates have come down, but they haven’t come down by as much.

At the sector level, ten of the 16 Zacks sectors are expected to earn more relative to the year-earlier period, with earnings growth for the Technology sector expected to be up +10.2% from the same period last year. The sector is expecting strong earnings growth despite the relatively flattish expectation from Apple (AAPL - Free Report) . Strong growth at Alphabet (GOOGL - Free Report) , Facebook (FB - Free Report) and easy comparisons at Micron (MU - Free Report) are the big positive contributors to the sector. Earnings growth for the Finance, Basic Materials and Industrials sectors are expected to be in mid-single digits while the Energy sector moves from a modest loss in the year-earlier period to improving positive earnings this quarter.

The chart below shows current consensus growth expectations for the following quarters, which reflect a continuation of the positive growth trend going forward.

Please note that we have yet to see any ‘Trump bump’ in estimates along the lines of what we have been seeing in the market since November 8th. The sole exception to that comment would be the Finance sector whose earnings outlook has benefited from the post-election uptrend in interest rates.

Note: Sheraz Mian manages the Zacks equity research department. He is an acknowledged earnings expert whose commentaries and analyses appear on and in the print and electronic media. His weekly earnings related articles include Earnings Trends and Earnings Preview. He manages the Zacks Top 10 and Focus List portfolios and writes the Weekly Market Analysis article for Zacks Premium subscribers.

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