For Immediate Release
Chicago, IL – October 03, 2016 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includesAlcoa (NYSE: (AA - Analyst Report) - Free Report), Ford (NYSE: (F - Analyst Report) - Free Report), United (NYSE: (UAL - Analyst Report) -Free Report), American (NASDAQ: (AAL - Analyst Report) -Free Report) and Apple (NASDAQ: (AAPL - Analyst Report) - Free Report).
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Q3 Earnings Season Preview
Alcoa (NYSE: (AA - Analyst Report) - Free Report) will report Q3 results on October 10th, but this earnings season has started already, with results from 17 S&P 500 members already out. All of these companies are reporting results for their fiscal periods ending in August, which gets counted as part of our Q3 tally.
Most of the index members are on the calendar quarter and Alcoa is the first among them to come out with quarterly results; hence its reputation for kick-starting each quarterly reporting cycle. But the fact remains that we will have seen results from more than two dozen such index members by the time the Alcoa report comes out.
The chart below shows the quarterly reporting schedule for this earnings season.
Total earnings for the 17 S&P 500 members that have reported results already are up +5.6% from the same period last year on +5.3% higher revenues, with 82.4% beating EPS estimates and 64.7% coming ahead of revenue estimates. This is a better performance than we have seen from the same group of 17 index members in other recent periods.
The picture emerging would be in-line with our modestly favorable commentary on the Q2 earnings season when we were detecting an ever-so-slight improvement in the growth picture. Earnings growth was in negative territory in Q2 – the 5th quarter in a row of earnings declines for the index – but the pace of declines was nevertheless an improvement over what we had seen in the preceding two quarters. This gave rise to the narrative that the worst was likely behind us now on the growth front and that the picture will steadily be improving going forward.
We will see if those hopes will pan out in the coming days, but we probably shouldn’t read too much into the very small sample of reports at this stage.
Q3 Estimates As a Whole
Estimates for Q3 came down as the quarter got underway, in-line with the trend that we have become used to seeing over the last few years. That said, the magnitude of negative revisions that Q3 estimates suffered has been smaller relative to other recent quarters.
Total earnings for the S&P 500 index are currently expected to be down -2.8% from the same period last year on +1% higher revenues. This would compare to 2016 Q2 earnings growth of -2.8% on +0.2% higher revenues.
Energy remains the biggest drag on the aggregate growth picture, with Autos and Transportation as the other major growth laggards. Tough comparisons at Ford (NYSE: (F - Analyst Report) - Free Report) and the air carriers, particularly United (NYSE: (UAL - Analyst Report) -Free Report) and American (NASDAQ: (AAL - Analyst Report) - Free Report), explain the growth issues in those two sectors.
For the two biggest sectors, Technology earnings are expected to be down -1.8% on -1% lower revenues while Finance earnings are expected to be up +3.7% on +1.3% higher revenues. The Tech decline is solely a function of Apple (NASDAQ: (AAPL - Analyst Report) - Free Report), which is expected to see earnings decline -20.6% from the same period last year on -9.6% lower revenues. Excluding the Apple drag, the Tech sector’s earnings would be up +2.9%.
Expectations Beyond Q3
Q3 is expected to be last quarter of negative-growth with Q4 earnings expected to be in positive territory. The Energy sector drag is expected to end in 2016 Q4 and beyond. We will see if those estimates will hold up as companies report Q3 results and provide guidance for Q4 and beyond. It will be interesting to see if the decelerated pace of negative revisions that we saw the last earnings season will get repeated this time as well.
About the Zacks Rank
Since 1988, the Zacks Rank has proven that "Earnings estimate revisions are the most powerful force impacting stock prices." Since inception in 1988, #1 Rank stocks have generated an average annual return of +28%. During the 2000-2002 bear market, Zacks #1 Rank stocks gained +43.8%, while the S&P 500 tumbled -37.6%. Also note that the Zacks Rank system has just as many Strong Sell recommendations (Rank #5) as Strong Buy recommendations (Rank #1). Since 1988, Zacks Rank #5 stocks have significantly underperformed the S&P 500 (+3% versus +10%). Thus, the Zacks Rank system allows investors to truly manage portfolio trading effectively.
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