The third-quarter 2016 earnings season nears the last lap, with numbers from the majority of the sectors already on board. However, we are yet to see a large chunk of earnings results from the Retail and Consumer Discretionary sectors. So far, nearly 364 S&P 500 members or 72.6% of the index’s total membership, have come up with third-quarter results. Though the commentary for the third-quarter reporting cycle has been positive since its commencement, the positivity has toned down due to lesser positive surprises, particularly on the revenue side, as well as negative estimate revisions for the fourth quarter.
Nevertheless, with third-quarter earnings growth likely to be in the positive zone after a negative trend seen in the past five quarters, this quarter stands out as a better quarter in comparison to the preceding ones.
Per the latest Earnings Outlook (as of Nov 2, 2016), 364 S&P 500 members – that collectively account for 72.6% of the index’s total membership – reported earnings results. Total earnings for these index members rose 1.6% while revenues increased 1.6%, with 72.3% beating EPS estimates and 54.7% beating revenue estimates.
While the earnings growth witnessed in the third quarter is still tracking low, it compares favorably to what has been seen in the recent quarters. Looking at the third quarter as a whole and putting together the actual results of 364 index members with estimates for the upcoming 136 companies, total S&P 500 earnings are anticipated to be up 2.4% driven by 1.4% higher revenues.
Further, for the fourth quarter, total earnings for the S&P 500 index is expected to increase 1.4%. In framing this outlook, we note that the estimates for the two largest sectors of the S&P 500 index – Technology and Finance – have been tracking well, while estimates for the Retail, Basic Materials, Industrials and Auto sectors have plunged considerably in recent days.
That said, we quickly jump on to the expectations for the Retail sector, which now estimates to witness earnings growth of 2.6% in the fourth quarter. The projection has come down substantially from an earnings growth of 4.5% predicted last week.
Of the third quarter earnings yet to be reported, we will here focus on stocks from the Retail sector which are expected to report results on Nov 7.
To start with The Priceline Group Inc. (PCLN - Free Report) , we are unsure whether this Norwalk, CT-based online travel, restaurant reservation and related services provider will be able to post a positive earnings surprise in the quarter to be reported. The company’s past performance reveals that it has outperformed the Zacks Consensus Estimate by an average of 6.6% over the trailing four quarters. Though the company carries a Zacks Rank #3 (Hold), our prediction of earnings beat has been let down by an Earnings ESP of -3.77%. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.
A stock generally needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for a beat. Thus, we would wait and see what is in store for the company in the upcoming results.
Next, the earnings picture for CST Brands Inc. (CST - Free Report) – a retailer of motor fuel and convenience merchandise items in the U.S. and eastern Canada – looks vague. The company has outpaced the Zacks Consensus Estimate by an average of 39.6% over the past four quarters. However, the uncertainty regarding an earnings beat is led by an unfavorable Zacks Rank, while the company has a positive Earnings ESP of 1.61%. The company’s Most Accurate Estimate of 63 cents stands above the Zacks Consensus Estimate of 62 cents.
The company currently carries a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Further, let’s take a sneak peek at BMC Stock Holdings Inc. (BMCH - Free Report) , a provider of lumber and building materials distributor and related solutions in the U.S. The company’s current Earnings ESP is pegged at 0.00%. This is because both its estimates stand at 32 cents. The company currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
We note that while a favorable Zacks Rank #3 increases the predictive power of ESP, a 0.00% ESP makes surprise prediction difficult.
Also in the queue is HSN Inc. (HSNI - Free Report) , an interactive multi-channel retailer in the U.S. We are unsure whether this St. Petersburg, FL-based company will be able to post a positive earnings surprise in the quarter to be reported. The company’s past performance reveals that it has exceeded the Zacks Consensus Estimate by an average of 4.1% over the trailing four quarters. The company’s Zacks Rank #5 (Strong Sell) when combined with an Earnings ESP of -1.89%, indicates that the chances of a beat are minimal. The company’s Most Accurate Estimate of 52 cents stands below the Zacks Consensus Estimate of 53 cents. Thus, we would wait and see what is in store for this company in the upcoming results.
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