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Zacks Earnings Trends Highlights: Wells Fargo and JPMorgan

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For Immediate Release

Chicago, IL – April 12, 2018 – Zacks Director of Research Sheraz Mian says, "Earnings growth is expected to be in double-digit territory from the year-earlier level for 11 of the 16 Zacks sectors."

Bank Earnings in the Spotlight


Note: The following is an excerpt from this week’sEarnings 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 +16% from the same period last year on +7.4% higher revenues, the highest quarterly earnings growth pace in 7 years.
 
•    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 +60.1% from the same period last year on +16.1% higher revenues. Excluding the Energy sector, total S&P 500 earnings growth drops from +16.1% to +14.6%.

•    The Finance sector, which dominates the early reporting cycle, is expected to have a very strong showing in Q1 and the coming quarters.   

•    Earnings estimates for Q1 and the following quarters have gone up in a notable way since the quarter got underway, 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, Construction and Industrial Products sectors. In absolute terms, 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 dramatic change on the earnings scene in recent years; it will be interesting to see if the trend will continue in the coming days as the Q1 earnings season unfolds.

•    For the S&P 600 index, total Q1 earnings are expected to be up +13.4% from the same period last year on +6.9% higher revenues. This would follow +15.2% earnings growth on +7.6% revenue growth in the preceding quarter.

•    For full-year 2018, total earnings for the S&P 500 index are track to be up +17.9% on +5.3% higher revenues, with full-year 2019 earnings and revenues for the index expected to be up +9.4% and +4.3%, respectively.

•    The implied ‘EPS’ for the index, calculated using current 2018 P/E of 17.3X and index close, as of April 11th , is $153.80. Using the same methodology, the index ‘EPS’ works out to $168.30 for 2019 (P/E of 15.7X). The multiples for 2018 and 2019 have been calculated using the index’s total market cap and aggregate bottom-up earnings for each year. 

The most profound change on the earnings scene lately has been the unusually positive revisions trend for Q1 and the 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.

The most important factor driving this positive revisions trend is the tax cuts. The rise in oil prices and the impact of higher bond yields on banks’ profitability are some of the other factors.

Estimates have gone up across the board for 13 of the 16 Zacks sectors, with the highest percentage positive revisions for the Basic Materials, Energy, Construction, and Industrials. In absolute terms, the positive revisions to the Finance and Technology sectors account for more than half of all aggregate positive revisions since mid-December 2017.

The Finance sector’s earnings outlook has notably improved as a result of tax cuts, higher interest rates, and generally favorable economic backdrop. The sector is expected to report +19.2% higher earnings on +4.5% higher revenues, which will follow the sector’s flattish performance in the preceding period.

The Major Banks industry, which alone brings in roughly 45% of the sector’s total earnings in the S&P 500 index and which includes JPMorgan (JPM - Free Report) and Wells Fargo (WFC - Free Report)  that kick-off the reporting cycle for the industry this week, is expected to have +11.3% earnings growth on +4.8% revenue growth. The combination of improved net interest margins following additional Fed hikes, benign credit trends, and favorable momentum on the capital markets front should help produce solid results in Q1. These favorable trends should remain in place over the coming quarters as well, as reflected in current expectations for the coming quarters.

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