For Immediate Release
Chicago, IL – August 13, 2018 – Zacks Director of Research Sheraz Mian says, “The growth picture remains very strong, even though it is expected to decelerate in the coming quarters. But more important than the growth rate is the trend on revisions front, which has started to trend down as mentioned earlier.”
Taking Stock of the Earnings Picture
Note: The following is an excerpt from this week’s Earnings 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:
• The picture that has come out of the Q2 earnings season is one of broad-based strength across all sectors, with negative revisions for the current period (2018 Q3) as the only negative development.
• This negative revisions trend is in contrast to the positive revisions trend that we have been experiencing in the comparable periods of the last three earnings seasons.
• For the Q2 earnings season, we now have results from 452 S&P 500 members or 90.4% of the index’s total membership. For small-cap S&P 600 index, we now have results from 523 companies or 87% of the index’s total membership.
• Total earnings for the 452 S&P 500 members that have reported Q2 results are up +25.5% on +10.2% higher revenues. Earnings and revenue growth and the proportion of these 452 companies beating EPS estimates are tracking above other recent periods.
• Total earnings for the Tech sector are up +34.4% on +12.8% higher revenues, with 89.8% beating EPS estimates and 83.7% beating revenue estimates. While Tech results compare favorably with other recent periods, the proportion of positive revenue surprises has been modestly below what we had seen in other recent periods.
• For the S&P 500 index as a whole, total Q2 earnings are expected to be up +24.7% from the same period last year on +9.5% higher revenues, with 13 of the 16 Zacks sectors expected to have double-digit earnings growth. This is now the highest quarterly growth pace in almost 8 years, exceeding the preceding quarter’s +24.6% growth rate.
• For the small-cap S&P 600 index, total Q2 earnings for the 523 index members that have reported results are up +39.3% from the same period last year on +11.1% higher revenues, with 64.4% beating EPS estimates and 68.5% beating revenue estimates. This is better performance than we have seen from the same group of 523 companies in other recent periods.
• For the small-cap S&P 600 index, total Q2 earnings as a whole, combining the results that have come out with estimates for the still-to-come companies, are expected to be up +34.1% on +10.1% higher revenues, which would follow +24.4% earnings growth on +8.7% revenue growth in 2018 Q1.
• For full-year 2018, total earnings for the S&P 500 index are expected to be up +20.6% on +6.3% higher revenues. For full-year 2019, total earnings are expected to be up +9.5% on +4.7% higher revenues.
• The implied ‘EPS’ for the index, calculated using current 2018 P/E of 18.1X and index close, as of August 8th, is $157.49. Using the same methodology, the index ‘EPS’ works out to $172.50 for 2019 (P/E of 16.6X). 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 narrative surrounding corporate earnings has consistently been positive for a while now. One notable feature of this favorable earnings backdrop has been trends on the estimate revisions front, which have been positive for the last three quarters. What this means is that estimates for each of the last three quarters either went up or remained stable from the beginning of each of those quarters to their respective ends.
This is still relatively early, but we are starting to see estimates for 2018 Q3 come down since the quarter got underway. We don’t want to come across as overly alarmist on this front, but it is nevertheless a negative development in an otherwise very strong reporting cycle. It may be premature to call this emerging revisions trend as representing a crack in the positive earnings picture, but it definitely warrants close monitoring, which we will diligently do.
Estimates have come down for 11 of the 16 Zacks sectors, with Staples, Discretionary, Conglomerates, Autos and Energy experiencing relatively more notable negative revisions. Estimates for the Retail, Construction, Industrials and Finance sectors have actually gone up since the quarter got underway.
Q2 Growth Rate the Highest in Years
Combining the actual results from the 452 index members with estimates for the still-to-come 48 companies, total Q2 earnings are expected to be up +24.7% from the same period last year on +9.6% higher revenues, with double-digit earnings growth for 13 of the 16 Zacks sectors, including Finance and Technology.
The growth picture remains very strong, even though it is expected to decelerate in the coming quarters. But more important than the growth rate is the trend on revisions front, which has started to trend down as mentioned earlier.
Given the ongoing strength in the U.S. dollar, questions about the global economy and all-around trade uncertainty, it is possible that estimates for Q3 and beyond continue coming down in the coming days.
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Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Earnings Trends Highlights
For Immediate Release
Chicago, IL – August 13, 2018 – Zacks Director of Research Sheraz Mian says, “The growth picture remains very strong, even though it is expected to decelerate in the coming quarters. But more important than the growth rate is the trend on revisions front, which has started to trend down as mentioned earlier.”
Taking Stock of the Earnings Picture
Note: The following is an excerpt from this week’s Earnings 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:
• The picture that has come out of the Q2 earnings season is one of broad-based strength across all sectors, with negative revisions for the current period (2018 Q3) as the only negative development.
• This negative revisions trend is in contrast to the positive revisions trend that we have been experiencing in the comparable periods of the last three earnings seasons.
• For the Q2 earnings season, we now have results from 452 S&P 500 members or 90.4% of the index’s total membership. For small-cap S&P 600 index, we now have results from 523 companies or 87% of the index’s total membership.
• Total earnings for the 452 S&P 500 members that have reported Q2 results are up +25.5% on +10.2% higher revenues. Earnings and revenue growth and the proportion of these 452 companies beating EPS estimates are tracking above other recent periods.
• Total earnings for the Tech sector are up +34.4% on +12.8% higher revenues, with 89.8% beating EPS estimates and 83.7% beating revenue estimates. While Tech results compare favorably with other recent periods, the proportion of positive revenue surprises has been modestly below what we had seen in other recent periods.
• For the S&P 500 index as a whole, total Q2 earnings are expected to be up +24.7% from the same period last year on +9.5% higher revenues, with 13 of the 16 Zacks sectors expected to have double-digit earnings growth. This is now the highest quarterly growth pace in almost 8 years, exceeding the preceding quarter’s +24.6% growth rate.
• For the small-cap S&P 600 index, total Q2 earnings for the 523 index members that have reported results are up +39.3% from the same period last year on +11.1% higher revenues, with 64.4% beating EPS estimates and 68.5% beating revenue estimates. This is better performance than we have seen from the same group of 523 companies in other recent periods.
• For the small-cap S&P 600 index, total Q2 earnings as a whole, combining the results that have come out with estimates for the still-to-come companies, are expected to be up +34.1% on +10.1% higher revenues, which would follow +24.4% earnings growth on +8.7% revenue growth in 2018 Q1.
• For full-year 2018, total earnings for the S&P 500 index are expected to be up +20.6% on +6.3% higher revenues. For full-year 2019, total earnings are expected to be up +9.5% on +4.7% higher revenues.
• The implied ‘EPS’ for the index, calculated using current 2018 P/E of 18.1X and index close, as of August 8th, is $157.49. Using the same methodology, the index ‘EPS’ works out to $172.50 for 2019 (P/E of 16.6X). 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 narrative surrounding corporate earnings has consistently been positive for a while now. One notable feature of this favorable earnings backdrop has been trends on the estimate revisions front, which have been positive for the last three quarters. What this means is that estimates for each of the last three quarters either went up or remained stable from the beginning of each of those quarters to their respective ends.
This is still relatively early, but we are starting to see estimates for 2018 Q3 come down since the quarter got underway. We don’t want to come across as overly alarmist on this front, but it is nevertheless a negative development in an otherwise very strong reporting cycle. It may be premature to call this emerging revisions trend as representing a crack in the positive earnings picture, but it definitely warrants close monitoring, which we will diligently do.
Estimates have come down for 11 of the 16 Zacks sectors, with Staples, Discretionary, Conglomerates, Autos and Energy experiencing relatively more notable negative revisions. Estimates for the Retail, Construction, Industrials and Finance sectors have actually gone up since the quarter got underway.
Q2 Growth Rate the Highest in Years
Combining the actual results from the 452 index members with estimates for the still-to-come 48 companies, total Q2 earnings are expected to be up +24.7% from the same period last year on +9.6% higher revenues, with double-digit earnings growth for 13 of the 16 Zacks sectors, including Finance and Technology.
The growth picture remains very strong, even though it is expected to decelerate in the coming quarters. But more important than the growth rate is the trend on revisions front, which has started to trend down as mentioned earlier.
Given the ongoing strength in the U.S. dollar, questions about the global economy and all-around trade uncertainty, it is possible that estimates for Q3 and beyond continue coming down in the coming days.
Follow us on Twitter: http://twitter.com/zacksresearch
Join us on Facebook: http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Media Contact
Zacks Investment Research
800-767-3771 ext. 9339
support@zacks.com
http://www.zacks.com
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.