Back to top

Zacks Earnings Trends Highlights: FedEx, Caterpillar, Honeywell and 3M

Read MoreHide Full Article

For Immediate Release

Chicago, IL – January 3, 2019 – Zacks Director of Research Sheraz Mian says, “Market anxiety about the economic outlook has put a question mark over consensus earnings expectations.”

Previewing Q4 Earnings Season

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:

  • Market anxiety about the economic outlook has put a question mark over consensus earnings expectations. Estimates have been coming down lately, reflecting the impact of economic weakness and rising costs.
  • Many in the market suspect that earnings estimates likely need to fall a lot more before stabilizing. A lot will depend on company guidance and management’s discussion of business conditions on earnings calls in the Q4 earnings season, which takes the spotlight with next week’s releases from the big banks.
  • Total Q4 earnings for the S&P 500 index are expected to be up +11.8% from the same period last year on +5.6% higher revenues. Estimates have been coming down, with the current +11.8% rate down from +15.9% at the start of the quarter.
  • The negative revisions trend is widespread, with estimates for 15 of the 16 Zacks sectors coming down since the quarter got underway. Estimates have come down the most for the Conglomerates, Construction, Energy and Consumer Discretionary sectors.
  • The Transportation sector is the only one experiencing positive estimate revisions, a reflection of weakening oil prices.
  • The strongest year-over-year earnings growth in Q4 is expected to come from the Energy, Transportation, Construction, and Retail sectors. Excluding the Finance sector’s strong growth, Q4 earnings growth for the rest of the index comes down to +9.6% (from +11.8%).
  • For the small-cap S&P 600 index, total Q4 earnings are expected to be up +7.1% on +6.5 higher revenues. This would follow +33.6% earnings growth on +5.7% revenue growth in Q3.
  • For full-year 2019, total earnings for the S&P 500 index are expected to be up +7.5% on +5.9% higher revenues, which would follow the +20.7% earnings growth on +6.9% higher revenues in 2018. Estimates for 2019 have been steadily coming down, with the current +7.5% growth rate down from +9.8% in early October 2018.
  • The implied ‘EPS’ for the index, calculated using current 2018 P/E of 20.7X and index close, as of December 31st, is $157.70. Using the same methodology, the index ‘EPS’ works out to $169.52 for 2019 (P/E of 7.5X) and $186.62 for 2020 (P/E of 10.1X). The multiples for 2018, 2019 and 2020 have been calculated using the index’s total market cap and aggregate bottom-up earnings for each year.

Just as FedEx (FDX - Free Report) did in its recent earnings report, a number of major companies provided weak guidance at the time of the Q3 earnings season, blaming factors like the impact of the strong U.S. dollar, cost inflation (particularly on the freight front) and trade tariffs. Questions about the international economic growth backdrop has emerged as an additional headwind to corporate earnings.

As a result, estimates for the December quarter as well as full-year 2019 have been coming down for operators like Caterpillar (CAT - Free Report) , Honeywell (HON - Free Report) , 3M (MMM - Free Report) and others. This is showing up in the aggregate revisions trend for the index as well.

The magnitude of negative revisions that we have seen for 2018 Q4 is not unusual in a historical sense, though it is high and more widespread relative to what we have been seeing over the preceding three quarters.

The bigger issue will be how estimates for the coming quarters hold up going forward, particularly given the emerging late-cycle narrative of slowing economic growth or even a recession on the horizon. The growth pace was expected to decelerate in 2019 already as the direct benefits of the tax law changes faded.

But even these low growth expectations for the coming quarters are vulnerable to further downward revisions. In other words, it is reasonable for market participants to nurse some doubts about the current earnings backdrop.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6% and +67.1%.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>

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.



More from Zacks Press Releases

You May Like

Published in