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Boeing, Caterpillar, 3M, Microsoft and Twitter are part of Zacks Earnings Preview

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For Immediate Release

Chicago, IL – October 21, 2019 – releases the list of companies likely to issue earnings surprises. This week’s list includes Boeing (BA - Free Report) , Caterpillar (CAT - Free Report) , 3M (MMM - Free Report) , Microsoft (MSFT - Free Report) and Twitter (TWTR - Free Report) .

Are Q3 2019 Earnings Results Really That Good?

With results from almost 15% of S&P 500 members already out, we have a fairly representative sample to judge the Q3 earnings season. The market appears to like the results, with the average index member up almost twice as much in response to its Q3 earnings report relative to the preceding period. This begs the question whether results really are that good?

In absolute terms, Q3 results are at best average, if not below average. The market cares about absolute values, but it cares even more about relative value values. What we mean by ‘relative values’ in the earnings context is how these results compare to expectations. These expectations are captured in consensus estimates for earnings, revenues and other performance metrics, but some aspects of these expectations are hard to quantify and show up mostly in sentiment.

Ahead of the start of the Q3 earnings season, estimates for the period had come down, though the magnitude of negative revisions was about in-line with other recent periods. Growth was essentially flat in the first half of the year and Q3 was not expected to be materially different from that trend line (though earnings were and still are expected to be down from the same period last year).

Beyond these lowered Q3 estimates, many in the market appeared to fear a notable uptick in negative guidance for Q4 and beyond, in the wake of renewed signs of deceleration in the global and U.S. economy.

Actual results from the 74 S&P 500 members that have reported Q3 results through Friday, October 18th, have been better relative to these lowered estimates. Importantly, the unstated fears of the earnings outlook for the current and coming quarters taking a hit, particularly for the economically sensitive sectors, have failed to bear out.

The market’s enthusiastic reaction to reports from the likes of a number of the banks likely reflects this ‘better than feared’ aspect of the results.

It is reasonable to expect this positive trend to continue as we head into a very busy reporting docket this week, with almost 500 companies reporting results, including 132 S&P 500 members. This week’s line-up includes a who’s who of corporate America, from Boeing (BA), Caterpillar (CAT) and 3M (MMM) to Microsoft (MSFT) and Twitter (TWTR).

S&P 500 Scorecard (as of Friday, October 18, 2019)

We now have Q3 results from 74 S&P 500 members that combined account for 19.9% of the index’s total market capitalization. Total earnings (aggregate net income) these 74 companies are down -3% from the same period last year on +3.2% higher revenues, with 83.8% beating EPS estimates and 59.5% beating revenue estimates.

It is hard to get overly excited about this growth pace. But as we mentioned earlier, the market is appreciating what these results show relative to expectations.

As is typically the case every quarter, the Finance sector has the most results at this stage of the reporting cycle. We have already seen Q3 results from 46.7% of the sector’s market cap in the S&P 500 index. Total earnings or aggregate net income for these Finance sector companies are down -1.6% from the same period last year on +3.2% higher revenues, with 85.2% beating EPS estimates and 70.4% beating revenue estimates.

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