For Immediate Release
Chicago, IL – November 4, 2019 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes Ford (F - Free Report) , Texas Instruments (TXN - Free Report) , Hasbro (HAS - Free Report) , Fastenal (FAST - Free Report) and Dover (DOV - Free Report) .
A Reassuring Earnings Picture
With results from more than 70% of S&P 500 members already out, we have a representative enough sample to judge the Q3 earnings season. The market has generally been appreciative of the the results, with the median index member up almost three times as much in response to its Q3 earnings report relative to the preceding period.
We look at three metrics in evaluating the aggregate picture emerging out of any reporting cycle. These include the growth rates for earnings and revenue, the beats percentages, and management guidance for the coming periods.
Let’s take a look at the Q3 results that have come out already in terms of these three performance metrics.
EPS & Revenue Beats Percentages
For the 357 S&P 500 members that have reported results through Friday, November 1st, 74.5% are beating EPS estimates and 59.7% are beating revenue estimates.
Over the last 12 quarters, the low EPS beats percentage for these 357 index members was 65.3% (2018 Q4) and the high was 81.8% (2018 Q2), with an average EPS beats percentage of 75.5%. The EPS beats percentage in Q3 started out very high, but currently remains towards the high end of this 12-quarter range.
On the revenues side, the beats percentage for this group of 357 index members has been as low as 47.3% (2015 Q3) and as high as 75.9% (2018 Q1) over the preceding 12-quarter period. As is the case with the EPS beats percentage, the Q3 revenue beats percentage remains within this historical range.
In other words, S&P 500 members are beating EPS and revenue estimates at a rate that is about in-line with historical trends.
Q3 Earnings & Revenue Growth
For the 357 index members that have reported Q3 results already, total earnings are down -1.9% while total revenues are up +3.6%.
Please note that ‘total earnings’ mean ‘aggregate net income’ for the 357 S&P 500 members, not mean, median or market-cap weighted EPS. We prefer looking at net income as a measure of earnings and not EPS given the distorting effects of share buybacks on EPS-based growth rates.
As you can see here, there is not much earnings growth, which is a function of the tough comparisons to the 2018 period when growth was boosted by the tax-cut legislation.
The revenue picture is actually pretty good, though the growth pace remains on a decelerating trend.
The Guidance Picture
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. Weak guidance from a number of companies like Ford, Texas Instruments, Hasbro and others reflect this reality. But a preponderance of negative guidance from across all major sectors has failed to materialize. In other words, there is no material deterioration in the earnings picture relative to what was expected earlier; Q3 results and guidance for the current and coming quarters has been better than ‘feared’.
The market’s positive reaction to reports from the likes of Fastenal, Dover and a number of the banks likely reflects this ‘better than feared’ aspect of the results.
That said, estimates for the current and coming quarters has been coming down since the Q3 earnings season got underway. The negative revisions trend appears to have accelerated over the last few days
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