Positive Start To The Q3 Earnings Season
Zacks Investment Research | Oct 18, 2017 05:41AM ET
Note: The following is an excerpt from this week’s
Here are the key points:
• We are off to a good start to the Q3 earnings season despite the less-than-stellar banking results, with an accelerating revenue growth trend as particularly notable at this stage.
• Total earnings for the 52 S&P 500 members that have reported already are up +13.3% from the same period last year on +6.9% higher revenues, with 76.9% beating EPS estimates and 73.1% beating revenue estimates.
• The growth pace and beats proportion was very strong in the Q2 earnings season relative to historical periods, but the aggregate picture emerging from the Q3 earnings season is keeping up with the preceding quarter’s strong showing.
• There is plenty of momentum on the revenue side this earnings season, with the revenue growth pace accelerating and an above-average proportion of companies beating top-line estimates.
• Bank results have been underwhelming, with the growth pace modestly decelerating from the trend that we have been seeing in other recent quarters and fewer companies are coming out with positive revenue surprises.
• For the quarter as whole, total Q3 earnings for the S&P 500 index are expected to be up +3% from the same period last year on +4.9% higher revenues. With double-digit growth in each of the first two quarters of the year and earnings growth in the last quarter of the year currently expected at +9.1%, the Q3 growth is on track to be the lowest this year.
• Including the Finance sector, Q3 earnings growth is expected to be in negative territory for 8 of the 16 Zacks sectors, with double-digit declines for the Autos, Aerospace and Transportation sectors.
• Earnings growth for Q3 drops to +1.1% (from +3%) when the strong Energy sector contribution is excluded from the aggregate picture. The Conglomerates sector is the only other sector, in addition to Energy, with double-digit earnings growth in Q3. The Tech and Industrial sectors are a shade below the +10% level.
• For full-year 2017, total earnings for the S&P 500 index are expected to be up +7.1% on +4.6% higher revenues, which would follow +0.7% earnings growth on +2.2% higher revenues in 2016. Index earnings are expected to be up +11.8% in 2018 and +9.2% in 2019.
• Earnings growth is expected to turn positive in Q3 for the small-cap S&P 600 index, with total earnings for the index expected to be up +8.3% from the same period last year on +5.2% higher revenues. This would follow persistent earnings declines for the small-cap index – S&P 600 earnings growth was negative in 3 of the last 4 quarters.
• Strong growth from the Finance, Technology and Energy sectors is driving the small-cap growth. The Finance sector’s role is particularly notable in the small-cap index, with Q3 earnings growth dropping to +0.9% (from +8.3%) on an ex-Finance basis.
Get The News You Want
We now have Q3 results from 52 S&P 500 members that combined account for 16.7% of the index’s total market capitalization. Total earnings for these 52 index members are up +13.3% from the same period last year on +6.9% higher revenues, with 76.9% beating EPS estimates and 73.1% beating revenue estimates.
The comparison charts below compare the results thus far with what we have seen from the same group of 52 index members in other recent periods.
What these comparison charts shows are:
• The earnings growth rate (+13.3%) for these 52 index members is about in-line with what we saw from the same group of companies in Q2 and the 4-quarter average.
• The Q3 revenue growth rate (+6.9%) represents an acceleration from all other periods in the chart
• The proportion of positive EPS beasts (76.9%) is below the proportion we saw in Q2, but in-line with the 4-quarter average.
• Revenue beats for these 52 index members at 73.1% is exactly the same as the preceding quarter, which itself was an unusually high revenue beat rate relative to historical periods.
The most notable element of the results thus far is the momentum on the revenue side, as the above points show. I am emphasizing this revenue momentum through modified comparison chart below.
While overall Q3 earnings growth represents a deceleration from the double-digit growth pace of the last two quarters, the growth rate is expected ramp up in the current and coming quarters, with Q4 earnings growth currently expected at +9.1%.
Importantly, estimates for Q4 have inched up a bit since the Q3 results starting coming out. That’s unusual and will most likely change in the coming days, but it nevertheless shows that estimates for the current period are nicely holding up. The chart below contrasts the Q3 earnings growth rate with what was actually achieved in the last 5 quarters and what is expected in the coming four periods.
Unlike the year-over-year growth pace, the dollar amount of total earnings is expected to remain in record territory, as the chart below shows.
Please note that the June quarter tally in the chart above was a new all-time quarterly record for the S&P 500 index. But the record isn’t expected to last much longer, with each of the next two quarterly tallies surpassing the preceding period’s record.
Note: Sheraz Mian manages the Zacks equity research department. He is an acknowledged earnings expert whose commentaries and analyses appear on Zacks.com and in the print and electronic media. His weekly earnings related articles include Earnings Trends and subscribers.
4 Stocks to Watch after the Massive Equifax (NYSE:EFX) Hack
Cybersecurity stocks spiked on recent news of a data breach affecting 143 million Americans. But which stocks are the best buy candidates right now? And what does the future hold for the cybersecurity industry?
Equifax is just the most recent victim. Computer hacking and identity theft are more common than ever. Zacks has just released Cybersecurity! An Investor’s Guide to inform Zacks.com readers about this $170 billion/year space. More importantly, it highlights 4 cybersecurity picks with strong profit potential.
Zacks Investment Research
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.