Q4 Estimates Keep Coming Down
Zacks Investment Research | Nov 20, 2014 12:03AM ET
Q4 Estimates Keep Coming Down
The Retail sector dominates the reporting schedule each earnings season and that has been the case with the Q3 earnings season in recent days. The sector’s performance has been subpar in absolute terms. But low expectations gave most players easy-to-beat hurdle rates.
The market’s positive reaction to results from some of the key sector players like Wal-Mart (NYSE:WMT), Target (NYSE:TGT) and Macy’s (NYSE:M) appears more a function of low expectations than ‘real’ outperformance. The handful of these positive stock market reactions aside, the majority of retail sector company stocks have gone down in response to quarterly results. The Basic Materials sector is the only sector that has a bigger aggregate stock price pullback than the Retail Sector in response to the Q3 reports.
Q3 Earnings Scorecard (as of November 19th, 2014)
Including this morning’s earnings announcements, we now have Q3 results from 475 S&P 500 members. Total earnings for these companies are up +6.8% from the same period last year on +4.1% higher revenues, with 70.9% beating EPS estimates and 57.6% coming out with positive revenue surprises.
The two charts below compare the Q3 growth rates and beat ratios for these 475 companies with what these same companies reported in 2014 Q2 and the 4-quarter average (through Q2).
As you can see, the earnings and revenue growth performance for these 475 companies (+6.8% for earnings and +4.1% for revenues) are below what we got from these same companies in Q2, but compare favorably to the respective 4-quarter averages. With respect to surprises, the earnings and revenue beat ratios are following divergent paths, with earnings surprises notably more widespread while revenue surprises a little hard to come by.
We continue to believe that the picture emerging from this reporting cycle is decent enough; it’s not great, but it’s not bad either. In terms of growth rates, beat ratios and guidance, it’s a mixed bag when Q3 results are viewed in the context of other recent periods.
Some metrics are showing an improvement, such as a bigger ratio of companies beating earnings estimates and the revenue growth rate appears to have picked up. But other metrics are showing weakness, such as the relatively lower earnings growth rate, the fewer positive revenue surprises, and the still-weak guidance picture.
Get The News You Want
The guidance picture is no different from what we have been seeing in recent quarters, with a majority of the companies providing guidance guiding lower. As a result, estimates for the current quarter (2014 Q4) are following the all-too-familiar pattern of sliding down, as the chart below clearly shows.
Keep in mind, however, that the magnitude of negative revisions trend for the current quarter is the highest we have seen in almost two years. We discuss this some more in the body of the report (on page 13), but the extent of revisions is reflective of one of two things – either estimates for Q4 have fallen more than they needed to or there is something negative going on with the business outlook. Notwithstanding all the global growth worries of the recent past, I will be skeptical of the second notion.
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.