Zacks Earnings Trends Highlights: Bank of America, Caterpillar, Dow Chemicals and Intel－mibygy的部落格

Zacks Earnings Trends Highlights: Bank of America, Caterpillar, Dow Chemicals and Intel

PR Newswire

CHICAGO, Oct. 24, 2014

CHICAGO, Oct. 24, 2014 /PRNewswire/ -- Zacks Director of Research Sheraz Mian says, "The picture emerging from the Q3 earnings season thus far, with results from more than a third of the S&P 500 members already out, is fairly decent."

Q3 Earnings: Not Great, But Not Bad Either

The picture emerging from the Q3 earnings season thus far, with results from more than a third of the S&P 500 members already out, is fairly decent.

In many respects, results thus far aren't materially different from what we have been accustomed to seeing in other recent quarters. Earnings haven't been great for quite some time and they are no by means in that category this time either. But they aren't terrible either. If investors were broadly satisfied with other recent earnings seasons, then we don't see any reason why they should think otherwise this this time around. Perhaps they are finally realizing that they shouldn't have pushed stocks into record territory in the face of an earnings backdrop that at best could be described as decent.

You would recall that stocks have been moving higher even as earnings estimates have been coming down over the past two years. We saw that play out in each of recent quarters (Q3 included) and starting to see the same trend to unfold for Q4 as well. If the global growth picture is as bad as many suspect, then we better brace ourselves for a major negative revisions trend in earnings estimates for the current and coming quarters. The question then is whether it's reasonable to stay bullish on stocks if earnings estimates keep coming down.

Q3 Earnings Scorecard (as of October 23rd, 2014)

Including this morning's earnings announcements, we now have Q3 results from 179 S&P 500 members that combined account for 46.8% of the index's total market capitalization. Total earnings for these 179 companies are up +5.5% from the same period last year on +4.4% higher revenues, with 67.6% beating EPS estimates and 45.8% coming out with positive revenue surprises.

As you can see, the earnings growth performance for these 179 companies (+5.5%) doesn't compare favorably with what we got from these companies, while the revenue growth performance (up +4.4% vs. +3.4% in Q2 and the average of +2.5% over the preceding four quarters) is notably better. With respect to surprises, the earnings and revenue beat ratios are tracking below what we saw from the same group of companies in Q2 as well as the 4-quarter average.

The reason for looking at these aggregate numbers on an ex-Finance basis is that the Finance sector's results have been unusually held down this quarter by the huge litigation charge at Bank of America (NYSE:BAC-Free Report). Total earnings for the Finance sector, with results from 57.6% of the sector's market cap out, are down -0.7% from the same period last year on +4.7% higher revenues. But the sector's growth picture improves to a growth rate of +10.2% once Bank of America is excluded from the numbers.

Looking at Q3 expectations as a whole, combining the actual results from the 179 S&P 500 members that have reported with estimates for the remaining 321, total earnings are expected to be up +3.7% on +2.8% higher revenues. The composite growth has started going up as more companies report and beat estimates.

Some of the earnings reports from the likes of Caterpillar (NYSE:CAT-Free Report), Dow Chemicals (NYSE:DOW-Free Report), Intel (Nasdaq:INTC-Free Report) and others have been fairly reassuring on the growth front. But they all remain cautious on the global macroeconomic outlook, citing uncertainty about the growth trajectory in the developed world outside of North America as well as the emerging markets.

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