For Immediate Release
Chicago, IL – Oct 26, 2017 – Zacks Director of Research Sheraz Mian says, "There is plenty of positive momentum on the revenue front, both in terms of growth as well as estimate beats."
Revenue Momentum Stands Out This Earnings Season
Note: The following is an excerpt from this week’s Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>
Here are the key points:
• Revenue momentum and positive revisions trend for Q4 are the two standout features of this earnings season, with results from about one-third of the S&P 500 members already out.
• Total earnings for the 164 S&P 500 members that have reported already are up +7.0% from the same period last year on +4.8% higher revenues, with 72% beating EPS estimates and 68.3% beating revenue estimates.
• While the proportion of companies beating EPS estimates is tracking a shade below other recent periods, there is plenty of positive momentum on the revenue front, both in terms of growth as well as beats.
• While Finance sector results have been below average, this earnings season is turning out to be a good one for the Industrial Products, Technology, Construction and Medical sectors.
• For the quarter as whole, total Q3 earnings for the S&P 500 index are expected to be up +3.6% from the same period last year on +5% 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 +8.9%; the Q3 growth is on track to be the lowest this year.
• The revisions trend for Q4 remains unusually favorable, with estimates actually going up since the quarter got underway. Even if this trend shifts in the coming days, this is nevertheless a new development on the revisions front.
• For full-year 2017, total earnings for the S&P 500 index are expected to be up +6.7% on +4.7% higher revenues, which would follow +0.7% earnings growth on +2.2% higher revenues in 2016. Index earnings are expected to be up +12.1% in 2018 and +9.4% 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 +10.6% from the same period last year on +5.1% 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 are driving the small-cap growth. The Finance sector’s role is particularly notable in the small-cap index, with Q3 earnings growth dropping to +3.7% (from +10.6%) on an ex-Finance basis.
We now have Q3 results from 164 S&P 500 members that combined account for 38.2% of the index’s total market capitalization. Total earnings for these 164 index members are up +7% from the same period last year on +4.8% higher revenues, with 72% beating EPS estimates and 68.3% beating revenue estimates.
What these comparison charts shows are:
• The earnings growth rate (+7%) for these 164 index members is lower than what we saw from the same group of companies in Q2 and the 4-quarter average.
• The Q3 revenue growth rate (+4.8%) represents an acceleration from all other periods in the chart
• The proportion of positive EPS beasts (72%) is below the proportion we saw in Q2, and the 4-quarter average.
• Revenue beats for these 164 index members at 68.3% is slightly below 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 how.
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 +8.9%.
Importantly, estimates for Q4 have inched up a bit since Q3 results starting coming out. That’s unusual and will most likely change in the coming days, but it nevertheless represents an incrementally favorable development on the earnings front.
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 Earnings Preview. He manages the Zacks Top 10 and Focus List portfolios and writes the Weekly Market Analysis article for Zacks Premium subscribers.
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