October 20, 2017

This Week in Earnings 17Q3 | Oct. 20, 2017

by David Aurelio

Last Update: October 20, 2017

To download the full This Week in Earnings report click here.

Aggregate Estimates and Revisions

  • Third quarter earnings are expected to increase 4.2% from Q3 2016. Excluding the Energy sector, the earnings growth estimate declines to 2.1%
  • Of the 88 companies in the S&P 500 that have reported earnings to date for Q3 2017, 70.5% have reported earnings above analyst expectations. This is above the long-term average of 64% and below the average over the past four quarters of 72%.
  • Third quarter revenues are expected to increase 4.4% from Q3 2016. Excluding the Energy sector, the earnings growth estimate declines to 3.7%
  • 81.3% of companies have reported Q3 2017 revenue above analyst expectations. This is above the long-term average of 59% and above the average over the past four quarters of 60%.
  • For Q3 2017, there have been 80 negative EPS preannouncements issued by S&P 500 corporations compared to 49 positive EPS preannouncements. By dividing 80 by 49, one arrives at an N/P ratio of 1.6 for the S&P 500 Index.
  • The forward four-quarter (4Q17 – 3Q18) P/E ratio for the S&P 500 is 18.0.
  • During the week of Oct. 23, 183 S&P 500 companies are expected to report quarterly earnings

Exhibit 1: S&P 500 Y/Y Growth Rates

17Q3 Earnings Growth Highlights

The energy sector has the highest earnings growth rate (144.7%) of any sector. It is expected to earn $9.6B in Q3 2017, compared to earnings of $3.9B in Q3 2016. All of the six sub-industries in the sector are anticipated to see higher earnings than a year ago. The oil & gas equipment & services (454.9%) and oil & gas exploration & production (94.2%) sub-industries have the highest EPS growth in the sector. If these sub-industries are removed, the growth rate declines to 60.2%.

The information technology sector has the second highest earnings growth rate (12.4%) of any sector. It is expected to earn $59.6B in Q3 2017, compared to earnings of $53.0B in Q3 2016. Ten of the 13 sub-industries in the sector are anticipated to see higher earnings than a year ago. The semiconductor equipment (51.3%) and semiconductors (27.0%) sub-industries have the highest EPS growth in the sector. If these sub-industries are removed, the growth rate declines to 8.0%.

The financials sector has the lowest growth rate (-9.0%) of any sector. It is expected to earn $44.2B in Q3 2017, relative to earnings of $48.6B in Q3 2016. Six of the 12 sub-industries in the sector are anticipated to see earnings decreases compared to Q3 2016, led by the reinsurance (-344.8%) and multi-line Insurance (-120.9%) sub-industries. If these sub-industries are removed, the growth rate improves to -3.3%.

17Q4 Earnings Growth Highlights

Fourth quarter earnings are expected to increase 12.5% from Q4 2016. Excluding the energy sector, the earnings growth estimate declines to 10.6%.

The energy sector has the highest earnings growth rate (104.8%) of any sector. It is expected to earn $10.5B in Q4 2017, compared to earnings of $5.1B in Q4 2016. All of the six sub-industries in the sector are anticipated to see higher earnings than a year ago. The oil & gas exploration & production (454.7%) and oil & gas equipment & services (408.3%) sub-industries have the highest EPS growth in the sector. If these sub-industries are removed, the growth rate declines to 60.2%.

The materials sector has the second highest earnings growth rate (25.1%) of any sector. It is expected to earn $5.7B in Q4 2017, compared to earnings of $4.6B in Q4 2016. All 11 sub-industries in the sector are anticipated to see higher earnings than a year ago. The steel (88.1%) and fertilizers & agricultural chemicals (55.4%) sub-industries have the highest EPS growth in the sector. If these sub-industries are removed, the growth rate declines to 21.6%.

The real estate sector has the lowest growth rate (-0.4%) of any sector. It is expected to earn $7.7B in Q4 2017, relative to earnings of $7.7B in Q4 2016. Three of the eight sub-industries in the sector are anticipated to see earnings decreases compared to Q4 2016, led by the office REITs (-42.6%) and health care REITs (-6.8%) sub-industries. If these sub-industries are removed, the growth rate improves to 10.4%.

Aggregate Estimates & Revisions

The estimate revision numbers below are an aggregate of the total number of earnings estimate revisions for the Fiscal Year 1 period for all companies in the United States over the previous seven days. Up revisions represent the total number of estimates for Fiscal Year 1 submitted in the past seven days that are higher than the previous estimates for Fiscal Year 1. Down revisions represent the total number of estimates for Fiscal Year 1 submitted in the past seven days of that are lower than the previous estimates for Fiscal Year 1.

Exhibit 2: S&P 500: Estimate Revisions by Sector

Exhibit 3: S&P 500: Estimate Revision History

StarMine Earnings Surprise Forecast Q3 2017

Looking forward to anticipated Q3 performance, we use StarMine’s SmartEstimate® to determine which companies in the S&P 500 are better poised to beat earnings estimates. The SmartEstimate® is a weighted average of analyst estimates, with more weight given to more recent estimates and more accurate analysts. Our studies have shown that when the SmartEstimate® differs significantly from the consensus (IBES Mean), the Predicted Surprise accurately predicts the direction of earnings surprises or further revisions 70% of the time. When significant Predicted Surprise for revenue is also present for the period, the accuracy improves to 78%.

StarMine ARM is an analyst revisions stock ranking model, designed to predict future changes in analyst sentiment. Incorporates more accurate earnings estimates through the SmartEstimate prediction service. ARM region rankings scores companies by region on a scale of 1 to 100 where 100 represents the most bullish sentiment.

Over the next two weeks, 306 S&P 500 companies are expected to report earnings. Of these companies, positive surprises are expected from 19 companies. On the flip side, negative surprises are expected from 33 S&P 500 companies.

Exhibit 4. Positive Predicted Surprises for Oct. 23 to Nov. 3, 2017

Exhibit 5. Negative Predicted Surprises for Oct. 23 to Nov. 3, 2017

Please note: if you use our earnings data, please source Thomson Reuters I/B/E/S

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