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Have US Stocks Reached Peak Earnings Levels?

Nov 05, 2018

 

  • 3Q2018 earnings season is beginning to wind down with 100 companies in the S&P 500 reporting quarterly earnings over the next week and 370 companies in the S&P 500, or 74% of the index, having already reported earnings this season. 
     
  • Out of the 370 stocks in the S&P 500 to already report quarterly earnings, 291 companies, or 78.65% of the companies to report quarterly earnings, have surpassed consensus analyst estimates. 88.7% of companies in the S&P 500 to report quarterly earnings have generated double-digit y/y EPS growth while 25 of those companies have reported y/y growth above 100%.  
     
  • On average, companies in the S&P 500 to report quarterly earnings so far this season have generated an average EPS surprise of 15.2%.
     
  • On a sector basis, tech stocks appear to be having the strongest earnings season as 96% of the 45 tech stocks to report earnings have surpassed analyst expectations. So far, 45 of the 65 information technology stocks in the S&P 500 have reported earnings, generating an average surprise of 7%. 
     
  • The S&P 500’s new communication services sector is also performing strongly this earnings season with 92% of companies in the sector to report earnings beating consensus analyst expectations. Of the 22 stocks in the S&P 500’s communication services sector, 12 have reported earnings, generating an average surprise of 19%. 
     
  • The S&P 500’s materials sector is the worst performing sector in S&P 500 so far this earnings season with only 56% of the companies to report quarterly earnings beating consensus analyst expectations. 16 companies of the 24 in the sector have reported quarterly earnings so far, generating an average surprise of just 4%.  
     
  • Concerns that companies have reached peak earnings levels contributed to a sell-off of US stocks this past October. With more than 78% of S&P 500 companies to report earnings delivering quarterly earnings beats, investor fears of peak earnings levels should subside. As we extend through 2019, however, effects from President Trump’s 2017 tax cut will diminish, translating to a negative impact on companies’ ability to organically growth their bottom-line earnings.

 

Source: Capital IQ
Sector Above Consensus Matching Consensus Below Consensus Average EPS Surprise Companies Reported Companies in Index
Communication Services 92% 0% 8% 19% 12 22
Consumer Discretionary 79% 11% 11% 12% 38 64
Consumer Staples 76% 10% 14% 4% 21 32
Energy 70% 9% 22% 88% 23 31
Financials 78% 8% 13% 5% 60 67
Health Care 84% 7% 9% 5% 45 64
Industrials 69% 10% 20% 3% 59 70
Information Technology 96% 0% 4% 7% 45 65
Materials 56% 6% 38% 4% 16 24
Real Estate 74% 10% 16% 49% 31 32
Utilities 85% 5% 10% 9% 20 29
S&P 500 79% 7% 14% 15.0% 370 500