FAST FIVE: Despite Strong Start To Earnings Season, EPS Estimates Continue To Slide
As we enter Week 2 of earnings season, 30 S&P 500 companies, or 9% of earnings have reported, of which the most notable so far include four Financials and two Industrials reporting results last week, with only Wells Fargo missing EPS estimates.
Results are weaker down market cap: small caps continue to see bigger cuts to 1Q expectations and fewer beats so far.
Broken down by sector, the biggest EPS cuts have been to Energy, Industrials and Staples, while Industrials, Energy and Materials companies have seen the biggest revenue expectation cuts.
Here, Bank of America is bullishly inclined, and writes that given the steep 7% drop in consensus 1Q EPS YTD, the bank thinks that “estimates have sufficiently reset and see upside risk to results this quarter.” Furthermore, the bank notes that in prior quarters following similarly-dramatic cuts, EPS beat in all instances by 3% on average (although Morgan Stanley is not confident we will get a similar performance this time).
That said, guidance is all that matters as we noted recently, and any improvement in the management guidance ratio, which had deteriorated in 1Q (as it typically does) could drive new highs for the S&P 500 (while any sharp deterioration may result in a “bad news is good news” outcome, and also driving new highs).