Earnings Growth Returns, Will It Continue?

Standout Sectors

Sectors with strong growth and better than expected results include the Finance, Technology, Construction, Industrial Products, Basic Materials and Consumer Discretionary sectors. Positive surprises for all of these sectors are tracking above the index level.  

Finance: With results from 57.7% of the sector’s market cap in the S&P 500 index already out, total earnings for the sector are up +11.3% from the same period last year on +3.1% higher revenues, with +66.7% beating EPS estimates and +46.2% beating top-line estimates.

This is a better growth performance than we have seen from the sector in other recent periods, as the comparison charts below show. Please note that positive surprises are as hard to come by in the Finance sector as they are elsewhere.

Strong Finance sector growth is a big driver of the aggregate growth performance for the S&P 500 index as a whole. Excluding the Finance sector, the Q4 growth pace still compares favorably with other recent periods, but a lot less so, as the right-hand chart below shows.

Technology: For the Technology sector, we now have Q4 results from 59.6% of the sector’s total market cap. Total earnings for these companies are up +7.2% from the same period last year on +4.9% higher revenues, with 69% beating EPS estimates and 82.8% beating revenue estimates.

We will see what this week’s Apple (AAPL) and Facebook (FB) reports bring, but the sector’s Q4 earnings and revenue growth is about in-line with what we saw from this same group of Tech companies in the preceding quarter (2016 Q3), though it is notably tracking above the 4-quarter and 12-quarter averages. With respect to positive surprises, Tech companies appear to be beating EPS estimates at a lower proportion than has historically been the case, though the proportion of positive earnings surprises remains above the index level. Revenue surprises, on the other hand, are tracking notably above historical periods.

Key Reports for the Week of January 30th

Tuesday – 1/31/2017: Monday has a relatively light reporting docket, but Tuesday is very busy with more than 90 companies reporting results, including 33 S&P 500 members (of which 22 are in the morning). The focus will be on Apple (AAPL), which reports after the market’s close. Exxon (XOM), Pfizer (PFE), Eli Lilly (LLY) and Under Armour (UA) will be the key reports in the morning.

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Note: Sheraz Mian regularly provides earnings analysis on Zacks.com and appears frequently in the print and electronic media. In addition to this Earnings Preview ...

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Chee Hin Teh 4 years ago Member's comment

Thanks for sharing