Friday
Oct162009
EPS Beat Rate at 85%
Friday, October 16, 2009 at 08:10AM While stocks are trading lower today because of a poor reaction to Bank of America's and General Electric's earnings reports, the third quarter earnings season has gotten off to a stellar start. Since Alcoa (AA) kicked off earnings season, 85% of US companies have beaten earnings estimates. While we still have a long way to go this reporting period, the current beat rate is well above any other quarter since at least 1998. Even with analysts raising estimates significantly leading up to earnings season, companies have still managed to come in better than expected so far.
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Reader Comments (6)
Analysts are notoriously bad at predicting future earnings. They are controlled too much by the recency effect.
The key is valuation, and the market is richly valued even if 100% of companies top estimates.
I understand your comment, but analysts hiked estimates significantly going into earnings season, so they really weren't too low and easy to beat. Plus, as of now, 21% of companies have raised guidance for future quarters, which is unprecedented. This doesn't have anything to do with what the analysts think either, it's based on internal projections.
True, the revenue beat rate isn't as high as the earnings beat rate, but as we saw in the prior two quarters, investors simply don't pay as much attention to the revenue numbers if they're being interpreted as negative since stocks have soared. So far this earnings season, the revenue beat rate is a bit higher than the prior two quarters. Also, the average stock that has missed EPS estimates has gone down much more than the average stock that has missed revenue estimates. It's an easy argument if you're bearish, but being negative on the market because revenues aren't as strong as bottom line numbers has cost the investor a lot of money throughout the last 65% of upside gains.
The news is (temporarily) as good as it gets. Sell.