This could be the best earnings season I’ve ever seen. Check out this chart from FactSet as of April 30th (60% of S&P 500 companies reported by then):
According to Refinitiv, the current “beat rate” (how many companies are reporting results above Wall Street’s consensus) is running at 87%. That’s the highest since Refinitiv started tracking these numbers in 1994, and the average since then is 65%.
Here’s an excerpt from a WSJ article earlier this week:
“Going back to 1994, companies have beat earnings estimates by an average of 3.6%, according to Refinitiv. But this earnings season, companies have posted profits that have been 22.8% above expectations.”
Now look at this one from the same FactSet article (linked above):
Earnings are easy to manipulate (lots of levers can be pulled) but revenue is a lot harder (although Under Armor figured out a way) and often more indicative of macro trends.
For example, companies after the financial crisis grew earnings more by cutting costs than by selling more stuff. This was ultimately a good thing because companies grew operating margins to record highs by 2013ish. Then, when revenue began to rise in 2016ish, more of it flowed to the bottom line and life was good.
But these numbers today are simply staggering. Earnings AND revenues are rising this early in the recovery. It falls right in line with our thesis for the past year, and let’s hope it continues.
And if anyone is curious why there appears to be such a disconnect between expectations and reality, three things could be happening here:
- Wall Street sucks at forecasting earnings
- Companies are doing so well that no sane, disciplined investor could predict numbers like these
- Mix of 1 & 2 above
My bet is #3.
Lastly, not sure if anyone remembers that borderline unwatchable documentary about the guy who only ate McDonalds for a month. Well, here’s a reporter that ate like Warren Buffet for a week and somehow survived.
And speaking of unwatchable shows, take a look what’s slated to arrive on Amazon’s IMDB TV in the near future:
“The Fed,” which follows the personal and career drama surrounding a group of young finance hopefuls as they begin an elite fellowship with the Federal Reserve, the nation’s most powerful financial institution. These young financial geniuses are destined for greatness — provided they don’t screw it all up with secrets, lies, sex, and politics.
This is so exciting. I’m expecting Jersey Shore but with college degrees and less roid rage. The parallels could be amazing. Like whereas Jersey Shore was all about DTF, The Fed is all about DCF. It’s going to be epic.
Enjoy the weekend…