InvestIdeas

US 4Q Earnings

We started Q4 with expectations of 8% year-over-year earnings growth. That has now been revised down to just 1.3% growth.

The analyst community continues to undershoot on earnings and undershoot on economic growth. So once again, we head into earnings season with a setup for positive surprises.

The yearly change in the motor vehicle insurance component of CPI (for November) was up 19.2%. From pre-covid levels, it was up 35%.

Guess which industry is expected to be the largest contributor of positive earnings growth in Q4? Insurance.

Insurance companies are expected to have grown earnings by 26% over the past year.

Source: Forbes

Global EPS growth estimates: While IT and Telecom are expected to lead, Healthcare is expected to see the biggest recovery.
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US 4Q Earnings

As of last Friday, 25% of the S&P had reported Q4 earnings.

For how they’re shaping up, let’s turn to FactSet, which is the go-to earnings data analytics group used by the pros:

For Q4 2023, the blended (year-over-year) earnings decline for the S&P 500 is -1.4%.

If -1.4% is the actual decline for the quarter, it will mark the fourth time in the past five quarters that the index has reported a year-over-year decline in earnings.

At this stage of the fourth quarter earnings season, the overall performance of the S&P 500 continues to be subpar.

The percentage of S&P 500 companies reporting positive earnings surprises is below average, while companies are reporting actual earnings that are below estimates in aggregate.

Now, this earnings season will certainly lead to some shorter-term volatility, but the more influential factor on your portfolio is where earnings go in 2024. FactSet pegs the S&P’s 2024 full-year earnings growth at 11.6%.

Source: Investor Place

Elsewhere in the S&P 493, however, we can see downward earnings revisions have been a theme as margin compression is expected as disinflation prevails.
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Line of the day: "AI has begun showing up in financial results - just more on expenses than revenue."
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"Investors often ask us whether the group’s 30x P/E multiple is sustainable given rest of the index trades at 18x.

The premium valuation reflects investor expectations the ‘Mag 7’ will post 3-year CAGR sales growth of 12% vs. 3% for the S&P 493."
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Mega Cap valuations look more reasonable when adjusted for growth.
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Q1 2024 Earnings

Looking ahead, analysts expect (year-over-year) earnings growth of 3.9% for Q1 2024 and 9.0% for Q2 2024.

For CY 2024, analysts are calling for (year-over-year) earnings growth of 10.9%.

Because earnings are surging to record highs.

Where earnings go, stocks follow. That’s the simple truth about stocks…

Earnings are ramping. Stocks will therefore keep pushing higher, too.

Source: Investor Place

Profit growth in 2024 is being downgraded by analysts
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Following 2023’s modest -2.6% earnings decline, there is now a clear sequential improvement in the quarterly EPS data. In fact, the 2024 calendar year estimate is now ticking higher at 9.5%.
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