Third quarter earnings from the S&P 500 (INDEXSP:.INX) have positively surprised thanks to financials and higher than expected margins.
Amanda Sneider and her team at Goldman Sachs feel third quarter EPS is on track to establish a new quarterly and trailing four-quarter high.
More sales misses than usual
Goldman Sachs analysts point out that despite more sales misses than usual, aggregate sales results are in line with expectations. The analysts believe the market has been less likely to reward sales and earnings beats in 2013 compared to 2011 and 2012. Between 2011 and 2012, 62% of stocks that beat earnings estimates and 63% of stocks that beat sales estimates outperformed the market on the next trading day. However, this compares to 59% and 54% witnessed during this quarter.
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The following table shows that 18% of S&P 500 (INDEXSP:.INX) companies beat sales and earnings, while 9% missed earnings and sales:
Financials and positive margin surprises
Amanda Sneider and her team at Goldman Sachs point out that positive earnings surprises have been driven by financials and positive margin surprises. The third quarter EPS of $26.85 is on track to establish a new quarterly and trailing four-quarter high. In addition, the trailing four-quarter EPS totals $102.13.
The following table highlights results and consensus bottom-up estimates for 3Q 2013 earnings season:
However, Goldman Sachs analysts feel revisions to 4Q EPS have been mostly negative in cyclical sectors. For instance, industrials and energy estimates for next quarter fell 2% during the past three weeks, while utilities and telecom services estimates have increased.
With only 16% of energy sector EPS having been reported, Amanda Sneider and team feel analysts have revised down energy estimates early in the season. It may be noted this week, 60% of the energy sector’s market cap will report results. Interestingly, these companies account for 67% of the sector’s forecasted EPS for the third quarter.
Goldman forecast beat consensus
Goldman Sachs analysts’ 2013 EPS forecast of $108 is above the bottom-up consensus estimate of $107. The analysts point out that their forecast implies 1% upside to the second-half earnings. By holding the third-quarter EPS constant, the analysts note that $108 implies 2.3% upside to consensus 4Q EPS. The following graph highlights the consensus S&P 500 (INDEXSP:.INX) 2013E EPS.
Amanda Sneider and team, however, point out that bottom up consensus estimates for the fourth-quarter 2013 fell by 43 basis points over the past week and 100 basis points since the commencement of the third-quarter earnings season. However, the analysts point out that despite negative fourth-quarter revisions, the consensus full-year 2013 EPS estimate for the S&P 500 increased when combined with the positive surprise to third-quarter estimates.