Alcoa Inc (NYSE:AA) kicked off second quarter earnings season last night with a solid beat, but can we expect more of the same? Goldman Sachs analysts have identified 22 stocks from the S&P 500 which they think will beat estimates.
Second quarter earnings overview
In a report dated July 8, 2014, analysts Amanda Schneider and Stuart Kaiser and their team said they expect earnings per share of $28.50 for the S&P 500 in the second quarter. That’s an 8% year over year growth and is in line with consensus. For the full year, they’re estimating $116 per share, which is slightly under consensus estimates of $117.
The Goldman Sachs team has placed SanDisk Corporation (NASDAQ:SNDK) at the top of their list of stocks they think will outperform in the second quarter. Other notable names on the list include Texas Instruments Incorporated (NASDAQ:TXN), Juniper Networks, Inc. (NYSE:JNPR) and Wyndham Worldwide Corporation (NYSE:WYN). Here’s their full list:
Examining earnings per share revisions
The analysts used revisions to earnings per share estimates to determine which companies are likely to beat or miss estimates. They say companies with a lot of downward analyst revisions are less likely to beat than those with more positive revisions or no revisions. They say the same is true vice versa as well. In addition, they note that companies with a lot of negative analyst revisions tend to be rewarded more for their earnings beats and penalized less for their earnings misses.
The Goldman Sachs team reports that most of the negative earnings estimates revisions were in the Materials, Consumer Discretionary and Financials sectors. They report that estimates fell 10% for Materials and 4% for Consumer Discretionary and Financials. Healthcare was the only segment in which estimates rose, by 2%, to be exact.
For the second half of the year, the Goldman Sachs team expects downward revisions of 1.7% for earnings estimates. That’s because the slightly higher full-year earnings per share estimate of $117 is a bit ahead of their estimate.
The analysts also note that investors will be listening very closely from management commentary to hear whether each company has encouraging plans and “sustainable business conditions.” They believe managements will see a decline in uncertainty, which should give a boost to growth investments through capital expenditures and mergers and acquisitions.