Upcoming Quarterly Earnings – What to Expect: Citi

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Citi analysts Tobias M Levkovich, Lorraine M Schmitt and Christina Wood look at trends leading up to the upcoming quarterly earning results in their report of September 27, 2013. Here are some of the key points made in the report.

Macro versus Micro Focus

The recent preoccupation with macro events such as the Fed pronouncements, the no-taper and housing or employment data is expected to change to company-specifics as the earnings numbers flow in—but Citi suggests that investors not lose sight of the big picture entirely. In a world where “global economic developments matter much more than they have previously,” it is advisable not to ignore or overlook the broader environment.

Negative-to-positive pre-announcement (N/P) ratio

3Q13’s N/P ratio of 5.1 is level with 2Q01 and is the fourth highest in 17 years.

Earnings revisions

The analysts are struck by the near 100 percent reading in the upward revisions as a percentage of total in the Autos & Components Sector as per the graph below. This could not possibly sustain, and is therefore a source of risk.

1-autos-comps-100percent earning

In contrast, upward revisions in Consumer Durables and Diversified Financials have been only 23 percent and 30 percent respectively, as per the graphs below, so there is perhaps opportunity here.

2-consumer-durables -23 percent


Consensus estimates for 2014 maybe too optimistic

Citi cautions that consensus estimates for 2014 appear to be too rosy (see chart below), considering the plateauing in operating margins and tepid growth in Europe. The risk – “the investment community should anticipate business leaders to guide down their outlooks and individual stock prices could suffer from such changes.”


Caution Advised

Citi advises near-term caution in view of a number of factors, such as the percentage of NYSE factors at or near 52-week highs, low intra-stock correlation, a peaking in the Citi Economic Surprise Index and fiscal uncertainty.

With a downward tweaking of 2014 estimates looking real, Citi says, “share prices could continue to back off in the short term which plausibly provides a better entry point in the next couple of months.”

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