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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Bank of America Corporation | NYSE:BAC | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.08 | 0.22% | 37.09 | 37.505 | 36.77 | 37.21 | 32,276,062 | 00:59:21 |
The following is an excerpt from this week's Earnings Trends article. To see the full article, please click here.
An Improving, But Still Weak Earnings Picture
Our initial call about the Q1 earnings season being extremely weak and outright mediocre has turned out to be a bit premature. With a bigger and more balanced sample of reports at our disposal now, the Q1 earnings picture isn’t looking as bad. We are not suggesting that the earnings picture has suddenly turned around; it hasn’t. There is still not much earnings growth, top-line surprises are for the most part negative and there is no change on the guidance front.
What has changed is that while the Q1 earnings growth earlier on appeared to be on track to be low even by the modest standards of other recent quarters, it is slowly starting to look like those quarters in some respects. The improvement over the last few days is still not readily obvious from aggregate data, but it is there if look close enough. Hardly a ringing endorsement of the earnings picture, but nevertheless better than how the reporting season appeared headed just a few days back.
This modest positive aside, there is still plenty that is disappointing about the Q1 earnings. The most notable disappointing aspect of the Q1 earning season thus far is the lack of any improvement on the guidance front. Management guidance has been on the weak side for almost two years now, keeping the revisions trend firmly in the negative direction. We haven’t seen any improvement on the guidance front thus far, though it may be a bit premature to lose hope altogether.
The results thus far increase the odds that we wouldn’t see any change on that front this earnings season either. Estimates for Q2 have started coming down already and the pace of negative revisions will likely only accelerate as the rest of the reporting season unfolds. This will be consistent with a trend that has been in place for almost two years now; we know that the market made impressive strides in that time period.
The market has been a lot less forgiving lately, with the broad large-cap indexes barely up on the year. It will be interesting to see if investors will respond any differently to the coming period of negative estimate revisions.
Q1 Scorecard (as of April 24th, 2014)
Including this morning’s earnings announcements, we now have Q1 results from 204 S&P 500 members that combined account for 52.3% of the index’s total market capitalization. Total earnings for these 204 companies are up +2.9% from the same period last year on +3.6% higher revenues, with 68.3% beating EPS estimates and 44.0% coming out with positive revenue surprises.
Looking at the two sets of charts below – the first comparing total earnings growth for these 204 companies with what these same companies reported in 2013 Q4 and the 4-quarter average and the second comparing the beat ratios – it’s hard to see anything but all around weakness in the results thus far…
Q1 Growth Compared
Q1 Beat Ratios Compared
The EPS beat ratio is in in-line with recent quarterly averages, while the revenue beat ratio is materially weaker than what we have been seeing in recent quarters. What this means is that only 44.0% of the 204 companies that have reported results have beat revenue estimates, while 61.3% of the same group of companies beat top-line expectations in 2013 Q4 and the 4-quarter average for this group is 53.4%. Hard to call this performance anything but weak.
The primary reason for the sub-par aggregate growth rate is the drag from the Finance sector’s -8.4% earnings decline. We should keep in mind, however, that the Finance sector’s weak growth numbers are primarily due to Bank of America (BAC). Excluding the roughly $2 billion negative swing in Bank of America’s total earnings from the Finance sector, total earnings for the sector would be down only -1.6% and excluding Bank of America from the S&P 500 as whole would push up the aggregate growth rate to +4.8%.
Excluding the Finance sector as a whole, total earnings for the S&P 500 companies that have reported results would be up +6.9% on +4.8% higher revenues, which is actually better than what we have seen from the same group of ex-Finance companies in other recent quarters. This may not continue through the end of the earnings season, but it’s hard to overlook at this stage at least.
Key Points
To see the full Earnings Trends report, please click here.
1 Year Bank of America Chart |
1 Month Bank of America Chart |
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