Leigh Drogen

About the Author Leigh Drogen

Leigh Drogen is the Founder and CEO of Estimize. Estimize is an open financial estimates platform which facilitates the aggregation of fundamental estimates from independent, buy-side, and sell-side analysts, along with those of industry experts, private investors and students. By sourcing estimates from a diverse community of individuals, Estimize provides both a more accurate and more representative view of expectations compared to sell side only data. Leigh started his career as a quant trader at Geller Capital, a White Plains, NY based fund where he ran strategies that looked at earnings acceleration and analyst estimate revision models, as well as price momentum and several sentiment indicators. Leigh later went on to be the founder of Surfview Capital, a New York based asset management firm that used many of the same strategies as Geller Capital, with a focus on higher beta names on an intermediate term time frame. His educational background includes focus in economics and international relations, specifically war theory. He is a graduate with honors from Hunter College in New York City. You can contact Leigh by emailing him at Leigh@estimize.com

Dark Cloud Ahead For Peak Weeks: Earnings Misses, Downward Energy Revisions And Lagging Revenues

Next week marks the beginning of peak earnings season for the S&P 500, with 140 companies slated to report. Thus far, 73 companies have released results, of those 52% have beaten our EPS consensus and only 43% have beaten on revenues. This will be the worst EPS beat rate in our three years of data, and the worst revenue beat rate since Q3 2012. It should come as no surprise that the financials are the poorest performing segment thus far – of the 17 companies that have reported only 35% have surpassed earnings expectations. On the revenue front, consumer staples is the worst performing sector, with only 33% of its six reporting companies beating estimates. This morning we had McDonald’s (NYSE:MCD) out with their biggest miss against the Wall Street estimate in over 15 years. In addition UPS (NYSE:UPS) issued downtrodden preliminary results, sending the stock down nearly 10% at this point.

In addition to unexpected misses, estimates for companies that have yet to report have also been slipping, especially among the energy names. Currently, the S&P 500 is poised to post Q4 growth of 5.0%, with energy as the biggest laggard at -19.4%. While certain sectors are undoubtedly benefiting from lower oil prices and somewhat offsetting weakness presented by energy, that sector still weighs heavily. In fact, if you remove energy, that 5% growth rate would shoot up to 8.8%.

The aforementioned revenue misses have brought growth down to 1.2% for Q4, from the 1.9% expected in the beginning of the year. The outlook for revenues in 2015 is not stellar, with low top-line growth looking like it’s here to stay around the 2% level. Furthering the trend of suffering sales is due primarily to weakness in Europe, the stronger dollar, and some company specific reasons such as McDonald’s issues with food supply/quality in China. Strict cost management programs and share buybacks are still giving a kick to the bottom line.

How are we doing?

Expectations for S&P 500 earnings growth for the fourth quarter stand at 5.0%. Revenues are anticipated to come in with 1.2% growth.

Leaders

Earnings:

Healthcare (21.3%). Notable industry: Biotechnology (59.3%)

Telecommunication Services (13.1%).

Information Technology (12.4%). Notable industry: Semiconductors (30.9%)

Revenues:

Healthcare (7.8%). Notable industry: Biotech (37.5%).

Information Technology (7.0%). Notable industry: Semiconductors (14.8%)

Laggards

Earnings:

Energy (-19.4%). Notable industry: Oil, Gas and Consumable Fuels (-20.8%)

Financials (-3.1%). Notable industry: Banks (-4.6%)

Materials (-2.8%). Notable industry: Paper and Forest Products (-17.7%)

Revenues:

Energy (-13.6%). Notable industry: Oil, Gas and Consumable Fuels (­-15.8%).

Materials (-0.9%). Notable industry: Paper and Forest Products (­-18.2%).

Beat/Miss/Match

Earnings: With 30 S&P 500 companies reporting thus far, 52% have beaten our consensus, 38% have missed and 10% have met. This is compared to Wall Street estimates of which 67% of companies have beat on the bottom­ line, 21% have missed and 12% have met.

Revenue: 43% have beaten the Estimize consensus, while 57% have missed. For revenues, 57% of companies have beat the Wall Street estimate, while 43% have missed.