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US business EPS estimates lowered in the fourth quarter

EPS estimates

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The week was dominated by positive finance and economic news, which kept the Wall Street indexes up in five consecutive sessions. Thus most of the stocks were on the rise, amid optimism for the world economy and expectations for the delay of the monetary policy tightening by the US Federal Reserve.

However, some companies warned for lower profits and revenue, which caused turmoil in some sectors, including aviation and retailing.

On Thursday, Macy’s Inc slashed its profit, sales, inventory and gross margin outlook, as holiday sales weakened in mid-December, and didn’t pick back up to expected patterns until the week of Christmas. The stocks of the retailer wiped out nearly 17% during the session.

Following the collapse, cause turmoil among retailers. The SPDR S&P Retail exchange-traded fund slumped 1.9% in afternoon trade, with 71 of 95 equity components losing ground, to buck the gains seen in the broader market.

Meanwhile, American Airlines lowered its projections for fourth-quarter revenue and full-year 2018 profit, which caused a collapse of its stocks by more than 11%, but later they recovered to a loss of only 4.1%. The world’s largest airline cut its estimate of 2018 earnings per share to between 4.40 USD and 4.60 USD, down from its earlier forecast of 4.50 USD to 5.00 USD per share.

S&P 500 expected to report earnings growth of 11.4% in Q4 2018

During the fourth quarter, analysts lowered earnings estimates for companies in the S&P 500 for the quarter. The Q4 bottom-up EPS estimate dropped by 3.8% (to 40.93 USD from 42.56 USD) during this period.

Over the past five years, the average decline in the bottom-up EPS estimate during a quarter has been 3.1%. Over the past ten years, the average decline in the bottom-up EPS estimate during a quarter has been 4.5%. Thus, the decline in the bottom-up EPS estimate recorded during the fourth quarter was larger than the 5-year average, but smaller than the 10-year average and the 15-year average. However, the fourth quarter did mark the largest percentage decline in the bottom-up EPS estimate during a quarter since Q3 2017 (-3.9%).

The S&P 500 is expected to report earnings growth of 11.4% for the fourth quarter. Based on the average change in earnings growth due to companies reporting positive earnings surprises, it is likely the index will report earnings growth above 15% for Q4, but below the 25% growth reported in the previous three quarters.

The forward 12-month P/E ratio is 14.1, which is below the 5-year average of 16.4 and below the 10-year average of 14.6. It is also below the forward 12-month P/E ratio of 16.8 recorded at the start of the fourth quarter (September 30). Since the start of the fourth quarter (September 30), the price of the index has decreased by 16.0%, while the forward 12-month EPS estimate has decreased by 0.1%.

SYNNEX Corp beat analyst estimate in Q4

The supply chain company SYNNEX Corp reported Q4 EPS of 3.65 USD, beating by 0.56 USD the analyst estimate of 3.09 USD. The company’s revenue for the quarter came in at 5.62 billion USD versus the consensus estimate of $5.43 billion.

SYNNEX Corp raised guidance for Q1 2019 to EPS of 2.70-2.80 USD per share, versus the consensus of 2.51 USD. The company sees revenue for the quarter of 5.225-5.425 billion USD, versus the consensus of 5.08 billion USD.