Tags: BofA | Subramanian | earnings | estimate

BofA: S&P 500 Companies Are Beating Earnings Estimates So Far

By    |   Monday, 27 April 2015 01:58 PM

The busiest week for earnings reports ended last week with companies beating Wall Street estimates on average, according to Bank of America Merrill Lynch.

Health care companies had the highest percentage of companies that beat estimates, 82 percent, making them “our preferred sector to own this earnings season,” the bank said.

By the end of last week, 201 companies representing 54 percent of S&P 500 earnings had published results for the first three months of the year. Their better-than-estimated profits drove bottom-up earnings per share to rise $0.70 to $27.73, BofA said.

“This is now nearly 3 percent above analysts’ expectations at the start of April and nearly 1 percent above our forecast of $27.50,” Savita Subramanian, the bank’s head equity and quant strategist, said in an April 27 report obtained by Newsmax Finance. “While first-quarter S&P 500 earnings growth is still expected to be negative, the magnitude of the decline should be less than initially forecast.”

Wall Street strategists now estimate earnings will fall 2 percent from a year earlier, with energy companies weighting on aggregate results for the S&P 500. The price of oil collapsed by more than 50 percent since last June, pressuring driller revenues.

The dollar’s strength was expected to hurt U.S. companies that do business overseas, but those negative effects have been muted, BofA said.

“While many multinationals have highlighted the large hits to EPS from foreign exchange on their calls, the majority were not as bad as expected,” Subramanian said. “63 percent of companies with high foreign exposure have beaten on EPS this quarter, versus 50 percent of the pure domestics.”

She said foreign earnings estimates were cut going into the first quarter, but were offset by hedging and cost management. Revenue figures showed a greater negative effect from the stronger dollar.

Looking ahead, Wall Street analysts may need to lower their earnings estimates further given the rate of negative guidance from corporate managers, according to BofA.

“The management guidance ratio for April is 0.5, suggesting management has guided below consensus twice as much as above,” the bank said. “This is below the long-term average of 0.6.”

With earnings beating Wall Street estimates, the key risk to markets is Greece’s negotiation with the International Monetary Fund and European finance ministers, said Oliver Pursche, CEO of broker-dealer Bruderman Brothers Llc.

“Tensions between Greece and its creditors heated up last week, keeping a lid on stocks prices that were trying to move higher on the back of solid earnings reports,” he wrote in a column for MarketWatch.

He advised keeping an eye on yields for German 10-year government debt. An increase from about 15 basis points to 20 basis points would indicate greater investor caution.

“As earnings season shows to be stronger than most, myself included, feared and expected, the only real remaining road block for markets to move higher is the Greek debt situation,” Pursche said.

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The busiest week for earnings reports ended last week with companies beating Wall Street estimates on average, according to Bank of America Merrill Lynch. Health care companies had the highest percentage of companies that beat estimates at 82 percent.
BofA, Subramanian, earnings, estimate
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2015-58-27
Monday, 27 April 2015 01:58 PM
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