by David Templeton, CFA, Horan Capital
In spite of the high level of negative earnings guidance issued by companies for the third quarter, the market is shaking of this news and moving higher. Factset reports,
"For Q3 2012, 80 S&P 500 companies have issued negative EPS guidance while 21 companies have issued positive EPS guidance. If 80 is the final number of companies issuing negative EPS guidance for the quarter, it will mark the second highest number for a quarter during the past three years, only trailing the number recorded in Q4 2011 (84). If 21 is the final number of companies issuing positive guidance for the quarter, it will mark the lowest number of companies for a quarter since FactSet began tracking guidance in Q1 2006.
"At the sector level (with a minimum of five companies issuing quarterly EPS guidance), the Health Care (100%) and Materials (100%) sectors have the highest percentages of companies that have issued negative EPS preannouncements, while the Industrials (50%) and Consumer Staples (50%) sectors have the highest percentage of companies that have issued positive EPS preannouncements."
Factset goes on to note,
"Although the percentage of negative preannouncements is running at an all-time high, the market is not punishing the price performance of these stocks in the short term. For the 80 companies that have issued negative EPS guidance for Q3 2012 to date, the average price change (2 days before the guidance was issued through 2 days after the guidance was issued) has been +0.2%. This percentage is well above the average over the past five years of -1.8%. Just under half of the companies (38) that have issued negative guidance have recorded an increase in price during this time frame. Ten of these companies witnessed a double-digit increase in price.
"For companies that have issued positive guidance, the story has been even better. Of the 21 companies that have issued positive EPS guidance for Q3 2012, the average price increase has been +6.5%. This percentage is also well above the average over the past five years of +2.6%."
Eventually, companies will need to generate top and bottom line growth in order to support a continued advance in the market.
Source:
Guidance (EPS)
Factset
By: John Butters, Senior Earnings Analyst
August 31, 2012
http://www.factset.com/websitefiles/PDFs/guidance/guidance_8.31.12
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