For Immediate Release
Chicago, IL – July 8, 2013 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes Alcoa (AA-Free Report), Yum! Brands (YUM-Free Report), J.P. Morgan (JPM-Free Report) and Wells Fargo (WFC-Free Report).
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Here Comes Q2 Earnings Season
The 2013 Q2 earnings cycle takes the spotlight this week, even though the earnings calendar is on the light side with only 7 S&P 500 companies reporting this week, including Alcoa (AA-Free Report), Yum! Brands (YUM-Free Report), J.P. Morgan (JPM-Free Report) and Wells Fargo (WFC-Free Report).
Expectations for Q2 earnings remain quite low. Total earnings for companies in the S&P 500 are expected to be up only +0.4% from the same period last year on -0.8% lower revenues and modestly higher margins. This is sharply down from +3.9% growth expected in early April.
Nine of the 16 Zacks sectors are expected to show negative earnings growth in Q2. But the growth picture in Q2 is even more underwhelming when Finance is excluded from the data. Outside of Finance, total earnings for the S&P 500 would be down -3.2%. Total earnings were up +2.6% in Q1, but growth was expected to be in negative territory at this stage before that reporting season.
Finance to the Rescue
Finance wasn’t a big driver of aggregate earnings growth in 2013 Q1, but the sector takes back the lead role in Q2, with total earnings expected to be up +18.6% and estimates for the group steadily rising. Earnings for the sector were up +7.6% in Q1, which came after many quarters of double-digit growth.
All the industries within the Finance sector -- major and regional banks, brokers and insurers -- are expected to have positive growth. But the growth picture is particularly notable for the brokerage and investment management industry players, with total earnings for the group expected to be up +38.7% in Q2 after the +2.6% gain in Q1.
Unlike Finance, the earnings picture for the Technology sector remains fairly weak. Total earnings for the sector are expected to be down -8.3% from the same period last year, which follows the -4.2% earnings decline in Q1. Earnings estimates for the sector steadily came as the quarter progressed, with the current -8.3% decline down from the expected decline of -3.1% in mid-April. Excluding Technology, total Q2 earnings for the S&P 500 would be up +2.4% from the same period last year.
The weakest group within the Technology sector is the PC makers, with total earnings for the Computers and Office Equipment industry expected to be down -16.1% in Q2 after the -14.1% decline in Q1. Semiconductors and electronics are other Tech industries with negative earnings growth in the quarter, while the software group is expected to show a modest positive growth.
High Expectations for Second Half & Next Year
Expectations for total earnings in 2013 have come down as estimates for Q2 were revised lower, though estimates for the second half of the year and full-year 2014 have held up fairly well. The +6.4% growth in total earnings this year, down from +6.8% in early April, reflects a material ramp up in the second half of the year that is then expected to carry into 2014.
Combining the actual results for Q1 with estimates for Q2 gives us +2.7% year-over-year growth in total earnings in the first half of 2013. But total earnings are expected to be up +9.2% in the second half of the year and a further +11.5% in full-year 2014.
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Since 1988, the Zacks Rank has proven that "Earnings estimate revisions are the most powerful force impacting stock prices." Since inception in 1988, #1 Rank stocks have generated an average annual return of +28%. During the 2000-2002 bear market, Zacks #1 Rank stocks gained +43.8%, while the S&P 500 tumbled -37.6%. Also note that the Zacks Rank system has just as many Strong Sell recommendations (Rank #5) as Strong Buy recommendations (Rank #1). Since 1988, Zacks Rank #5 stocks have significantly underperformed the S&P 500 (+3% versus +10%). Thus, the Zacks Rank system allows investors to truly manage portfolio trading effectively.
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