Q4 Earnings Season: Can Banks Deliver? - Earnings Preview
10 Janeiro 2014 - 7:01AM
Zacks
Q4 Earnings Season: Can Banks Deliver?
With the December jobs report now out of the way, the market can
start focusing on the 2013 Q4 earnings season now. The reporting
cycle doesn’t really get into high gear till next week, but we have
a Finance-heavy list of 51 companies reporting results this week,
including 27 S&P 500 members.
The Finance sector is heavily represented in this week’s reporters,
with all of the sector’s big guns like J.P. Morgan
(JPM), Wells Fargo (WFC), Bank of
America (BAC), Citigroup (C) and
Goldman Sachs (GS) coming out with results this
week. J.P. Morgan has been in the news for all the wrong reasons,
with regulatory and litigation issues dominating the headlines. The
bank’s Q4 earnings report will likely be quite ‘noisy’, but its
superior core earnings power should remain intact.
The banking group as a whole will continue to suffer net margin
pressures as loan growth remains tepid and the mortgage business
continue losing ground. On the capital markets front, the equity
business likely did fairly good in Q4, while the fixed income and
currencies side remained under pressure. Morgan Stanley (MS) has a
stronger equities franchise, while Goldman has always been a FICC
powerhouse. Total earnings for the Finance sector as a whole are
expected to be up +19.4% from the same period last year, with easy
comparisons, particularly for Bank of America and the insurers,
driving the year-over-year growth.
The Q4 earnings season has gotten underway already, with results
from 24 S&P 500 members out. Total earnings for these 24
companies (not EPS, median or otherwise) are up +18.6% from the
same period last year, with a ‘beat ratio’ of 54.2% and a median
surprise of +1.5%. Total revenues are up +7.2%, with an impressive
revenue ‘beat ratio’ of 66.7% and a median surprise of +1.5%.
Comparing the results for this admittedly small of number of
companies with what we saw from the same group in Q3 and the last
few quarters, the earnings and revenue growth rates and the revenue
beat ratio compare favorably, while the earnings beat ratio is a
bit on the weak side.
But at this stage, the Q4 earnings season’s story isn’t about the
few companies that have reported, but bulk of those whose results
are awaited. To that point, the ‘composite’ picture for Q4, where
we combine the results from the 24 companies that have reported
already with the 476 still to come, is for growth rate of +6.3%.
This reflects +1.2% higher revenues and net margin gains of about
50 basis points. Finance remains a big growth driver in Q4 – total
earnings growth for the S&P 500 in Q4 drops to +3.7% once the
sector is excluded.
As has been the case at the start of recent quarterly earnings
cycles, the current +6.3% growth rate for Q4 represents a sharp
drop over the last three months, as the chart below shows.
This negative revisions behavior is hardly unusual as we have been
repeatedly seeing this pattern play out in recent quarters.
Companies have been overwhelmingly guiding lower, prompting
analysts to cut estimates for the following quarter. The revisions
behavior ahead of the Q3 earnings season was no different.
Estimates for most sectors came down since the quarter got
underway, but the Q4 revisions were particularly pronounced for the
Industrials, Finance, Autos and Energy sectors.
The earnings growth expected in Q4 at this stage of the reporting
cycle is the highest that we have seen in any of the last few
quarters. A big reason for that is easy comparisons, as 2012 Q4
represented the lowest quarterly earnings total for the S&P 500
in the last six quarters, with the comps particularly easy for the
Finance sector, helping produce the sector’s impressive +19.4%
growth rate.
Within the Finance sector, the comparisons are particularly easy
for the insurance industry – the industry alone accounts for more
than a quarter of the sector’s total earnings – given the impact on
the industry’s profitability from the East Coast storms in late
2012. Total earnings for the insurance industry are expected to be
up more than +40% in Q4, with all the major industry players like
Chubb (CB) and Travelers (TRV)
producing strong growth rates.
While easy comparisons are driving the year over year growth rate
in Q4, there hasn’t been much growth lately despite very high level
overall total earnings. Total earnings for companies in the S&P
500 reached an all-time record at $262.5 billion, surpassing the
previous record reached the quarter before. Current estimates for
Q4 work out to a modestly lower total for the quarter. But when all
is said and done about Q4, we will likely have seen another
quarterly record.
But of more interest than Q4 growth will be management guidance for
2014. Companies typically provide guidance only for the following
quarter, but they do tend to discuss their outlook their outlook
for the coming year on the Q4 earnings calls. It will be
interesting to see if management teams see any material improvement
in the earnings picture this year along the lines of current
consensus earnings expectations for 2014. Total earnings are
expected to be up +10% in 2014, up from +4.6% growth in 2013, with
most of the growth coming in the back half of the year.
Monday-1/13
- Nothing major on the economic or earnings calendars today.
Tuesday -1/14
- We will get the December Retail Sales data in the morning, with
expectations of a +0.2% growth following the +0.7% growth in
November. The ex-autos growth rate is expected to be +0.4% vs.
+0.4% in November.
- J.P. Morgan and Wells Fargo are the key Q4 earnings reports,
both in the morning.
Wednesday-1/15
- We will get the December PPI numbers and January Empire State
regional manufacturing surveys.
- Bank of America and Fastenal (FAST) will be
the key earnings reports in the morning, while CSX
Corp (CSX) report after the close.
- Zacks Earnings ESP or Expected Earnings Surprise, our
proprietary leading indicator of earnings surprises, is showing CSX
Corp coming out with an earnings beat.
- Stocks with positive Earnings ESP and Zacks Rank of 1, 2 or 3
are highly likely to come out with positive earnings surprises. CSX
Corp. has a Zacks Rank #2 (Buy) and Earnings ESP of +0.5%.
- To better understand Zacks Earnings ESP, please click
here.
Thursday -1/16
- A busy day on the economic calendar, with weekly Jobless
Claims, December CPI, and the January homebuilder sentiment index
and the Philly Fed survey coming out.
- Citigroup and Goldman Sachs are the key reports in the morning,
while Intel (INTC) will report after the
close.
- Goldman’s Zacks Rank #3 (Hold) and Earnings ESP of +4.6% show
that the company is highly likely to come out with a positive
earnings surprise.
Friday-1/17
- We will get the December Housing Starts and Industrial
Production data and the preliminary University of Michigan consumer
sentiment survey for January.
- General Electric (GE), Morgan
Stanley (MS) and Schlumberger (SLB) are
the key earnings reports today, all in the morning.
Here is a list of the 51 companies reporting this week,
including 27 S&P 500 members.
Company |
Ticker |
Current Qtr |
Year-Ago Qtr |
Last EPS Surprise % |
Report Day |
Time |
DRAGONWAVE INC |
DRWI |
-0.17 |
-0.28 |
-12.5 |
Monday |
AMC |
LIMONEIRA CO |
LMNR |
0.08 |
0.03 |
11.36 |
Monday |
BTO |
XYRATEX LTD |
XRTX |
0.13 |
-0.3 |
1800 |
Monday |
AMC |
COMMERCE BANCSH |
CBSH |
0.71 |
0.69 |
4.17 |
Tuesday |
BTO |
JPMORGAN CHASE |
JPM |
1.25 |
1.39 |
11.81 |
Tuesday |
BTO |
LINEAR TEC CORP |
LLTC |
0.44 |
0.4 |
4.44 |
Tuesday |
AMC |
SEMILEDS CORP |
LEDS |
-0.27 |
-0.32 |
-8.33 |
Tuesday |
BTO |
SHAW COMMS-CL B |
SJR |
0.49 |
0.5 |
-25 |
Tuesday |
BTO |
WELLS FARGO-NEW |
WFC |
0.98 |
0.91 |
2.06 |
Tuesday |
BTO |
BANK OF AMER CP |
BAC |
0.27 |
0.03 |
55.56 |
Wednesday |
BTO |
BOSTON PRIV FIN |
BPFH |
0.19 |
0.14 |
5.26 |
Wednesday |
AMC |
CLARCOR INC |
CLC |
0.7 |
0.72 |
1.52 |
Wednesday |
AMC |
CSX CORP |
CSX |
0.42 |
0.43 |
9.52 |
Wednesday |
AMC |
EL PASO PIPELIN |
EPB |
0.51 |
0.63 |
-14.89 |
Wednesday |
AMC |
FASTENAL |
FAST |
0.35 |
0.33 |
-2.44 |
Wednesday |
BTO |
KINDER MORG ENG |
KMP |
0.73 |
0.75 |
-10 |
Wednesday |
AMC |
KINDER MORGAN |
KMI |
0.36 |
0.32 |
-15.63 |
Wednesday |
AMC |
MB FINANCL INC |
MBFI |
0.45 |
0.46 |
-4.35 |
Wednesday |
AMC |
PLEXUS CORP |
PLXS |
0.61 |
0.47 |
0 |
Wednesday |
AMC |
SCHWAB(CHAS) |
SCHW |
0.21 |
0.15 |
10 |
Wednesday |
BTO |
WNS HLDGS-ADR |
WNS |
0.33 |
0.25 |
3.57 |
Wednesday |
BTO |
AMER EXPRESS CO |
AXP |
1.26 |
1.09 |
2.46 |
Thursday |
AMC |
ASSOC BANC CORP |
ASBC |
0.28 |
0.26 |
3.85 |
Thursday |
AMC |
BANK OZARKS |
OZRK |
0.64 |
0.59 |
1.67 |
Thursday |
AMC |
BB&T CORP |
BBT |
0.72 |
0.72 |
-1.41 |
Thursday |
BTO |
BLACKROCK INC |
BLK |
4.42 |
3.96 |
0 |
Thursday |
BTO |
CAPITAL ONE FIN |
COF |
1.54 |
1.42 |
6.21 |
Thursday |
AMC |
CITIGROUP INC |
C |
1.01 |
0.69 |
-3.85 |
Thursday |
BTO |
FIRST REP BK SF |
FRC |
0.66 |
0.61 |
-1.54 |
Thursday |
BTO |
GOLDMAN SACHS |
GS |
4.12 |
5.6 |
16.13 |
Thursday |
BTO |
HOME BANCSHARES |
HOMB |
0.37 |
0.3 |
3.13 |
Thursday |
BTO |
HUNTINGTON BANC |
HBAN |
0.17 |
0.19 |
17.65 |
Thursday |
BTO |
IGATE CORP |
IGTE |
0.44 |
0.46 |
10.26 |
Thursday |
BTO |
INTEL CORP |
INTC |
0.52 |
0.48 |
9.43 |
Thursday |
AMC |
PEOPLES UTD FIN |
PBCT |
0.2 |
0.18 |
-4.76 |
Thursday |
AMC |
PNC FINL SVC CP |
PNC |
1.64 |
1.71 |
11.18 |
Thursday |
BTO |
PPG INDS INC |
PPG |
1.73 |
1.53 |
4.27 |
Thursday |
BTO |
PRIVATEBANCORP |
PVTB |
0.4 |
0.26 |
13.51 |
Thursday |
BTO |
SKYWORKS SOLUTN |
SWKS |
0.57 |
0.46 |
0 |
Thursday |
AMC |
SLM CORP |
SLM |
0.7 |
0.55 |
1.69 |
Thursday |
AMC |
TAIWAN SEMI-ADR |
TSM |
0.28 |
0.28 |
0 |
Thursday |
BTO |
UNITEDHEALTH GP |
UNH |
1.4 |
1.2 |
0 |
Thursday |
BTO |
WESTAMER BANCP |
WABC |
0.63 |
0.7 |
-1.56 |
Thursday |
N/A |
BANK OF NY MELL |
BK |
0.55 |
0.53 |
3.45 |
Friday |
BTO |
COMERICA INC |
CMA |
0.74 |
0.69 |
9.86 |
Friday |
BTO |
GENL ELECTRIC |
GE |
0.53 |
0.44 |
2.86 |
Friday |
BTO |
MORGAN STANLEY |
MS |
0.44 |
0.45 |
19.05 |
Friday |
BTO |
SCHLUMBERGER LT |
SLB |
1.33 |
1.08 |
4.03 |
Friday |
BTO |
SUNTRUST BKS |
STI |
0.7 |
0.65 |
-4.35 |
Friday |
BTO |
WEBSTER FINL CP |
WBS |
0.5 |
0.52 |
0 |
Friday |
BTO |
WIPRO LTD-ADR |
WIT |
0.12 |
0.12 |
18.18 |
Friday |
BTO |
BANK OF AMER CP (BAC): Free Stock Analysis Report
CITIGROUP INC (C): Free Stock Analysis Report
CHUBB CORP (CB): Free Stock Analysis Report
CSX CORP (CSX): Free Stock Analysis Report
FASTENAL (FAST): Free Stock Analysis Report
GENL ELECTRIC (GE): Free Stock Analysis Report
GOLDMAN SACHS (GS): Free Stock Analysis Report
INTEL CORP (INTC): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis Report
MORGAN STANLEY (MS): Free Stock Analysis Report
SCHLUMBERGER LT (SLB): Free Stock Analysis Report
TRAVELERS COS (TRV): Free Stock Analysis Report
WELLS FARGO-NEW (WFC): Free Stock Analysis Report
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