I can’t believe it is already earnings season. It seems like I was just writing the Q1 wrap. That quarter was a blockbuster – with increasing earnings, solid corporate guidance, and estimate increases. You almost could not write a better story for earnings.
This quarter also looks like it will continue the recent trend. Once again, estimates have increased as we approach the quarter earnings releases. This is highly unusual as normally companies game the estimates whispering out bad news so that analysts lower their estimates. These lowered estimates then become an easier target to hit and surpass – creating a positive earnings surprise.
This quarter, like the last quarter, is different. Estimates have grown from 18.9% growth to 20.1% growth. We use Factset’s Earnings Insights to pull this data. This indicates that companies are confident with their results, and analysts are comfortable with their estimates. This bodes very well for the quarter.
I would like to call out a couple of sectors. One sector, technology has been on a torrid pace in recent quarters, and this quarter is no different. Current estimates put the technology companies on track to grow 24.6% this quarter. This sector is rocking! One sector which has not been represented in the fast growing sectors is telecom. This important sector has been almost flat for years, but now is set to supercharge forward with a 27.3% growth rate. Is this turnaround real? I would need more than one quarter to confirm. AT&T is clearly buoyed by its acquisition, but the rest are set to grow at 20% if you pull AT&T out. So Telecom is something to keep an eye on.
One other datapoint deserves mention. Companies are not only growing their bottom line, but also their top line. Revenues are set to have one of the best quarters in the past five years. The estimates are currently set to grow at 8.8% this quarter.
Q2 will be good, and we are going to see solid guidance heading into Q3 as well. While the headlines are focused on the trade wars, and companies struggling to cope with the friction of tariffs, they quietly are putting up solid results. If you assume that trade wars eventually are settled, then this would represent a great buying opportunity.
So, in summary, you can be confident that this quarter is going to be a solid earnings quarter. The market will NOT focus on the reported earnings, but rather the forward guidance that companies issue when they release earnings. My guess is that this guidance will continue to be solid, and that there is a solid investment foundation.