Regardless of the US pandemic, increasingly more US firms are providing revenue forecasts by Reuters
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By David Randall
NEW YORK (Reuters) – With earnings season in full swing, more and more companies are offering earnings forecasts that are signaling to investors that some companies are adjusting to uncertainty about a global pandemic that could stretch well into next year.
A total of 73 companies in the S&P 500 index have issued a forecast so far this quarter, compared to the 65 pre-announcements made in the previous quarter, but well below the 170 companies that normally offer a forecast, according to Refinitiv data. The companies providing guidance have the most optimistic expectations for 1997 refinitive data.
“Being able to offer guidance shows that a company has a better idea of what to expect,” said Charlie Ripley, senior investment strategist at Allianz (DE 🙂 Investment Management.
The market has been dragged by currents related to the upcoming November 3rd US presidential election, lengthy business talks in Washington, and a resurgent pandemic. Still, investors seem more hopeful in recent months.
50% of US high net worth investors surveyed by UBS Global Wealth Management were optimistic about the economy, up from 41% three months ago, and 55% were optimistic about stocks, down from 44%. The S&P 500 index is up nearly 7% year-to-date, including a 2.2% gain since early October.
So far this quarter shares of AT&T Inc (N :), Verizon Communications Inc (N 🙂 and Quest Diagnostics Inc (N 🙂 have rebounded after each company provided updated guidance to investors on how it is expected to perform over the next fiscal year.
“It’s not surprising we had so many beats this quarter because we started the season with very little guidance,” said Katie Nixon, chief investment officer at Northern Trust (NASDAQ 🙂 Asset Management.
“Now we see how companies expect to meet the challenges of the coming year,” she said.
Investors will experience the busiest part of the earnings season yet, with companies from Beyond Meat Inc. (O 🙂 and Microsoft Corp. (O 🙂 too Pinterest Inc. (N 🙂 should report results.
Microsoft in particular should exceed its conservative forecasts thanks to strong PC shipments and the growth of its Azure cloud computing platform, said J. Derrick Wood, an analyst at Cowen.
“The setup is more compelling as the bar was reset last quarter and macro conditions are improving,” he said.
Nearly 86% of companies that have reported profits to date have exceeded analyst expectations, a rate 20 percentage points above the average beat rate since 1994, according to Refinitiv data.
However, investors like Nixon say they are looking beyond beat rates and focusing on companies that can improve or maintain measures like refinancing debt, raising cash, and controlling costs regardless of how the pandemic develops or a breakthrough in business stimulus talks .
The White House and Congressional Democrats are still negotiating another law to ease coronavirus, despite Senate majority leader Mitch McConnell signaling that he may not speak the law until after the election.
Companies in the S&P 500 index are likely to see average earnings growth of up to 25% over the next year as they rebound from last year’s comparisons during the worst economic deadlocks, said Steve Chiavarone, portfolio manager at Federated Hermes (NYSE) 🙂 .
Companies that can make positive predictions despite the unknown are more likely to survive higher corporate taxes if Democratic challenger Joe Biden beats President Donald Trump and the Democrats take over the U.S. Senate, he said.
“We are seeing a lot of positive metrics that show these companies may be able to easily offset lost profits,” he said.