Friday 14, April 2017 by William Mullally

Equity strategy: Earnings season preview

Earnings revisions indicate that the upcoming earnings season might show stronger figures in Europe than in the US, writes 

Christoph Riniker, CEFA, Julius Baer

 Time flies quickly and it is time once again to have a closer look at the upcoming Q1 2017 earnings season. In order to capture the development since the last earnings season, we are looking at three-month earnings revisions first. While we still see slightly negative figures in the US, European earnings managed to rise into positive territory and thus support our view of a preference for the eurozone over US equities. From a sector perspective, cyclical exposure is in the lead.

Overall, the development of sales and earnings has substantially improved in recent quarters, pointing to future positive growth again. Just as a reminder, we are currently leaving a period of negative global earnings growth. As usual, we see a wide range of expectations, as calculations differ. However, all of the forecasts see a positive bias. Based on our calculations, which are at the lower end of the forecasts, we expect US earnings to grow by over  seven per cent y/y, which is strongly driven by materials, financials and in-formation technology (see chart below). Earnings growth in the eurozone might be superior to that in the US, but less backed by coverage as many companies do not provide quarterly figures.

From a seasonal perspective, Q1 earnings are usually strongly affected. Compared to the results of Q4, materials should see a strong reading, for example. On the other hand, we have a number of sectors, such as the consumer segment, industrials and information technology, which are looking seasonally poor in Q1. Energy continues its positive development out of loss-making territory.

 

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