Beating Earnings Estimates Loses Shock Value: Chart of the Day

U.S. companies have become so adept at beating analysts’ quarterly earnings estimates that they are unlikely to benefit very much from doing so, according to Myles Zyblock, chief institutional strategist at RBC Capital Markets.

The CHART OF THE DAY shows the percentage of companies in the Standard & Poor’s 500 Index to surpass the average profit projection for each quarter since 1992, when Bloomberg began compiling data.

More than 70 percent of these companies have to deliver so- called positive surprises just to keep up with the trend of the past two decades, as depicted in the chart. The proportion was less than 50 percent in the early 1990s. Last quarter’s figure stood at 69.4 percent through yesterday.

The increase indicates that companies are doing a better job of making these kinds of surprises possible, Zyblock wrote yesterday in a report that featured a similar chart.

“There is a well-defined pattern in analysts’ behavior,” the Toronto-based strategist wrote. They raise estimates during quarterly reporting periods, only to reduce them between periods in response to companies’ caution.

Earnings rose 14.7 percent at S&P 500 companies in the third quarter, according to data compiled by Bloomberg through last week. During the three-month period, analysts cut their profit-growth estimates to 13.1 percent from 17.5 percent.

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