This page has been archived and commenting is disabled.
Number Of Companies Beating Revenue Estimates Hits Lowest Level In Two Years
Last Wednesday, some ostensibly serious people talked with some openly unserious people about “obsessive” corporate buybacks when Moody’s head of leveraged finance Christina Padgett, told CNBC that her “concern would be—if you think about how a company should position itself for further growth, you want to think of them as taking the cash they do have and using it to invest in something that generates growth.”
By “growth,” Padgett was of course not talking about artificially growing EPS or growing executives’ stock price-linked compensation, but rather about growing productive capacity via capex (a term which is now a four letter word in more ways than one). Why would you not want to spend on productive capacity if you’re a company? Well it’s pretty simple: in the short-term, buybacks are a great way of driving up stock prices and making the bottom line look better than it otherwise would (and EPS beats are a great way of securing further stock price gains).
If you don’t believe us, just ask Barclays who, in a hilarious note from last month, spent 12 pages explaining that after extensive research, analysts had discovered that buying back shares is more effective at boosting stock prices in the short-run than is capex spending. Here’s more:
We find that the stocks of companies that invest in capital expenditures perform worse than the stocks of companies that repurchase their shares. In summary, capex is higher than ever, but it is not rewarding shareholders…
We created factors that rank companies based on their relative spending on capex, dividends, and share repurchases. Overall, these factors show us that the stocks of companies that invested a large portion of cash flow in capital expenditures performed significantly worse than companies that instead returned capital to shareholders through buybacks.
So what you’re saying is that buying billions of dollars worth of shares is better for stock prices in the short-run than investing in future productivity? You don’t say. Of course the contention that “capex is higher than ever” is slightly misleading because while it may be at its highest level on record in absolute terms, a look at the following charts pretty clearly indicates that buybacks have the momentum.
In any event, buybacks may be very effective at propping up stock prices and inflating EPS but what they can’t do is drive top line growth, which is why were not at all surprised to read the following from FactSet:
Overall, 201 companies in the S&P 500 have reported earnings and revenues to date for the first quarter. On the earnings side, 73% of the companies have reported actual EPS above the mean EPS estimate and 27% of the companies have reported actual EPS below the mean EPS estimate. The percentage of companies reporting
EPS above the mean EPS estimate is equal to the 5-year (73%) average.
However, on the revenue side, 47% of the companies have reported actual sales above the mean sales estimate and 53% of companies have reported actual sales below the mean sales estimate. The percentage of companies reporting sales above estimates is below the 5-year average (58%).
In fact, if 47% is the final percentage for the quarter, it will mark the lowest percentage of companies reporting sales above estimates since Q1 2013 (also 47%). Since Q3 2008, the percentage of companies reporting sales above estimates has finished below 50% only 6 times.
Due in part to more companies missing sales estimates than beating sales estimates, the blended sales decline is larger today (-3.5%) compared to the start of the quarter (-2.6%).
There you have it. The picture of corporate health: the lowest percentage of companies reporting top line beats in two years.
The punchline is that the "record" amount of capex Barclays refers to has been overwhelming driven by one sector. We'll leave it to readers to assess the following graph and determine for themselves how likely that trend is to continue:
»
- 10266 reads
- Printer-friendly version
- Send to friend
- advertisements -
What does that have to do with the price of a stock.
BULLISH!
If earnings are down and less people are buying your product or service then how is investing in CAPEX going to help your earnings.
It's easier to buy back stocks to pump up the bonuses and take a wait and see approach to CAPEX. If the economy turns around and productivity increases you can always print some more worthless stocks and dump them on an unsuspecting investing public to fuel your growth.
Take a look at HGG and SHLD. That's HH Gregg and Sears. Both of those companies have had negative EPS for over two years now! How in the hell do they stay in business losing that much money?!?!?!
-Matt
http://www.mrdryout.com
Remember, the estimates are non-GAAP numbers and will be shiny right to bankruptcy......
Somehow a polished turd can maintain its sheen right up till the end.
I wonder how Herbalife is doing?
It's even worse if you look at price to book value
Someone just laughed when I brought it up. ie AXP 4 x...just one
Here is a nice companion piece to the company earnings...Thought I’d put together some charts showing equities vs. economic reality. The divergence and recovery meme is likely worth a chuckle.
http://econimica.blogspot.com/2015/04/stocks-or-economydoes-either-represent.html
Nothing matters anymore. Minnesota declares a state of emergency over Avian Flu (bird flu) and it's hardly mentioned. Let alone any market reaction. Oh wait, maybe that why we've been up since it was declared.
Reality must be avoided since you don't want the sheep to start worrying....
By the time the fed is done every american company will have one employee sitting in a small room taking loans at -10% and executing buybacks.
"Every juggler drops a chainsaw once in a while."
--MSNBC newsroom
The days when earns mattered is long gone. Plus, if they were to have a negitive effect then they would just revise them to better suit the situation.
We live in a world devoid of truth.
That may hurt feelings and disapoint someone somewhere, can't have that. Now here's your trophy!
Oligarchy/Plutocracy 2016! 2+2=5.
IGNORANCE IS STRENGTH...or Lies are truth!
Common core all the way down.....
Janet can always fall back onto Operation Twist.
http://www.google.com/url?q=http://www.cato.org/cato-journal/springsumme...
http://m.youtube.com/watch?v=oADWnr144mw
Bloomie had an interview with Alice Rivlin where she says the Fed COULD cause asset bubbles.
Not HAVE created an asset bubble.
So she is either clueless or a fibber.
Worst since Lehman
I need not spend a dime on productive capacity because I've turned every one of you into mushrooms.
I keep you in the dark, I feed you lots of shit, you only want more...
When they start having losses instead of earnings, then they will be 'better than expected' because all the analcysts will have done before the reporting season is lower the bar to stroll across
Every thing in this article is true. And irrelevant. In a time of ZIRP, NIRP and global easing, all feeding HFT algos-- things which have never happened before -- market action no longer is related to company performance.
Deal.
I really DON'T CARE how they compare to "estimates." That means NOTHING!
pure greed
At this overcapacity point in time, capex is nothing but mostly non-recoverable capital consumption in the form of unneeded plants & equipment.
So, what do they do with the spoils but consume the excess themselves?
Spoils, of course, from the financialization of the company which now produces nothing desirable/valuable other than 'high-quality' debt.
Stock buy-backs the elephant in the room......works until it doesn't
French DIY Retailer Leroy Merlin To Increase Store Openings in Russia As Revenue Increased 30% in 2014
Globalism Gets Lift As Boeing’s Plant in Russia Gets Tour From U.S. Ambassador Tefft