Earnings season has died down quite a bit from a few weeks ago, but our rolling averages on beat rates and guidance are still moving of course. You can think of earnings and revenue beat rates as a “present situation” reading. The rolling 3-month EPS beat rate shows the percentage of companies that have beaten consensus analyst earnings estimates over the last three months. The rolling 3-month sales beat rate shows the percentage that have beaten revenue estimates. (These charts are updated daily in the Tools section of our website for Premium and Institutional members.)
As shown below, both EPS and revenue beat rates continue to trend lower after reaching extremely elevated levels last summer. At this point the sales beat rate is just barely above its long-term average.
If beat rates represent the “present situation,” then our guidance spread is an “expectations” reading. The guidance spread represents the difference between the percentage of companies raising guidance and lowering guidance on a rolling 3-month basis. And while beat rates have been trending lower recently, our guidance spread has been trending higher back up to the historical average.
As shown below, companies started to get much more optimistic about their futures in late 2017 right around the time that the GOP tax reform legislation was passing Congress. From late 2017 through mid-2018, our guidance spread was at the top end of its historical range. Then it began to crater in July and August, and it fell deeply into the red in early 2019. It finally bottomed out towards the end of Q1, however, and it has been trending higher ever since to the point where it’s now just a notch below its historical average, which is slightly negative at -2.97%. While the current reading is still negative, it’s on the right track.
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