Zacks Earnings Trends Highlights: Oracle, FedEx and Walgreen

Jul 08, 2013, 09:30 ET from Zacks Investment Research, Inc.

CHICAGO, July 8, 2013 /PRNewswire/ -- "Zacks Director of Research, Sheraz Mian, says hopefully the Q2 earnings season will provide enough of a distraction to not let the Fed become a full-time fixation for the market."


Will Earnings Growth Bottom in Q2?

The June jobs report has put the spotlight back on the Fed and what it will do to the QE program in the coming months. But hopefully the Q2 earnings season will provide enough of a distraction to not let the Fed become a full-time fixation for the market.

Given how low expectations have come down over the last few months, the Q2 reporting season may not carry many surprises. In fact, it may be reasonable to expect this earnings season to be no different from what we have become accustomed to seeing over the last few quarters. But two aspects of this coming earnings season need paying special attention to – revenues and guidance.

Management teams are typically very good at under-promising and over-delivering. That's why roughly two-thirds of the companies end up beating earnings expectations. But an unusually big proportion of the companies came short of revenue expectations in the previous quarter. The situation has not been much different from the 23 S&P 500 companies that have reported results already, which includes companies like Oracle (Nasdaq: ORCL-Free Report), FedEx (NYSE: FDX-Free Report), Walgreen (NYSE: WAG-Free Report) and others. As such, more than earnings surprises, it will be interesting to keep an eye on revenue surprises.

But even more significant than growth rates and surprises will be guidance. Guidance is always important, but it has assumed even more significance this time around given the elevated expectations for the second half of the year, as the chart below shows.

We may not see much earnings growth in the first half of 2013, but consensus expectations are for a material growth ramp up in the back half of the year – from +2.7% in the first half to +9.2% in the second half.

Importantly, the growth expectations for the second half of the year are not due to easy comparisons – the level of total earnings expected in 2013 Q3 and Q4 represent new all-time high quarterly records, as shown by the chart below of total bottom-up consensus earnings estimates.

My sense is that estimates need to come down in a big way. The market hasn't cared much in the recent past about negative revisions as aggregate earnings estimates have been coming down for over a year now. But if we are entering a post-QE world, as I believe we are, then it will likely be difficult to overlook negative earnings estimate revisions going forward. How the market responds to negative guidance over and the resulting negative revisions will tell us a lot about what to expect going forward.

Want stock picks from Zacks Equity Research that are based on earnings estimates? Subscribe to the free "Profit from the Pros" newsletter: Click here

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous analyst coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Click here to subscribe to this free newsletter today.

About Zacks is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros.  In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros.

Get the full Report on ORCL - FREE

Get the full Report on FDX - FREE

Get the full Report on WAG - FREE

Follow us on Twitter:

Join us on Facebook:

Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.

Media Contact
Zacks Investment Research
800-767-3771 ext. 9339 provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer.

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit for information about the performance numbers displayed in this press release.

SOURCE Zacks Investment Research, Inc.