Last week, I expressed concern that the ratio of positive earnings surprises to negative surprises was not as good as it has been over the past few quarters. This week (Monday through Thursday), 108 companies within the S&P 500 have reported fourth-quarter earnings and the numbers are decidedly more bullish: 80 positive earnings surprises and 15 negative surprises (13 matched expectations). This is a positive to negative surprise ratio of 5.3:1.
Tech led the wave, accounting for a quarter of all positive surprises. Only Advanced Micro Devices (AMD) and Sanmina (SANM) missed. Financial companies accounted for nine of the positive surprises with just National City (NCC) disappointing. The Basic Materials and Healthcare sectors added seven positive surprises each.
Overall, 188 S&P 500 companies have reported fourth-quarter results. The ratio of positive to negative surprises is running at 3.3:1, which is still below what we have seen in previous quarters. Financial companies account for 11 of the 38 negative earnings misses, though the reasons for the negative surprises have been company-specific. Average growth among S&P 500 companies that have reported is running at 13.2%.
Within the broader Zacks Rank universe1, we also saw an improvement, though not as sharp as what occurred within the S&P 500. This week, through Thursday, 246 companies topped expectations and 123 missed (63 matched). The higher proportion of positive to negative surprises moved the ratio for the fourth-quarter earnings season up to 1.75:1 from 1.5:1 last week. The average growth rate is 18.1% (11.5% when outliers are excluded).
All of this raises the question as to whether there is a market cap correlation among the results? The answer appears to be yes. Here is a breakdown of the ratio of positive to negative surprises by company size:
- Market capitalization above $5 billion (large-cap): ratio of 3.1:1
- Market capitalization between $1 billion to $5 billion (mid-cap): 2.0:1
- Market capitalization less than $1 billion (small-cap): 1.1:1
Keep in mind that this data is based on a limited universe since the majority of companies have yet to report. However, if we look at the majority of third-quarter results, a similar pattern holds up: large-cap: 2.8:1, mid-cap 2.0:1 and small-cap: 1.2:1. My presumption is that this is a historic trend as opposed to one that has just recently appeared.
We will get more fourth-quarter earnings data next week with 404 companies confirmed to report. About a quarter of these are members of the S&P 500.
