We now have results in from more than 70% of the S&P 500 this quarter. It's safe to say that this earnings season has been another disappointment.
Approximately 70% of companies have delivered positive earnings surprises, which is in line with the 4-quarter average. But while earnings tend to garner most of the attention, I'm much more impressed by a company that beats on both the bottom line and the top line. That's because earnings can often be "massaged" by management to come in a penny or two ahead of consensus. But revenue is generally much less susceptible (although certainly not immune) to manipulation.
As you might expect, revenue beats have been much harder to come by this earnings season. So far in Q2, only half of companies have beaten expectations on the top line. That's below the 4-quarter average of 55%.
Growth rates have been dismal too. Earnings are down 2.5% from the same quarter last year, and revenues are down more than 4%. Is it any wonder why the stock market hasn't done much so far this year?
The Triple Play
While positive revenue and earnings surprises are great to see, if management guidance is weak and/or if analysts revise their earnings estimates lower, a stock can still get punished. That has been the case for many stocks this earnings season.
Overall, estimates for the third quarter have steadily declined for the S&P 500. Based on current estimates, analysts are projecting earnings to decline more than 4% in Q3.
Earnings and revenue beats simply are not enough. The true winners from earnings season are those who can deliver the coveted "Triple Play":
- a positive earnings surprise,
- a positive revenue surprise, and
- significant positive earnings estimate revisions.
And as the well-documented "post-earnings announcement drift" shows, these blow-out quarters are often handsomely rewarded by the market for several weeks after a company reports.
5 Triple Plays
So which companies have delivered the coveted "Triple Play" this earnings season? I ran a screen in Research Wizard, and here are 5 of the top companies from the list:
EPS Surprise: 227%
Revenue Surprise: 4%
4-Week Change in 2015 Consensus: 224%
4-Week Change in 2016 Consensus: 68%
Expectations were sky-high for Amazon as the stock was soaring heading into its second-quarter report on July 23. But the company still managed to crush it. This prompted analysts to revise their estimates significantly higher for both 2015 and 2016, sending it to a Zacks Rank #1 (Strong Buy).
EPS Surprise: 57%
Revenue Surprise: 11%
4-Week Change in 2015 Consensus: 9%
4-Week Change in 2016 Consensus: 12%
A stock that has soared more than 130% year-to-date couldn't possibly impress anymore, right? Not if that stock is Skechers, apparently. The company blew past consensus estimates on both sales and EPS on July 29, sending the stock even higher. It also helped send earnings estimates significantly higher for both this year and next year. It is a Zacks Rank #1 (Strong Buy) stock.
EPS Surprise: 20%
Revenue Surprise: 3%
4-Week Change in 2015 Consensus: 20%
4-Week Change in 2016 Consensus: 10%
Infinera is another stock that has been on an absolute tear in 2015. The company still managed to impress when it delivered a top- and bottom-line beat on July 22. This prompted analysts to revise their estimates higher for both 2015 and 2016, sending the stock to a Zacks Rank #2 (Buy).
Pandora Media (NYSE:P)
EPS Surprise: 27%
Revenue Surprise: 1%
4-Week Change in 2015 Consensus: 11%
4-Week Change in 2016 Consensus: 41%
I'm still somewhat amazed that a company that went public as recently as 2011 has a single letter for its ticker symbol. Investors were amazed by this Internet radio service's second-quarter results on July 23. The company beat consensus estimates on both revenue and earnings and raised its full-year revenue guidance. This prompted analysts to raise their earnings estimates too, sending the stock to a Zacks Rank #2 (Buy).
Flotek Industries (NYSE:FTK)
EPS Surprise: 50%
Revenue Surprise: 27%
4-Week Change in 2015 Consensus: 208%
4-Week Change in 2016 Consensus: 69%
Shares of Flotek popped a remarkable 38% on July 23 after beating Q2 expectations. Earnings estimates have surged following the report too, sending the stock to a Zacks Rank #2 (Buy). Flotek develops and distributes specialty chemicals and down-hole drilling and production equipment. It also manages automated bulk material handling, loading and blending facilities. Flotek serves companies in the oilfield service industry.
The Bottom Line
Second-quarter earnings season may be a disappointment overall, but not for these five companies. Each delivered the coveted "triple play" and are well-positioned to run higher over the coming weeks.